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One of the largest American retail and health care companies, CVS Health, is finding itself under increasing pressure to evaluate its business structure and potentially initiate a major breakup. This change, however, could be fraught with risk due to several key factors, that affect both internal operations and external relations for the company.
The first area where the proposed CVS breakup could run into serious challenges is financial stability. CVS Health is a massive entity which acquired Aetna, a health insurance company for $70 billion in 2018, thus adding a significant branch to their services that connected pharmacy, health insurance, and retail. This diversification helps in risk mitigation. Each sector operates to buffer the other during the economic downturn, maintaining a certain level of financial stability for the corporation as a whole. If CVS was to break up, this buffer would disappear. Each company would bear the full brunt of any economic disruptions, which could lead to financial instability.
Secondly, there’s the potential impact on customer relations to take into account. The expansive remit of CVS gives customers one-stop access to a variety of health care needs, from their local pharmacy to their health insurance. A breakup would mean customers have to deal with multiple entities, potentially reducing the convenience factor and damaging customer loyalty. The loss of a united and seamless customer experience could significantly impact customer retention rates and profits.
Genesis of CVS Health dates back to 1963, hence it carries with it a deep impression developed over decades, and a breakup might stir apprehension among long-standing customers. Such mass change could be seen as destabilizing and lead to a lack o trust, thereby affecting the brand’s reputation.
Third, there are the operational complexities of a breakup, particularly if it’s a split into separate unrelated services. Each spin-off would need to establish its own independent operational structure and relationships. This includes everything from IT systems, human resources, budgeting, to vendor relationships, supply chain logistics, and regulatory compliance. This could be a long and expensive process. Mistakes at this stage could affect the working of these new separate entities leading to significant financial and reputational costs.
Moreover, CVS’s integration of services has been strategically designed to address healthcare’s most pressing problems through the creation of a new health services model. This model aimed to make care more accessible, improve health outcomes, and lower healthcare costs. A breakup might lead to abandoning the mission of an integrated healthcare model, thereby slowing down the progress in achieving their healthcare goals.
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