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 / Autumn 2013 / Issue 72(originally published by Booz & Company)


Changing Structures and Behaviors at Walgreens

When your strategy shifts, you may need to redesign your organization as well.

Change is never easy, and when you’re a 112-year-old enterprise like Walgreen Company (“Walgreens”), it’s even less so. For most of the past three decades, our success came from expanding our retail footprint. That was our business strategy. We called it “seven by 10,” meaning we wanted to have 7,000 stores by 2010. In fact, we beat that goal—going from 4,250 stores in 2003 to 7,000 in 2009. At our peak, we were opening a store every 17 hours.

To support the seven-by-10 strategy, we had some well-refined capabilities. For example, we were very good at managing real estate, including construction and analytics. We could tell you almost anything about any street corner in the United States. We could predict, within 3 percent, the volume for a potential new location in various categories, including pharmacy and front-end sales.

The old Walgreens business strategy required a command-and-control approach to leadership. We set out clear processes for our employees, and they followed them. It was straightforward and effective for the task at hand, and it worked for a long time. But then the competitive landscape changed. New rivals entered the market, such as third-party pharmacy benefits management companies that deliver prescriptions by mail. More grocers started offering in-store pharmacies. An even bigger challenge was the growth of Internet pure plays, like Amazon and Google, which sell most of what we carry. All of these had the potential to lure customers out of our stores.

At the same time, we started to see significant changes in healthcare, which ultimately resulted in the passage of the Affordable Care Act and the advent of accountable care organizations. Throw in the worst economy since the Great Depression, and we knew we had to change our strategy. In this new market, with the huge push to improve quality and reduce overall healthcare costs, Walgreens had a significant opportunity to become a player in the healthcare value chain. As a result, we evolved from simply filling prescriptions for people to becoming a single point of patient care, and a destination for health and daily-living products and services for our customers.

To succeed in this new role, we had to change our business strategy. Instead of relying on a real estate play—location, location, location—we focused on improving the customer experience. As our strategy evolved and our focus changed from opening stores to delivering an exceptional customer experience, we recognized that not only was the command-and-control approach outdated, but it also prevented us from getting the best from our people. We were missing the richness of empowering them to come up with solutions on their own.

We looked around at other retail players known for delivering a quality experience. It’s strange—people have an emotional connection to a cup of coffee. We provided healthcare and didn’t see that emotional connection anywhere in the drugstore space. Our market research data also told us that customers didn’t perceive differences among the major drug retail chains. We realized that we could really differentiate ourselves based on the experience we delivered. This represented a fundamental change in how we engaged with our market. We wanted to be more than a simple retail chain—we wanted to be an experience provider.

To execute that strategy, however, we needed to redesign some components of the organization. We had to focus our frontline and field leadership on coaching employees and creating the right customer interactions. And we had to free up time among leaders to enable this. This was only partly a structural issue. We’d clearly need to redefine roles, but we also knew that some of our incentives weren’t aligned with the new behaviors we wanted among the field employees. Decisions were an issue too; leaders spent too much time making decisions that could be better handled elsewhere.

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