How New CVS Digital Lab Proves Value, Works with Business Units

By Scott Kirsner |  December 15, 2015

This is Not a Stand-Alone Business Unit

A lot of this lab is really to help CVS connect with the outside world of innovation — the investment, the talent, the energy, the ideas — and bring it into a company as big and as complex as ours.

I’ll give a little context on digital at CVS and then the lab will make more sense. I’ll tell you what it’s not: what we’re not trying to do is create a stand-alone business unit called CVS Digital Inc. I am not the president of CVS Digital Inc. I’m not driving towards a P&L that gets reported separately from the rest of the enterprise. A lot of big companies have been down that path. That’s not what the idea is for us.

We think digital is a catalyst for disruption and change in an industry that really needs it. Healthcare is changing in this country. Historically, it was centered out of the hospital in the big urban center. Doctors told patients what to do and patients were supposed to comply.

Digital has turned both of those things on its head. CVS has as well, which is basically taking healthcare closer and closer into the community. Digital is going to bring it into the home. It’s also putting the patient in control, in a way that wasn’t possible before.We want to be at the forefront of that. Our mission is putting people on the path to better health. I’m sure everybody knows us as the drugstore on the corner. We are that, but we aspire to be a lot more than that. We have an array of healthcare and pharmacy products and services that is really unique.

Digital is ultimately about making [healthcare] much more accessible, convenient, [and] proactive for the consumer. Orchestrating all that we do around the mission of making someone’s life and healthcare situation easier to manage.

I’ve been with CVS for about three years. We started this focus on digital then. Our initial initiatives were much more internally-focused, putting in place the enabling infrastructure and capabilities that we just had to build ourselves [such as a web services infrastructure that allows Tilzer’s team to plug into many other legacy systems at CVS.]

Rationale for Creating a New Lab

Then, as we thought about how do we move forward and create this vision of really transforming our company and healthcare system, we said we couldn’t do it by ourselves.

We needed to become much better at harnessing the talent, the investment, the innovation outside of CVS — connecting it and bringing it into our ecosystem to invent things that wouldn’t be possible for us to do by ourselves.

We thought we needed an office that was about engaging and partnering with promising younger companies, and also mature companies as well.

[We also needed] the ability to rapidly prototype and bring to market and iterate and co-innovate, to figure out how these new technologies could be relevant to our business, to our customers, and ultimately be incorporated into our business model.

We decided Boston would be a great location for that kind of lab, at a really neat intersection of all the technical innovation going on in Cambridge and the teaching hospitals right down the street. We’ve been at this now for about six or seven months.

Long-Term Innovation vs. Short-Term Results

[Within] big companies, you need to embrace some paradoxes. What I mean by that is on the one hand as human beings, as senior leaders, people want to be inspired by a purpose. We needed to create that big, bold vision of what digital could be.

Is digital just about selling Tide online, competing against Amazon at CVS? Is it actually something bigger? [For us, the] purpose is helping millions of people live healthier lives by making healthcare and pharmacy more accessible. That’s something we believe in. That’s our guiding light.

Then, we’re a publicly-traded company. How is it that I, as the senior leader of the digital team, is getting every last investment dollar channeled, so [our] talented people can actually go to work?

The way we do it is by generating impact and showing momentum. This notion of [having a] big, long-term vision, but also then building momentum and getting a snowball rolling downhill is the most critical thing we’ve had here. Without the vision, people would be saying, “Well, geez, how are you guys going to beat Amazon in selling Tide?” The answer is, we’re not.Without the short-term stuff, [what you are doing is] nice in theory, but how are you contributing to the quarter? As much as we want to be a healthcare company, we still have so much retail mentality in our culture that will be there forever.

Proving the Value of Digital Initiatives

How is it that digital has value? If I put a million dollars into something in digital, how does that translate to [our] financials improving? Prove it to me. That’s something we worked really hard at.

We now have a very precise model of, if I do X digitally, it translates to better medication adherence, which translates to more [prescriptions], or it translates to a customer who’s self-servicing for things that they might call for… It’s eliminating workload in our stores. Those kinds of models and those kinds of linkages are something that we’ve worked really hard at establishing.

We talk about moving from hypothesized value to proven value. The first couple years, we made statements like, “We believe if we actually get people to do X, Y, and Z, it will generate this number of [prescriptions.] Here’s our assumptions.” Then we said, “Give us a year to actually show that correlation.”

We showed the correlation, and we actually delivered the work. You deliver the work, and you deliver the outcome. You start getting some credibility with the management team. I think that’s point one.The other thing is the collaboration model. Our vision for CVS digital, like I said, isn’t a standalone business. We’re trying to weave digital into every aspect of our operations and business model.

Relationships with the Business Units

In order to do that, we can’t do anything alone. We can build websites alone but, to have digital transformation have impact, we [have to build relationships with business units so that] ultimately, the head of our pharmacy business in retail is saying, “I believe in what this impact is going to be. It’s going to hit my budget on this line item.”

This is where it’s tricky. We’re an enterprise organization. We report our results in terms of retail versus Minute Clinic versus Caremark. The reality is we have about eight discrete business units even within that. Each of those different teams need engagement and need partnership.

We’re organized [so that] we have a set of capabilities, like our lab, that work across the enterprise. Then we have business-unit-aligned teams that become extensions of the management teams in each of those areas, to ensure that we’re working on the stuff that creates value that ultimately shows up in the P&Ls across the businesses.

I think it’s been those two things — the collaboration with our partners, and the correlation to impact, that has been really important.

Linkage Between the Lab and HQ

When I was interviewing for the job, I did have the conversation to say, “Hey, guys, if I were to come back in a year or two and say we’re going to need to open an office [in Boston or the West Coast], what’s your reaction to [that]?”

I was making sure they were open to listen. If I had gone in [after] my first three months here and said, “Guys, we need to open a lab in Boston. I’m going to have 100 people located 60 miles from the home office. We’re going to be in probably some of the most expensive real estate in the company. It’s going to have an innovation lab,” I think I probably would have gotten a two-by-four taken to my head, in a nice corporate kind of way.

Timing’s everything. This group had to demonstrate we could deliver impact, and we could deliver impact through and in partnership with the business units before there would have been that kind of will. I think that’s the foundation.

The trick then is, how do we have independence and also continue to work with the business units? I think everybody who is working out of this lab is spending time in Rhode Island at some frequency. That’s part of it.

We’re getting better at the virtual thing. Within my team, I’m a pest about being accessible by Jabber [the Cisco videoconferencing and collaboration software], so we can do face-to-face. I know that when someone’s on the phone with me, they’re not doing their e-mail or I’m not doing it.

When you’re working with the Minute Clinic digital team, that’s one thing. When you’re working with the [rest of the] Minute Clinic team, a lot of face-to-face [at headquarters] is important. That comes with the gig. I think that’s an expectation we try to set with everybody.

Staffing the Lab and Training Leaders

We’ve selected people that we think can be both innovative and creative, but also understand what it would take in the bigger company to get stuff done. I put my entire leadership team, directors and above, about 50 people, through a course called “InterActive Leadership” with Burnham Rosen. It’s a great framework to think about an interactive model for leadership. That’s a big investment we made…to try and build those skills.

We’ve hired people from some of the biggest digital shops. Someone in the back row joined us from Sapient. We’ve hired people from Google. [Our CEO has said that in the past, CVS] tried to hire “ringers” from other retailers. How do you figure out which ones can be successful at CVS?

I think the big thing is really the organizational integration. No matter how hard we try, we are not going to be the fastest company… We’ve got to get faster, but we’re never going to be the fastest.

What we have to have is people who are inspired by the platform that they can work on. This is a platform where your ideas, when they hit, we [have] a million customers in our stores every day. We can drive 10 million downloads [of] an app just by making it a priority. The scale and the impact is really large, so the people who’ve been more successful are the ones who get excited about that, and are willing to invest the energy to integrate.

Doing Things Faster

The way we started this lab was [that] it was sort of directed innovation. I established a budget that said, “Here’s how much work we will invest.” It’s things that are not necessarily clear-lined to be return-generating this year, or maybe even next year, but are important.

Some of the things [we do here], like the notion of allowing someone to easily identify themselves and authenticate themselves [on a mobile device] is so foundational to a business like ours. We also want to be personalized in our retail business.We said, “You know what? That’s something we’re going to do.” We put up money, resources, and talent behind it to innovate, and to get traction going and get the process going. Now what’s happened is the lab has proven to be, for certain kinds of projects, a better way to get stuff done.

Suddenly, people said, “Huh. I can get something done faster [by working with the lab] than through the old process. What if I wrote Mr. Vijay [Kukreja, Director of Strategy and Innovations] a check that says, ‘I will let you go do this'” — by the way, he has an IT partner as well — “but we’re going to do it the lab way.” (Kukreja is pictured at right.)

What we’re increasingly seeing is we basically have the two-tiered process. We have directed innovation, where Vijay, I, or others on the leadership team are saying, “This is important. We’re going to invest behind it,” but it’s also becoming an alternative path to getting stuff done.

I think that the next step on the journey is going to be like, “Well, if it was a better way to get stuff done, why don’t we change our core process?”In the directed innovation, a very small group of us can be very top-down — driven around what has the highest financial value, customer value, and strategic value. [With] the business unit funding, we’re actually [letting] the free-market work, which is to say someone’s got money. They’re excited about [an idea, and working with the lab.] Let’s see what happens.

Why We Kill Projects

I can think of an example where [we were exploring] a technology to recognize a driver’s license and process it and use that as source of authentication. It was actually a vendor that I had identified initially. Through the rapid prototyping, it became pretty clear that the vendor didn’t actually cut the mustard. In that case, I think that wasn’t meeting our business requirements and we were able to cut it off.

We’re still in the market for a connected adherence pill cap kind of device, [to monitor and remind people to take their medications.] We had a few concepts. We had done one skunkworks effort to try to build our own. I think the team, and I have to give Vijay a lot of credit, just said, “Guys, this isn’t going to work,” and just killed it. Probably, we’re going to have to do a lot more of that as we get more mature.

Establishing Priorities

Let me just explain the model that we have within my team. I have business digital teams that are aligned to each business unit within CVS. We have a whole digital business that’s working every day with our merchants and the managers of the ExtraCare [loyalty and coupon] program. They’re working on a set of initiatives to drive value and create more impact.

The innovation teams, then, are working first with the business unit. Through our business units we have very clear priorities. We’re trying to make the way that our customers engage with the ExtraCare program, as an example, all mobile-driven.

We’re doing that through our digital business unit and a partnership with our loyalty team. The business priorities have been established.

I think the role of the innovation team is within the areas of directed innovation, where we say we are trying to explore X. [Our teams] become experts on how to identify a human being and get them registered, which is as important in a pharmacy business as [it is] with registering someone for a loyalty program. They’re bringing in ideas [aligned to our interests.]

There’s also a few projects [where business unit teams] are coming to the lab and saying, “Hey, we want to do something like this. We need your help in actually bringing it to market faster.”

Looking Outside of CVS

Our strategy is started with a commitment to being part of the digital ecosystem. That’s actually a big point that has taken alignment-building within CVS.

We just announced that we are partnering with Rock Health and MassChallenge, which are east coast and west coast [startup incubators.]

That’s new thinking for CVS. [We also now have] a commitment to on-going dialogue with big tech companies that we have a lot of mutual interests with. [We also have] committed, on-going, regular [discussions] with five to seven [venture capital] funds that we think are particularly relevant to our space. We’re going to announce in about a month our first strategic investment in a company that we’re working with through those efforts.

‘These are the Themes We Care about’

In terms of [our] approach though, the question has been, what are the spaces, the filters we’re going to use to say, “Where do we focus our innovation efforts,” and, “What is beyond the scope?”

We worked really hard to say, “There are four themes that we care about. Within those themes we define them as X, Y, and Z.”I’ll take digital health. That’s one of the themes we’re interested in. For those of you in healthcare, the [term] digital health is like a hundred miles wide. We could be investing in anything from the next Fitbit to information healthcare technology that hospitals use.

We needed to define which pieces of that space we cared about, and get aligned with our management team. For lack of a better word, it’s a shopping list. Some companies go into this saying they want to have a fund in healthcare. I think Merck’s very public that they [have a] venture fund. We’re not in the business of being a venture company. That’s not what we want.

What we want is innovation. If the right way to pursue it is making investments in companies, then that’s what we’ll do.Here’s what we offer and here’s the pitch. To healthcare companies, what’s unique is that we are both a retail pharmacy and we’re a PBM [pharmacy benefits manager.] There’s not another company where you can work with and have a scale of opportunity both in the B2B2C and the B2C spaces as working with us. I think that’s a unique value proposition.

If you’re a CEO of a pretty young technology company, why wouldn’t you want your technology embedded in one of the few sectors of the economy that’s actually growing very well?

I think that’s how we become unique, but at the end of the day, information flows freely. These things ultimately become competitive.

The Future of Mobile Payments

CurrentC is a mobile payment solution that a bunch of retailers co-invested in to try to provide two things.

One is the different phone manufacturers are creating their payment methods. [But we have] customers who are both Android and Apple users, so we like to support both of them.

The second thing is, bank fees have been something that have been really hard for retailers. The credit card industry [has] very few players with a lot of pricing power, and that has driven up very large cost increases. We’re trying to figure out the solution for both.

We actually have the first market pilot of [CurrentC.] I think it’s too early to read out on the results, [but] we’re optimistic. I think in the world of mobile payments, uptake on any of these solutions is not measured in days and weeks but in years and years. We’ll see.I think the mobile payments space is going to be one that continues to evolve. Ultimately, I think consumers are going to want a choice, like they want a choice in credit cards. If you fast-forward five years from now, I suspect there’ll be multiple solutions out in the market.

How We Work with Corporate IT and Marketing

We don’t do the engineering work ourselves. We have a dedicated IT engineering team that works with us.

Obviously there’s a tension in terms of speed and agility, versus stability, and just how digital applications get developed — it is very different from back-end infrastructure. I think that exists in most companies.

I think our corporate marketing team is ultimately the steward of our brand. I think they rightly see that the digital solutions we’re bringing to market, and the rapid adoption we’ve seen, are actually the best proof points of our brand purpose that they’ve got. I think increasingly, you’re going to see more and more of our brand media going towards supporting the digital message.

Mobile Devices Versus In-Store Technology

I’m really excited about the mobile device because it’s something that now 76 percent of the population has, and is using, and is comfortable with. There’s so much capability that exists in that.

We’ve made investments in things like iBeacon technology. We’ve rolled that out now nationwide and we’re using those. We’re trying to add power to the mobile experience. We’re still going to have in-store technologies that we invest in, but I just think that we’re so early in the impact curve around leveraging these devices we’re carrying around with us. I think that’s more of my focus right now.