Big companies often let their best assets become liabilities. Experience is a great asset, but it helps companies dominate old businesses, not new ones. How can anyone have experience at something that hasn’t been done before? In fact, people experienced in doing things in old ways will bristle at change. Even doctors, who are exceptionally bright and research-oriented, have a hard time with new techniques and technology. Studies have found that doctors tend to keep doing what they learned to do in medical school and in their residencies. It takes 15 years for established science to permeate medical practices, even for something as simple as having patients take an aspirin a day if they are at risk of heart attack.
Walgreens provides a great example of the power of rethinking from scratch. The pharmacy chain is claiming a new position in healthcare as the world of medicine is reinvented.
Like many iconic businesses, Walgreens started with a fundamental reconception — but that was a long time ago, not long after Charles Walgreen moved to Chicago in 1893 at age twenty and, in a gesture symbolic of a fresh start, took the last pennies out of his pocket and threw them into the river. After working in a pharmacy for close to a decade, Walgreen bought a drugstore on the South Side and revolutionized the concept. He widened the aisles, improved lighting, and broadened the selection, including pots and pans. He emphasized personal service—and was clever about making sure customers noticed. When someone called in a prescription, Walgreen said it loudly and distinctly so an assistant could fill it while Walgreen stayed on the phone. Walgreen would chat up the caller to keep her on the phone long enough for the assistant to arrive with the prescription— customers talked about how Walgreen was so fast he’d deliver your order before you could even hang up the phone. Going beyond soda fountains, whose cold concoctions were popular only during summer, Walgreen installed a lunch counter that stayed busy year-round. (During Prohibition, his pharmacies were known to stock whisky behind the counter.) By 1929, the one Walgreens store had turned into 525.
Two generations later, in 2000, after a grandson turned Walgreens into the iconic corner drugstore, the company operated more than 8,000 stores across the US.
But there weren’t many more corners to occupy, so expansion needed to slow. Meanwhile, pressure was building, partly because of the Internet. Huge intermediaries known as pharmacy benefits managers (PBMs) had sprung up to negotiate better prices for corporate insurance plans, and the PBMs were squeezing profits out of pharmacies such as Walgreens. The PBMs helped steer customers toward mail order and the Internet for medicines that they needed to order repeatedly, rather than going to their local drugstores. Roughly two-thirds of Walgreens’s sales comes from filling prescriptions, so online defections stung. At the same time, the spread of other types of convenience stores, including those at gas stations, cut into other sales.
Rather than fight a defensive war of attrition, in 2006 Walgreens took out a clean sheet of paper. Executives had seen competitors open clinics and realized that Walgreens might be able to skim off a layer of health care that hospitals didn’t provide efficiently, undercutting them on cost while bringing more traffic into stores. Walgreens started small, with mostly nurse practitioners treating pink eye and strep throat and administering flu shots. But, after finding customers receptive to low prices and short waits, Walgreens has steadily offered more complicated procedures. In 2007, Walgreens bought Take Care Health Systems, which has 700 clinics across the country, and began treating chronic diseases such as diabetes, hypertension, high cholesterol, and asthma. Walgreens also provides certain kinds of care in homes and assisted-living facilities, and has announced plans to provide hospice care nationally. Basically, Walgreens has imagined itself a role as the nurse practitioner of the United States, leveraging its brand and its 8,500 locations around the country. As PBMs and others eat away at the company’s prescription business, Walgreens is moving upstream and stealing business from hospitals and other health care providers.
The pioneering computer scientist Alan Kay, who has worked at places like Xerox PARC and Walt Disney Imagineering, famously said that “the best way to predict the future is to invent it.” Companies like Walgreens are proving that to be true. But Kay also says that a different version of his maxim applies to companies that cling to existing businesses and decline to reinvent themselves. At those companies, Kay says, the view is that “the best way to predict the future is to prevent it.”
“The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups.”
Mui is co-founder and managing director of The Devil’s Advocate Group.
Chunka Mui is Co-Author, The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups”
