INSTRUCTIONS: Please RESPOND to this answer from the Point of view as a student. Use credible sources and respond as if you are a manager of a marketing agency. Tell this student what your marketing agency would think of each of these answers from a Management perspective:
One of the key factors to developing and executing strategy is a strong understanding of the external environment because “it is the external environment that provides the business opportunities for the firm” (Carpenter & Sanders, 2016, p. 95). When the Obama Administration introduced the Affordable Care Act (ACA), the Healthcare industry underwent huge changes. With those changes brought opportunities to those companies who were ready and paying attention to the external environment. The ACA rolled out the Marketplace Exchange, which provides healthcare coverage opportunities to those Americans who do not have coverage through their employer, or those who do not qualify for coverage under Medicare, Medicaid, or CHIP. While this change gave Americans more options for healthcare coverage, it also provided healthcare companies an opportunity to enter a new business market. According to the text, “the external environment in which firms compete exerts strong influence on firm’s profitability” (Carpenter & Sanders, 2016, p. 95). This statement applies well to the influence ACA had on Molina Healthcare (and many other competitors). Historically, Molina has only offered healthcare coverage to the Medicare and Medicaid business markets. Medicare makes up approximately 1% of the company’s total membership, while Medicaid is approximately 85% of total membership. The creation of Marketplace Exchange provided Molina an opportunity to expand and grow into a new business and acquire new membership. As of today, the Marketplace business accounts for 13.25% of the total membership (approximately 500,000 members), and that number is projected to double after open enrollment for 2017 ends in January (~1M members). External factors have greatly impacted Molina, and the company has aggressively seized the opportunity to adapt and leverage those changes in the environment. Molina’s strategy has transformed due to the changes in the external environment; further reinforcing the important influence that environmental change (competitor, market, and/or industry) has on company strategy and performance.
A firm’s first step in analyzing external context is identifying the industry in which their firm competes. Although this sounds like a no-brainer, I think firms often make the mistake of thinking their product(s) or services can compete in a given industry. For example, the text provides us with the story of when Coca-Cola failed in the wine industry; Coke made the mistake of entering into an industry that they were ill-equipped, not ready, and not designed to compete in. In order to better understand external context of a firm’s industry, managers should focus on the following:
– Identifying which Macro environmental conditions that will have a material effect on the firm’s ability to implement a successful strategy
– Defining the firm’s industry
– Detect characteristics and stability of the industry
Since industries evolve and change often, I think it is important that managers are aware of the external context of the industry’s macro and micro environments. The text defines macro environment as “the larger political, economic, social, technical, environment, and legal issues that confront the firm” (Carpenter & Sanders, 2008, p. 97). The best way to examine these aspects of the micro environment is through PESTEL analysis. PESTEL analysis “helps managers gain a better understanding of the opportunities and threats they face and consequently aids them in building a better vision of the future business landscape and how the firm might compete profitably” (Carpenter & Sanders, 2008, p. 98). As we have learned throughout the program, forecasting, planning ahead, and now, developing business strategy, all impact future performance in a huge way. To better prepare, however, a firm must understand the current and potential opportunities and threats present in their industry. In order to apply this learning, I have analyzed Molina Healthcare according to the PESTEL model.
Political: “The stability of the political environment is particularly important for companies entering new markets” (Carpenter & Sanders, 2008, p. 98). In my opinion, this is one of the biggest threats the healthcare industry is currently facing. This presidential election will greatly impact current healthcare markets through potential and proposed reforms. If Clinton is to become president, there may be less of a threat, and more of an opportunity for companies like Molina Healthcare who compete in governmental program markets. However, if Trump were to become president, there may be a lot at risk to those in that market. Trump has made strong statements about his dislike of Obamacare, which includes the new Marketplace Exchange. His administration could greatly threaten Molina Healthcare’s strategy and business performance. Although I am sure leadership has already talked about the potential threats and opportunities related to politics and the outcome of this presidential election, it would be wise to determine different ways to handle those changes and align company strategy with the environmental context of the industry.
Economic: According to the text, “managers also need to consider the macroeconomic factors that will have near- and long-term effects on the success of their strategies” (i.e. inflation rates, interest rates, tariffs, the growth of the local and foreign national economies, and exchange rates) (Carpenter & Sanders, 2008, p. 98). Healthcare is an industry that is highly sensitive and concerned with rising costs. When the ACA was rolled out, the Obama Administration was motivated to affect GDP growth by reducing the supply of labor, reducing the cost of labor, and increasing the demand for health care goods and services (Deloitte, 2014). Since Molina provides healthcare coverage to members under government funded programs, there is an even stronger awareness of rising costs and an emphasis on cutting admin costs. One of the reasons behind creating the Marketplace Exchange was to reduce the amount of consumers applying and enrolling in publicly provided health insurance (i.e. Medicaid), which ultimately strains the budgets for those programs. The economic factors that threaten the industry are the potential rising healthcare costs for coverage, administrative costs, and utilization costs. If healthcare costs go up, consumers already struggling to pay for their coverage will be unable to afford insurance entirely. These economic factors greatly impact Molina, and other companies in this industry.
Sociocultural Factors: There are several factors in this area that impact the present and future performance of firms in the healthcare industry. According to the Institute of Medicine (2006), “socioeconomic differences in health are large, persistent, and widespread across different societies and for a diverse range of health outcomes” (np). There are several factors that impact the healthcare industry from a sociocultural perspective, including (but not limited to) age, demographics, income, race, gender, and behavior. The overall health of our nation impacts healthcare costs and conditions, which then roll up into and influence economic and political environments.
Technology: Advancements in technology impact the quality and cost of healthcare. There are so many opportunities for healthcare organizations to expand their technological capabilities and gain competitive advantage in the industry.
Legal: There are several legal factors that impact the way organizations operate in the healthcare industry. One of the most sensitive areas is patient health information. With the rise in recent patient information breaches, healthcare organizations are more concerned about protecting their information, educating staff, and investing in secure systems.
In terms of globalization, the PESTEL model “is a good starting point for entering into a new country or region” (Carpenter & Sanders, 2008, p. 98). As we learned throughout our last course, BUS 631, entering into global markets requires a lot of strategy and thought. A company cannot simply expand their business into foreign markets; “globalization entails much more than a company simply exporting products to another country” (Carpenter & Sanders, 2008, p. 100). The text uses Coke and Pepsi as examples of companies that globalized their products successfully. An important point to make here is that companies whose markets are similar globally are best setup to compete globally. I think companies who compete in technology and innovation markets have an advantage to go global – companies like Apple, Dell, and Google have products that sell across the globe. These companies are able to promote their brands and invest more dollars into R&D because their global markets are so large.
Bachman, Daniel. (2014). Macroeconomic implications of the Affordable Care Act. Behind the numbers. Deloitte. University Press. Accessed November 3, 2016 from, https://dupress.deloitte.com/dup-us-en/economy/behind-the-numbers/macroeconomic-implications-affordable-care-act.html
Carpenter, Mason A. and Sanders, Wm. Gerard. (2008). Strategic Management: A Dynamic Perspective. Chapter 4. Upper Saddle River, NJ. Pearson Education, Inc.
Institute of Medicine (US) Committee on Assessing Interactions Among Social, Behavioral, and Genetic Factors in Health; Hernandez LM, Blazer DG, editors. Genes, Behavior, and the Social Environment: Moving Beyond the Nature/Nurture Debate. Washington (DC): National Academies Press (US); 2006. 2, The Impact of Social and Cultural Environment on Health. Available from: https://www.ncbi.nlm.nih.gov/books/NBK19924/