Humana Inc Harvard Case Solution & Analysis


Humana Inc. was founded in the year 1962 by the two enthusiastic, energetic and young entrepreneurs named David Jones and Wendell Cherry. In the initial days of the company, it operatedin a single nursing home, the business grows with a good rate and in the year 1986 the company hadeight nursing homes. In order to expand the business of the company by a more rapid pace the management decides to go for an IPO. Humana Inc. is one of the largest integrated health care provider in the US. The health care provider provides services in three countries which are US, UK and Switzerland to almost 1.7 million patients.

It can be said that the company and its management are very familiar with the various dynamics of the organizational change because of the fact that the change had been successfully implemented in organization in thepast. The senior management of Humana assesses that the hospital management industry has very positive future outlook, in order to take benefit from this lucrative opportunity the management decides to terminate the nursing home services and begins to provide services in hospital management industry.
Humana Inc Harvard Case Solution & Analysis

According to some industry analysts, major part in the success of the company was played by the effective decision and strategy making of the senior management of Humana. The integrated strategy of Humana is the biggest reason of this huge success of Humana, under this strategy Humana provides both hospital management service and health plans to theindividuals and corporate clients. However, due to the recent change in the industry dynamics, it can be argued that the performance of Health plan segment of Humana fails to fulfill the expectations. In order to resolve this underperformance issue, the management is considering various options such as spin-off the health plan segment, sale of various hospitals and leverage buy-out.

Qualitative evaluation of available options:

Make two separate divisions:

The first option which could be considered by the Humana is to make both the segments two different subsidiaries, the operating structure of the company will remain the same. Both the subsidiaries will be managed by a single parent company, the overhead allocation method will not be altered after making the segments two subsidiaries.

The main advantage of this option is that current management will be able to exercise control over both the segment and the complex process of developing a new overhead allocation method will be avoided. Furthermore, the control of current management and shareholders will not be diluted as well. However, the main disadvantage of this option is that the current problems which is facing by Humana will not be resolved. Moreover, it would be very difficult for the management of parent company to manage the operations of two companies and it is also highly likely that the management of subsidiaries will be in severe conflicts regarding the overhead allocation system, this could undermine the effectiveness of this option.....................

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