THE BLOG
11/01/2010 11:57 am ET Updated May 25, 2011

Capture Market Transitions with Business Models

When you think Walgreens, you probably think of Omega vitamins or Crest Whitestrips sold in convenient retail settings--many open 24 hours a day.

But on-premise healthcare facilities providing medical services to Fortune 500 companies? Hardly the first thing that comes to mind. And yet, Walgreens has more than 370 such facilities located inside Caterpillar, Cisco, Toyota, and other large employers. It also boasts more than 350 in-store Take Care Clinics, where immunizations and other services are provided for dramatically lower costs than in traditional settings. Last winter, Walgreens administered more than 7 million seasonal and H1N1 flu vaccines in its clinics alone.

So why has America's largest drugstore chain gone into professional services, a completely different business than product retailing? Because operating multiple models simultaneously helps Walgreens take advantage of market transitions--in this case, healthcare reform, the biggest change in the United States health care industry since the creation of Medicare in the 1960s. The transition represents a $2 trillion market opportunity, and Walgreens wants to capitalize on it.

To make the most of this opportunity, Walgreens has transformed its workforce and added thousands of physicians, nurse practitioners, physician assistants, and fitness and health coaches, in addition to its familiar cadre of pharmacists. In March 2010, the company even named a Chief Medical Officer to oversee its universal health practices.

Thanks to this out-of-the-box thinking, Walgreens is positioned to capture a larger slice of the healthcare market than ever before. Conventional wisdom would have told Walgreens, its rival CVS, and a host of other companies to stay focused on a narrowly defined set of core competencies. Instead, they defied this thinking and today operate multiple business models simultaneously, capturing key market transitions.

For those who are able to perfect them, multiple business models provide a buffer against downturns in any one sector and an extra lift when times are good. They allow organizations to enter adjacent markets and to increase their engagements with existing customers, among other things.

Most importantly, they enable leaders to take advantage of key market transitions.

One such transition is the switch from fossil-fuel powered vehicles to zero-emission cars. According to various estimates, the worldwide market for electric vehicles could be as large as 10 million cars per year by 2016. That's more than 12 percent of the global market for automobiles.

Among those vying for this opportunity is Shanghai-based BYD. BYD's primary business is developing cell phone batteries for the likes of Nokia, Motorola, and Samsung. But its ambitions go well beyond that. Today, its leaders believe they can deliver the world's first affordable, mass-produced, all-electric vehicle--one that is powered by the battery technology that BYD first delivered in cell phones. This requires a whole new business model. That includes new manufacturing and engineering capabilities, as well as new sales, distribution, and marketing expertise.

Make no mistake: developing a new business model is not easy. It takes discipline and tenacity. In most cases, it means acquiring new skills and adopting new success metrics, bringing in new expertise, and, in many cases, relying on others for insights and even decision making. But new business models are incredibly valuable to organizations that get them right. Walgreens, for example, stayed healthy throughout the recession and posted its 35th consecutive year of record sales in 2009.

Like many companies with multiple business models, Walgreens has discovered that its new models can complement and enhance its traditional model. Walgreens' deal to provide care to Caterpillar's 70,000 employees, for example, not only amounts to a new revenue source, but also paves the way for the company to sell tens of millions of dollars worth of prescription drugs to Caterpillar employees. And that's just one customer.

By doing both--existing and new business models--Walgreens can truly take advantage of the chance of a lifetime.

It's a little more exciting than Omega vitamins, isn't it?

Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Follow Inder on Twitter at @indersidhu.