Charles R. Walgreen III -- Walgreen Co.
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Introduction
Picture of Charles R. Walgreen III -- Walgreen Co.
CHARLES R. WALGREEN III
by
Dr. Richard E. Hattwick
Professor of Economics (Retired)
Western Illinois University
Charles R. "Cork" Walgreen III is one of eleven CEOs identified by
Jim Collins as having taken a good company to greatness (Jim
Collins, Good to Great, 2001). Walgreen became chief executive
officer of Walgreen Co. in 1971 and retired as CEO in 1998 (he
remained chairman of the board of directors for one more year). As
CEO he made a key strategic decision that repositioned the company
and led to more than two decades of superior growth of sales and
revenue. He is credited with fashioning the policies which made the
new strategy work. During the 1980s the Wall Street Transcript
named him best CEO for retail drug chains seven different years
(Kogan).
HISTORY
Cork Walgreen was born in 1935 and groomed to become CEO of
the company founded by his grandfather. He earned a degree in
pharmacy from the University of Michigan and then went to work
full time at Walgreen. His father was the company CEO at the time.
After gaining experience in various parts of the company, Cork was
named president at the age of 33 on October 1, 1969. Two years
later he was named CEO. When he became president, Walgreen
operated 546 drug stores in 34 states and Puerto Rico, 12 Sanborns
restaurants in Mexico, 16 Globe discount stores, and six Danbury
junior department stores.
Walgreen's pharmacy business was at a crucial point in its history
when Cork became its new leader. As Kogan reported:
"The company entered the decade sluggishly - sales were
stagnant, earnings marginal. As well, many stores were more
than 15 years old, allowing some markets the company
dominated to become the domain of younger, flashier and
more aggressive companies. Walgreens," wrote Chain Store
Age , "had assumed many of the characteristics of the
moribund A&P chain."
Cork Walgreen's first few years at the helm were
characterized by a flurry of activities aimed at rejuvenating
the company. Heavy discount pricing and the opening of 54
new drug stores occurred in 1970. The company began to
quote prescription prices over the telephone in 1971. A
program to increase individual store productivity was
introduced in 1972. Teams of employees were empowered to
identify opportunities for improvements in systems and
procedures. New advertising formats were tried in 1973.
Computers were systematically applied to data processing
tasks and, in 1974, the company made what, at the time, was
a tough decision to switch from FIFO to LIFO accounting.
Because that was a time of high inflation rates, the change
simultaneously reduced profitability but increased cash flow
(due to the lower taxes that accompanied the lower reported
profits). Walgreen was the first drug store chain to make that
change but its competitors followed.
It was also in 1973 that the Planning Committee was
established. All top officials were members. They met twice a
month to evaluate and plan changes related to:
1. financial performance
2. employees
3. consumer issues including implications of market research
4. corporate identity with the public
In 1974 Cork Walgreen's efforts to revitalize the company led to the
appointment of John Brown to modernize the company's distribution
system. Included in his mandate was the charge to implement top
management's decision to invest heavily in the use of computers.
In 1975 the company moved into a modern new headquarters
building in the Chicago suburb of Deerfield. Sales reached the
$1billion mark that year and Chain Store Age gave the following
assessment (Kogan):
"During the past three years alone, the once bland giant has
taken undisputed industry leadership in consumer relations ...
shown itself capable of exciting new store concepts ...
assembled the strongest upper-management in its history..."
As suggested by the Chain Store Age article, one of Cork
Walgreen's early accomplishments was that of selecting a strong
management team. Another, related, accomplishment was realigning
the business operations so that they became profit centers. For
example, prior realignment responsibility for the drug store division
was divided. One executive had responsibility for purchasing. A
different executive had responsibility for store operations. Neither
reported to the other and performance for each of the two areas was
evaluated separately with no serious concern for the interrelationship
between the two. After the realignment one executive was given
overall responsibility for purchasing and store operations. The
individuals handling purchasing and store operations reported to that
higher level executive and results were measured for the entire
operation rather than the parts.
In 1976 Cork Walgreen's father retired as chairman of the board.
Cork became the new chairman while retaining the CEO title. Bob
Schmitt replaced Cork as Walgreen's president. Schmitt's most
difficult task was to eliminate the Globe Division which had become
relatively unprofitable. He succeeded in liquidating the Globe
operation for a sizeable, but acceptable, loss of $1.8 million.
In the 1980s Walgreen formulated and implemented a focus
strategy. The strategy was to exit from businesses not directly
related to the drug stores. This meant selling off the Sanborn
restaurants in Mexico (accomplished in 1985) and the Wags
restaurants (accomplished in 1989). It also meant continued
expansion of drug stores. But the drug store expansion occurred with
a few interesting strategic changes. One was the decision to open
stores in the inner cities. Another was to increase the number of
stores within each small geographical area.
The decision to increase the concentration of drug stores within
small geographic areas was based on two other decisions. The first
was to view each store as a convenience store. A larger number of
stores within a given geographical area meant greater locational
convenience for customers. Larger numbers of stores within a small
area also meant that Walgreen could become the location of choice
for a larger number of items which customers purchased on a
locational convenience basis. The second decision was to measure
financial performance on the basis of profit per customer visit.
Here
is how Collins describes this approach (p.104):
"Walgreens switched its focus from profit per store to profit
per customer visit. Convenient locations are expensive, but
by increasing profit per customer visit, Walgreens was able
to increase convenience (nine stores in a mile) and
simultaneously increase profitability across its entire system.
The standard metric of profit per store would have run
contrary to the convenience concept. (The quickest way to
increase profit per store is to decrease the number of stores
and put them in less expensive locations. This would have
destroyed the convenience concept.)"
It was also in the 1980s that the company's embrace of technology
achieved a major success. Here, again, is Collins' summary (p.147):
"In the early 1980s...(Walgreen) pioneered a massive
network system called Intercom. The idea was simple: by
linking all Walgreen stores electronically and sending
customer data to a central source, it turned every Walgreens
outlet in the country into a customer's local pharmacy. You
live in Florida, but you're visiting Phoenix, and need a
prescription refill. No problem. The Phoenix store is linked to
the central system, and it's just like going down to your
hometown Walgreens store."
"This might seem mundane by today's standards, but when
Walgreens made the investment in Intercom in the late 1970s,
no one else in the industry had anything like it. Eventually,
Walgreens invested over $400 million in Intercom, including
$100 million for its own satellite system."
The 1990s was a period of continued rollout of the convenience
store model with sales, cash flow and earnings per share rising
steadily along with employment. The annual rates of growth
between 1992 and 2001 were (Hoover's, p.1479):
1. Sales 14.2 percent per year
2. Net income 16.7 percent per year
3. Earnings
per share
15.8 percent per year
4. Employees 10.3 percent per year
Accompanying the growth were numerous small changes and some
notable larger ones. Prescriptions by mail were introduced in 1992.
A service to manage prescription drug programs for group health
plans was started in 1994. An on-line pharmacy service was
introduced in 1999.
Cork Walgreen relinquished the CEO position a year before the online business was introduced. He was succeeded by L. Daniel Jorndt.
In 1999, Cork also stepped down as chairman of the board.
CORK WALGREEN AS A
"GOOD TO GREAT" EXECUTIVE
In 2001, the highly regarded management consultant Jim Collins
published his newest study of management excellence. The book
was called Good to Great. It claimed to identify the eleven best
large (Fortune 500) companies in terms of performance over the
period 1975- 2000. Cumulative stock returns was the measure of
performance that was used to identify the great companies and the
thrust of the book was an attempt to find out what the eleven
companies had in common in terms of management approaches. One
of the eleven was Walgreen.
Collins identified six characteristics which Walgreen had
in common with the other ten stars. The six were:
1. Level 5 leadership.
2. Emphasizing the development and empowerment of a
highly talented group of top executives and using the
group to then set company direction.
3. Confronting the brutal facts of core competence and
market environment.
4. Focusing on markets where the firm can be the best in the
world and for which the company has a passion and
developing the strategy around the one financial variable
that has the greatest impact on long run profitability
(referred to as the "hedgehog concept").
5. A culture of discipline.
6. Proactive use of technology as an accelerator.
Collins identified Cork Walgreen as a "level 5" leader. Such leaders,
he claims, combine a strong proactive personality or "professional
will" with "personal humility."
Here are eight statements Collins uses to describe Cork and the other
ten company leaders in his study (p.36):
"Creates superb results, a clear catalyst in the transition
from good to great."
"Demonstrates a compelling modesty, shunning public
adulation; never boastful."
"Demonstrates an unwavering resolve to do whatever must
be done to produce the best long-term results, no matter how
difficult."
"Acts with quiet, calm determination; relies principally on
inspired standards, not inspiring charisma, to motivate."
"Sets the standard of building an enduring great company;
will settle for nothing less."
"Channels ambition into the company, not the self. Sets up
successors for even greater success in the next generation."
"Looks in the mirror, not out the window, to apportion
responsibility for poor results, never blaming other people,
external factors or bad luck."
"Looks out the window, not in the mirror, to apportion credit
for the success of the company -- to other people, external
factors, and good luck."
With respect to the second characteristic of the eleven great CEOs,
Collins makes the following comparison between Walgreen and the
rival Eckerd Corporation (p.46):
"Eckerd Corporation suffered the liability of a leader who
had an uncanny genius for figuring out 'what' to do but little
ability to assemble the right 'who' on the executive team. Jack
Eckerd, blessed with monumental personal energy (he
campaigned for governor of Florida while running his
company) and a genetic gift for market insight and shrewd
deal making, acquired his way from two little stores in
Wilmington, Delaware, to a drug store empire of over a
thousand stores spread across the southeastern United
States. By the late 1970s, Eckerd's revenues equaled
Walgreen's and it looked like Eckerd might triumph as the
great company in the industry. But then Jack Eckerd left to
pursue his passion for politics, running for senator and
joining the Ford Administration in Washington. Without his
guiding genius, Eckerd's company began a long decline,
eventually being acquired by J.C. Penney.
"The contrast between Jack Eckerd and Cork Walgreen is
striking. Whereas Jack Eckerd had a genius for picking the
right stores to buy, Cork Walgreen had a genius for picking
the right people to hire. Whereas Jack Eckerd had a gift for
seeing which stores should go in what locations, Cork
Walgreen had a gift for seeing which people should go in
what seats. Whereas Jack Eckerd failed utterly at the single
most important decision facing any executive -- the selection
of a successor -- Cork Walgreen developed multiple
outstanding candidates and selected a superstar successor
who may prove to be even better than Cork himself. Whereas
Jack Eckerd had no executive team, but instead a bunch of
capable helpers assembled to help the great genius, Cork
Walgreen built the best executive team in the industry.
Whereas the primary guidance mechanism for Eckerd's
strategy lay inside Jack Eckerd's head, the primary guidance
mechanism for Walgreen's corporate strategy lay in the
group dialogue and shared insights of the talented executive
team."
By selection of key people and by his own example, Cork Walgreen
made sure that the company "confronted the brutal facts" of its
strengths, weaknesses, threats and opportunities. Collins cites the
example of how Cork approached the issue of keeping or selling the
company's restaurants. The issue had been debated within the
executive team for a number of years and the group finally
concluded that the company's prospects in the convenience drug
store business were much better than in the restaurant business (even
though the restaurant business was profitable). Collins explains what
happened next using the following quotation from Dan Jorndt who
succeeded Cork as company CEO (p.32):
"Cork said at one of our planning meetings, 'Okay, now I am
going to draw the line in the sand. We are going to be out of
the restaurant business completely in five years.' At the time,
we had over five hundred restaurants. You could have heard
a pin drop. He said, 'I want to let everybody know the clock is
ticking.' Six months later, we were at our next planning
committee meeting and someone mentioned, just in passing,
that we only had five years to be out of the restaurant
business. Cork was not a real vociferous fellow. He sort of
tapped on the table and said, 'Listen, you have four and a
half years. I said you had five years six months ago. Now
you've got four and a half years.' Well, that next day, things
really clicked into gear winding down our restaurant
business. He never wavered. He never doubted. He never
second-guessed."
The preceding example also relates to Collins' argument that the
"Good to Great" companies follow a so-called "hedgehog concept."
The name comes from the well-known philosopher Isaiah Berlin's
essay The Hedgehog and the Fox. In the essay Berlin argues that the
world is divided into two kinds of people. One group, like the fox,
sees the world as complex and pursues many goals and achieves
modest success. The other group, like the hedgehog, simplifies its
view of the world to a single organizing principle and focuses its
behavior on that vision. It single-mindedly pursues a simple goal. As
a result, the hedgehog achieves greater success than the fox. Such,
argues Collins, is the way the great companies achieve their
greatness. They focus their investments on markets where they can
achieve superior success. They refrain from, or pull out of,
businesses where they can achieve good profitability but not
exceptional performance. In Walgreen's case, pulling out of the
restaurant business and focusing on convenience drug stores was
such a "hedgehog" strategy.
CONCLUSION
Charles R. "Cork" Walgreen III managed a company that had
achieved greatness prior to his tenure as CEO. His grandfather,
Charles Walgreen, Sr., had founded the company and done well
enough to be named by Chain Store Age as the drug store industry's
"Man of the Half Century" in 1975. His father, Charles Walgreen II,
had kept the company in reasonably good shape as the founder's
successor. But changes in the competitive environment presented
Walgreen with the need to make some important decisions when
Cork Walgreen became CEO. Cork was able to take the company to
a higher level of performance. In doing so he put himself and the
company on the Jim Collins list of the top eleven "Good to Great"
companies of the 1975-2000 era.
REFERENCES
Collins, Jim. Good to Great. New York: HarperCollins, 2001.
Hoover's Handbook of American Business 2003.
Kogan, Herman. Pharmacist to the Nation. Chicago: Walgreen Co.,
1989.
Copyright 2001 American National Business Hall of Fame. All Rights Reserved.
