• What we do
  • The People
  • About Us
  • Why Innovation Africa
  • Contact Us
Innovation AfricaCreating the Future Today
  • Feature Articles
  • Innovation
  • Agriculture
  • ICT
  • Technology
  • Entrepreneurship
  • Health
  • Store
  • Contact Us
Menu
  • Feature Articles
  • Innovation
  • Agriculture
  • ICT
  • Technology
  • Entrepreneurship
  • Health
  • Store
  • Contact Us
  • When to Change a Winning Strategy

    July 27, 2012 Editor 0

    From HBR

    Companies tend to repeat what has worked for them in the past. In our research on the telecom industry, for example, we found that the great majority of the executives we surveyed preferred internal development to external sourcing when they needed to develop differentiated products and services. We get similar results in other industries, though the preferred growth mode may differ.

    The reliance on a single growth mode is misplaced. The other key finding from our research is that firms prepared to grow in diverse ways outperform the ones that narrowly focus on one single mode. Specifically, we found that firms using multiple modes to obtain new resources were 46 percent more likely to survive over a five-year period than those using only alliances, 26 percent more likely then those using only M&A, and 12 percent more likely than those using only internal development. To succeed, therefore, managers have to learn when and how to abandon the strategies they have grown up with.

    The latest firm to learn this lesson is the pharmacy chain Walgreens. Its story starts like many success stories do: An innovative concept coupled with a first-mover advantage, enabling a rapid physical expansion and generating increasing returns to scale. Walgreens was a pioneer in the “self-service” format that is now ubiquitous in general-purpose pharmacies, and it became the largest self-service retailer in the country through the green-field development of new stores and distribution centers.

    But by the end of the 1990s, the company had run out of steam. Its business model was looking out-dated as the Internet and mail order channels became more important. Pharmaceutical benefit managers (PBMs) were also growing in strength and aggressiveness. There was a larger focus on generic drugs and generic drug leaders. And there was new domestic competition from stores like Target and Wal-Mart, as well as growth in emerging markets.

    Walgreens initially responded to these challenges an internally-focused strategy. It created its own PBM and started an online pharmacy in addition to opening almost 1,000 new stores in the U.S. so as to increase coverage. The strategy had moderate success at first: Sales and assets grew gradually, while profitability remained stable and even grew slightly. But it was hard work and returns soon started falling off.

    So in 2005 Walgreens started to break with its traditions. Over the past seven years, it has made a series of acquisitions and alliances to expand into new US regions and new product lines. In parallel, the company has divested activities that were no longer part of its growth strategy – including selling its PBM business, relying instead on contracts with other PBMs to supply drugs to their members. Walgreens has continued to use internally-driven growth where appropriate, but the change in its growth strategy is helping Walgreens to reposition itself in a dynamic environment.

    This change in Walgreens’ approach to growth has finally started to pay some dividends. After ten years of lagging the sector and, more importantly, archrival CVS, the company’s share price has come back to life this year, posting a 20% rise in July.

    The Walgreens story shows the dangers of becoming reliant on one growth strategy, even a successful one. When the environment changes, as it inevitably will, it is difficult to learn how to use new modes of obtaining key resources quickly and well. It has taken Walgreens almost a decade to learn how to use acquisitions and alliances to complement its internal development strength.

    The moral of the story is that it is better not to fall into the trap of being reliant on a single growth strategy. Sustained profitable growth requires a balanced portfolio of growth strategies and the management capabilities to implement them. Firms that do not carefully weigh competing paths, but instead dutifully replicate a preferred past method — no matter how diligently they pursue it — will often stumble and fail. They will lose ground to firms that pursue more disciplined and multi-faceted approaches of reviewing, selecting, and balancing the different growth paths.

    As for Walgreens, time will tell whether it maintains the discipline. The company’s latest move — taking a 45% share in European health and beauty group Alliance Boots for $6.7 billion — has raised some eyebrows in the financial community: it is a surprisingly big bet on Europe in the midst of the euro crisis. But perhaps the bigger long term risk is that the company will fall into the trap of becoming to reliant on big acquisitions of this kind going forward and forgets the virtues of the other pathways to growth.


    Go to Source

    Related Posts

    • Taking Your Brand Global Is Easier Than You ThinkTaking Your Brand Global Is Easier Than You Think
    • Strategy, structure, and channel for global leaders of industrial service: a flow chart analysis of the expanded value networkStrategy, structure, and channel for global leaders of industrial service: a flow chart analysis of the expanded value network
    • Are you an Innovator /entrepreneur? Do you want to inspire others?Are you an Innovator /entrepreneur? Do you want to inspire others?
    • When monetizing a digital service, these are the commissions you can ask per industry.When monetizing a digital service, these are the commissions you can ask per industry.
    • The Imperatives of an Organization Built for SpeedThe Imperatives of an Organization Built for Speed
    • What makes a nation smart: the view from SingaporeWhat makes a nation smart: the view from Singapore
    Sovrn
    Share

    Categories: Insights

    Tags: growth strategy, internal development, Walgreens

    Social innovation: tackling poverty through social change 5 key Success Factors to Enable Transformational Innovation within Businesses

    Leave a Reply Cancel reply

    You must be logged in to post a comment.

Subscribe to our stories


 

Recent Posts

  • SL Crowd Green Solutions September 21, 2020
  • Digital transformation in the banking sector: surveys exploration and analytics August 3, 2020
  • Why Let Others Disrupt You? Take the Smart Self-Disruption Journey! August 3, 2020
  • 5 Tips for Crowdfunding During the Pandemic August 3, 2020
  • innovation + africa; +639 new citations August 3, 2020

Categories

Archives

Popular Post-All time

  • A review on biomass-based... 0.9k views
  • Can blockchain disrupt ge... 697 views
  • Prize-winning projects pr... 692 views
  • Apply Now: $500,000 for Y... 611 views
  • Test Your Value Propositi... 537 views

Recent Posts

  • SL Crowd Green Solutions
  • Digital transformation in the banking sector: surveys exploration and analytics
  • Why Let Others Disrupt You? Take the Smart Self-Disruption Journey!
  • 5 Tips for Crowdfunding During the Pandemic
  • innovation + africa; +639 new citations
  • SME Innovation: 10 Priorities for Support Post-COVID-19 
  • Africa RISING Annual Progress Report 2018 – 2019 now available
  • Fodder beet feed supplementation delivers dairy success for Ethiopian farmers
  • Using theory of change for outcome-oriented research
  • Africa RISING partners publish soil fertility management guidebook

Tag Cloud

    africa African Agriculture Business Business model Business_Finance Company Crowdsourcing data Development East Africa economics Education Entrepreneur entrepreneurs Entrepreneurship ethiopia ghana Health_Medical_Pharma ict Information technology Innovation kenya knowledge Knowledge Management Leadership marketing mobile Mobile phone nigeria Open innovation Organization Research rwanda science Science and technology studies social enterprise social entrepreneurship south africa Strategic management strategy tanzania Technology Technology_Internet uganda

Categories

Archives

  • A review on biomass-based hydrogen production for renewable energy supply 0.9k views
  • Can blockchain disrupt gender inequality? 697 views
  • Prize-winning projects promote healthier eating, smarter crop investments 692 views
  • Apply Now: $500,000 for Your Big Data Innovations in Agriculture 611 views
  • Test Your Value Proposition: Supercharge Lean Startup and CustDev Principles 537 views

Copyright © 2005-2020 Innovation Africa Theme created by PWT. Powered by WordPress.org