Introduction
Today’s business environment forces organizations to seek new ways to achieve competitive advantage. However, innovations in technology or products do not provide the opportunity for long-term advantage, as they can be copied by competitors. At the same time, organizational culture makes it possible to achieve increased efficiency and competitiveness in the long run. The issue of organizational culture becomes especially relevant in the context of the transformation of organizations, for example, during mergers or acquisitions. Cultural assimilation is the most difficult problem when merging companies, but the formation of a new corporate culture becomes the key to successful integration (Undesser, 2016). This paper attempts to assess the potential effectiveness of the M&A agreement between the largest American medicines retailer Walgreens and American prescription drug provider CVS Health Corp CVS. The deal is considered in the context of organizational culture and diversity.
The History and Culture of Walgreens
Walgreen Co. is the largest US pharmacy chain; in addition to medicines, Walgreen stores offer the standard assortment of any American grocery supermarket: household goods, personal care products, contact lenses, vitamins, and much more. The company has a capitalization of about $55 billion and operates more than 9,000 in-store pharmacies in different countries (Jimenez, 2019). Recently, Walgreens has pursued an aggressive development policy through the acquisition of competing companies, and now the pharmaceutical giant is planning to enter the European market.
The history of the Walgreen Company began at the dawn of the 20th century, from a pharmacy kiosk in Chicago, which was owned by Charles Walgreen. By 1913, it was already a chain of four pharmacies, and the fifth one opened in 1915, while the sixth in 1916 with already 20 by 1919 (Abbey, 2001). The next decade was extremely successful for the company; mass production of ice cream at the company’s factories began with the manufacture of a milkshake. By the mid-1920s, there were 44 Walgreens stores in the United States (Abbey, 2001). By 1930, there were 397 stores with total sales of $4 billion (Abbey, 2001). In the fall of 2007, the number of the company’s pharmacies had already crossed the 6,000 mark. Walgreens is highly focused on the extensive development and geographic expansion.
The company believes that marketers need to maximize customer experience by giving equal attention to e-commerce and offline sales. Walgreens launched Pharmacy Chat – a chat which consumers can use on the company’s website or app at any time of the day. According to the management, in this way, the line between online and offline sales almost completely disappears. However, the company’s statement is surprising: customers who shop both offline and in the mobile app are six times more valuable to the company than those who only shop offline. Public discrimination against a specific group of customers based on the way of their interactions with the company indicates the company’s extreme incompetence in the area of social responsibility, stakeholder relationship management, and reputation building.
In addition, one should note the lack of a systematic approach to innovation in HR, as well as insufficient understanding of the true role of corporate information systems in modern companies. As part of a new agreement with Microsoft, Walgreens is signing over 380,000 of its employees to its Microsoft 365 cloud applications and is moving most of its IT workload to the Azure public cloud (Landi, 2020). Changes in the company are carried out “from above,” without prior consultation with employees.
The History and Culture of CVS
The brand was originally called the CVS Consumer Value Store and has been located in Lowell, Massachusetts since 1963. The distribution network was owned by the original holding company Melville Corporation from its inception until CVS Health spun off from the parent company into its brand in 1996. Today, the CVS Pharmacy brand is the largest pharmacy chain in the United States in terms of the number of points of sale (over 9,600 in 2016) and terms of total revenue (CVS Health, 2017). One can say that the company has a very strong market position.
Today, the CVS Health chain of pharmacies and stores is Walgreens’ main rival. As the retail pharmacy branch of CVS Health, CVS Pharmacy is the 7th largest US corporation by Fortune 500 in 2016 (CVS Health, 2017). In comparison, the main competitor and potential takeover target of the retail chain – Walgreens Boots Alliance – came in 37th on this list. The CVS Pharmacy brand sells prescription drugs and provides a wide range of other products and services, such as brand-name drugs, beauty, and cosmetic products, photo printing services, seasonal products, greeting cards, and convenience foods. One can order and buy them through CVS Pharmacy and Longs Drugs stores, as well as online at CVS.com.
The chain also provides healthcare services through its over 1,100 MinuteClinics as well as through its own Diabetes Care Centers. Most of these clinics are located directly in CVS Pharmacy stores. The company’s specialists can prescribe medication, provide vaccination, and offer recommendations for medications and supplements. Management is constantly striving to improve the work of its branches and make the shopping experience for customers even more pleasant. Thus, various options for saving and improving the product range are constantly offered.
The main goal of pharmacies is “convenience, value, and service” – this is what the abbreviation “CVS” means. The company proclaims that corporate culture is, above all, the atmosphere that it maintains in relationships with customers and within the team (CVS Health, 2019). It is also noteworthy that the company’s employees receive the necessary knowledge during online training. Moreover, the company has fully automated the corporate training system. The platform is based on process management (BPMS), case management (ACM), and tasks plus social interaction. A corporate training management system has been created to process requests for coaching of leading employees of a pharmacy network and monitor the results of training. Thus, the CVS corporate culture is distinguished by its commitment to knowledge management and sharing, as well as the principles of a self-learning organization.
The company is focused on innovative and bold solutions which sometimes run counter to industry trends. In 2011, CVS Pharmacy received the Pegasus Comic Prize for selling homeopathic medicines along with officially recognized drugs. However, this fact rather speaks in favor of CVS, as it indicates the attention to the use of the achievements of alternative medicine and natural substances, their potential in the treatment and prevention of various diseases.
Evaluation of the Potential Effectiveness for Walgreens to Purchase CVS
The approaches of Walgreens and CVS to changes in the shopping behavior of consumers are not the same and have evident differences. Moreover, while Walgreens is characterized mostly by extensive way of development, CVS adheres to an intensive and innovative approach. The confrontation between the two largest pharmacy holdings in America has been going on for decades. Each of these competitors makes every effort to achieve leadership in pharmaceutical services. Both companies work on improving pharmacies service, quality, and implementing some innovations. They are struggling to retain their market positions, but they face tough competition from the side of big retailers – Wal-Mart and Target Stores. Amazon and similar universal market players are seriously monitoring the pharmacy market. While the e-commerce giant will likely need years to cut profits significantly for CVS and Walgreens, for companies it would be wise to prepare now for a potential new competitor.
Walgreens can be called profit-oriented, while CVS is customer-oriented. However, joining the efforts of these two companies can be called advisable, since clear procedures and unique elements of Walgreens corporate IS can become a potential driver of organizational performance of CVS, building sustainable competitive advantages. An indicator of an employee’s customer orientation is that he/she follows the instructions developed by the company for effective communication with product consumers. However, the employee must also understand that the priority is the client’s requests, which at times may be above corporate interests. There is a very thin line here, and an M&A deal between Walgreens and CVS will help find it. Since CVS is the buying company in this transaction, its management culture will be the framework into which Walgreens ‘technical’ practices can be successfully embedded.
Conclusion
Cultural assimilation is no less a challenge in M&A deals than the financial and legal aspects. Therefore, due diligence assessment of corporate values and culture is necessary, important, and complex. The success of mergers and acquisitions largely depends on the organizational culture, similarities and differences in the system of values, norms, style features of management activities, and the methods used to motivate personnel. However, with a competent approach to managing the organizational culture of the merged companies, it is possible to obtain a synergistic effect that contributes to the emergence of new competitive advantages. This is shown in the example of CVS purchasing of Walgreens, where the difference of corporate cultures is not a crucial one, and the approach of both companies to internal management, market strategies, work with customers can be successfully combined.
References
Abbey, M. (2001). Walgreens: Celebrating 100 years as the pharmacy America trusts. Walgreen Co.
CVS Health (2017). At the heart of health. Annual report. [PDF document]. Web.
CVS Health (2019). Delivering health when, where and how people need it. Web.
Jimenez, A. (2019). Walgreens has more stores worldwide. CVS fills more prescriptions. Both are trying to compete as the pharmacy business changes. Chicago Tribune.
Landi, P. (2020). 3 ways CVS and Walgreens are trying to beat Amazon and e-pharmacy startups. Fierce Healthcare. Web.
Undesser, V. (2016). The role of company culture in mergers and acquisitions: How company culture influences M&A success. Grin Publishing.