CVS Structure Essay

Custom Student Mr. Teacher ENG 1001-04 2 April 2016

CVS Structure

Module 6:

Question 1: Draw a chart of your organizations domain. List the organization’s products and customers and the forces in the specific and general environments that have an effect on it. Which are the most important forces that the organization has to deal with?

Part A: Draw a chart of your organizations domain.

CVS Pharmacy

Specific Environment

General Environment

An organizations domain is the goods and services, and customers of the organization. Every organizational domain consists of a specific and general environment. In CVS Pharmacy’s specific environment are its suppliers and customers. In CVS Pharmacy’s general environment are governmental regulations, advancements in technology, and economic forces.

Part B: List the organizations products and customers and the forces in the specific and general environments that have an effect on it. What are the most important forces that the organization has to deal with?

CVS Pharmacy offers products in the front store and the pharmacy. Products in the front store range from health and beauty products, over the counter medications, cleaning supplies, school supplies, seasonal items such as Halloween or Christmas decorations, and food and beverages. Some services offered in the front store is the photo station where customers can print photos and make albums for themselves or loved ones. Great customer service is to be given to all customers from the time they enter the store until the time they leave the store. Products offered in the pharmacy are prescription only medications and ordering medications online that cannot be found in the front store.

Some services offered in the pharmacy are immunizations such as flu shots, pneumonia, and shingles shot, MinuteClinics, patient consultations, and directing customers into a good Medicare Part D plan. CVS Pharmacy is directed towards many different customer bases. Some customers come into CVS to keep up their good health by getting their medications and becoming informed on what they are used for and how to take them. Other customers just come into CVS to do a little bit of general needs shopping. In CVS Pharmacy’s specific environment falls its customer and suppliers. These forces have a huge effect on how successful the company is or becomes. Customers play a huge role in keeping CVS alive. In 2012, CVS Pharmacy’s net revenues increased by 15 percent to a record $123.1 billion and its operating profit increased by 14.2 percent to a record $7.2 billion. Without our customers, CVS would not be able to operate. Suppliers are another huge part of CVS’s specific environment. In the pharmacy, our main supplier is McKesson.

If we are not able get the products that we need for our customers, we will end up losing these customers to different pharmacies. Every day we place an order with McKesson to get in the medications need to fill customer’s prescriptions. Without our suppliers, we would not have any products to offer our customers. In CVS Pharmacy’s general environment are technological advancements which play a big role in keeping CVS alive. Technology is always changing and in order to keep up with the fast-paced environment, CVS needs to keep implementing the best technologies they can to keep customers interested. One huge technological advancement is ordering and managing your medications online.

This lets customer easily order their medications from home and be alerted when their prescriptions are ready for pickup. Governmental regulations also play a role in CVS’s general environment. There are many rules and regulations that need to be followed in the pharmacy. One specific regulation that we must follow are HIPAA laws. This helps protect the customer from outsiders viewing any of their personal information. I think the most important forces that CVS has to deal with are keeping customers happy and getting the supplies they need from their suppliers.

Question 2: Analyze the effect of the forces on the complexity, dynamism, and richness of the environment. From this analysis, how would you characterize the level of uncertainty in your organizations environment?

Part A: Analyze the effect of the forces on the complexity, dynamism, and richness of the environment.

Environmental complexity is a function of strength, number, and interconnectedness of specific and general forces. CVS has many stakeholders including employees, non-governmental organizations, suppliers, clients, investors, shareholders, analysts, consumers, local communities, civic organizations, trade organizations, government and regulatory authorities, and the media. With all these stakeholders within the organizations specific and general environment makes communication and collaboration very difficult. There are a lot of voices to be heard and getting everyone interconnected and on the same page is not an easy task. CVS would fall under a complex environment. Environmental dynamism is a function of speed of change and how much change is occurring between specific and general forces. CVS is constantly changing and growing in today’s world.

CVS knows they need to stay innovative and keep up with new technologies in order to stay the nation’s premier integrated pharmacy services provider. One example of CSV growing and changing is adding a new feature to their mobile app. CVS adder a new drug interaction checker as part of its top-rated CVS Mobile app. This is an industry first. This feature allows customers to quickly and easily check for potential drug interactions by comparing over-the-counter (OTC) products with their prescriptions and other OTCs on their smartphones.

CVS would fall under a dynamic environment. Environmental richness is a function of quantity of resources in the organizations domain. Richness refers to the quantity of resources readily available in the organizations domain. CVS has readily available resources at all times. We are able to order from our outside vendor, McKesson, Sunday through Thursday to receive the medications we need Monday through Friday. We have a contract with them and they supply all our medications on a daily basis. CVS would fall under a rich environment.

Part B: From this analysis, how would you characterize the level of uncertainty in your organizations environment?

As stated above, CVS has a complex, dynamic, rich environment. While having a rich environment would lead you to believe that there was little uncertainty within the organization, having a complex and dynamic environment leads you to believe that there was much uncertainty within the organization. Overall, from my analysis above, I believe that CVS Pharmacy operated with an uncertain environment.

Question 3: Review your analysis of organizational structure. How has your organization designed its structure to match the environment in which it operates? For example, how do its degree of differentiation and its use of integrating mechanisms reflect the uncertainty of its environment?

I defined CVS Pharmacy’s organizational structure to be organic. CVS has decentralization within the organization. Decentralization happens when top management’s decision making has been delegated to lower managers. The pharmacist has the discretion to offer gift cards to unhappy customers. This in turn makes the customer happy and hopefully they will return to CVS in the future. The pharmacist also has the discretion to price match with other pharmacies. If Walgreens has a lower cash price for a certain medication then we can offer that price to the customer if they ask for that to be done. CVS, for the most part, is highly formalized. This is an attribute of the mechanistic model of organizational structure but as I said earlier, we are predominately organic. The technicians and employees do not have a lot of discretion to deviate from their job duties. There are rules and regulations that they need to follow otherwise they could be terminated. CVS has a very complex structure.

There is great special dispersion; it has high vertical differentiation, and high horizontal differentiation. CVS has designed its structure to match its environment. I said earlier that CVS operates under a dynamic environment and in turn has designed its structure to be organic. CVS’s use of integrating mechanisms reflects the uncertainty of the environment. CVS Pharmacy is highly differentiated. CVS has various levels of management that the operative core need look up to. CVS also has over 7000 stores nation-wide creating great spatial dispersion. Some integrating mechanisms used by CVS Pharmacy are specific jobs, policies, and standards that employees must follow.

Employees at CVS are not allowed to make their own rules/tasks. Employees are given specific jobs that they are to get done and if they are not completed, there are consequences. As the lead pharmacy technician, I am in charge of inventory. Our warehouse order needs to be completed on Wednesday by 3pm. I need to use my time wisely to make sure that this gets completed otherwise there will be a lot of supplies and medications that we do not receive. This is not good for the customer or the organization. Employees also have certain policies and standards that they must adhere to otherwise they will most likely be terminated. Employees need to act with honor and integrity and they need this to follow through to the customer even if they customer seems to be out of line. CVS is differentiated and in turn, they follow an organic structure.

Question 4: Draw a chart of the main inter-organizational linkage mechanisms (for example, long-term contracts, strategic alliances, mergers) that your organization uses to manage its symbolic resource interdependencies. Using resource dependence theory and transaction cost theory, discuss why the organization chose to manage its interdependencies in this way. Do you think the organization selected the most appropriate linkage mechanisms? Why or why not?

Part A: Draw a chart of the main inter-organizational organizational linkage mechanisms (for example, long-term contracts, strategic alliances, mergers) that your organization uses to manage its symbolic resource interdependencies.

Symbiotic resource interdependencies include reputation, cooptation, strategic alliances (long-term contracts, networks, minority ownership, and joint ventures) and mergers and acquisitions. CVS has taken the strategic alliance, long-term contract interdependency. CVS has been in a long-term contract with McKesson for a long time. CVS is McKesson’s single biggest customer. In 2012, CVS accounted for an estimated 18.5% of the company’s U.S. core drug distribution revenues.

Part B: Using resource dependence theory and transaction cost theory, discuss why the organization chose to manage its interdependencies in this way. Do you think the organization selected the most appropriate linkage mechanisms? Why or why not?

Resource dependency theory is the ability to exercise more control over resources and distribution channels which means establishing interdependencies with other organizations. Transaction cost theory helps you choose which interdependency to choose when your bureaucratic costs equal your transaction costs. Both of these theories help organizations choose which interdependency is right for them. CVS chose to hold a long-term contract with McKesson. I think this was an appropriate and beneficial way to manage their interdependency. These long-term contracts help build relationships between the parent company and the supplier. When announced that CVS was going to renew its contract with McKesson, McKesson’s statement said that it was “extremely pleased to continue the relationship”.

Question 5: Draw a chart of the main inter-organizational linkage mechanisms (for example, collusion, third-party linkages mechanisms, strategic alliances) that your organization uses to manage is competitive resource interdependencies. Using resource dependence theory or transaction cost theory, discuss why the organization chose to manage its interdependencies in this way. Do you think the organization has selected the most appropriate linage mechanisms? Why or why not?

Part A: Draw a chart of the main inter-organizational linkage mechanisms (for example, collusion, third-party linkages mechanisms, strategic alliances) that your organization uses to manage is competitive resource interdependencies.

Competitive resource interdependencies include collusion and cartels, third party linkages, strategic alliances (long-term contracts, networks, minority ownership, and joint ventures) and mergers and acquisitions. CVS has followed the mergers and acquisitions interdependency. In March of 2007, CVS Corporation and Caremark Rx, Inc. merged together creating the nation’s premier integrated pharmacy services provider. The combined company, renamed CVS/Caremark Corporation, unifies the nation’s largest pharmacy chain with a leading pharmaceutical services company, creating the opportunity to deliver unique products and services that will help manage costs for employers and improve access and choice for consumers.

Part B: Using resource dependence theory or transaction cost theory, discuss why the organization chose to manage its interdependencies in this way. Do you think the organization has selected the most appropriate linage mechanisms? Why or why not?

Resource dependency theory is the ability to exercise more control over resources and distribution channels which means establishing interdependencies with other organizations. Transaction cost theory helps you choose which interdependency to choose when your bureaucratic costs equal your transaction costs. Both of these theories help organizations choose which interdependency is right for them. CVS chose to go with the merger interdependency. I think this was an appropriate and beneficial way to manage its interdependency.

This merger allowed CVS to begin delivering substantial benefits to shareholders, customers and employees. CVS was able to offer end-to-end services, from plan design to prescription fulfillment, as well as the opportunity to improve clinical outcomes, which results in better control over healthcare costs for employers and plan providers. The merge improved the delivery of pharmacy services and healthcare decision making, enabling consumers to benefit from unparalleled access, greater convenience and more choice.

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  • University/College: University of California

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 2 April 2016

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