Over the past four years, Walgreens, the giant drugstore chain, has been executing a plan to spend about $50 million to place in about 40 of its stores a machine developed by the start-up Theranos that supposedly could test tiny samples of blood for dozens of conditions, eliminating the need to take a blood sample from the patient’s arm. Unfortunately, it has turned into a huge disaster.
The main reason the whole thing has cratered is that apperently the Theranos machine doesn’t work. The Theranos mess has been covered extensively in the press over the past several months, and Theranos faces a law suit by a patient who believes they were defrauded because Theranos falsely claimed it could accurately test blood, and the suit seeks class action status. Even more embarrassing for both Thereanos and Walgreens, regulators said in January some of Theranos’s testing posed “immediate jeopardy” to patients’ health and they proposed a ban of the Theranos leader from the lab-testing industry.
There are some valuable lessons that emerge from this situation:
1.) Don’t Send the Wrong Message to the Troops – The Walgreens CEO made it clear that he wanted to find a way to modernize Walgreens’s image by somehow exploiting new technology. It seems that the message was; find some gee-wiz technology or else! Hence, the senior officials were sent on a mission to Silicon Valley to do a transformational deal. The pressure was on to find something that would be cutting-edge, that could be exploited to demonstrate how contemporary Walgreens had become.
2.) Don’t Compromise the Due Diligence Process – When something new is going to judge people’s health, you need to set very high threshold of success for your due diligence. In the initial stages of checking out the Theranos technology, Walgreens ran into a brick wall. Theranos closely guarded it technology and operations. Wallgreens hired an industry consultant who, after spending some time on the effort, claimed “It was very strange. I was never allowed to go into the lad. I have no idea that the results came from the Theranos device or not.” When pushed, Theranos agreed to send an actual test device to the Johns Hopkins for third party testing, but Theranos never delivered the device. Walgreens didn’t confront Theranos about this matter; they let it drop and moved ahead!.
3.) Don’t Violate your Core Principles – As the two companies neared a final agreement, Theranos asked to physically manage the usage of the device in Walgreens stores; something that was very foreign to the way Walgreens runs its operations. Surprisingly, Walgreens gave in and let Theranos run its wellness centers as independent operations. Additionally, the contract signed by the two companies didn’t give Walgreens the right to review any of Theranos’s clinical data or financial records.
Clearly the Walgreens leader drove the company to a huge embarrassment by ignoring all three of these fundamentals. It is a robust lesson that wise leaders can learn from.