10 Nov 2022

AMERICAN UNIVERSITY OF BEIRUT

OLAYAN SCHOOL OF BUSINESS
MSBA 300 - Fall 2022
Major Case Assignment 3: CVS – Upstream/Process Improvement/IT/Analytics

Rami Haidar – rfh19

201803271

Questions to be Answered

Part I: Understanding the Problem via Upstream Thinking

1. (i) What are primary sources of CVS revenues in its stores? (ii) what are
relative percentages?

CVS generated most of its’ revenues from its’ pharmacy division, in particular, from the
retail sales of prescriptive drugs. In 2002 CVS had 4000 stores that accounted for two
thirds of their total revenues (24.2 billion), generating 16.1 billion in revenues. The two
main sources of revenue constitute either customer directly paying for their medicine or
from a third party paying for their sponsored clients(insurance).

2. (i) before launching PSI, what was happening to these key lines of business
at CVS? (ii) how did CVS know about anomalies in its competitive/revenue
situation before it launched PSI?

Before launching Pharmacy Service Initiative (PSI), CVS was growing at the industrial
average. However, anecdotes both from customers and employees indicated that many
locations are suffering from unsatisfactory customer service. These anecdotes led to
managers worrying about the operational performance of their pharmacies. Hence, to
further investigate these anecdotes, CVS launched PSI which was formed of a group of
senior managers, consultants and operations executives in attempts to tackle the bugs in
operations that were leading to sub-optimal customer service.

3. Via the Pharmacy Service Initiative—CVS is trying to do something. (i) Can

we think of PSI CVS as a form of upstream thinking and problem solving?
Provide a sample quote that justifies your answer, explain why it does, (ii)
Starting from (but not limited to) below quotes and linking these quotes and
their wider context which 1 of 3 barriers captures the CVS situation best, and
(iii) which 1 of 7 questions are closest to what is being attempted by PSI by
only focusing on below text.

After CVS noticed that their employees are having to deal with angry and unsatisfied
customers due to delays and unfulfilled orders, CVS initiated PSI not to deal with the
poor inconsistent service at the pick-up point, but rather tackle the root problem as
whole. This shows the upstream thinking employed by CVS to solve the underlying
problems in the fulfillment process. This was indicated by the dialog between Roberts and
Grossi (“Well, we can’t have 67 solutions for the 67 problems we identified, Roberts
said.”) This justifies that CVS were aware that they can’t tackle every single hick-up at
the pick-up level but rather treat the system to prevent them from happening. Since the
pick-up employee was not aware of the causes of the problem as he felt he was
responsible for none of them the barrier that best captures the CVS situation is Lack of
Ownership. To tackle the problem CVS formed a team of cross functional members;
consultants, operational executives, directors of Store technology and Store Operations
and Pharmacy Operations. This approach by CVS directly relates to the first question
(“How will you unite the right people to tackle Upstream problem?”)

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4. CVS is attempting to quantify the underlying “PSI Business Case in

Numbers”: if the effort were to be produce results (a component of upstream
thinking)—the potential impact of PSI on revenues via the estimated defection
rates could be significant. Refer to the below quote as the starting point to read,
absorb and to estimate the impact via 4a and 4b. [Answer below questions.]

4a. Which 1 of 7 questions best captures by thrust these calculations.

The question that best captures these calculations by thrust is (How do you know you are
succeeding?). Having lower defection rates i.e. higher revenues would indicate that PSI is
producing positive results and creating a working impact.

4b. Before you start your estimation approach: (i) What is the maximum
additional revenue that can be generated based on PSI, theoretically? (ii)
Provide reasoning why this is the maximum?

Since 13% of light users and 44% of heavy users leave CVS due to the poor service and
knowing that PSI is targeting the defection of customers resulting from the poor service,
the maximum revenue estimated can be obtained by assuming PSI is capable of
preventing 90% of the customer defection (90% improvement). Considering the heavy
users since they account for the majority of lost prescriptions and the maximum 90%
improvement rate; a rough estimate of the max additional revenue could be:

Maximum added revenues = 90 x 44 x 2,500,000,000 (lost revenue) = 990 million

4c. Describe your approach to calculating the revenue gain in a narrative form
before attempting the calculations (no calculations).

The PSI team calculated that in 2000, 7.2 million regular pharmacy consumers departed
CVS, bringing with them an estimated 55 million prescriptions per year, which might
have brought in $2.5 million for CVS. Additionally, the PSI team divided clients into two
groups: light and heavy users. According to estimates, light users fill five scripts on
average per year, but heavy users fill forty scripts annually. The percentage of light users
who leave because of poor service is 13%, compared to the percentage of heavy users
who leave because of poor service being 44%.

• we find number of heavy and light users (system of 2 equations)

• we then find the number of defected light and heavy users using the given
percentages (13% for light and 44% for heavy)
• we then find the number of lost prescriptions using the estimated annual
prescriptions of light and heavy users (5 for light and 40 for heavy)
• we calculate the average script revenue by dividing the revenue lost (2.5 billion)
by the number of lost prescriptions.
• Finally we find the lost revenues by multiplying the average script revenue by the
number of prescriptions.

4d. The survey customers revealed the potential for defections and preventing
defections. Provide an estimate of revenue gain from preventing different types
of customer defections only due to poor service.

Assume a 60% improvement rate:

Preventing Heavy Customers = 60 x 44 x 2,500,000,000 = 660 million

Preventing Light Customers = 60 x 13 x 2,500,000,000 = 195 million

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4e. Then, estimate the potential total $ magnitude of “impact” as improvement

in financial contribution to revenues, with explanations of your assumptions and
calculations.

L: number of light users

H: number of heavy users
H + L = 7.2 million = 7,200,000
40H + 5L = 55,000,000
Solving the system of 2 equations:
H= 542,857 heavy users
L= 6,657,142 light users

Defected number of Light customers(D1): 0.13xL = 865,428

Defected number of Heavy customers(D2): 0.44xH = 238,857

Number of lost prescriptions (N): 5(D1) + 40(D2) = 13,881,420

Mean script revenue(R): Lost revenue/ N = 2,500,000,000/ 55,000,000 =

45.45$/prescription

Lost Revenue(LR): N x R = 630,910,539

Calculating based on percent improvement:

60% Improvement: 0.6 x LR = 378,546,324$ Financial Gain

70% Improvement: 0.7 x LR = 442,637,378$ Financial Gain
80% Improvement: 0.8 x LR = 504,728,431$ Financial Gain
90% Improvement: 0.9 x LR = 567,819,486$ Financial Gain

Part II: Specific Process Problem(s) and Proposed Solution Recommendations

etc

5. Refer to the process described and also drawn in the CVS case on pages 4-8.
[Answer below questions.]

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5a. Provide a simple graphic flowchart or workflow chart before any changes
include key steps.

5b. Problem: (i) What is the main manifested problem is that triggering CVS
customers’ dissatisfaction? (ii) Why does it persist (to answer, pick 1 of the 3
principle obstacles to upstream thinking and elaborate what was potentially
preventing upstream approach before PSI)?

Customer dissatisfaction was triggered due not having their prescription ready for pick up
after priorly dropping of their script (16% of scripts unresolved by the time customers
return for pick-up), this consequently increased waiting times, hence, led to increasing
additional customers’ dissatisfaction. Before PSI, CVS was growing at average industry
market rate. This created the perception for management that there is nothing wrong
with the operations at hand. In addition, since the pick-up employee who had no
jurisdiction to implement change was the main interface with the problem, the problem
was just accepted and persisted. This shows a link with problem blindness being the
obstacle that prevented upstream thinking.

5c. Cause: (i) Please provide only 2 primary factors which principally cause this
problem to occur? (ii) Provide granular statistics/numbers and related data that
account for these 2 factors causing the problem. (iii) Provide reasons why only
these 2 are primary factors behind the problem. (Note there are several
problems listed but most do not cause the problem and its persistence).

The Insurance Check and Unauthorized refill constitute the 2 main factors that cause the
problem. If an major issue arose during the automated insurance check, technicians
might need to call the patient or the insurer, or they might need to call the doctor if the
patient forgets how many refills he is permitted. This results in a delay in record keeping
and a delay in fulfilling the client's order, which makes the consumer unhappy. “No-refill
permitted” scripts accounted for 6% of the total scripts (took from 20 minutes to
approximately 3 days to resolve) and 17% of scripts accounted for scripts facing an
insurance refusal (mostly they were minor issues and some required a call or check up
with the insurer). These 2 problems constituted 23% of root problem faced by CVS.

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Although DUR led to hard stops and constituted part of the problem, everyone at CVS
agreed that the automated DUR review should be extremely cautious and conservative
because the DUR is a crucial component of efficient pharmacy operations and customer
service and safety.

5d. (i) Using “a” what is the main step during which the primary factors are
causing the problem? (ii) Provide reasoning why you think so?

The “insurance check” and “no-refill allowed” problems occur at the data entry step.
Since after entering the data into the system, the system either accepts or rejects the
insurance permit after correcting wrong information, mainly due to data entry errors.

[For questions 6: You MUST NOT propose solutions that are outside CVS organization
boundary. For example, MUST NOT propose an electronic prescribing system for CVS that
forces doctors to use a system in order to send their prescriptions to CVS! Also avoid any
other solutions like it. Also, do not parachute answers that have little logical connection
to your prior answers! If you do, you will lose marks!]

6. What exact changes do you recommend to CVS’s existing pharmacy

fulfillment process.[Answer below questions.]

6a. Provide a simple graphic flowchart or workflow chart of your changed

process including its key steps.

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6b. (i) Which part of the overall process/steps did you change? (ii) What is the
primary change to the 5(a) step that you did/introduced new?

The main change is to perform the data entry, stock check, insurance check and refill
check while customer is still at the pharmacy. By doing so, minor problems (date of birth
errors, change in jobs …) can be directly addressed and fixed on the spot instead of
having the technician debugging and tackling each problem separately. If a major
problem appeared, the customer shall be notified on the spot that a doctor consultation is
required or the insurance company shall be contacted, hence, there might be a delay or
no possibility of receiving the order later the same day (depending on the number of
prescriptions received per day), hence, lowering his/her expectations and decreasing
disappointment and frustration towards CVS. However, if issue the major issue was
resolved the customer would be notified that he can receive his order. In addition to that,
I added a consultation window in which the customer can tackle major insurance
problems (calling doctor – calling insurer) and he/she shall be offered on-the-spot
options; whether to “accept to personally pay for the medicine”, “pause prescription
order until the issue is resolved”. The customer shall choose his option before proceeding
to production step. Another addition was a notification system either by email or phone
call. This notification system shall be utilized to notify customers of any major DUR
rejections or delays in production. Finally, by adding a digital inventory system, CVS can
keep track of their current supply of medications and predicted stockouts (depending on
the digitally entered prescriptions that day), hence, alert customers directly if something
is out of stock.

6c. (i) Provide reasoning why this change can eliminate or lower the problem?
(ii) relate this to the causes identified. (remember problem is different from
cause)

Inputting the data directly into the system in the customers presence rather than placing
the prescription in a box to be processed later one hour before the pick-up time reduces
the workload placed on employees, specially during peak times when customers typically
come to pick up their order, giving employees more time to fix any major issues during
the DUR, Insurance, or Refill checks. Furthermore, performing the Refill, Insurance, and
Stock checks directly before the customer leaves the store reduces queue lines at the
pick-up counter because customers are informed on the spot if there is an issue with
their insurance and if he will be required to pay for the medication, if he is eligible to
request a refill, or if there is a problem with the medication and if there is any stock
deficiency. The same is true for the notification system, which alerts clients if their order
was not approved by the doctor, if they require a refill, and if there is a hard stop. As a
result, these consumers will not have to return to the store to pick up their order, saving
waiting time for other customers and increasing overall satisfaction.

6d. (i) Describe at least two of the “Upstream 7 Questions” that best support
your solution. (ii) Provide reasoning why?

(How will you avoid harm?) This question is supported by the notification system deployed
and consultation sector established. Instead of having customers shocked to find out after
waiting in line that their order is not ready, or it was faced with a insurance denial, or there
was a major DUR stop; the notification system can eliminate the customer frustration
element, reduce queue times for other customers and eliminate the emotional burden faced
by pick-up employees (verbal abuse).
(How will you get an early warning?) Having a on-the-spot data entry, insurance, refill and
stock check can give the employees a head start on what to expect for this particular
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prescription and provide head start guidelines to employees on what to do next. In addition,
this element provides the customer with the needed assurance and what is to be expected
(delays, insurance consultancy..).
(How will you change the system?) Changing the operations of the pharmacy as a system,
involves all employees and sectors(production, pick-up..). The new structure from
eliminating drop-in boxes, having a consultation sector to deal with major insurance hick-
ups, and digital data entry from the start relaxes the whole pharmacy operation and effects
the different sectors uniquely to create a better-structured system that is capable of dealing
perform equally as good with busy late hours.
7. Focus on what type of Information Tech, if any, are required to implement
your process changes. Think about what capabilities are provided which are
useful. [Answer below questions.]

7a. What is the type IT (Function IT, Network IT and Enterprise IT) that is
needed to enable the change in process you are suggesting? Why?

The IT required for the notification system is an enterprise IT. Since this system is going
to be used to notify customers of any problems, delays, refill denial, order readiness for
pick-up i.e. managing customer relationships. In addition, this system can be
standardized across all CVS branches.

The automated inventory and data entry system is also an enterprise IT. Like the
notification system, the automated inventory monitor can be standardized across all
branches. This system is used to tackle any predicted stock-outs and prevent
dissatisfaction for customers by providing them with an early status of the stock of the
requested medicine. This system also allows managers to forecast their needed demands
(supply chain management) and prevent customer delays, hence, increase satisfaction
and decrease in-store queue.

7b. (i) Please link the type of IT you chose to 1 the most relevant of “7
Questions”, i.e., (ii) why it would IT type help with implementing this 1
question? (iii) How?

Our main problem revolves around the bottleneck created at the pick-up counter with
customers complaining about the slow service (long queue) and having unpleasant
surprises (finding out that they need to pay..) which is creating frustration for both the
customers and employees. The IT enterprise systems mentioned can help answer the
early warning question since they provide an early warning to pharmacy employees on
what workload (necessary calls, insurance consultation ..) to expect out of each
prescription early on (directly after drop-off) and it could serve as a warning system to
customers as well. By providing customers with their expected order completion time and
whether all their information (insurance, refill, typos..) is aligned with the process while
they are still at drop-off.

7c. (i) What IT functionality should you be employing to ensure compliance with
the new process design that you suggested in 6b and 7a? (ii) Which 1 of the 7
questions it help to answer?

We may track typical customer wait times at the pick-up counter to evaluate if our
adjustments to the data entry process and the implementation of a notification system
were beneficial. Furthermore, we can see how many clients arrived to the store to pick up

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their purchases just to find out that their order is awaiting permission from the doctor,
the insurer, or the pharmacist. Furthermore, we may assess the success of our inventory
system by counting the number of consumers who came to the store only to be told that
their drug was out of stock. We can also assess the experience of consumers who come
to the pharmacy to pick up their orders by conducting surveys and making direct eye
inspections of average wait times and the amount of clients who depart without having
their requirements met. By monitoring what was previously neglected we can assess the
compliance with our new process design. This helps answer the “How do you know you
are succeeding? ” question.

8. Resistance: Think about the key professional roles in the pharmacy. [Answer
below questions.]

8a. (i) Which (single) role is HIGHLY likely to resist your proposed solution? (ii)
Why?

The single role that will highly likely to resist the proposed solution is the technician at
the drop-off window. Since his role would now be more than just sorting papers in a box.
Instead, he is required to perform the data entry in the presence of the customer and
communicate any minor issues directly to the customer with aim of resolving them on the
spot.

8b. (i) How would CVS tackle their resistance? (ii) Why you think it worked/not
work?

CVS could tackle their resistance by communicating the changes early to them and
explaining the importance of his/her role in the overall fulfillment of the new system. In
addition, CVS can implement the change in several stages and engage the technician
mainly and other employees in the process of further improving the implemented new
system by managing the change through a cooperative feedback system between
management and employees.

9. Analyzing the case, (a) what form of “leverage” you think CVS used to
implement the change in the context of case and your answers? (b) Why you
think it worked or not?

The leverage is in the form of using the IT Enterprise system. Since the main problem of
having order delays and customer dissatisfaction due not receiving their order after
visiting the pharmacy was mainly due miscommunication i.e. late communication, having
an IT Enterprise system that directly links the pharmacy with the customer through direct
and fast communication regarding the status of their order/process would directly tackle
the root problem. In addition to that, data entry and automated inventory, along with a
direct-fast overview of any visible minor problem while the customer is still present could
immensely speed the debugging process. This IT infostructure could link the different
sectors of the system(drop-off, operations, stocks, pick-up); from data entry to stock
management and direct communication and overview of data between employees and
customers; and hence facilitating drop-off process which in return improves customer
satisfaction.

10. (i) Would it be possible for pharmacies to do “backsliding” (continue to use

the wooden boxes described in the case to) sort prescriptions by pickup time,
and postpone/ do batch data entry. (ii) What can CVS do (beyond merely
communication/training about the proposed new process or auditing) to
prevent this? (iii) to detect which stores it is happening in?

Yes, theoretically pharmacies can continue to use backsliding but at the cost of losing
their competitive positioning. With fast growing data/tech industry, more companies are

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relying on data and automation to leverage their competitive positioning and grow their
market share. In addition to communicating the changes early to employees and
explaining the importance of their role in the overall fulfillment of the new system, CVS
can implement the change in several stages and engage the technician mainly and other
employees in the process of further improving the implemented new system by managing
the change through a cooperative feedback system between management and
employees. This could create an emotional incentive for employees to try and be a part of
the overall development of the company. Financial incentive could also be provided for
employees who contributed to and embraced the change (bonuses, promotions..).

11. Reflection question.

11a. Provide an account of why it took CVS so long to establish the PSI to tackle
customer defection problem although it was known before. Pick 1 or of the 3
barriers (the most relevant) to illustrate your points with details from the case.

It took CVS so long to tackle customer defection by creating PSI because management
didn’t align customer focus with their strategy. They basically took it for granted and
suffered from problem blindness (“You told us it was bad, but this bad?”). The root to the
problem revolves around not shedding enough light on the customer experience and
allocating resources to solve visible problems at hand rather than underlying causes.
Hence, they couldn’t detect that they could prevent 60 to 90% of customer defection by
implementing an upstream thinking approach. In addition to that, what helped preserve
the problem blindness was the fact that CVS was growing at the industrial market rate.

11b. Provide an account of how CVS succeeded to make PSI work to tackle
customer defection problem. Pick 1 of the 7 questions (the most relevant) to
illustrate your points with details from the case.

CVS launched the PSI and staffed it with operations executives and managers, including
Roberts, the Senior Vice President of Store Operations; Flum, the Director of Store
Technology; and Betses, the Director of Pharmacy Operations, to understand the true
state of the pharmacy customer service and to make any necessary fixes. A top
pharmacy manager, a top pharmacist, and consultants from the Boston Consulting
Group, including Grossi, were all members of the team. The PSI team began gathering
information by evaluating historical data and conducting interviews with current and
previous clients, as well as customers from other pharmacies. This work soon confirmed
that there were issues at CVS. The success is mainly due to creating a perfect team of
necessary personnel and expertise which links to the question (“How will you unite the
right people to tackle a Upstream problem? ”)

12. Upstream Thinking is a Highly Powerful Framework and an Enabler of Using

simple Analytics and Numbers to unlock revenue increase or avoiding cost
potentially. But the CVS and Expedia cases show clearly this is not just a
potential it is real! Both cases also demonstrate using Upstream Thinking
concretizes what we mean by Business Analytics – namely [analytics insights +
relevant business action + business impact + measurement]. Justify the latter
in a detailed and drill-down manner? [Avoid general restatements of the latter
to provide your answer, it will be marked down.]

Upstream thinking involves slowly climbing up the stream through small steps in order to
reach the destination i.e. root problem. Business analytics plays the key role in guiding
our footsteps and align us with our target destination. By gaining insights through
studying older and current data we can take relevant business actions, then monitor the
results and measure the impact in order to find our next stepping stone. We can then
reassess the finding and repeat the described process in order to close on our target

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goal. Business analytics coupled with the right upstream thinking approach can help
uncover pattens and weak points in any system as a whole rather than on a granular
level.

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