The CDO Interview: Digital Transformation at CVS Health

CVS Health has recently opened a new Digital Innovation Lab in Boston. Enabling digital access to healthcare and related services anytime and anywhere is a key component in the company’s transformation into a multi-faceted healthcare provider.

CVS also announced plans to expand its physical footprint by acquiring for $1.9 billion Target’s 1,660 pharmacies and 80 clinics. These will be added to its existing 7,800 retail drugstores and nearly 1,000 walk-in medical clinics. CVS also acts as pharmacy benefits manager for more than 70 million plan members and provides specialty pharmacy services. Rapidly expanding its portfolio—last month it acquired Omnicare Inc., a provider of pharmacy services, for $12.7 billion—CVS moved up to number 10 on this year’s Fortune 500 list with $139.4 billion in 2014 revenues.

Successful transformation from a drugstore chain to a provider of innovative approaches to delivering healthcare services takes a lot of moving parts, not least of which is information technology. CVS highlighted the digital dimension of this transformation when it hired Brian Tilzer in February 2013 as senior vice president and its first Chief Digital Officer (CDO), to “develop and lead teams” driving the company’s “digital innovation efforts.”

Tilzer’s IT experience goes all the way back to the 1960s, when his mother worked as a programmer for Equitable Life Insurance. Later, she taught her very young son how to write programs for the Apple II. This got Tilzer his first job in retail, showing customers at his local computer store what they could do with the personal computer.

What followed was a career as a technology and business strategy consultant, a senior vice president of strategy and business development at Linens n Things, and six years in senior eCommerce roles at Staples. Now Tilzer is defining the CDO role for CVS Health.

CVS was ahead of many other companies at the time as there were only 225 CDOs at the end of 2012, according to the CDO club. That number is estimated to grow by 800% to 2,000 by the end of this year. Late last year, Korn Ferry predicted that CDOs will be among the most in-demand C-level positions in 2015 and IDC predicted that by 2020, “60% of CIOs in global organizations will be supplanted by the Chief Digital Officer (CDO) for the delivery of IT-enabled products and digital services.”

At the MIT Sloan CIO Symposium last month, Tilzer participated in a panel discussion titled “Leading Digital: A Manifesto for IT and Business Executives.” Also on the panel was Michael Nilles, CIO of the Schindler Group and CEO of Schindler Digital Business.  A global provider of elevators, escalators and related services, the Schindler Group has opted to entrust its CIO with a business unit responsible for connecting its products via the Internet of Things and providing its 20,000 field service employees with a “digital tool case.”

At the Symposium’s panel discussion, Nilles argued strongly for having only one executive perform the CIO and CDO roles, implying that CIOs are not worth their salt if they can’t take on themselves the CDO role.

CVS Health proves Nilles wrong. Its CIO, Stephen Gold, “has one of the best resumes in IT,” according to Forbes contributor Peter High. Gold is focused on IT transformation, which in a company moving rapidly to expand its business portfolio and physical footprint, is a very broad and critical “focus.” CDO responsibilities would probably be just a distraction for him. Answering Nilles in the Symposium panel discussion, Tilzer stressed the importance of having a senior executive in charge of digital, explaining that this is a new marketing channel and an opportunity to engage customers like never before.

Different companies, given their unique business and competitive situation, would respond differently to the challenge of who to entrust with CDO responsibilities. Some would create a completely new business unit and would have the CIO run it in addition to his or her traditional IT responsibilities, as Schindler did. Other companies may combine the CIO and CDO responsibilities in one executive or in one team, but will not create a separate business unit. And some companies, like CVS Health, may opt for a clear division of responsibilities.

“We have separate teams but one team mentality,” Tilzer told me on the sidelines of the Symposium. “We challenge each other in healthy ways. We want to move fast and they want to be secure. We have to take care to do both,” he added.

Tilzer’s team is charged with figuring out what CVS’s customers want and has the expertise to design online experiences to meet these needs. They write the business requirements, and the IT team, with the knowledge of what tools to use and the right software development skills, builds the solution. “The relationship is seamless, we tend to start with the customer and IT tends to start with the technology but it’s got to come together,” said Tilzer.

One could think about the CDO as the chief customization officer. “Digital is the place where all the services CVS provides can come together,” said Tilzer, “connecting our customers and their families with what we do.” And just like information technology, “digital” touches everything today. Tilzer: “My job would be a lot easier if I was trying to build digital CVS, a separate team or unit. What I’m trying to do is to weave digital experiences and technologies into every aspect of our customers’ experience. This requires us to closely collaborate with other [functions].”

One area of collaboration across the CDO team, IT, and marketing is analytics. In the past, data was used primarily to justify projects. But now, “the bigger idea is to use data to personalize experiences,” according to Tilzer.  IT builds the tools that Tilzer’s team use to make customers’ experiences as relevant as possible. At the same time, his team needs to work with marketing to ensure the personalized messages to customers they develop support the overall communication strategy for the company.

Tilzer has on his team digital strategists, “people who figure out what program we should go after and what great things we should do for our customers.” Other members of the team are product managers who develop a road map of features and functions to meet the digital strategy; and user experience experts, designing the look and feel of the digital product and working with marketing to ensure compliance with the brand.

One reason for establishing the Digital Innovation Lab in Boston is to expand the pool of talent Tilzer can tap. But the key motivation for opening the lab is to develop an innovation ecosystem. “We are trying to accelerate our rate of innovation,” Tilzer told me. “We need to explore best-of-breed third party partners, bring them into our world, figure out how they can be combined with our digital experiences and test it rapidly with our consumers.”

In Boston, observed Tilzer, “the intersection between technology and healthcare is very strong.” The Digital Innovation Lab is located half way between the Longwood medical area and the Kendal Square technology hub across the river in Cambridge. “We don’t need to do everything ourselves,” Tilzer said.

Originally published on Forbes.com