Changes at Your Local Pharmacy: Lessons in Bold Leadership
What's happening in the pharmacy business is a study in leadership, with important lessons for pharma.
CVS (now CVS Health) continues to make headlines for its decision to discontinue selling cigarettes and double-down on healthcare, Walgreens has invested in behavior change training by Dr. B.J. Fogg for its community pharmacies, and WalMart is promoting itself as a provider of primary care.
What is happening in the pharmacy industry is what economists call “secular” change. How these pharmacy service providers are responding provides three helpful lessons for pharma leadership facing similar business model challenges.
1. Secular business change is not the same as cyclical business trends, and it's critical to know the difference.
Cyclical trends are part of the normal business cycle. But secular change means the entire industry is evolving, and it can threaten business viability. CVS recognized that consumers are turning to Amazon to buy toothpaste and paper towels—and with “anticipatory shipping” we will soon get these household items cheaper without surrendering convenience. Commoditization is a secular trend.
So what do you do when your high margin business is attacked? You pivot. You look for an underutilized company “crown jewel” around which to build a new business.
The new growth horizon for pharmacies is in retail clinics and chronic disease management. Healthcare services, traditionally in the back of the store, are now moving to the forefront. CVS Minute Clinics and Walgreens Take Care Clinics are expanding rapidly. There is a big opportunity to provide both immediate care and chronic care management.
Pharma similarly faces the threat of commoditization as the traditional purchase decision moves from individual physicians to ACO procurement officers with pricing leverage. The strategy? Find an underutilized company crown jewel—disease expertise, targeted therapies, digital technology, patient advocacy, ecosystem partnerships—around which to pivot to a broader healthcare value proposition.
2. Anything that distracts from the new business model, even if profitable, must go.
For CVS, building a healthcare organization meant that selling cigarettes was untenable. Even at the cost of $2 billion, it had to go.
Pharma is similarly burdened with old habits and entrenched fiefdoms and low-margin revenue that act as a drag on business model innovation. Anything that diverts attention from creating a new value proposition must be put on a retirement plan.
3. With repositioning comes a reordering of category leadership.
The shift from physician-based medicine towards retail clinics is what Clayton Christianson calls “precision medicine.” In five years, with its focus on chronic disease management and its partnership with Johns Hopkins Medicine, Walgreens may be leading an entirely revitalized category of pharmacies focused on primary care.
Is there a new category opportunity driven by pharmaceutical products but with a broader impact on consumer outcomes? There will always be pure play pharmaceutical manufacturers, but they will be increasingly dominated by a handful of generic multinationals and a cohort of niche lifestyle and specialty biotechs. What about the companies in the middle of the bell curve? What's the pivot move?
The retail pharmacy industry has several examples of what can happen when you get a board of directors willing to make bold moves. It's a timely lesson for pharma leadership, too.
David Ormesher is CEO of closerlook, inc.—a digital marketing agency that helps pharmaceutical brands build and maintain relationships with healthcare professionals. He can be reached at firstname.lastname@example.org or on Twitter @ormshr.