There is much discussion about digital transformation – taking an existing way of doing business and reimagining it for the age of the web. Often though, it takes the forms of a software-powered service disrupting traditional models. Amazon disrupting retail, Netflix disrupting block buster, Uber disrupting taxi companies. But there are some industries, and some use cases, where digital transformation can be additive to an existing business – where the benefits of the web and mobile can enhance both existing revenue streams as well as generate new ones.
As I spend time talking to organizations in traditional industries, these are the sort of opportunities that are exciting – ones that are respectful of existing models, while still paying attention to future opportunities. Recently I attended the I Love APIs conference. The conference was put on by Apigee, a vendor that formerly provided API management tools, but is now moving into peripheral areas – analytics, connected devices and mobile. I spent time talking with Apigee’s CEO Chet Kapoor, and also took the opportunity of sitting down with the CTO of Walgreens, Abhi Dhar, to talk about their digital transformation story.
Walgreens is an interesting example – it would be easy to think that their thousands of physical stores are a barrier to digital transformation – when you have such a massive bricks and mortar footprint it can be hard to reimagine your industry – Netflix and AibBnB’s ability to disrupt the incumbent players lay largely in the fact that they had no existing models to think about. That’s not the case with Walgreens.
But according to Dhar, Walgreens used the web to not only increase the relevance of their physical stores, but also to find new revenue streams that can only work from the cloud. It struck me that perhaps the hardest part of digital transformation is knowing how to take the first step. That is fundamentally not a technology problem but is rather a question of culture and understanding. In their case, Walgreens earmarked some of the budget assigned to marketing, and spent it on third party development. Their perspective was that innovation happens best in the application ecosystem. In their situation with their large physical footprint it was a case of “putting an API on the store” and letting innovation occur from there – leveraging existing assets and building new revenue streams from them.
The biggest goal for the mobile development team at Walgreens was to create new transactions, and for Walgreen the biggest mobile proposition is channel integration – the ability to drive synergies between the web, mobile and the physical store locations. This is important since often there are business tensions between the retail and the digital channels. On a cultural level, retail staff and management feel threatened and hence often block the transformation projects – Walgreens got around this by making sure that revenue from mobile applications was reported through to individual store’s income figures. As Dhar says:
Cohesion is achieved through joined value creation
It’s a simple approach but one which helps mitigate against the inevitable old-model versus new-model tensions. So how is that playing out for the company? Well performance metrics indicate that this multichannel approach is working. Across the various digital assets the company has, they enjoy 14,000,000 visits per week. But the really interesting thing is the impact those digital visitors have on physical cones. Fully 48% of digital visitors claim that their next action after the digital visit is to go into a Walgreen store – when you look at the sort of services that Walgreen digital offers – repeat orders of pharmacy items or printing images from digital photo services for example, this makes sense. To give some idea of scale, that 48% means that 5.3 million store visits each week are actually driven by digital – so much for disrupting bricks and mortar!
Not only raw visitor numbers but also spend statistics improve with multichannel approaches. Walgreens sees a 3.5 times increase in spend between pure-store and dual store and online customers. When you add mobile into the mix, customers who visit physical, web and mobile properties typically spend six times as much as those who visit the store only. And users seem to see the mobile applications as store enhancers rather than replacements – 50% of usage of the Walgreen mobile apps happens in-store.
The strategy also allows Walgreens to find revenue where none existed before – one of their other apps allows customers to physically print images from social networks and either pick up those prints in store or have them delivered. Before Walgreens API-enabled their photo printing infrastructure there was no connection between digital picture services and commercial photo printing infrastructure – with the app Walgreen have brought entirely new revenue streams to an existing asset base.
Walgreens is an excellent case study for digital enhancement of existing businesses – the challenge now is for other organizations to ideate what their equivalent looks like.