On a clear day in August 1999 in the new headquarters of drugstore.com, against a backdrop of the Blue Angels flying in formation over Lake Washington practicing for their hydroplane Seafare Cup performance, Peter Neupert was pleased with his company's IPO performance. Just last month, on July 28, 1999, drugstore.com had burst to life as a public company. Shares priced at $18 had soared as high as $69 on the first day of trading, providing a total valuation for drugstore.com of more than $2.9 billion--and a record: drugstore.com was the fastest company ever to reach a valuation of $1 billion. The team had built a virtual drugstore on the Web. During the first six months of its existence more than 160,000 customers had come to shop for more than 17,000 drugstore products and prescription drugs. Customer orders were electronically sent to distribution centers run by Walsh Distribution and RxAmerica, both located in Texas. Drugstore.com had entered into outsourcing agreements/partnerships for fulfilling the orders with these two firms. For six months ending July 4, 1999, drugstore.com sold products to approximately 168,000 customers, and had net sales of $4.2 million with an operating loss of $30 million. In June of 1999, drugstore.com had 980,000 unique visits to its Web site compared to 560,000 unique visits of its competitor PlanetRx.
Swot Analysis of "Drugstore.com" written by Richard L. Nolan includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Drugstore.com 1999 facing as an external strategic factors. Some of the topics covered in Drugstore.com case study are - Strategic Management Strategies, Growth strategy, Internet and Technology & Operations.
Some of the macro environment factors that can be used to understand the Drugstore.com casestudy better are - – competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation, increasing government debt because of Covid-19 spendings, increasing energy prices, geopolitical disruptions, challanges to central banks by blockchain based private currencies, technology disruption,
increasing transportation and logistics costs, increasing commodity prices, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Drugstore.com case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Drugstore.com 1999, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Drugstore.com 1999 operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Drugstore.com can be done for the following purposes –
1. Strategic planning using facts provided in Drugstore.com case study
2. Improving business portfolio management of Drugstore.com 1999
3. Assessing feasibility of the new initiative in Technology & Operations field.
4. Making a Technology & Operations topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Drugstore.com 1999
Strengths Drugstore.com | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Drugstore.com 1999 in Drugstore.com Harvard Business Review case study are -
High switching costs
– The high switching costs that Drugstore.com 1999 has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Digital Transformation in Technology & Operations segment
- digital transformation varies from industry to industry. For Drugstore.com 1999 digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Drugstore.com 1999 has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Successful track record of launching new products
– Drugstore.com 1999 has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Drugstore.com 1999 has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Analytics focus
– Drugstore.com 1999 is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Richard L. Nolan can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Ability to recruit top talent
– Drugstore.com 1999 is one of the leading recruiters in the industry. Managers in the Drugstore.com are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Training and development
– Drugstore.com 1999 has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Drugstore.com Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Strong track record of project management
– Drugstore.com 1999 is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Highly skilled collaborators
– Drugstore.com 1999 has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Drugstore.com HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Drugstore.com 1999 has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Drugstore.com - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Drugstore.com 1999 are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High brand equity
– Drugstore.com 1999 has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Drugstore.com 1999 to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to lead change in Technology & Operations field
– Drugstore.com 1999 is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Drugstore.com 1999 in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses Drugstore.com | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Drugstore.com are -
Interest costs
– Compare to the competition, Drugstore.com 1999 has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Drugstore.com HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Drugstore.com 1999 has relatively successful track record of launching new products.
High cash cycle compare to competitors
Drugstore.com 1999 has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Slow decision making process
– As mentioned earlier in the report, Drugstore.com 1999 has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Drugstore.com 1999 even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Drugstore.com 1999 supply chain. Even after few cautionary changes mentioned in the HBR case study - Drugstore.com, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Drugstore.com 1999 vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– Drugstore.com 1999 has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High bargaining power of channel partners
– Because of the regulatory requirements, Richard L. Nolan suggests that, Drugstore.com 1999 is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Increasing silos among functional specialists
– The organizational structure of Drugstore.com 1999 is dominated by functional specialists. It is not different from other players in the Technology & Operations segment. Drugstore.com 1999 needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Drugstore.com 1999 to focus more on services rather than just following the product oriented approach.
High operating costs
– Compare to the competitors, firm in the HBR case study Drugstore.com has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Drugstore.com 1999 's lucrative customers.
Low market penetration in new markets
– Outside its home market of Drugstore.com 1999, firm in the HBR case study Drugstore.com needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Drugstore.com 1999 is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Drugstore.com can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Opportunities Drugstore.com | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Drugstore.com are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Drugstore.com 1999 can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Drugstore.com, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Leveraging digital technologies
– Drugstore.com 1999 can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Building a culture of innovation
– managers at Drugstore.com 1999 can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Technology & Operations segment.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Drugstore.com 1999 can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Creating value in data economy
– The success of analytics program of Drugstore.com 1999 has opened avenues for new revenue streams for the organization in the industry. This can help Drugstore.com 1999 to build a more holistic ecosystem as suggested in the Drugstore.com case study. Drugstore.com 1999 can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Drugstore.com 1999 to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Technology & Operations industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Drugstore.com 1999 can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Drugstore.com 1999 can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Low interest rates
– Even though inflation is raising its head in most developed economies, Drugstore.com 1999 can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Buying journey improvements
– Drugstore.com 1999 can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Drugstore.com suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Learning at scale
– Online learning technologies has now opened space for Drugstore.com 1999 to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Drugstore.com 1999 can use these opportunities to build new business models that can help the communities that Drugstore.com 1999 operates in. Secondly it can use opportunities from government spending in Technology & Operations sector.
Using analytics as competitive advantage
– Drugstore.com 1999 has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Drugstore.com - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Drugstore.com 1999 to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Better consumer reach
– The expansion of the 5G network will help Drugstore.com 1999 to increase its market reach. Drugstore.com 1999 will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Threats Drugstore.com External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Drugstore.com are -
Easy access to finance
– Easy access to finance in Technology & Operations field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Drugstore.com 1999 can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Drugstore.com 1999 in the Technology & Operations industry. The Technology & Operations industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Consumer confidence and its impact on Drugstore.com 1999 demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Drugstore.com, Drugstore.com 1999 may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Technology & Operations .
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Drugstore.com 1999 needs to understand the core reasons impacting the Technology & Operations industry. This will help it in building a better workplace.
High dependence on third party suppliers
– Drugstore.com 1999 high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Drugstore.com 1999.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Drugstore.com 1999 can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Drugstore.com .
Increasing wage structure of Drugstore.com 1999
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Drugstore.com 1999.
Stagnating economy with rate increase
– Drugstore.com 1999 can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Drugstore.com 1999 needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Technology & Operations industry regulations.
Weighted SWOT Analysis of Drugstore.com Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Drugstore.com needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Drugstore.com is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Drugstore.com is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Drugstore.com is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Drugstore.com 1999 needs to make to build a sustainable competitive advantage.