Humana, Inc.

1. Humana, Inc. Sample Case Analysis Presentation Professor Joanne Luzietti April 11, 2008

2. Agenda • Identification of Key Strategic Issues • External Analysis • Internal Analysis • Summary SWOT • Strategic Alternatives & Recommendations • Questions & Answers

3. Key Strategic Issues

4. Key Strategic Issues • Assessment of Humana’s current position and strategy. • Assessment of how well Humana’s strategy positions it for value creation and above-average returns in the future.

5. About Humana • Mission Statement: “Humana is committed to helping employers manage their healthcare costs, guiding consumers to make informed health and benefits decisions, and giving back to the communities we serve.” • Key statistics: • Market cap - $10.5B • Annual Revenue - $21.5B • YOY Quarterly Net Income Growth – 150%

6. External Analysis

7. Industry Definition Humana competes in the Accident and Health Insurance and Medical Service Plans industry.

8. External Analysis: Key Environmental Factors • Demographic factors: • Growth rate of population aged 60+ will be three times that of total population growth by 2010. • US citizens without health coverage has been fairly consistent at 15.5% • US citizens who participate in employer-sponsored health benefits has been fairly consistent at approximately 60%. • Percentage of people covered by government health insurance programs increased slightly in 2004 to 27%

9. External Analysis: Key Environmental Factors • Sociocultural: • Increasing attention to healthy lifestyles • Smoking trends declining • Obesity trends increasing, especially among children • Economic: • Unemployment rate fairly stable • Healthcare costs increasing

10. External Analysis: Key Environmental Factors • Political/Legal • Lawsuits • HIPPA Legislation • Universal Health Coverage • Technology – use of internet • Global – increasing consumer interest in receiving healthcare overseas

11. External Analysis: Porter’s Five Forces • Threat of New Entrants – LOW • Some perceived switching costs • Limited margins Lots of competitive response • Bargaining Power of Suppliers – MODERATE • Physicians, hospitals, etc. can create relationships with Humana’s competitors

12. External Analysis: Porter’s Five Forces • Bargaining Power of Customers – MODERATE TO HIGH • Some customers may be large portion of Humana’s business • Substitutes – LOW • Competitive Rivalry – VERY HIGH • Significant competition • Slow industry growth • Significant price competition

13. Competitors • Aetna: • Larger in size (measured in market cap and annual revenue) • Much more limited growth • Similar focus on technology & customers • Similar product innovations • Less focus on government sector

14. Competitors • CIGNA: • Smaller than Aetna, but larger than Humana • Least growth of three firms • Similar focus on technology • Similar product innovations • More focus on employee work-life programs and Employee Assistance Programs

15. Internal Analysis

16. Customer • Customer is defined as the employer who purchases the health plans. • Customer benefit – employers recruit and retain key personnel based on the quality of their benefit packages. They want to do this as cost-effectively as possible. • Consumer is the end-user. • Humana’s market segments: • Private industry • Government

17. Key Resources • Key tangible resources: • Strong financial resources • Good portfolio of key products • Strong web presence • Key intangible resources: • Ability to innovate new products • Strong analytical models to ensure cost control

18. Core Competencies • Ability to define market needs and create products to serve those needs • Ability to use technology to simultaneously improve customer experience and contain costs • Ability to identify and integrate acquisition targets • Ability to implement differentiation strategy to avoid price wars All are valuable, rare, costly to imitate and nonsubstitutable.

19. Value Chain Analysis • Primary activities of value: • Operations: Processes contain costs well • Outbound logistics: Internet strategy improves access to information by employers and consumers • Service: High responsiveness to customer needs • Support activities of value: • Technological development: Constantly improving internet presence • Firm infrastructure: Talented CEO, strong acquisition strategy

20. Summary SWOT

21. Strengths & Weaknesses • Strengths: • Humana’s resources and core competencies are valuable, rare, costly to imitate and nonsubstitutable. • Business model of leveraging technology to reduce customer costs and a focus on customer needs helps them respond to key market trends. • Weaknesses • Low margin industry. • Most competitors have matched Humana’s technological edge.

22. Opportunities • Growth can be expected in healthcare industry. • Individuals covered by government plans is increasing. • Proven success in acquisitions suggests opportunity to respond well to consolidation within industry. • Opportunity to expand into more wellness products, as consumers are interested in these kinds of products.

23. Risks • Although government business carries growth opportunity, it has inherent risks due to legislation, funding changes, etc. • Lawsuits have been an issue for Humana in the past, and could be again. • Humana has paid little attention to physicians and hospitals – they could retaliate, and have moderate power. • As competition imitates their business model, there will increasing pressure on price, unless they continue to innovate.

24. Strategic Alternatives and Recommendations

25. Strategic Alternatives • Continue current business model, focusing on technology and customers. • Exit government sector. • Look for opportunities to vertically integrate backwards. • Use its core competency in acquisitions to develop new business lines.

26. Strategic Recommendation:Keep Up the Good Work! • Continue current business model, focusing on technology and customers. Key area of growth is employee wellness. • Continue focus on growth through acquisitions • Continue to assess opportunity & risk in the government sector • Begin formulating responses to key trends: • Universal healthcare • Physician shortages

27. Questions & Answers