CVS IT Chief on the Remedy for Business-IT Alignment

Stuart McGuigan will patiently talk with you about business-IT alignment, though he doesn’t seem enthralled by the topic. To the CIO of CVS Caremark, one of the largest retail and pharmacy chains in the U.S. with 60,000 pharmacies, the conversation almost seems like it’s “been there, done that.”

Sure, the 51-year-old is aware of the infamous business-technology alignment issue that continues to plague so many of his contemporaries. And he’s witnessed the sometimes disastrous results that such a disconnect can deliver. However, at the $99 billion CVS Caremark, it’s simply not an issue, McGuigan says.

That type of IT governance awareness comes from the top, he says, and is ingrained into every technology-related discussion. “It’s about recognizing that there’s no such thing as technology projects,” McGuigan says. “They are all business projects with technology components.”

He took over the CVS Caremark IT reins in December 2008, having worked chiefly in the insurance industry before that. While McGuigan concedes that his predecessors laid a solid foundation for him—especially in terms of fostering IT governance practices—he’s continuing to roll out new systems and technologies that improve business efficiency and give the company a competitive advantage.

CVS Caremark’s IT efforts haven’t gone unnoticed—especially by those financial analysts on Wall Street. In a January 2010 report, Citi’s influential retail analyst Deborah Weinswig proclaimed that “CVS is the clear technology leader” within the retail sector, besting even Wal-Mart’s efforts. Weinswig notes that “while CVS is ahead of the retail industry in terms of technology, the company continues to implement new systems to improve efficiency in its stores and at the pharmacy.” (For more, see Retail Tech: Whose IT Is Tops, Who Needs to Restock.)

CIO.com Senior Editor recently spoke with McGuigan about the strengths of the company’s Rx Connect implementation, why business execs should “unlearn their expectations” about technology projects, and how he keeps his IT staffers focused on the business needs first.

CIO.com: What are CVS Caremark’s core business strategies and then what are the key IT systems and strategies that support the overall CVS Caremark strategies?

Stuart McGuigan: Technology starts with really good business thinking. And if you look at core strategy here, you’ll find a common theme which is a focus on customer experience and customer services. I’ve worked in a number of different industries—some very service- and measurement-focused, and some more product-focused. CVS Caremark is really at the extreme end of service-focused and measurement. And when you measure the effectiveness of key business operations that provide service to our customers, then it’s that much easier to figure out where technology can provide the next advantages, opportunities and next set of improvements.

CIO.com: Where does IT fit into all that?

McGuigan: It really starts out with a conversation about our go-to-market strategy, which is to provide excellent client service for our PBMs [pharmacy benefit managers] and excellent patient service for both retail and PBMs.

The way CVS Caremark is organized and the way the governance works is that the CIO is really a business role where the focus is the business person who happens to be running IT. As opposed to the technologist who happens to be sitting on a business committee. In my first meeting on the BPC [business planning council], our CEO Tom Ryan said, and I remember this very clearly: Welcome and we expect you to contribute to the dialogue here and not just on technology questions.

So it’s not just encouraged, but our CEO insists that business, technology and operations all participate in that. And it is that mix, which is focused on key business strategies, that produces excellent operations and technology. You can’t do them separately.

CIO.com: What does the IT governance structure look like?

McGuigan: It’s actually business governance with IT as a component. It’s about recognizing that there’s no such thing as technology projects; they are all business projects with technology components.

An example of how that works is a successful project we had, which is called Rx Connect: the rollout of our new retail pharmacy system. You can’t imagine a larger or more complex rollout of technology. When looking at the track record, historically, in the industry is that [projects such as these are] disruptive to operations.

We started by taking a different lens with this project, involving CVS on the retail side. First we asked: What are we trying to accomplish? Improved service and improved efficiency; and helping the pharmacists to do the things they want to do. Next we spent more time than we typically spend in developing the “to be” state. Then we designed the system to reflect that state. People will say this a lot, but actually doing this and taking the time to do this separates out the good projects from the great projects.

CIO.com: How did it work out?

McGuigan: We’ve rolled it out in 3,000 stores so far and are rolling out the rest this year. The uptake from the pharmacists has been extraordinary; I’ve never seen such a rapid return to productivity. The next day people are using [the new system] because it reflects how the pharmacists think about doing their job: It’s a unique match of the system and workflow to the way the pharmacist wants to work.

This is the first non-disruptive rollout of a major system that I’ve seen. It’s the result of a tremendous amount of upfront hard work and planning and extraordinary number of metrics used to make sure that if there were an issue, we’d see it quickly and be able to resolve it. And because [the system] is business oriented and reflects the way the pharmacists work, it’s naturally easier to add new workflows to it because we’re not asking the pharmacists to do something unusual because they’re already interacting with the system.

CIO.com: So what do you think of the business-IT alignment challenge that we write about so much?

McGuigan: It is one of the things that has always amazed me over the years, in looking at CIO surveys: That IT-business alignment or strategy pops up in [those surveys] as the top one or two issue. Because if you don’t know how what you’re doing in IT is going to benefit the business, if you can’t even verbalize the connection in the investment in IT and a benefit to the business, then why are you doing it at all?

CIO.com: But what about for an IT investment that seems very IT specific?

McGuigan: I consider a project that allows us to make better use of our IT assets, to be more efficient, reduce cycle time for deploying capabilities, make better use of capacity—even though it’s done entirely within IT—that’s a business project. Because our goal is to fundamentally reduce the cost of providing IT services to the business. And “reduce cost” either improves margin or give us a competitive advantage. So when I say it’s in “business terms,” it could be entirely within IT, but it’s very clear what the business objective is behind this work.

CIO.com: When there’s such a strong governance mechanism in place, it must make some of those dreaded “IT project conversations” much more beneficial for the business and IT?

McGuigan: I’ve heard back from different business partners over the years that it’s liberating for them. Because there’s the perception that they have to understand IT at some technical or mechanical level before they can have the conversation.

I had a conversation a number of years ago with someone running a business unit [at a company] in the insurance industry. He had just gotten an assignment to be the president of a business unit, and he was fretting that he would have to learn about IT—and he didn’t want to. We had an underwriting system that we were about to kick off, and I said: If instead of developing an underwriting system, I came to you and said, “I need 200 new underwriters”—which is about the same cost—”how would you respond to that request?”

Well, he knew exactly what questions to ask and had a spreadsheet model that told him what to expect from that [situation]. What I suggested to him was: Ask those same questions of your underwriting project. Don’t get into the technology. Just be able to get a clear answer to the question: What will I be able to do after I build the system that I can’t do today? For him, at that moment, the light went off, and that’s how he governed IT. After that, he was an enthusiastic sponsor of IT projects because he knew what he was getting.

CIO.com: It must be a whole different world when you can have those kinds of conversations?

McGuigan: They take time to develop. It takes time for people to unlearn their expectations that they need to know a lot about technology in order have a discussion about technology project.

CIO.com: How do you keep the IT department focused on business needs first?

McGuigan: IT is a relatively immature business discipline, but our clear goal is always this: We cannot just allocate, as you would in a chargeback system, but we have to align end-to-end costs and performance metrics with business metrics. So, for instance, we should be able to calculate the IT cost of filling a prescription in retail, down to the cost of electricity cooling in the data center.

And if we can get that degree of alignment, so that performance and cost are indexed in business terms, then it’s a lot easier to have the conversation to say: If we put X dollars into our retail pharmacy system, then we’re going to see this kind of benefit to the service at this cost—and it’s “all in.” There’s no “squeezing the balloon,” which means that “we’ve reduced it in one place and it pops out another place.” There’s been a lot of progress made in doing that in application development, driving that all the way through infrastructure, so you have that degree of alignment and understanding of cost drivers. And that is where more progressive IT groups are going.

For IT, you also need to be at least conversant with every area of the business you support, which can be many. So that is a challenge, which is one of the most exciting parts of job: You have to keep up with every aspect of the business and every area of technology, so that you can participate in those conversations intelligently.

There’s a willingness to invest in technology to make our company work better and more efficiently, and that fits into the way the company manages itself.

CIO.com: With a very strong IT governance program it seems?

McGuigan: There are really no “field of dreams” projects here. That’s never been a good strategy, and that has never been part of this company’s culture.

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