Walgreens is one of the fortune 500 companies and among the fastest growing retailers in the country. Walgreens as of April 30 operated 8307 location in all 50 states including the District of Columbia, Puerto Rico and Guam. This includes 7855 drugstores, 146 more than a year ago, including 21 stores acquired over the last 12 months. The company also operates infusion and respiratory services facilities, specialty pharmacy and mail service facilities. They also have a take care health system subsidiary which manages more than 700 in-store convenient care clinics and worksite health and wellness canters.
This research is based on the problem facing the company on how executive decision making in the company has caused a negative impact and low productivity level among employees due to their decision to discontinue having Express Script (ESI) as their third party provider. The result of this research is to determine how corporate decision has impacted employee morale and thus resulting in high employee turnover. Which as a result led to several questions arising as to how to deal with the Express Script debacle, which are as the follows? 1) How do we make up for the ESI loss?
2) How do we empower the employee by boosting their morale after taking drastic measures (Job elimination, reduction in hours, Extreme pay cut) to make up for the lost profit? 3) How has corporate decision impacted the morale of employee productivity and personal growth? Walgreens has always provided good customer service, but changes in the competitive environment and in consumer behavior and expectations have caused them to intensify their focus. Walgreens’ mission is to win the hearts and pockets of their customers by providing that “wow” experience and delight score from customer appreciations.
As a manager with the company, my role is to support the strategy by focusing on the strategy to deliver an outstanding customer experience through enhanced employee engagement by encouraging actions that will advance the experience to extraordinary levels for all customers. Also, to help all team members adopt an extraordinary customer care by listening and acting out customer’s expectations for the care and commitment they want to experience.
With the tremendous growth and opportunity to expand, Walgreens was hit by hard times due to a proposed rejection by Express script (ESI) a major pharmacy third party provider. This decision led to different changes within the organization called “Rewiring growth” and field transformation. Walgreens took a stand and made a tough decision not to sign the 2012 contract with ESI. The result of this decision was a lost in the pharmacy sales with projected amount totalling almost six billions dollars’ worth of business lost to their competitors. (Walgreens Company Correspondent on ESI Debacle)
Even though, the company thought they made the right decisions on behalf of their customers, patients and employees by not agreeing to the proposed terms and agreement by the ESI, they made a huge mistake because the bottom line of the whole debacle is that we lost totally. The board of directors and top executives won’t admit they are wrong, they didn’t think they will lose and after ESI told them what they want and Walgreens was still insisting that demands be met. They thought ESI was bluffing and after December 31st 2011, they dropped Walgreens from their network services. LITERATURE REVIEW
A Literature review was conducted to determine how alienating Walgreens from the ESI network has caused a major constraint on the payer, patients, and employees. Each party used different strategy to keep their patients’ in their network. Walgreens began putting signage out encouraging consumers to talk to their insurance plans about excluding them from the network and for Medicare members to choose plans that aren’t run by Express Scripts. Walgreens also gave out a pamphlet about what happens when you remove them from the network.
It goes as follows: Key Statement: Excluding Walgreens from a pharmacy network will result in little to no savings for most sponsors and patients, and in some cases will raise costs, while causing significant patient disruption and risking gaps in care, and increasing administrative costs on plan sponsors. As part of this document, they are encouraging payers to consider directly contracting with them and/or creating a custom network (if their PBM contracts allow for that). They state that their costs are comparable to other retailers or within 2% of their costs. They say that 90-day retail generates a 6-8% savings compared to 30-day retail based on the pricing that they offered to Express Scripts.
However, since Walgreens decided not to comply by agreeing to sign the contract, ESI had no choice but to drop them from their network. This decision was a far cry from what they anticipated because they thought a resolution will occur before the end of the year. While both parties are dug in, it is a lose-lose situation for this debacle to stay unresolved, but after Jan 31st 2012, it became a win-lose situation for both ESI and Walgreens respectively.
That being said, a lot of changes happened at Walgreens in order to make up for the loss which is as follows: This creates greater use of the Walgreens discount card and/or cash business at Walgreens especially for lower cost generics. Alienating Walgreens creates a disruptive force in the FTC review of the proposed Medco acquisition. Another PBM jumps in to do a creative deal with Walgreens which limits their long-term ability to work with Express Scripts. Express Scripts ends up in a shotgun relationship with CVS.
The terms of PBM contracts get changed going forward based on new terms regarding retailers. This validates the integrated model of CVS and Caremark This creates a large number of limited networks. This creates a wave of direct contracting between payers and pharmacies. Walgreens becomes a much more vocal voice in the retail world through NCPA and other organizations. Between this and the merger of Express Scripts acquisition of Medco, the landscape in the PBM market was drastically different by early 2012. (http://georgevanantwerp.com/2011/09/08/walgreens-and-express-scripts-the-plot-thickens)
Walgreens has lost millions of dollars in prescription sales this year, and saw its second-quarter profit decline almost 8 percent because of its departure in January from Express Scripts — the nation’s largest network for filling drug prescriptions. (El Paso times, May 19, 2012)
“Walgreens executives give no signs they will try to negotiate a new deal with Express Scripts and said Walgreens will weather the storm with cost cutting and going after new business.” (El Paso times, May 19, 2012)
As a result of this decline, a lot of changes have taken immediate effect to affect the store level employees, like, extreme pay cuts, reduction in hours, hiring freeze, position eliminations etc. In return, this has left a lot of employee very unhappy and disgruntled about their jobs, which brings out a low morale and unsatisfactory job results. Most employees are very upset about the decisions the top management had made because in the end, it only affects the employee because obviously, the
chairman of the company wasn’t affected based on the bonus he received in the amount of 10.6 million dollars in cash last year.
This is a 36% increase in his salary, a lot of employees were very upset when they read the report on Google and demanded an explanation why our President and CEO is getting a raise when the company is losing almost 6 billion dollars in sales. Here is an excerpt from the associated press: “An Associated Press analysis of a regulatory filing shows Gregory Wasson received compensation worth $10.9 million in fiscal 2011, up from $8 million the previous year. Walgreen Co. is the largest drugstore chain in the U.S., with more than 7,700 stores.
Wasson, 53, has been Walgreen’s president and CEO since February 2009. All portions of Wasson’s compensation grew. His salary rose 12 percent to $1.2 million. His stock awards climbed 67 percent to $5.6 million, the value of his options increased 30 percent to $2.2 million and his non-equity performance bonus went from $1.7 million to $2.7 million. His perks in 2011 were worth $339,977, up from $194,577.” (http://townhall.com/news/business/2011/11/18)
The negative consequences brought on by the decision made by Walgreens executives include lower employee morale, disgruntled employee, high turnover rate, excessive tardiness and insubordinate behavior. Ultimately, management will think twice in the future before making a huge decision like this, so employee performances and morale will not suffer. “Acknowledging management’s responsibility for morale and turnover opens the door to creative solutions”. (Hacker, 2000, preface p.xvii)
SUGGESTIVE SOLUTIONS TO THE PROBLEM
Walgreens has decided to use different strategies to increase revenue to make up for the ESI loss by implementing the following strategies: a) Filling in more prescription volume – by attracting at least 18 new patients per store, they could replace the business lost in their dispute with ESI. b) Suggestive selling – this is a tool can use in the store every team member to increase profit c) Promoting private brand – by upsell more private brands, the merchandising team is providing updated product guides and fresh package graphics.
d) Incorporating the well experience into their daily living – to be known for providing a new selection of health services that create value for both consumers and healthcare systems. e) Prescription savings club – They have signed up more than 700,000 new patients for the prescription savings club (PSC) since January. The PSC card offers savings on more than 8,000 brand name and all generic medications. f) Reinvent their cost structure through continuous improvement and innovation g) Expand across new channels and markets
h) Delivering outstanding customer experience through enhanced employee engagement i) Transforming the traditional drugstore to a “retail health and daily living” store j) Transforming community pharmacy to play a greater role in healthcare through integration and expanded services. These are some of the ways Walgreens has planned to help fill the potential $6 billion revenue gap created when their negotiations with express scripts was unsuccessful. (Walgreens World Magazine January, 2012)
Despite all this key strategies, Walgreens is still in the hole with their stock price down to $31.02 from $44, the hiring freeze, field transformation, rewiring growth and job elimination. I will recommend, at this point that Walgreens needs to put their ego aside and renegotiate their contracts with ESI because the worst is yet to happen. Since Express Script and Medco merged in March more patients are leaving the network, what happens then when CVS Caremark decided to pull the plug on us?
1) (Hacker, 2000, preface p.xvii)
3) (http://georgevanantwerp.com/2011/09/08/walgreens-and-express-scripts-the-plot-thickens) 4) Walgreens World Magazine
5) Walgreens Company Correspondent on ESI Debacle
6) El Paso Times Magazine