McKesson Corporation’s Business Strategies
Here are the business strategies that have brought McKesson Corporation from a small shop to becoming the world’s largest wholesale distributor of healthcare products, and the 15th largest company in the world (according to Fortune 500).
These strategies are universal and can be applied in all businesses with some adjustments.
Identifying Sound Business Ideas From Developments In Society
Profitable businesses are founded and built on solid ideas. There are different ways ideas can be generated, and one of them is to observe developments in the society.
As society advances, with different and more infrastructure coming in place, there will be immense human activities around such infrastructure. With human activities going on, there will be opportunities to do business and make money; you only need to think of what service or product you can render with the aid of the new infrastructure or developments.
McKesson was founded in 1833 based on a business idea that occurred to the founders as they observed how easily they could bring in therapeutic drugs and chemicals that were hugely needed, from the introduction of sailing ships at the time.
Planning To Become Industry Leader
A business that has no plan to become market leader will certainly not attain great success. It will be at the mercy of the big ones, and may even be crushed in the competitive battle in the industry.
Successful companies usually have plans to lead the industry, and McKesson was not an exception. In the early 1990s, McKesson, in its bid to achieve its strategic decision to lead the industry, was able to get several smaller firms to merge with it.
And it has been able to sustain its leadership position in its industry over the decades by using acquisition strategy. In 1983, it bought Automated Healthcare, and General Medical, the biggest distributor of medical-surgical suppliers, and also acquired HBO & Company, to ensure it remained the leader in healthcare service business.
Avoid Getting Into Unrelated Businesses
There is usually the temptation to diversify into unrelated businesses to exploit opportunities that may seem enormous there, but this could harm your core business sooner than later. It could cause you to lose focus, and not be able to meet your customers’ needs satisfactorily.
And it may affect the way your business is perceived – the public may start finding it difficult to place hand on what exactly your business represents, and this would definitely cause you to lose lots of business.
After the take over of McKesson by Foremost in 1967 to form a company of two unrelated businesses with no clear cut strategy and direction, the company’s income started nose diving terribly – businesses were lost primarily because the new company stood for nothing in particular in people’s minds.
Making Your Operating Units Independent
As your business becomes large, it will run more efficiently if you allow each of its operating units to run independently. And as they become responsible for their own survival and growth, the best of their creativity and innovativeness are brought out. Coupled with the fact that they are more focused on their area of business than the parent company, they will be more strategic to meeting customers’ needs, and be more profitable.
The cumulative effect of this is that the parent company will come out to be more profitable and efficient than it was.
Foremost-McKesson was saved from collapse, and eventually became profitable after Morison restructured the company into four operating units, running independently in 1974.
Concentrating Only On Profitable Businesses
From time to time, perhaps yearly, you will need to assess every part of your business, and weed out those that are not profitable or causing you to lose money. Be courageous to do what you need to do to maintain profitability. If there are one or more businesses in your organization that are draining your resources, it is better to close them down, and concentrate your resources on the profitable ones.
To achieve profitability in 1976, another strategy Morison adopted, which worked perfectly, was to sell off 11 of the company’s low profit-making subsidiaries.
Improving Productivity
Successful companies strive to always improve on their productivity. With improved productivity, more money is made and saved, leading to huge profit because your operations are more efficient – fewer personnel are needed, and less time and energy are used. The investments you make in improving your productivity is worthwhile, and could spring you to the top in your industry.
With huge investments in inventory and stock procedures, warehouse automation and data processing infrastructure in 1978, Foremost-McKesson’s average profit was able to grow astronomically to 20% in the 1980s from 2% that it was before 1976.
Read McKesson Corporation’s Success Story here.
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