External analysis for WellPoint Inc.

Introduction

WellPoint Incorporated or simply WellPoint (WLP) masters in the provision of health care and benefits to the number of its customers. Among all the health care and benefits companies in United States, WellPoint is by far the largest company operating in the domestic markets and serves over 30 million members who are affiliated to their health and wellness plans. WellPoint works on a motto that has three parts: to understand, to apply and to improve, that is the key to its success in the markets (Annual Report, 2010).Its subsidiaries along with the parent company serve around 70 million individual customers on the various health benefits plans. It is distinctly positioned in the market as compared to its competition and strives to bring the changes in the health benefits and care systems by improving the system for everyone. Blue Cross and Blue Shield Association (BCBSA) have given independent license to WellPoint to operate in the health care industry. BCBSA is an amalgamation of various health insurance organizations containing 39 members from the United States. BCBSA collectively, by the direct or indirect means, provides health insurance to more than 100 million people in America (Blue Cross and Blue Shield Association, 2011). WellPoint Inc. currently holds 31st position in the Fortune 1000 companies list (one source, 2011).

SWOT Analysis SWOT Matrix

Strengths y y y Market leadership Portfolio Geographic presence y y y

Weaknesses Substantial debt Health Reform scandal Code of conduct

Opportunities y y y Uninsured population expansion Mergers and acquisitions y y y

Threats regulations competition litigation

Strengths WellPoint is a market leader for maintaining its unique position in the eyes of its customers. It is distinctly positioned in the market as compared to its competition and strives to bring the changes in the health benefits and care systems by improving the system for everyone. The company holds second position for maintaining 28.74 billion market capital, with UnitedHealth Group Inc. at number one securing 57.02 billion market capital respectively (NYSE:WLP, 2011). WellPoint offers diverse range of products and services portfolio to their customers by offering innovation and giving them choices and control over the selection of the health care products and health care decisions (WellPoint, 2011). Weaknesses According to the market analytics, WellPoint has currently 19.64% debt to its assets (NYSE:WLP, 2011).By the end of 2010, the companys filling in the US Securities Exchange Commission (USSEC) suggested that WellPoint has outstanding indebtedness of about 9 billion

US dollars and its borrowing capacity is about 2 billion US dollars which will expire by the end of year 2013 (USSEC, 2010). The WellPoint Inc. is required to use its liquid assets to pay off some of its obligations instead of using the cash on other corporate activates like expansions etc. This indebtedness if unpaid could adversely affect their business activities and their ability to pursue future business opportunities. WellPoint has been involved in the various controversies from last few years. Back in 2010, the companys subsidiary kicked out the women with breast cancer for cancelling their policies right after these women were diagnosed to have breast cancer. Such code of conduct was highly disliked by the general public which badly affected the public image of the company (Noah, 2010). Opportunities Despite of these weaknesses, WellPoint have number of opportunities available to pursue to pay off some of its debts and achieve its lost public image again. One of these opportunities includes mergers and acquisitions. The history of WellPoint directs towards the notion that it have built significant amount of its business and operations via mergers and acquisitions (USSEC, 2010) of other firms and related businesses. It is highly suggested to the WellPoint to pursue such business activities in the future. These mergers and acquisitions will allow WellPoint to expand its business operations in the other regions of the country and around the globe to have better control over its counterparts and the markets. The recent studies by the government of United States launched a report on the list of people who are uninsured due to low levels of income, age, parental status, ethnicity, citizenship, work status, and by the size of the firm. The results of the studies stated that there exists large

number of peoples in these groups that are uninsured: uninsured by income: 28%, uninsured by age: 22% falls in the age range of 25-39, uninsured by the parental status includes: 57% childless parents, uninsured by ethnicity: 79% white people, uninsured by working status: 46% and uninsured by firm size involves 26% people working in the firm <10 size (ASPE, 2005).

Threats WellPoint faces number of external risks or threats that can have impact on their business operations. Among them is the stiff competition in the markets. The level of competition among the existing competitors in the industry is very stiff. In the health insurance industry, the customer demands are associated with the increasing costs of medical options available to them. The market success and profitability of the firms operating in the industry is dependent on their operations and their ability to obtain favorable contracts with the medical and health care personnel (Hoovers, 2011). Moreover, it may in future face legal actions like discrimination suits, employment related law suits etc. that can affect its business operations. These legal actions may also include the claims relating to the health care benefits, insurance policies, medical policies etc. The government policies, rules and regulations are subject to change. These changed policies can increase the threat of litigation to WellPoint in future unless it takes reasonable steps to save itself (USSEC, 2010).

PESTEL Analysis Political

The federal law prohibits companies to make contributions in the political activities and federal candidates; WellPoint makes contributions to the parties where it has liberty to make corporate contributions. The WellPAC has arranged more than $ 1 million in the year 2010 to contribute all of it to the political parties and candidates, whether federal or not. Out of which, nearly 75% was paid to the Republican Partythat basically opposes the health care reform (Center for Responsive Politics, 2010). As of 2010, WellPoint spent over 5 million dollars in the lobbying activities to obtain the favorable remarks from the legislators (WellPAC, 2010). Economic The economic conditions of a country play an important role on determining the success and failure of a company. Since, most of the functions of WellPoint are directed in the domestic markets of United States, so its likelihood of getting hit by the economic changes and governmental ruling is high. The downfall in the economy of United States has adversely affected large number of organizations operating in United States and increased the opportunity costs associated with their business segments and operations. As of 2008, WellPoint had generated very little revenue due to the skyrocketing high costs, disappointing and worsening economic conditions of the country. This profit cut was not limited to WellPoint only; its counterparts were also the recipients of the same. The news reported that Aetna Inc., UnitedHealth Group Inc. and Humana Inc. faced serious decline of 10 percent, nine percent and 11 percent in their profits (Financial Wire, 2008). The US national economy is in a continuous state of downturn followed by high rate of unemployment and increasing costs. Most of the business operations of WellPoint are directed in the US states including California, Colorado, Connecticut, Georgia, Indiana, Kentucky,

Maine, Missouri, Nevada, New Hampshire, New York, Ohio,Virginia and Wisconsin. If such conditions continued to prevail, WellPoint will likely to suffer from the huge losses and reduction in the current business units (USSEC, 2010). Social WellPoint Inc. is one of the market leaders for maintaining its diverse portfolio in the domestic markets. It has committed itself to improve the lives of the people and their health by understanding their needs and applying the health care standards to improve their living standards. WellPoint has employed over 30,000 associates that are working hard to meet the needs and requirements of their customer base and help them obtain the best health care value (Annual Report, 2010).

WellPoint Inc. has developed its specialized foundation called the WellPoint Foundation. WellPoint Foundation aims to promote the companys commitment to provide health care and related benefits to the individuals and the families in the vicinity of its operations. Its been ten years to the establishment of this foundation. The WellPoint Foundation and its affiliated parties have so far given over 120 million dollars grants to the local and national communities (WellPoint, 2011).

Technological The technological advancement is vital to the success of a company in todays competitive environment where large numbers of counterparts are ready to snatch the market share of a company. The business operations and processes are significantly dependent on the latest information technology systems. The WellPoint is using different IT systems of different

business units. In order to remain in the competition and meeting the requirements of the ever changing market needs, WellPoint is in a process of maintaining and enhancing its existing information systems. The failure to upgrade or enhance the existing or new IT systems can impose significant impact on their business operations and the revenuesin the form of declining memberships, failure to provide health solutions, pricing related issues, disputes with the customers etc. (USSEC, 2010).WellPoint is currently employing HP and Intels latest technologies that have helped the company to save large amount of money from their operations with the help of these systems (Intel Org, 2007).

Environmental WellPoint Inc. is striving to minimize the impact of its operations on the environment by engaging in the activities that are less or little dangerous for the environmental safety. In this pursuance, with the help of its large number of associates, employees, participants in its projects, and community related foundations, WellPoint has started various programs to minimize its impact on the environment. GOING GREEN is a part of their initiative to environmental safety. This program includes recycling the paper, batteries, plastic material, electronics, and more. Moreover, WellPoint has launched two more offices that support the GOING GREEN initiative of the company by limiting the excess use of paper and energy in their business units. WellPoint is affirmative that these programs collectively will save huge amount of money annually and will help them save over 10 million pounds of greenhouse gases and thousands of trees (WellPoint Annual Report, 2010). Legal

WellPoint and its subsidiaries are subject to various legal proceedings currently in pipeline. Some of the legal proceedings include: Individual Lawsuits, purported class action suits alleged for the improper cancellations of policies etc. for which the final verdict was made and WellPoint had to pay huge sum of fine in 2010 and no appeals were made against the verdict (USSEC, 2010). A report was issued in Reuters that claimed that one of WellPoints subsidiaries is using improper policies and kicking out the women with breast cancer out of their lists. According to Reuters WellPoint is using a computer algorithm; identified women recently diagnosed with breast cancer and then singled them out for cancellation of their policies (Scarp, 2010; Raynolds staff, 2010).This story set a fire in the general public and has hurt the companys social image to many folds (Noah, 2010).

Porters Five Forces Analysis Porters Five Forces Analysis helps the managers to understand the market position and the effectiveness of business strategies of a firm with reference to five micro and macro level environments (Porter, 2008). These five forces include Competition, New Entrants, and BuyersPower, Suppliers Power and Substitute Products and/or services respectively. The Five Forces Analysis for WellPoint Inc. is as follows: Rivalry among established competitions The level of competition among the existing competitors in the industry is very stiff. The main competitors of WellPoint Inc. are Aetna Inc., CIGNA Corporation and UnitedHealth Group Incorporation (Hoovers, 2011). In the health insurance industry, the customer demands are associated with the increasing costs of medical options available to them. The market success

and profitability of the firms operating in the industry is dependent on their operations and their ability to obtain favorable contracts with the medical and health care personnel(Hoovers, 2011). Bargaining power of suppliers The bargaining power of suppliers is derived by their power to demand the prices of their own choice. The suppliers power in the insurance industry is not a big threat to the companies operating in it. But the threat suppliers taking away human capital does exist in the industry. This industry is entirely based on the human capital. If a talented person is working in the small company or in a company that maintains its niche in the market, then there likely to be the case of snatching that human capital by the large companies from those small companies.

The bargaining power of buyers The individual buyers do not have much power to influence the insurance industry at large. The large corporate clients and other related businesses pay large sums of money as health insurance premium to these companies. These market players in the insurance industry long to get high margin corporate clients.

The threat of substitute products or services The threat of substitutes is very high in the insurance industry as there are plenty of substitutes available in the market. Many of the firms offer the services that are similar to that of large companies. There exists high level of competition on all the grounds whether it is auto insurance or health insurance. There are companies operating in the markets that offers unique products and services to their customers and have competitive advantage over their counterparts which depends on the size of their business segments.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players.

Recommendations This study provided brief overview on the external environment analysis of WellPoint Inc. The findings of the study suggested that WellPoint should focus on the following factors in order to excel its business and social image in the world: 1. WellPoint can be engaged in the activities like Mergers and acquisitions to expand its business operations to the range of customers in a cost effective way (low cost of expansion). 2. Using its resources to tap the un-tap markets where the numbers of people are uninsured can help WellPoint to boost its revenues. 3. It can use its liquid assets and the sale of some of its business units to pay off some of its debt obligations. 4. Market the community related services in order to obtain positive reviews from the general public.

References ASPE (2005) Overview of the Uninsured in the United States: An analysis of the 2005 Current Population Survey, retrieved on July 8, 2011 from http://aspe.hhs.gov/health/reports/05/uninsured-cps/index.htm Blue Cross and Blue Shield Association (2011) About Us, retrieved on July 8, 2011 from http://www.bcbs.com/about/ Center for Responsive Politics (2010) WellPoint Inc., retrieved on July 8, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00197228&cycle=2010 Financial Wire (2008) WellPoint Cuts 2008 Profit Outlook Due To High Costs, Worsening Economic Conditions, retrieved on July 8, 2011 from http://www.tmcnet.com/usubmit/2008/03/12/3322436.htm Hoovers (2011) Competitive Landscape, retrieved on July 8, 2011 from http://www.hoovers.com/company/WellPoint_Inc/cysxji-1-1njea3.html Intel Org (2007) WellPoint Story, retrieved on July 8, 2011 from http://www.intel.org/references/pdfs/Wellpointfinalstory.pdf Noah, T., (2010) Obama vs. WellPoint: How the insurance giant's bad behavior advances health reform, retrieved on July 8, 2011 from http://www.slate.com/id/2253577/

NYSE:WLP (2011) WellPoint Inc., retrieved on July 8, 2011 from http://www.google.com/finance?q=NYSE%3AWLP One Source (2011) Fortune 1000 companies list, retrieved on July 8, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) WellPoint Inc., retrieved on July 8, 2011 from http://www.onesource.com/free/WellPoint-Inc/Company/Profile/318911 Porter, M. E., (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, p.86-104, retrieved on July 8, 2011 from http://hbr.org/2008/01/the-five-competitiveforces-that-shape-strategy/ar/1 Raynolds Staff (2010) Reuters and Milwaukee Journal Sentinel receive 2010 Barlett & Steele Awards, retrieved on July 8, 2011 from http://businessjournalism.org/2010/10/04/reuters-andmilwaukee-journal-sentinel-receive-2010-barlett-steele-awards/ Scarp, M., (2010) Reuters, Milwaukee J-S win 10 Barlett & Steele Awards, retrieved on July 8, 2011 from http://sabew.org/2010/10/reuters-milwaukee-j-s-win-11-barlett-steele-awards/ USSEC (2004) WellPoint Inc., Form 10-k, retrieved on July 8, 2011 from http://www.getfilings.com/o0001047469-04-007997.html (2010) Legal Proceedings, Form 10-k, retrieved on July 8, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9NDEyMDQxfENoaWxkSUQ9NDM0Mjg2f FR5cGU9MQ==&t=1 (2010) Mission Statement, Form 10-k, retrieved on July 8, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9NDEyMDQxfENoaWxkSUQ9NDM0Mjg2f FR5cGU9MQ==&t=1

WellPAC (2010) Lobbying Activities, retrieved on July 8, 2011 from http://www.wellpoint.com/prodcontrib/groups/wellpoint/@wp_about_government/documents/wl p_assets/pw_e168961.pdf WellPoint Annual Report (2010) Going Green, retrieved on July 8, 2011 from http://media.corporate-ir.net/media_files/irol/13/130104/WellPoint_2010_AR.pdf, p. 27 WellPoint (2010) Summary of Annual Report, retrieved on July 8, 2011 from http://media.corporate-ir.net/media_files/irol/13/130104/WellPoint_2010_AR.pdf

(2011) Charitable Foundations, retrieved on July 8, 2011 from http://www.wellpoint.com/CR/CharitableFoundations/index.htm (2011) Corporate Responsibility, retrieved on July 8, 2011 from http://www.wellpoint.com/CR/index.htm (2011) Political Contributions, retrieved on July 8, 2011 from http://www.wellpoint.com/AboutWellPoint/GovernmentRelations/PoliticalContributions/ index.htm (2011) Products and Services, retrieved on July 8, 2011 from http://www.wellpoint.com/AboutWellPoint/ProductsServices/index.htm Williams, C. J., (2009) Group alleges illegal actions by two giant health insurers, retrieved on July 8, 2011 from http://articles.latimes.com/2009/sep/03/business/fi-insurers-reform3