Walgreens CFO tug of war between IT legacy systems and tech that could 'take us to glory'

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Linda Tucci, Executive EditorPublished: 16 Jan 2014

Wade D. Miquelon
CFO, president, International,
Walgreen Co.

A few minutes on the other side of a tape recorder with Walgreen Co.'s Wade Miquelon makes one thing clear: the fast-talking, 49-year-old chief financial officer of the largest drugstore chain in the United States has a lot more on his mind than balancing the books. Since joining the Deerfield, Ill.-based drug retailing chain in 2008, Miquelon has been a strategic player in Walgreens' reinvention from a corner drugstore to an international healthcare delivery provider. He helped lead the company's recent $6.7 billion investment in Alliance Boots, the European pharmacy retailer, as well as a spate of other strategic acquisitions, including the Duane Reade chain and Drugstore.com.

With a degree in civil engineering from Purdue University and a master's degree in business administration from Washington University in St. Louis, Miquelon also demonstrates a keen understanding of the role IT systems and technology play in the 113-year-old company's path forward. Since his arrival, Walgreens has tripled its investment in technology.

SearchCIO caught up with Miquelon at the MIT Sloan CFO Summit in Newton, Mass., where he participated in a panel on business agility. In the first part of this two-part interview, Miquelon discusses his relationship with Walgreens CIO Tim Theriault, how the two  think about technology (IT legacy systems are a big issue), and how he gets others to think as strategically as he does about capturing business value.

Do you work closely with your CIO?

Wade Miquelon: When you look at the broad organization there are really only two parts that touch every single project, every single initiative -- finance and IT. We partner in lots of areas, not only on deployment initiatives requiring capital, but also on organizational redesign, headcounts, streamlining, all of that.

And who do you both report to?

Miquelon: I report to the CEO, as does the CIO. … We also work together on innovation. I have all the M&A [mergers and acquisitions], the business development, venture capital fund. Because a lot of innovation is happening in technology -- maybe not in IT directly but in technology related to the IT domain -- Tim has that hat, so we partner a lot on those matters: Is this an interesting company? Should we take a stake in it? How do we monetize it? What is the business model? How can we bring the technology in-house?

It sounds then like your CIO plays a role beyond keeping the lights on.

Miquelon: For sure. He has IT in the broadest sense, with the exception of our e-commerce business division. When it comes to new technology that can automate a pharmacy or tele-health that can bring visual health to all points of care, or medical devices, for example -- that is all in his domain.

You have a degree in civil engineering -- that must help a little bit in communicating with your CIO and IT department.

Miquelon: I have an engineering background, and that does help in dealing with technical people. Tim, before this, ran half of Northern Trust -- I believe he ran the client wealth part of the bank. So that also gives him a bit of a unique background in the fact that he tends to be very customer-centric.

What are the biggest -- or toughest -- technology decisions your company had to make in the past year?

Miquelon: One area is that we have a lot of mega systems that are IT legacy systems. So, for example, in 1986 we put in three huge state-of-the-art systems: our point-of-sale [POS] system, our data server system, as well as the system that manages our entire pharmacy. Last year, we replaced two of them. The POS system, for example, is about a $400 million cost just to put the new system in our stores. The other legacy system was our data servers.

Another is what I would call 'leaning-forward technology.' We're developing 'HealthCloud,' which is quite an extensive and expensive health system that links to HIT [health information technology] and billing systems and can reach out to hospitals and to physicians.  We've had to balance between these core legacy systems that pay our bills every day and these other ones that we think might take us to glory in the future. And it is that tug of war that is tough.

IT metrics: Business value, ability to execute

How do you make the decision to replace IT legacy systems and go in a different direction?

Miquelon:  We try to be driven by the business logic and business value. One example is our point-of-sale system. It was literally taking days to train a clerk to use it; it was slow, we couldn't integrate the data.

We wanted to roll out our Balance Rewards customer-loyalty program. If we used the old system it probably would have taken two or three minutes to enroll each person -- we've enrolled 90 million people; instead it has taken less than 20 seconds. We can integrate that data.

Then the question became if we can really do it and do it with excellence, then we're going to free up a lot of time with our employees; we will be able to drive a better customer experience and launch all sorts of capabilities. I have to say it was a homerun.  The system was done on time and on budget.

With our data servers system, we basically had servers that were 25 and 30 years old, and if they went out, then we could be out of business. You could say, 'What likelihood would we have of a black swan event?' But if it ever happens, we could damage the company. So the question was, 'Can we do the project and do it with excellence?' And we did.

We have other legacy systems that you could argue we need to update and refresh. But the problem with some of them is that they are so massive and so integrated that it is not even an issue of whether or not we can or should afford it; the issue is how do you do it and make sure that when you pull all these things apart and put them back together, it is going to work. But I think it is really forcing IT and finance and accounting to work together -- we're partners -- to really say what is the business case here and what value will it create and what are the milestones along the way?

How do you come to the metrics that allow you to make that decision with IT so everyone understands what the measures are?

Miquelon: I think IT is probably one of the hardest areas to quantify. I know people have tried to do an ROI, a return on investment, for IT spending, and sometimes some of that maybe over-complicates the issue. You can use a whole set of assumptions and come to numbers that look good. But I think sometimes with IT, you need to break it down into smaller components and maybe multiple measures.

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So for any given project there are probably four or five key measures that we can say, 'If we could do this and this and that, then we think it makes sense.' I'll use the POS system as an example: If we could put in a POS system for $400 million and it could work seamlessly so that you didn't even have to train on it -- a new clerk could just log  on -- and it could do transactions this fast,and we could enroll Balance Rewards  members in 20 seconds, and we could use it to push and pull data as a screen to train employees, then for a company our size, that would be a really good investment.

I think ERP systems for finance could be like that. We're doing some new ERP implementations, and IT is obviously our core partner in that. (It has various systems, but Oracle is part of the main engine.) It's replacing a lot of legacy systems. For a company that is going to be $130 billion, what's the value of having financial core systems that are contemporary and work and allow us to [do] things like global consolidation? It's hard to put an IRR [internal rate of return] on that, but I can put [it] down if you can do it for these costs and we can deliver these metrics, then I know it is the right thing to do.

'Chunking' the cutting-edge tech projects

With your forward-leaning technologies -- for example, your HealthCloud -- how are you thinking about those in terms of value?

Miquelon: It's a private cloud, but it will be interfacing with middleware so we can talk to anybody in their language, versus just in ours. This is probably one of the hardest ones to value. The way we're thinking about it is by trying to chunk it. By that, I mean: 'What's Phase 1? What are low-hanging fruit modules that, if we could roll out, we believe we could utilize and monetize?' And then we get value from Phase 1 and the organization can get excited about spending the next level of budget for Phase 2, which then integrates with Phase 1, but also allows us to monetize something else.

For example, in the Phase 1 cloud, it gave us the ability to do vaccinations much more broadly in terms of the billing and all the backbone processes. And now we are not only the largest vaccinator of flu shots, but also all other vaccinations. 

The fact that you're turning yourself into a health care delivery company is kind of mind-boggling.

Miquelon: If we can do a flu shot for half the cost of a physician or a third the cost of the hospital, and you can walk in and walk out, it makes sense. We're going to be able to do lab testing with a drop of blood for half the cost of Medicare.

Good ideas vs. 'value creation,' CFO teaches strategic thinking

Could you elaborate on the point you made in your talk about the need for CFOs to educate employees on "value creation" -- on getting from interesting ideas to value creation? How do you do that?

Miquelon: For me it starts with teaching people how to think strategically. In the context of a business, I think there are standard frameworks that are very helpful. I like the [Harvard Business School Prof. Michael] Porter framework: What are our goals and aspirations? How do we play? How do we win? What are the capabilities?  And then understanding how to make sure it is integrated and reinforced. That takes days and days if not weeks of study, but everyone in an organization can learn to think that way. And the CFO can help drive that training and teaching, because you don't want one person in a company to be a chief strategy officer -- what you want is everybody to think strategically.

Once you go through that framework, then you can help people to learn how to create value and how to capture value. And they're different. With one specialty patient, for example, we saved a payer almost $1 million by the interventions we were able to make. We got $8 for doing that. That is a case where we created value, but we didn't capture any of it. I think helping people understand both is critical, because you'll get a lot of ideas that are great, but then you have to ask what will they pay us for it? Or, will they come more often? And the answer may be 'No.' … It's really just logic, and spending time with people to walk them through that logic so they can make it their own.

Logic can get in the way for people who think only in terms of their function or line of business. 

Miquelon: You make a good point. If someone's logic is, 'My job is to create awesome IT systems,' I would say, 'No, your job is to create awesome IT systems when they enable the creation of value.' If you are developing an awesome IT system [that] has no link to the core business, is not supported by the business itself, and there's no way to monetize it, it's kind of like [a] tree falling in the forest with no one there to hear it -- is there a sound?