Humana Case Study I. Current Situation A. Current Performance: Despite the expenses the company incurred due to Hurricane Katrina, Humana, Inc. boasted of $2.90 in diluted earnings per common share (EPS) and consolidated revenues of $21.42 billion for the end of the year 2006. This is certainly a big improvement, 62% and 49%, respectively, compared to the previous year (2005) with only an EPS of $1.79 and consolidated revenues of $14.42 billion. The company’s goal for the end of 2007 is an increase in EPS of between 38-45% ($4.00 to $4.20).
Humana, Inc. attributes this progress to the marked increase in client and customer enrollment in Medicare Advantage plans and the profits generated from stand-alone Prescription Drug Plans (PDPs) for Medicare beneficiaries. II. External Environment (Opportunities and Threats) A. General Environment: Due to inflation, the premium paid by companies for the medical insurance of their employees increase by approximately 12% per month. With this comes the threat of the companies not being able to handle the premium and then having to pass off the difference to the employees themselves. If Humana, Inc.
is not able to find other ways to generate income and is forced to increase their premium, then they would lose a lot of clients and customers who can no longer afford the double-digit premium. B/C. Industry Environment and Summary of External Forces: The HMO industry is still thriving with its ability to reach all types of industries as clients due to their plan differentiations and the industry’s capability to evolve gracefully. Because of this, competition is tough as companies strive to inject more features and services to their plans in order to make them more appealing than other competitors and preferred provider organization (PPO), which remain threats due to increased premiums.
Humana’s direct competitors are fellow national HMOs AETNA, Inc. , CIGNA and UnitedHealth Group. III. Internal Environment (Strengths and Weaknesses) A. Corporate Culture: The company is divided into five business units: Humana Military, Humana Dental, Humana One, Humana Ventures, and Humana Medicare. Seeing a grim forecast of the industry, Humana, with the help of its 4,800 employees, conducted a breakthrough study on consumer-directed health plans in 2001.
Consumerism is now the company’s main strategy and they pride themselves in being a “thought leader” by developing it and making a success out of it. B. Organizational Activities Analysis: Humana has developed a four-year creative marketing campaign by becoming the “Official Health Benefits Company of the PGA TOUR and Champions Tour. ” This will guarantee the company a lot of media exposure, as well as credible sports celebrity endorsers. Aside from this, Humana also maintains a call center for sales and marketing. C. Core Competencies: The firm’s pride lies in its openness to experimentation through comprehensive market research.
Because they were not afraid to innovate, Humana became pioneers of “Consumerism, ” which made their company a success—turning it from regional into a national HMO. D. Summary of Internal Factors: Humana has become a major player in the HMO industry with its consumer-directed approach. This has driven them to succeed and expand. Key to their continued success is the maintenance of the quality of the services they offer and the preservation of their consumer-directed approach. IV. Analysis of Strategic Factors: Humana’s strengths lie on their consumer-directed approach which makes them keep up with the changing needs of consumers and their recent breakthrough marketing partnership with the PGA Tour.
However, the operation of their call center for telemarketing might be a future liability and a possible weakness since telemarketing has a widely negative population and the cost for operating a call center is huge. The company should take full advantage of the opportunity of further widening their market share through the media exposure the PGA Tour brings. Threats that the company should foresee are possible takeovers by major competitors and the way these competitors can more effectively apply consumerism. V.
Identification of Strategic Issues: How to improve, at the least maintain the company’s market position? How to preserve their trend of yearly and quarterly increasing their revenues and EPS? How to successfully adapt to the consumers’ changing wants and needs? How to top their PGA Tour marketing campaign when it is over? VI. Strategic Alternatives and Recommendations: With this increase in revenues and higher enrollments of clients, Humana, Inc. should find ways to maintain the quality of the products and services they offer for a deterioration would mean disappointing its members and customers.
This could lead to bad publicity through word of mouth and the company can lose a lot of business and future clients. To maintain the company’s continued improvement, Humana should reinforce their consumer-directed approach and their effective marketing campaigns. However, the company should not rely solely on this. It is recommended that they not become complacent with their “Consumerism” strategy. They should always foresee the future of the HMO industry and develop new strategies or apply existing ones.
They should also expand more slowly and steadily so as not to risk financial troubles. VII. Evaluation and Control: Humana provides a three-year study of consumerism, press releases, and a lot of papers regarding the research they have done on their web site. Because of this, the company’s effective ability to evaluate and control the success of its strategies cannot be denied. With their employees serving as their diverse sample groups, Humana can certainly achieve a working strategy, as they have already done, that they can control and evaluate successfully.