Health Information Management: Clinical and Service Quality (Part 1)

Health Information Management: Clinical and Service Quality (Part 1)

Introduction

The paper provides a critical analysis of business divestment failure in the US healthcare industry. The paper investigates underpinning strategic failure of Pfizer's divestment decision in 2006 by identifying the cause of failure and aftermath of the decision. Finally, the paper draws a conclusion on the overall strategy decision taken by the company and its impact on the company performance.

Discussion

Pfizer is one of the world's largest pharmaceutical companies with business operations in four significant areas including consumer health, pharmaceutical, animal health and global research and development (Pfizer, 2013). In all these business years, the company has established strong brand loyalty and brand equity. In the past ten years, Pfizer has deployed an aggressive business strategy to expand its business operations on a global scale.

The business unit of consumer healthcare services has been one of the key business strengths and strategic competence in the global healthcare industry (Pfizer, 2013). Consumer healthcare division has assured the offering of a varied range of medicines prescribed by Pfizer through over the counter service (Pfizer, 2013). However, company's one strategic move to divest the business unit had resulted in the loss of exponential, yet sustainable business growth. It was a failure because it cut off sustainable business profits that the company realized later (Conover & Andersen, 2011).

Divestment of Consumer Healthcare Services

According to media reports, in 2006, Pfizer decided to divest its business of consumer health services. The company engaged in a business acquisition deal with Johnson and Johnson to sell the business unit for an accumulated amount of $16.6 billion (Kennedy, 2006).

Pfizer sold a healthy business unit for a price of 20x more than EBITDA of the consumer healthcare business at that time. The underlying objective and expectations from this decision were to generate an after tax cash flow stream of $13.5 billion to be invested in new product development and improved ROE of the overall business (Kennedy, 2006).

However, the company missed a strategic growth opportunity and the fact that divestment decision will put the company out of a sustainable business segment. The deal was though expensive, yet in a long term benefit to Johnson and Johnson because it earned J&J the key to successful business profits through pre-established brands with a global segment of loyal healthcare consumers.

Cause of Failure

The strategic decision to divest the business unit of consumer health services was a failure due to inappropriate market screening and improper cost-benefit analysis of the decision. The company overlooked the opportunity of growing consumer healthcare sector in Nordic countries and other emerging economies (Datamonitor, 2012).

In 2006, Pfizer's market analysis of the situation did not consider the prospects and attractiveness of OTC brands in the emerging economies that could have assisted Pfizer to generate a regular stream of sizeable cash flow from the consumer healthcare unit. Moreover, decision not to buy back company shares of worth $17 billion was a step to close strategic options for the business (Kennedy, ...