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External Analysis of Humana Inc.

Introduction Humana Inc. is a public listed company and its stocks are listed in the New York Stock Exchange (NYSE: HUM). The company has its specialization in the wide range of insurance, wellness and health care products and services in the markets of United States (Humana, 2011).It was founded first founded as a nursing home in 1961. The company started to purchase hospitals. In early seventies, the management of the company changed its name to Humana Inc. with the specialization in the insurance and health care industry (Humana, 2011). According to Fortune (2011) the company is currently ranked at number seventy nine in the list of Fortune 500 American companies.

Humana has a market capital over 13 Billion US dollars (NYSE:HUM, 2011), with revenues around 34 million US dollars for the year 2010 which is about 9.5% higher than the revenues generated in the year 2009 (Fortune, 2011).Among the top health care providers and health insurance companies, Humana is one of the top most health insurers in the United States (Hoovers, 2011). It caters to the needs of over ten million people in the United States.

SWOT Analysis SWOT Matrix Strengths y y Business portfolio Diverse brand portfolio y y Weaknesses Limited focus Geographic concentration

Growth in the domestic markets

Little online presence

Opportunities y y y y Mergers Expansion Domestic population shifts Online presence y y y

Threats Government regulations Recession competition

Strengths According to Fortune (2011) the company is currently ranked at number seventy nine in the list of Fortune 500 American companies. Humana has a market capital over 13 Billion US dollars (NYSE:HUM, 2011), with revenues around 34 million US dollars for the year 2010 which is about 9.5% higher than the revenues generated in the year 2009 (Fortune, 2011). The current market capital of the company is 13.57 billion US dollars which makes it among the list of top three health insurance companies in United States with WellPoint at number two with 27.26 billion market capital and UnitedHealth group at number one with the market capital of 56.28 billion US dollars respectively. Weaknesses Despite of the fact that Humana Inc. is among the largest insurers in the United States, it too lags at some grounds. Among them is the companys failure to comply with the latest trends in the industry. The company has very little online presence which can directly impact its business operations in form of low levels of customer orientation towards the company.

Similarly, Humana has most of its business operations in United States, Europe and Puerto Rico. This limited geographical presence can make it highly vulnerable to the changes in the rules, laws, and regulations of these countries. Likewise, the company has very limited focus in terms of its products and services. It can cater the needs of the retired people, accidents, severe illness and children education plans etc. these services if offered will give the Humana Inc. a competitive advantage over its counterparts in the markets.

Opportunities There are large numbers of opportunities available to Humana Inc. Among the available opportunities is the geographical expansion. It has no geographic presence in the countries that offer great growth opportunities to the companies operating there. It can expand its business portfolio in the emerging markets of Asia like China and India. These countries promise growth opportunities to the large number of companies operating there. Another opportunity available Humana is to engage in the business mergers or acquisitions activities. These activities can give a competitive advantage to the company over its competitors in the markets. Similarly, as specified earlier, Humana Inc.has very little online presence. It can improve its online presence by offering online services to its large range of customer base in the national as well as international markets. This will increase its market presence to many folds and the company will also be able to face the stiff competition given by its counterparts.

Likewise, the demographic structure of United States of America represents the favorable structure for Humana Inc. According to the CIA world fact book (2010), there is large number of baby boomers in the US population (age range 60 and over: 20%). Most of these people have reached old age and are retired from their life-long work related duties. This market segment offers the room of opportunities to Humana in the form of retirement and pension plans and offerings. Threats The insurance markets in United States are highly competitive in nature with a large number of market players offering wide range of products to the nation. Allstate faces stiff competition with these players. The top three competitors of Humana Inc. are Aetna Inc., CIGNA Corporation and UnitedHealth Group Incorporated respectively (Hoovers, 2011). Another level of threat to the company is the recession in the United States Economy. 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. The demand is dependent on the demographics of the customers and the commercial requirements that affect their needs. If these economic conditions continued to prevail, then Allstate will likely to suffer huge losses in the coming years (USSEC, 2011). Another possible threat faced by Humana the changing regulations by the US government for the health care business. 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, 2011).

PESTEL Analysis Political Humana strives to demonstrate its commitment for the public by making sure that it is able to add its voice at the time of devising public policies. Through its political action committee, Humana Inc. has spent and raised around one million US dollars in the year 2010 for making political contributions to the wide range of national and state level parties (open secrets org, 2011). The political action committee of the company has spent over four hundred thousand US dollars for the year 2010 in the favor of Republican Party (open secrets org, 2011). They have also given donations with the help of its agents to over five hundred social groups in the country and has paid around thirty thousand US dollars for the year 2008 (Center for Political Accountability, 2010). The company has also hired various agents for the lobbying activities on behalf of the company to obtain favorable remarks from the legislators (Humana Political Action Committee, 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 Humana Inc. 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. Moreover, these declining market conditions have increased the unemployment rate in the company. According to the CEO of Aetna Inc. the government is been trying to raise the level of employment in the country but this has no significant or direct impact on the health care industry. The economic conditions of the country still seem to be troublesome for large number of companies (Sturdevant, 2011). Social Humana effectively engaged in the social and community related activities in order to raise the living standards of people in the communities it operates in. The company believes it is very important for the success of the company, its employees and policy makers to understand the needs and requirements of the communities they operates in. the company follows diverse culture all over its business units (Humana, 2011). In order to achieve the community involvement, Humana has established Humana Foundation to serve the needs of people from these communities. The foundations raise and donate grants to the people. They cater the educational needs of low income groups- children, take part in strengthening cultures. The major objectives of this foundation are to educate the children and facilitate the health services for the people living in these communities. They help these people by volunteering time, financial resources and offering social help to them (Humana, 2011).


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 Humana Inc. has implemented the latest information technology systems to facilitate the flow of information within the offices and all the other business divisions (Humana, 2011). The company is using different technological platforms to improve and expand its business services to the wide range of customers. These platforms include online websites, mobile updates, social networking, and e-news tellers etc (Humana, 2011). Environmental Like the other entire responsible corporations in the markets, Humana Inc. is also engaged in the activities that foster the environmental safety. It has started number of activities in order to minimize its impact on the environment and atmosphere. Among its initiatives includes reduced energy use, recycling of paper, saving water at its facilities and improving the current practices of doing business in the organization.

The programs started by the company include healthy people, healthy planet, healthy processes, and healthy communities. The overall objectives of these programs is to improve the health and wellness of the people, improvements in the greenhouse gas emissions, less use of energy in the offices, carbon disclosure projects, etc. (Humana, 2011)

Legal Many insurance companies are in a practice to save their money by delaying the settlement funds asked by the customers as long as they can. This strategy allows them to make

and save money. They make the investigations extremely very costly for the individual clients that it makes difficult for them to afford the investigations. Humana Inc. is the recipient of various legal rules, regulations and 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, Humana has to comply with the local, regional, state and federal level rules, regulations and laws.

There is a history of legal actions against the company, some of the legal proceeding includes: class action lawsuits for violating the securities exchange commissions rules, (Dreier LLP, 2008), class action suits for not disclosing the company activities to the SEC (Reuters, 2008), class action lawsuit for providing misinformation to the customers regarding the retirement plans and benefits (Franklin Gray & White, 2008) and lawsuits for encouraging the treatment denials to obtain profits (insure, 2000).

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 Buyers Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces Analysis for Humana Inc. is as follows: Rivalry among established competitions The level of competition among the existing competitors in the industry is very stiff. The top three competitors of Humana Inc. are Aetna Inc., CIGNA Corporation and UnitedHealth

Group Incorporated 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 Humana Inc. The findings of the study suggested that Humana should focus on the following factors in order to excel its business and social image in the world: 1. Humana can expand its business portfolio in the emerging markets of Asia like China, and India. These markets show great potential for success to the companies. 2. Innovate and improve the existing product lines by offering unique and differentiated products to the existing and potential customers

3. It can engage into the business mergers with the other companies to reach the markets without physically moving there. 4. Tapping the big chunk of untapped domestic markets will leverage its market shares and position.

References Center for Political Accountability (2010) Humana Inc., retrieved on July 19, 2011 from Drier LLP (2008) Humana Inc., retrieved on July 19, 2011 from Franklin Gray & White (2000) Class action lawsuits filed against Humana, retrieved on July 19, 2011 from Fortune (2011) Humana Inc., retrieved on July 19, 2011 from Hoovers (2011) Company Description, retrieved on July 19, 2011 from (2011) Competitive Landscape, retrieved on July 19, 2011 from Humana (2011) Company Profile, retrieved on July 19, 2011 from (2011) Corporate Social Responsibility, retrieved on July 19, 2011 from (2011) Humana Foundation, retrieved on July 19, 2011 from (2011) Technology, retrieved on July 19, 2011 from

Humana Political Action Committee, (2010) Political actions and relative activities report, retrieved on July 19, 2011 from Insure (2000) Lawsuit says Humana encourages treatment denials to gain profit, retrieved on July 19, 2011 from

NYSE:HUM, (2011) Humana Inc., retrieved on July 19, 2011 from Open Secrets Org (2011) Humana Inc., retrieved on July 19, 2011 from Porter, M. E., (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, p.86-104, retrieved on July 19, 2011 from Reuters (2008) Strauss & Troy Announces Class Action Lawsuit Against Humana, Inc., retrieved on July 19, 2011 from Sturdevant, M. (2011) Aetna CEO: Drop In Jobless Rate Hasn't Boosted Health-Plan Enrollment, retrieved on July 19, 2011 from USSEC (2011) Humana Inc., Form 10-k, retrieved on July 19, 2011 from y5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMS0wMzkyODgvZG9jL0h1bWFuYUlu Yy5wZGYmdHlwZT0yJmZuPUh1bWFuYUluYy5wZGY=