Case Study In Better Business Strategy

Last night I had the privilege of joining my healthcare fellows for a private dinner with Creagh Milford, the President of Oak Street Health (a CVS company). (If you’re unfamiliar with fellows, check it out, and if you qualify, I strongly recommend you apply). While what’s discussed at these dinners stay private, there’s a lot in the public domain that fascinates me as a case study in business strategy, that I now see with deepened perspective.

Why did so many retail giants rush into retail health from ~2018 – 2022 and then retreat? CVS, Walmart, Walgreens, Amazon, Dollar General, all pushed into healthcare. Today, CVS claims 63% market share of retail clinics, a stunning victory amidst such competition.

Strategically, why did all of these companies decide to push forcefully into retail health, and what can we learn from it? Some of the rationale is obvious:

• Healthcare is a huge industry, so the opportunity is appealing. Great strategy is often bold. But greedy strategy often results in minimizing gaps, obstacles, and challenges while exaggerating the size and likelihood of winning. When your team is investigating a huge opportunity, slow down and force skepticism.

• These giants were already successful in other crowded marketplaces, so they were confident in their ability to win. Great strategy is enabled by a confident, capable team. Overconfident strategy exaggerates one’s starting position and its proximity to goal state. When your team thinks they will win in a new arena because they won in another, get specific with your team on why you won in the existing arena.

• These giants are already somewhat attached to their customers health experience (already selling some medicines and/or health products), so it wasn't insane to think this wasn’t a huge step from their core competencies (it is a huge step). Great strategy finds the best ways to grow results by connecting core competencies to new opportunities. Disconnected strategy underestimates the differences and challenges of a new arena. When investigating a new arena, get the experts from that arena in the room, and listen to them.

  
  

While much has been written about the past and ongoing battle in retail health, I’ll focus quickly on one obstacle that wound up crushing many of these competitors: the business model. In many of these models, the giants thought they could provide care at a lower cost than the market presently did and then make up for any financial shortfall with the amount of extra spend patients would spend on other, non-healthcare specific offerings. If you went to the doctor at a store, the thinking was that afterwards patients would walk over to the retail store and buy a bunch of stuff they wouldn’t otherwise have bought. For a while, big players pushed hard into this model, driving prices further but unsustainably down (a temporary win for us consumers!)

CVS, on the other hand, realized this business model couldn’t sustainably work. So they endured short term pain (some patients heading to their competitors) while it looked to the outside like their strategy was losing. Fast forward to today, and those competing clinics shut down.

I often say that great strategy doesn’t feel great, until the winning happens. In this instance, ultimate success is likely still TBD, but CVS’s strategic choices, painful at the time, have put them in the best position to succeed. Well played.