Disruptions vs. Disturbances – Walgreens

by | Nov 4, 2009 | Current Affairs, Defend & Extend, Disruptions, Food and Drink, General, In the Swamp, Leadership

Walgreens is apparently going through a dramatic change in leadership.  Drug Store News reported that the top 2 folks, including the top merchandiser, have left Walgreens in "What it Means and Why It's Important: Wlagreens confirms departure of Van Howe."  The article discusses the "old guard" departure and arrival of younger, new leaders.  The magazine clearly paints this as a Disruption. 

But I have my doubts.  There's no discussion of future scenarios in which Walgreens is going to be a different company – not even a different retailer.  There's no discussion about competitors, and how more prescription medications are being purchased on-line from new competiors, or even how Walgreens intends to be very different from historical brick-and-mortar competitors like CVS or Rite-Aid.  No discussion about how the company might need to change its real estate strategy (being everywhere.)

There's really no discussion about changing the Walgreens' Success Formula.  It's Identity has long been tied to being first and foremost a "drug store" (or pharmacy).  A market which has been attacked on multiple fronts, from grocers and discounters like WalMart entering the business to the insurance mandates of buying drugs on-line.  To be the biggest, Walgreens' strategy for several years has been tied to opening new stories practically every day.  It was shear real estate domination – ala Starbucks.  Although it's unclear how profitable many of those stores have been.  Tactically Walgreens has moved heavily into cosmetics as a high turn and margin business, then items it an bring in and churn out very quickly – such as holiday material (Halloween, Thanksgiving, Christmas, Valentines Day, St. Patrick's Day, etc.), shirts, sweatshirts, on and on – stuff brought in then sold fast, even if it had to be discounted quickly to get it out the door.  Churn the product because the goal is to sell the customer something else when they come in for that prescription.

There is no discussion of these executive changes creating in White Space to develop a new Walgreens.  Without powerful scenarios drawing people to a new, different future Walgreens – and without a strong sense of how Walgreens intends to trap competitors in Lock-in while leveraging new fringe ideas to grow – and without White Space being installed to develop a new Success Formula to make Walgreens into something different —– this isn't a Disruption.  It's a disturbance.  Yes, it's a big deal, but it's unlikely to change the results.

Reinforcing that this is likely a disturbance the article talks about how the company is starting to obsess about store performance – down to targeting every 3 foot section for better turns and profits.  The new leaders plan to work harder on supply chain issues, and store plannograms, to increase turns.  They intend to put more energy into prioritization and reworking promotions.  In other words, they want to execute better – more, better, faster, cheaper.  And that's not a Disruption.  It's just a disturbance.  This may make folks feel better, and sound alluring, but experience has shown that this is not a route to higher growth or higher sustained profitability.

I don't expect these management changes to remake Walgreens.  Walgreens has been a pretty good retailer.  The Success Formula worked well until competitors changed the face of demand, and market shifts wiped out access to very low cost capital for building new stores.  The Success Formula's results have fallen because the market shifted.  Refocusing energy on being a better merchandiser won't have a big impact on growth at Walgreens.  The company needs to rethink the future, so it can figure out what it needs to become in order to keep growing! 

Real Disruptions attack the status quo.  They don't focus on better execution.  They attack things like "we're a pharmacy" by perhaps licensing out the pharmacy in every store to the pharmacist and changing the store managers.  Or by selling a bunch of stores to eliminate the focus on real estate.  Or by promoting the Walgreens on-line drug service in every store, while cutting back the on-hand pharmacy products.  Those sorts of things are Disruptions, because they signal a change in the Success Formula.  Coupled with competitive insight and White Space that has permission to define a new future and resources to develop one, Disruptions can help a stalled company get back to growing again.

But that hasn't happened yet at Walgreens.  So expect a small improvement in operating results, and some financial engineering to quickly make new management look better.  But little real performance improvement, and sustainable growth, will not occur.  Nor will a sustained higher equity value.

Keep an eye on Dell – good things happening!

by | Oct 20, 2009 | Current Affairs, Disruptions, In the Rapids, In the Swamp, Leadership, Openness, Web/Tech

Can you believe a BusinessWeek headline like "Dell's Extreme Makeover"?  We read about turnarounds and makeovers all the time.  Only most of the time they don't turn, and they don't get made over.  Most companies cut a lot of costs, make a lot of promises, but keep on doing the same stuff.  They get worse.  They get acquired, or they fail.  And readers of this blog know that I've long chastised Dell as an example of a Locked-in company with little hope of turning around.

But, I'm changing position today.  There's a LOT of the right stuff happening, and the seeds are being sown, doing what really works, for Dell to be a good future story.

Scenario planning for the future:

  • Michael Dell admits in the article that he stuck to his original Success Formula of supply chain expertise feeding direct sales too long.  He admits that future success requires a new Success Formula.  Specific future scenarios aren't disclosed, but it is apparent that the company does not expect future markets to look like the markets of 1995-2005.

Focus on Competition:

  • Management says Dell is "not trying to become like the competition"!! That is great, because winners do new and different things.  They don't try to copy/catch existing competitors.
  • Dell did not chase Apple into opening its own stores.  Good move.  Dell isn't Apple, and can't win trying to be like Apple.
  • Dell was previously obsessed with its top, big customers.  Big corporate accounts.  It slavishly built a business trying to please the top 10%.  Now Dell is winning by putting considerably more attention on customers it previously ignored:  consumers, small business, medium business and government.  This not only balances the company, it keeps Dell from chasing Locked-in customers into the same old fox holes.

Disruptions:

  • Michael Dell has replaced 7 of his top 10 direct reports.  That's a huge step in the right direction.  GM should follow that lead!
  • Dell has defied its old "direct to customer" mantra by taking consumer products into retail stores!  The added cost to do that, and new skills required, must have shaken buildings at the Texas headquarters campus.
  • A new head of design developed options customers could specify for their consumer computers.  Manufacturing said it would violate the supply chain efficiency so "NO."  Michael Dell over-rode the manufacturing group and said "do it."  He reinforced that efficiency would not save Dell.  Manufacturing would have to adjust to innovations for Dell to succeed.
  • The company has reorganized away from products (how almost all tech companies structure – including Apple) and installed a new structure organized around MARKETS!!  What a great way to quit being product-push and become market-learn!

White Space:

  • A board member said that after eating dinner with Michael Dell he could see that this"journey at Dell is just in its first or second inning."  Although not much White Space was discussed, this implies some big things are being discussed and planned for the future.
  • The article says Dell is preparing to launch smart phone sales soon.  This is critical, because smart phones are part of the market shift away from PCs.  Dell has a lot of learning to do in that market to be part of the shift.

This is not a "done deal."  I wish I knew more about Dell's scenario planning – to be sure the company has switched to planning for the future and away from planning from the past.  And I really wish I knew more about what White Space is being planned.  Because we know you can't transition by changing the big organization all at once.  The behemoth needs some wins it can use to lead the migration.  And seeing White Space projects, with a group shepherding them into the lifecycle, is a really critical step to follow-up the many Disruptions.

So things could still go badly for Dell.  But they WON'T go as badly has they went from 2005 to 2007.  From this one article, the first interview with Michael Dell since he took the reigns back in 2007, it is clear lots of the right things are happening to move Dell from the Swamp backinto the Rapids. There is improvement happening, and The Phoenix Principle looks to be in early implementation stages.  If Michael Dell and his team stick with it, this could be a big winner for your portfolio!