Business model transformations of McKesson

McKesson was a distributor of drugs and health care products to independent drugstores. In the 1980s large drugstore chains, which threatened to eat away McKesson’s market of independent drugstores. In a series of transformations, McKesson introduced mobile order-entry for drugstores, support for packing orders, and software support to set prices and design store layouts, so that independent drugstores could continue to serve local needs (Johnston & Lawrence, 1988). This generated data that could be sold to drug manufacturers for production planning. With a growing database about drug sales, McKesson further extended its offering with support for insurance claim processing and payment.

McKesson’s value network grew to include independent drugstores, suppliers, manufacturers, insurance companies and consumers. Its revenue model became more diverse and now includes services fees and logistics fees. The value for manufacturers and drugstores consists of increased sales, reduced ordering cost, and reduced warehouse costs. The operationalize the business model, McKesson has a fleet of delivery vans plus an IT network that connects drugstores, manufacturers, and insurance companies.