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April 5, 2011

How Medco transformed its $65bn business: a Q&A

BPM part of its transition to 'Medco 2.0', firm achieves 30% productivity boost as it transitions into an Agile Enterprise

By Jason Stamper

Michael Dufresne, Medco

Michael Dufresne, Medco VP business process transformation

When pharmacy services giant Medco had a regulatory hurdle to clear in 2009, it realised it had something of a problem: the need to change processes showed just how inflexible its business processes were. With 65 million customers and 23,000 staff, it was a sizeable challenge.

The company had also realised that it would need new organisational structure as well as technology if it were to meet its goal of becoming a truly Agile Enterprise. This month CBR caught up with Medco’s VP of business process transformation Michel Dufresne, to find out more about the company’s ambitious project, and how it is using business process management (BPM) from Pegasystems to support its change programme.

CBR: Tell us how this project all started.

Michael Dufresne: When some new regulation was published in 2009 which meant we had to change business processes, we realised how inflexible our processes were. Medco was reliant on business processes but the IT was basically saying, ‘we don’t need BPM, we can rely on core IT systems as they are’. But we had to meet these Federal regulations at the turn of 2010 and we weren’t going to be able to achieve compliance. That’s when we showed them [the IT department as it stood then] how we could do this with BPM, and specifically with Pegasystems.

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Q. This was the first time you had brought in Pegasystems?

A. Yes, I knew about Pegasystems as a tool that can give you more flexibility, but at that time the Business Process Management Group which reported to IT, was using Mega. In fact they still use Mega today to model end to end business processes. But we had this need for systems that could capture a model and drive new business processes and process change.
So we started using Pegasystems in September 2009 for delivery in December that year. We basically wanted to show how we could create change, how a team of empowered individuals could create change. We also wanted to show that the current systems could not handle change!


Q. As well as this particular compliance issue you faced, were there other reasons your systems were not sufficiently flexible?

A. There were. We are in pharmacy services, and we have both mail order pharmacy services and direct customer service representatives [CSRs]. The lines between mail order and CSR was starting to blur, there was more than one system and systems were increasingly crossing boundaries. All of our operation centres were organised by geography and then line of business. So order processing, for example, would have a different line of business manager. The result was that even a small change needed to involve a lot of different parts of the organisation.

Q. So what was the next stage?

A. Two important steps were taken to move from an application centric model to a process centric model. First we established five Business Process Centres of Excellence (COEs) separated from traditional IT. For example, Patient and Physician Advocacy Centres COE which support our call centre operations; Order Processing COE and so on. These are each made up of both business and technology assets. Each COE has a COE Lead that is charged with building enterprise business processes and reusable components. They act like internal software companies and own their business processes implementation and associated framework as a product from requirement to implementation including functional testing.

Q. These COEs include both technical people and more business-oriented folk?

A. Yes, each COE has a Business Architect and Business Analyst responsible for managing requirements and defining the features and functions of their product. They also have System Architects, Application Developers, and Functional Testers to design and implement their product.
They also have Scrum Masters, as we are using a Scrum-based Agile development methodology to manage the sprints and product releases. And the other big change was to align the reporting structure of the Operations Centres with the process domains and no longer by location. For example, all call centre operations report to a single Executive Process Owner across all lines of business in the US.

Q. And where does Pegasystems, your new BPM tool, fit into this picture?

A. Well first let me explain that the Operation Centres now have Process Champions that are responsible for defining efficient business processes for use across lines of business. As you say we selected Pegasystems as our unified platform to ensure that our business processes are not siloed. We also established another important COE called the Pega Enterprise COE. This COE supports the Business Process COEs to ensure we achieve integration and reuse by managing our Enterprise Class Structure and our Domain Object Model and its integration to back end systems.

Q. One of the arguments for BPM from companies like Pegasystems is that it can put more power in the hands of business people to change their own business processes. Did you find that to be the case?

A. Yes, in fact we also established Business Innovation and Agility Centres (BIACs) which are market facing entities responsible for adapting and customising the enterprise business processes to meet the market demand of the line of business they report into. Like the COEs, the BIACs are made of business and technology assets. And these BIACs are able to implement changes, within defined guard rails, without having to schedule them with a central development organisation.
To accelerate our business process re-engineering and enable our stakeholders and subject matter experts to ‘think outside the box’ we created ‘Imagineers ‘positions responsible for the creative process. We have Imagineering Labs located in the field to bring together stakeholders and users to perform rapid prototyping of the future state without technology constraints.

Q. On the whole, what would you say has been the impact of all this restructuring?

A. Well we no longer have a traditional IT organisation. The aim at creating the new Business Technology Group is to bring together technology and business assets so that the technical resources get to learn more about our business and its needs, while the business resources get to be more fluent in technology and understand better the possibilities it offer to the business.

Q. Can you be any more specific about return on investment, for example?

A. It’s difficult to put figures on it, but we know that the structure we have put in place enables us to generate high return on invested capital and to create value for our shareholders. With Pegasystems giving us more flexibility we have been able to turn some legacy applications off. And I can tell you that our president and COO Kenneth Klepper has said that we have seen a 30 per cent improvement in productivity thanks to this change programme and Pegasystems.

Q. Are there any lessons from your experience to other companies about to embark on a similar journey?

A. You absolutely need executive sponsorship at the very highest level for this to work. You need the CEO to help overcome any resistance to change. You can’t allow there to be running battles between ‘old’ and ‘new’. We were fortunate in that in our case the president and CEO and COO were fully behind it.

Q. Would you do it all again?

A. Not only would I do it all again, but I would have started earlier.

In 2010, Medco captured the No. 1 position in the Health Care: Pharmacy Services sector on Fortune’s Most Admired Companies List for the third consecutive year.

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