CVS Creates Order--and Savings--By Integrating a Chaotic Acquisition

After pharmacy CVS acquired Caremark Pharmacy Benefit Management in 2007, it soon became apparent something was really wrong at the Caremark pharmacies. So CVS CTO Peter Balnaves had to both modernize and integrate the Caremark pharmacies, which was no simple task.

2009 InfoWorld CTO 25 AwardsPeter BalnavesCTOCVS Caremark

After pharmacy CVS acquired Caremark Pharmacy Benefit Management in 2007, it soon became apparent something was really wrong at the Caremark pharmacies. About 40 percent of customers complained of poor service, and 27 percent of prescriptions had major fulfillment errors. Caremark was losing 7.2 million customers a year as a result, worth $2.5 billion in revenue. An investigation showed that poor IT systems shouldered most of the blame. Outages that made it hard for the pharmacies to properly fill prescriptions accounted for 60 percent of the problems, while poor workflow processes and supporting applications were responsible for another 30 percent.

Caremark itself was a combination of five smaller firms, and their separate IT systems had never been integrated, as Caremark's IT investments were minimal. Some areas had duplication, causing confusion and inefficiency, while other areas were never addressed, resulting in capability gaps. But that skimping on IT now threatened the value of the Caremark investment CVS had just made.

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So CVS CTO Peter Balnaves had to both modernize and integrate the Caremark pharmacies. This was no simple task, affecting three datacenters, thousands of employees, and almost every IT operation. Although the result of the problem was clear, Balnaves had to spend significant time with business leadership on the specific causes to get their buy-in to the high level of change needed on the back end: The three-year effort, now in its final year, cost $110 million for an organization whose annual IT budget is about $1 billion.

Balnaves also faced an IT staff that struggled to accept replacement of datacenter processes and toolsets. In some cases, people had to stop working with tools they had used for a decade or more. In the software development organization, several thousand developers had to learn new tools. These changes caused uncertainty, resistance, and productivity loss, and they required Balnaves to constantly beat the drums to promote the need for, and benefits of, the huge change effort. (The transformation effort itself employed more than 300 people from 12 companies in three locations.)

On the technology side, Balnaves and his team replaced the morass of technologies with a single set of standards, essentially remaking the IT operations. For example, CVS replaced about 170 management and monitoring tools across three datacenters, which required a precise approach to migrate from multiple legacy systems and ensure that the correct new processes were in place. Each datacenter needed a custom migration strategy to account for its unique mix of existing technologies.

Today, the basic systems -- e-mail, desktop support, networking, and so on -- are updated and unified across the company, with savings of 45 to 70 percent achieved in most areas. More important is that CVS Caremark now has a unified set of IT processes to run the business, as well as a unified IT organization.

This story, "CVS Creates Order--and Savings--By Integrating a Chaotic Acquisition" was originally published by InfoWorld.

Copyright © 2009 IDG Communications, Inc.

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