External Analysis for UnitedHealth Group Inc.

Introduction UnitedHealth Group Incorporated or simply UnitedHealth Group specializes in the diverse range of health care and offerings related to the well-being of the customers. UnitedHealth Group maintains and operates in four business segments. These segments include health benefits, optimum health, Ingenix and Prescription Solutions which are further divided in to various other segments. It is engaged in the acquisition of various small companies operating in the same industry. It has recently acquired two companies including AIM Healthcare Services Inc. and QualityMetric Incorporated in years 2009 and 2010 respectively (one source, 2011). UnitedHealth Group has large number of consumers in the domestic markets and serves them with the help of its subsidiaries and business divisions. The UnitedHealth Group Inc. claims to have over 75 million customers in the national and international markets (UnitedHealth Group, 2011). SWOT Analysis SWOT Matrix Strengths y y y Market position Diverse portfolio Financial performance Opportunities y y Business expansion Mergers and acquisitions y y y Threats Economic conditions Legal implications competition y y Weaknesses Expanses Dependence over US markets

Strengths UnitedHealth Group (UHG) is specialized in the wellness and health related insurance services. It is currently operating four businesses divisions that are further divided into various other sub divisions. The main four divisions it operates in are: health benefits, optimum health, Ingenix and Prescription Solutions. The company recently reported that it has over 75 million customers in the national and international markets (UnitedHealth Group, 2011). The American Medical Association listed Ingenix as the pioneer in electronic health records system as of 2010 (UnitedHealth Group, 2011). UnitedHealth Group claims itself as a diversified company that offers health care solutions to its customers. Its four business segments offers diverse portfolio to its large customer base nationwide that differentiates it from its counterparts. Their portfolio in turn leads to increased customer base each year. For example, by the end of 2009 it had around 70 million customers in the domestic and international markets which are now replaced by over 75 million customers (UnitedHealth Group, 2011). The UnitedHealth Group shows remarkable financial stability in the markets. Weaknesses Since 1995, UnitedHealth Group is involved in the practice of acquiring other related businesses to maintain its competitive advantage in the domestic markets over its counterparts. One of its recent acquisitions includes Health Net Inc. (HNC). UnitedHealth Group has to pay 500 million US dollars for the acquisition and the payment is to be made in the form of installments within the time span of two years (Wall Street Journal, 2009). This recent acquisition and the others in history have no doubt improved the revenues generated by the company but these acquisitions have also increased the burden of debt on UnitedHealth Group as

well as increased costs including administrative costs and cost of doing business. The company reported in the United States Securities Exchange Commissions fillings that it maintains its operations in the 15 local markets of 11 different states in United States of America. This makes it vulnerable to the changes, whether governmental or social, happening in the country. This over dependence can be much dangerous for UnitedHealth Group in future if continued to operate only in the domestic markets. Recently, UnitedHealth Group stated that it is in a process of expanding its operations in Ireland (Ashmore, 2011). This decision can have great impact on the companys market position and its profitability in the long run. Opportunities The activities like mergers and acquisitions have increased the market share of the UnitedHealth Group in the domestic markets of United States. It has currently $ 57.56 billion market capital in the national markets that makes it market leader (NYSE:UNH, 2011). These market analytics shows that the acquisitions have appeared to be the revenue generating activity for the UnitedHealth Group so far. If it continued to expand its business operations and business units like this, then it will likely to obtain promising ratio of profits and market shares. It can further engage into the geographical diversification program by expanding its business to the developing markets of Asia like China and India etc. These markets show great potential for the profitable returns to the companies operating there. Threats Despite of the fact that UnitedHealth Group Inc. is currently the market leader in the local markets, it too faces certain level of threats. One of them is the economic conditions of United States. The downfall in the US economy has touched all the levels of business and lives of people. It has severely affected the companies operating in the domestic markets and the demand

of the customers. If the US economy failed to recover from the aftershocks of recession, the UnitedHealth Group will find itself in serious trouble. The recent health care reform and other related legal implications can have profound impact on the business operations of the company. The recent Health Reform Legislation (HRL) has mandated changes on the coverage related issues. HRL has now mandated the inclusion of adult children until age 26 on the health care list. It further added the implication of rebate on the small, large and individual market players. According to Health Reform Legislation, large players will have to pay 85% while the small and individual market players will have to pay 80%, 80% rebate on their business operations and related business segments in the domestic markets (USSEC, 2010). This health Reform Legislation and other related regulations from state, or federal governments will have huge impact on the business practices of UnitedHealth Group and it can limit its revenue and growth generation on its certain products and services.

PESTEL Analysis Political UnitedHealth Group has established its political action party or PAC to facilitate its contributions in the political parties and the candidates of various parties who support its business line or shows interest in the health care business industry. As of 2010, the UnitedHealth Group has spent over 2 million dollars on the activities or lobbying in the markets to gain the favorable comments and verdict of the legislators on its side (Center for Responsive Politics, 2011). According to the report by Center for Responsive Politics (2011), UnitedHealth Group has so far hired seven firms that are engaged in the lobbying activities on behalf of the company and its subsidiaries.

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 UnitedHealth Group are directed in the domestic markets of United States only; its business is more prone to the economic changes and governmental ruling. The downfall in the economy of United States has adversely affected large number of organizations operating there in the form of increased opportunity costs associated with the business segments and operations. One of the potential risks faced by UnitedHealth Group is the increased costs associated with their business operations. The company estimates noted that if it fails to comply with the pricing for the medical costs, then its profitability will greatly suffer. They will face the declining profits which can materially affect their business and financial portfolios (USSEC, 2010). Moreover, the market fluctuations can impair their rate of profitability and market position to many folds. The increasing and declining rates of interest to the investments can have volatile impact on their business. Social UnitedHealth Group is a market leader for maintaining its diverse portfolio and its social image in the domestic markets. UnitedHealth Group has established two distinguishing foundations that aim to serve the local communities and the children in the areas it operates in. Its community and children related foundations are called: UnitedHealth Foundation and UnitedHealth Care Children Foundation. These two foundations continuously strive to raise the quality of living of the people and children in the society in a cost effective manner (UnitedHealth Group, 2011). Moreover, UnitedHealth Group is effectively volunteering and giving its time and money to the local communities by participating in the programs initiated by

the non-profit organizations that are striving to improve the living standards of the people. UnitedHealth Group gives value to its internal customers (employees) and external customers (end users). By the end of its fiscal year in 2010, UnitedHealth Group reported that it has employed over 80,000 employees in its parent company and subsidiaries (USSEC, 2010). Technological The UnitedHealth Group is efficiently and effectively utilizing the latest technology to improve and modernize the health care and delivery to the end users. UnitedHealth Group is one of the industry leaders who have successfully implemented the latest technology to facilitate health care systems to perform better than its competition (UnitedHealth Group, 2011). Innovation is the key to success of UnitedHealth Group in the domestic markets. They are offering patient centered medical homes to the customers where they have empowered their customers about various medical plans and their treatments. The information is available to the customers 24/7 and various other programs related to the health and care of the customers and related parties. Technology is the main ingredient behind their success in the domestic markets (UnitedHealth Group, 2011). The technology allows them to plan the pricing of their products for the customers and servicing them in more efficient and uninterrupted manner. Their system is based on the integrity of their information systems installed within the company that integrates all the business units and departments together. The company is in continuous expansion and updating of its information systems all over the organization and subsidiaries as a result of its recent expansion activities (USSEC, 2010).

Environmental

UnitedHealth Group is striving to minimize its impact on the environment by engaging in the activities that are less or little dangerous for the environmental safety. It has started various programs to minimize its impact on the environment. These programs include conservations of energy and natural resources. In order to obtain maximum results of these initiatives, UnitedHealth Group is continuously and regularly educating its employees by providing training to them about the improvements of the environment. As of 1999, UnitedHealth Group earned a reputable place in the precious Dow Jones Index that counts the sustainability of a company in the market. UnitedHealth Group has committed itself to make the world healthier place to live and work by offering safe and healthy workplace to its employees, and guests etc., as well as by complying with the environmental rules, laws and regulations (UnitedHealth Group, 2011). Legal UnitedHealth Group is the recipient of various legal implications due to the nature of its business. In order to maintain its market position and its license to operate in the markets of United States, UnitedHealth Group has to comply with the number of local and national level rules, regulations and laws. Moreover, it also maintains some history of legal actions against the company. Some of the legal proceedings against the UnitedHealth Group includes: the investigation by the United States Securities and Exchange Commission (USSEC) in 2006 on the accounts of bad conduct by the company for backdating its stocks and securities. These investigations gained lot of fire and were highlighted by the wall street journal in the form of series of stories. It was evident from the investigations that this wrong conduct was done by the will and under the knowledge of UnitedHealth Groups management (Business Week, 2006; Conason, 2006). The news reported by Lukacs and Lee (2006) asserted that UnitedHealth Group

was also alleged for the class action lawsuits for violating local laws and regulations like Racketeer Influenced and Corrupt Organizations Act (RICO).

Porters Five Forces Analysis

Rivalry among established competitions The level of competition among the existing competitors in the industry is very stiff. The top three competitors of United Health Group Inc. are Aetna Inc., Humana Inc. and WellPoint Inc. respectively (Hoovers, 2011). The demand is dependent on the demographics of the customers and the construction requirements of various companies and the government. The profitability of these competitors is dependent on the accurate cost predictions for a potential project. The profit margins of the companies are highly dependent on their marketing strategies and on their abilities to accurately estimate the future payments (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 like the airline and other related business pay large sums of money as insurance 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 United Health Group Inc. The findings of the study suggested that United Health Group should focus on the following factors in order to excel its business and social image in the world: 1. Expansion of business operations to the other parts of the world specially in the evolving markets and in the untapped domestic markets shows potential of success for the company. 2. It can enter into joint ventures with the existing small market players to excel in the various other regions of the country 3. Market itself in order to improve its public image by promoting the environmental and community related initiatives.

References Ashmore, C. (2011) US healthcare firm United Health Group may expand Letterkenny operations, retrieved on July 7, 2011 from http://www.irishtimes.com/newspaper/finance/2011/0520/1224297354260.html Business Week (2006) A Board With Its Back To The Wall, Bloomberg, retrieved on July 7, 2011 from http://www.businessweek.com/magazine/content/06_28/b3992075.htm Center for Responsive Politics (2011) UnitedHealth Group, retrieved on July 7, 2011 from http://www.opensecrets.org/pacs/lookup2.php?strID=C00274431&cycle=2010 (2011) United Health Group, retrieved on July 7, 2011 from http://www.opensecrets.org/lobby/firmsum.php?id=D000000348&year=2010 Conason, J. (2006) Why did former Gov. Kean, once a respected statesman, mislead the public and the press about the accuracy of ABC's "Path to 9/11"? , retrieved on July 7, 2011 from http://www.salon.com/news/opinion/joe_conason/2006/09/15/kean/ Girion, L (2008) 3 big insurers get low marks from hospitals, retrieved on July 7, 2011 from http://articles.latimes.com/2008/mar/06/business/fi-insure6 Gonzalez, G. (2007) UnitedHealth relies on innovation to stay ahead of the pack, retrieved on July 7, 2011 from http://www.businessinsurance.com/article/99999999/PAGES/674

Hoovers (2011) Competitive landscape, retrieved on July 7, 2011 from http://www.hoovers.com/company/UnitedHealth_Group_Incorporated/rhffki-1-1njea3.html Lukacs, C. and Lee, M (2006) American Chiropractic Association Files Lawsuit Against ACN in Federal Court, press release, retrieved on July 7, 2011 from http://www.acatoday.org/press_css.cfm?CID=1381

NYSE:UNH (2011) UnitedHealth Group Inc., Google Finance, retrieved on July 7, 2011 from http://www.google.com/finance?q=NYSE:UNH One Source (2011) Fortune 1000 companies list, retrieved on July 7, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 (2011) United Health Group, Company Profile, retrieved on July 7, 2011 from http://www.onesource.com/free/UnitedHealth-Group-Inc/Company/Profile/29347\ UnitedHealth Group (2011) About Us, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/main/AboutUs.aspx (2011) Environment, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/SocialResponsibility/Environment.aspx (2011) Fact Book, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/invest/2011/2011factbook.pdf (2011) Innovation, retrieved on July 7, 2011 from http://www.uhginnovation.com/#/innovations (2011) Our Foundations, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/SocialResponsibility/OurFoundations.aspx (2011) Technology, retrieved on July 7, 2011 from http://careers.unitedhealthgroup.com/Career-Areas/Technology-Careers.aspx USSEC (2010) Financial Reports, Form 10-k, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/invest/2010/UNH-2010-10-K.pdf (2010) Health Reform Legislation, Form 10-k, retrieved on July 7, 2011 from http://www.unitedhealthgroup.com/invest/2010/UNH-2010-10-K.pdf Wall Street Journal (2009) UnitedHealth Group acquired Health Net Inc., retrieved on July 7, 2011 from http://online.wsj.com