In 2003, Cardinal Health launched a rebranding campaign that gave the company a new visual identity. As a product of the rebranding, Cardinal wanted to show the public how it had expanded its offerings and diversified its areas of expertise. Unfortunately, the result was somewhat unfocused, causing their assets growth to decline. The company felt the only solution was to restructure internally. The project, titled “One Cardinal Health,” began in 2005 and lasted for 3 years until 2008.
During this three-year period, scattered divisions were sold off, and then consolidated from five to two. In 2007, Cardinal Health sold its Pharmaceuticals and Technology Division Services away to Blackstone. Cardinal then took its four remaining divisions and separated them into two distinct business segments – Healthcare Supply Chain Services (includes nuclear pharmacies and distribution centers) and Clinical and Medical Products (includes infection prevention, respiratory care devices, and dispensers for medication). Both divisions experienced revenue growth initially, but the Clinical and Medical Products division grew the most with a 46.8% increase in revenue for the year of 2008 alone.
In spite of the growth for its Clinical and Medical Products division, the Healthcare Supply Chain Services division was still underperforming compared to its revenues prior to restructuring. Tracking the chain of events that occurred between 2008 and 2009, it seems very likely that the company grew concerned that the Healthcare Supply Chain Services division would negatively affect the value of the Clinical and Medical Products division. Therefore, in hopes of unlocking the full value of the Clinical and Medical Products division, Cardinal decided to spinoff this segment as its own publically traded company, CareFusion. This new company was to focus on the sale of medical supplies, as covered by the Clinical and Medical Products division prior to the spinoff. The spinoff completed in September 2009, by selling off the division for $706 million.
Post-separation, both companies agreed to function as separate, independent entities, each with their own brand. So far, both companies are telling a solid story. Between product recalls and layoffs, problems have followed CareFusion since the split in 2009, but things appear to be looking up for the company these days. Their profit for this past quarter was up from that of last year, increasing from $38 million to $68 million, nearly doubling their returns for Q1. Those earlier mentioned problems may not have been within the company’s control, though, as it is highly probably that the recession played a part in their hardships. For example, in numerous cases, it is widely agreed by experts in the healthcare community that a harsher economy carried the unfortunately side-effect of provoking more careful spending on the part of hospitals and other medical facilities. So naturally, as a result of this fiscal frugality, CareFusion’s main source of income suffered. But as the healthcare industry presses out from the economic downtown, companies like CareFusion are expected to see a great deal of growth. Cardinal Health has had – some would say – much easier role to play in all of these matters. Devoid of one of its profitable sectors, Cardinal Health has been a steady track of growth since spinning out CareFusion. For the first time this year the company crossed the $100 billion revenue mark, and the company has made some notable strategic acquisitions in recent months to help grow their pharmaceutical business. The only chinks in Cardinal Health’s armor appear to be its decline on the Fortune 500 list, going from #17 last year to #19 this year.
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Critiquing both companies from a branding standpoint proves difficult. At the brand equity level, Cardinal’s decision to let CareFusion become its own company looks sound. They recognized how the value of their more synonymous division (Healthcare Supply Chain Services) could hurt the growing medical products division. After all, Cardinal’s main recognition and brand value stemmed from the pharma and wholesale space; it was only natural that the public would transpose the value of one underperforming sector to the overall company, and consequently, to the growing medical products division by proxy. A split provided a clear solution that allowed both divisions to retain their value without the successes/failures of becoming too heavily associated with the other.
At the same time, it does not seem as though Cardinal thoroughly considered all their options before moving ahead with this separation. Past experiences revealed they lacked the focus to maintain the company’s brand presence among a series of divisions, but the move to a simplified structure proved relatively successful. Why spinoff one well-performing segment so soon afterward without seeing if it could benefit the whole company? Transference goes both ways. The medical products division could have easily helped further the reputation of the supply chain division. Now, not only has Cardinal yet to completely rebound financially to its former state of revenue growth, but neither has CareFusion skyrocketed to the success foretold by its early earnings while still a part of Cardinal. Furthermore, all of the effort driven toward building the brand name of CareFusion just as easily could have been expended internally without creating an entirely new company, and instead by functioning as a division of Cardinal Health.
Two years in, it may prove too early and overly critical to call Cardinal’s decision a dud. They recognized their own brand history and actually took lessons from it. If Cardinal could not successfully balance multiple business units as it historically failed to do, then it made more sense to let this particular division become its own company and see how they fared. Not many businesses would go so far to recognize their own faults in this way and take measures to learn from them at the same time. And at the crux of the issue, one cannot honestly ask for a better brand strategy than that. With any luck, that self-reflectivness will pay dividends for both brands in the near future.
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Do you think Cardinal’s decision to spinout CareFusion was the right one? What other options could they have explored instead of their chosen course of action? Do you ever see both companies rejoining in the future?
Chime in with your thoughts in the comments section below!