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Cardinal Health

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This paper seeks to analyze the case of Cardinal Health, and particularly the distribution aspect of the business. Cardinal Health is a business that deals with health care products. For the past 15 years, Cardinal has joined the books of business as one of the largest US company that has attained growth on a per share basis exceeding 20%. This is a remarkable trend for such a company, but it is yet to be seen if Cardinal Health will be able to continue its growth considering its approach. The reason behind Cardinal Health’s growth was acquisition, and it is becoming doubtful whether this approach could sustain the growth in the coming years. There were signs that the approach the business has taken could bring about negative consequences, such as accounting practices referred to as stock crushing amongst wholesalers. The practice, done by even their own suppliers - Pfizer, was driving down Cardinal’s stock price regardless of their healthy and steady growth in earnings. Business analysts attribute a company’s growth to different factors, but the utmost two items responsible for any business growth are high performing business management techniques and appropriate financial models and principles. This paper will scrutinize Cardinal Health’s case and make recommendations on the decisions the management will have to make so as to sustain the earning per share growth (Pearce & Robinson, 2011).

Bob Walter, a top manager at Cardinal Health, believed that the topical blow-ups at main US companies had taken place due to ultra fast growth, unfocused strategies, and high debt. According to Walter, Cardinal Health had neither of the above shortcomings as it had grown gradually and had low debt of 16% of their total capital. In addition, the manager justifies the approach the business took for its growth, i.e. acquisition, by saying that the business had followed an acquisition program that never strayed from selling to pharmacies, pharmaceutical makers, and hospitals. Unfortunately, Walter forgets that it takes more than the above three reasons for a company to go down. The current speed bump the company was facing maybe due to other reasons apart from the debt, pace of growth, and approach the business takes in expansion. Cardinal had survived other significant threats to its stock price like Clinton’s health care plan, and the introduction of the Internet distribution, and, therefore, Walter believes that this speed bump was just like the others (Tjia, 2004).

When it comes to using the acquisition approach to expand a business, there are some significant decisions that a business needs to make to ensure constant growth. Drug business is a business that needs to put its customers at the forefront and, therefore, Cardinal Health should change its management to customer-focused management. This management style will increase the number of satisfied customers, and this will eventually lead to an increase in profits. Acquisition approach that Cardinal Health has taken requires teamwork and collaboration in order to overcome the current speed bump. Acquisition means other businesses coming together under the banner of Cardinal Health. In this situation, different businesses or companies will come up with ways management and operations, and for companies to learn to work together as one there has to be collaboration and teamwork (Hitchner, 2003).

Cardinal Health needs to avoid the practice of relying on documented and outdated protocols and seek out new ways to do business. The current business world, especially the drug industry, requires management style that is characterized by high performance, as well as establishment and cooperation of intradepartmental and cross-disciplinary teams.  The health care industry is under intense pressure to reduce its costs, yet customers demand service and functionality, and in such a case, there must be teamwork to achieve high profits. There needs to be efficient propagation of information and discussion among staff members from all corners of the business. This will be helpful in identifying possibilities for change and space for improvement from front-line operations by means of marketing. Collaboration and teamwork help in producing new ideas and the much-needed responsibility of the teams that gives the employees some sense of commitment, belonging, and potential for innovation (Soudagar & Iyer, 2012).

Staff development is another management technique that Cardinal Health can implement to overcome the current speed bump. Dedication to cross-training, staff development, and training pays off not only because it increases the performance and value of employees but also because it helps retain the organization’s best players. Health care is a growing industry with several competitors coming up and where staff movement is on the rise. To ensure its efficient services Cardinal Health will have to retain its employees, and this will only be through staff development. By making a commitment to enhance its employees, Cardinal Health boosts their community spirit and meaning. At Cardinal health, the main trainings are to reinforce the company’s brand, and this does not encompass the employees’ experience. On the other hand, cross-training is absolutely essential because it permits staff members to comprehend the tasks of different departments, increases teamwork, and leads to advanced organizational function. Efficient employees are paramount in the health care industry because unlike in other business it has no substitute goods. Under the pharmaceuticals industry, customers do not substitute their goods, and this will call for highly trained employees to manage the business (Rasiel & Friga, 2001).

Another notable high performance management technique that is advisable to Cardinal Health is leadership commitment, especially at the top management level. Senior leadership, which is comprised of the board of directors and chief executive office, needs to show confidence of the company’s leadership and readiness to change as times are changing. Cardinal Health is a business that has been around for the past 32 years, and there are high chances that the mode of leadership is a traditional one. Traditional hierarchy maybe one of the reasons for the business current financial problems, and change in the leadership commitment will bring changes. Bob Walter and other top management need to have the commitment to the company, particularly at this time of the speed bump. From the manager’s statements, he considers the current speed bump as any other obstacle that the company has faced in the earlier times, and it is only for a short while. It is easy, for a business expanding on an acquisition approach to fail to earn profits because of poor management and lack of devotion from the leaders (Burleson, 2003).

It is clear from the current slow growth of the company that the long-term future is not visible. Cardinal’s incredible growth for the past 15 years is slowing down because of some aspects the management did not implement from the start. The acquisition approach lacks leadership commitment, staff development, and teamwork and collaboration that are essential to sustain the company’s expansion. Cardinal Health plans to expand into international markets, but with the recent records of slow growth, this seems to be an impossible task. Health care is a tremendously powerful and dynamic industry with exciting prospects for future growth in the United States. Cardinal Health, being a member of this industry, has a potential for growing to greater lengths. According to records, the consumer segment spent $610 billion on health care, and out of the total expenditure, 74% went to pharmaceuticals. This means that Cardinal, being an outstanding player in the pharmaceutical industry, has lots of income. The size of Cardinal Health is also an indication of the capital, especially considering all the other businesses the company has managed to acquire. The 2006 records indicate that Cardinal Health had revenues of $81 billion, ranking number 19 on the Fortune 500. In addition, the business owned 30% of the pharmaceutical distribution business.

Such high funds in a business call for proper financial model and principles in order for the business to sustain its earnings. Cardinal Health is a business that has been in the medical care industry for a long time. During this period it has expanded to be one of the largest companies in the US. It owes its success to the best financial models, such as the deterministic financial models. The momentous question concerning Cardinal Health is whether it will sustain the expansion and growth of its earnings per share for the next years. The most recommendable financial model is one that will forecast the company’s future financial status, and in this case, deterministic financial models are proper. In this model, financial data is fed into a spreadsheet to undergo a number of computations before a result is displayed. Most financial models, such as a deterministic one, work well with businesses that have historical information, which helps in deriving the correlation between essential prognostic variables.

In Cardinal Health’s case, we will use historical accounting connections to predict key revenue and cost variables. Through this financial model, the business will be able to tell its financial standings, and also whether the current speed bump will end. The reason as to why deterministic financial models will work well for Cardinal Health Company is because it makes use of sensitivity analysis tables of one or two-dimensional type that assess the question of uncertainty and risk in the model’s outcomes. Each of the created tables allows a monetary analyst to simultaneously conduct investigation into one or two variables. The benefit of the tables is their simplicity and effortless integration into easily accessible financial models of deterministic type that are already in place.

Cardinal Health is popular for competing in four business segments, such as pharmaceutical distribution and provider, medical-surgical products and services, pharmaceuticals services and technologies, and automation and information services. The following table gives an outline of the four principal segments that Cardinal Health offer services (Jacques, 2010). 

Pharmaceuticals Distribution and service provider

Medical Products and Services

Clinical Technologies and services

Pharmaceutical Technologies and Services

Cardinal Distribution

Allegiance - Cardinal Health Company

Cardinal Health Information Companies

ALP (Automated Liquid Packaging)- Cardinal Health Company

Cardinal Health Provider Services

Cardinal Health Staffing Network

Central Pharmacy Services

Cardinal Health Consulting Services

Pyxis – Cardinal Health company

Cardinal Health Manufacturing Services

Cardinal Health Sales and Marketing Services

CORD Logistics

Medicine Shoppe International - Cardinal Health Company

Cardinal Health National PharmPak

Cardinal NSS- National Specialty Services

 

 

Vistant- Cardinal Health Company

IPC (International Processing) - Cardinal Health Company

PCI Services

R.P.Scherer- Cardinal Health Company

SP Pharmaceutical- Cardinal Health Company

In 2002, Bob Walter stated that tradition and culture of Cardinal had given it a strong foundation for its competitiveness in the pharmaceutical industry. One can not but agree with the manager that tradition and culture gives a company its foundations, but as time goes by several things change. The techniques and guidelines that may have worked for Cardinal Health in the past years may not be sufficient to manage the current competition in the health care industry. Changing the management strategies could be one way to help the company to survive its current speed bump and ensure continued expansion. In addition, the company can change its mode of expanding for instance from using the acquisition approach to concentrating on expanding its services. Having acquired most of the small businesses in the drugs industry, it is time for Cardinal to employ another approach that will improve its expansion. Health care industry comprises several other areas that Cardinal can venture into, and in turn, this will also expand the business. Currently, Cardinal Health concentrates only on four segments in the health care industry, and yet it is still growing. Diverging to other health care segments will see to its expansion and avoid the current speed bump the company is experiencing. By expanding the segments in which the company deals with Cardinal Health will also be increasing its customer base and in the end, it could capture the entire health care market. Furthermore, this will ensure that customers and suppliers do not migrate to other market niches because Cardinal will be the

Most businesses undergo slow growth, especially after an extended time of expansion. In any business, time is of the essence and with time, the field keeps changing. It is up to the management and other key players in the business to transform the business to suit the changing times and environment. From Cardinal Health’s historical information the company started out as a food company and later on it underwent a transformation. This transformation led to Cardinal being one of the largest health care products distributors, and it has grown for the past 15 years. It is time for Cardinal Health to transform itself, change its approaches of expansion, and the management techniques to those that will sustain its expansion trend. Lastly, the company needs to make use of use of proper financial models, i.e. deterministic financial models, that will be resplendent in forecasting the financial position of the business.

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