It’s a New Year… Don’t Get Fracked

In 2012, Hollywood celebrities and paparazzi gathered to celebrate the opening of a drug store. Walgreens had invited LA’s rich and famous to help commemorate the opening of its 8,000th store at the corner of Sunset and Vine. The store opening capped a decade of expansion in which Walgreens doubled the number of stores it had nationwide. 

A lot has changed since then, and Walgreens has found itself struggling to adapt. The company has been battered by declining sales. In October, it announced plans to shutter 1,200 stores by 2027. Walgreens Boots Alliance stock is trading at half what it was a year ago.

What went wrong for Walgreens? In short, it got fracked…

Fracking normally refers to hydraulic fracturing—the process of injecting liquid into the ground at high pressure to break up rock and extract petroleum or natural gas. It’s what has propelled the U.S. to once again be the world’s largest producer of oil. But fracking is also a powerful metaphor for what happens when otherwise well-run businesses fail to respond to external forces beyond their control.

Imagine you’re a farmer whose family has worked the land in Ohio or Pennsylvania for generations. You do a good job making improvements in seeds, crop management and harvesting equipment. You run a great farm. Your neighbors admire you, even if they’re a little bit jealous.

But unbeknownst to you, there’s an energy company a few miles down the road that is breaking shale rock thousands of feet underground. And all of that fracturing is leaching chemicals into the soil under your farm. And you wake up one day and turn on your kitchen faucet and your water is lighting on fire. And you have to move. Because it doesn’t matter how great a farm you run. You’ve been fracked. 

This isn’t a hypothetical. Dairy farmers surrounded by fracking operations in Pennsylvania have reported contaminated well water and health problems for their families and cattle, with some opting to give up and sell their land to the energy firms.

The same kind of disruption is happening to companies all the time. They may run a tight ship operationally and be among the best at what they do, but that doesn’t save them from getting displaced by an external threat to which they were too slow to adapt.

No company is immune to getting fracked. And every business leader would be wise to pay attention to the seismic disruptions that can destroy even the most well-run companies.

Walgreens is Getting Fracked

By most metrics, Walgreens is good at running drugstores. Its biggest problems all come from factors outside its control, such as the decline in foot traffic post-pandemic, the continued rise of e-commerce, falling insurer reimbursement rates for prescriptions, and the entry of big players like Walmart, Costco, and Amazon into pharmacy services. 

However, just because these forces were outside its control, doesn’t mean it was helpless to respond. Its competitor CVS is also facing a tough time but is in a better position than Walgreens today because it took earlier, more consistent steps to counter the same threats.

While Walgreens remained focused mostly on being a great pharmacy provider, CVS made a strategic decision to become an integrated healthcare company in response to the big shifts it saw coming. It merged with pharmacy benefits manager Caremark in 2007 to expand its mail-order business and prescription benefits. In 2018, it acquired health insurer Aetna to accelerate its vision of providing total healthcare solutions. CVS was also quicker than Walgreens to roll out in-store “doc-in-a-box” services through its MinuteClinics, and moved earlier to optimize its retail footprint, closing some stores and redesigning others depending on geography and local needs. The result is that while Walgreens is getting seriously fracked, CVS is at least fighting fracking. 

The Fracked List

My colleagues and I at Jump have been obsessed with the notion of getting fracked. A few years back, we started keeping a running list of companies that are at different points on the fracking spectrum. We’ve divided them into four columns. In the first column, we have companies that are “Totally Fracked.” That includes businesses that are essentially defunct, like Blockbuster and Kodak, as well as more recent casualties such as JCPenney and Hewlett-Packard. In the second column, we have a group of companies that are “Getting Fracked.” These are largely well-run companies that are struggling to respond to fundamental problems with their business models. That includes many great companies like Intel, McDonalds, and Coca-Cola. 

The third column is a list of companies that we think are “Fighting Fracking.” These are businesses that have decided to take their destiny in their own hands and make fundamental changes to respond to external forces. That list includes companies like Adobe, Disney, and General Motors, who’ve all responded forcefully to technology and market disruption. The “Fighting Fracking” list also includes The New York Times. For decades, the Times was affectionately called The Gray Lady in its unwillingness to move beyond columns of gray text and adopt fresher graphics or even color photos. But in recent years, the Times has fought back hard against the disruptive forces of the digital era. They’ve pioneered digital apps and new forms of storytelling, all while maintaining the highest standards of journalism. And while other newspapers have been decimated in the last few years, the Times achieved a record number of subscribers last year, with online games, product reviews, and cooking recipe sites helping to drive profits. Wordle, anyone?

Of course, there’s one last column on our Fracked List. Those are the companies we call the “Serious Frackers.” They’re the ones that are doing a lot of the fracking. It includes tech giants like Google, Amazon, and Nvidia, as well as innovators like Tesla and Novo Nordisk. These companies aren’t just competing with one another. They’re breaking up the ground under the rest of the list.

Even Frackers Get Fracked

It’s important to point out that this list isn’t static. A generation ago, Starbucks was fracking the coffee business. Just ask anyone who worked at Maxwell House. And companies can move back from the brink. Ten years ago, Microsoft was getting fracked. Satya Nadella changed that. 

Companies can move across the fracking spectrum relatively fast. Intel was one of the world’s most innovative, disruptive companies in the 1980s, 90s, and early 2000s. It’s now getting badly fracked from all sides. While it focused on making better CPU semiconductors, it missed the GenAI wave that fueled the surge in demand for GPU chips and Nvidia’s rise to become the world’s most valuable company last year. At the same time, it’s been fracked by its former customer Apple’s shift to designing and manufacturing its own chips in partnership with Taiwan’s TSMC. And that’s before you consider how the semiconductor industry will be disrupted by the emergence of quantum chips, a version of which Google unveiled in December.

Just because you’re a fracker today, doesn’t mean you’re not getting fracked tomorrow. Even the Serious Frackers aren’t safe from fracking. Google has had to sound a “code red” in response to the threat to its Internet search dominance posed by OpenAI’s ChatGPT.

Macro Forces, Substitutes, And Piranhas

So how do you know which list your business is on and your risk of getting fracked? 

The first step is to open your eyes to the big, disruptive forces at play that could wreck your business. Many of these macro trends are staring us in the face, from a changing climate to the trend toward healthier eating to shifts in the way consumers shop. Many companies still get fracked by these forces because they assume they have more time than they actually do. They fail to lift their heads up from day-to-day operations to think about the future.

The second step is to take a look at the landscape and ask if there are substitutes emerging that could take your business down. These aren’t direct competitors—they’re alternative ways of meeting needs. Mobile payments are a substitute for credit cards. Streaming is a substitute for cable TV. Amazon Pharmacy is a substitute for traditional drugstores. The danger is dismissing these substitutes because “they’re not really in our market.”

If you’re Frito-Lay, it doesn’t mean worrying about Nabisco; it means coming up with a strategy to cope with the healthy eating trend and the popularity of weight-loss drugs like Ozempic. If you’re Ford, it means getting ready for a world in which sales of internal combustion engine cars are banned. Airlines are in danger of getting fracked by the same carbon-reduction drive—France recently banned flights shorter than 2.5 hours along routes where a train option exists.

Third, pay attention to the little players. The smaller fish circling around you may not seem like much of a threat, but at least one of them could turn into a piranha and start eating you. Companies like OpenAI and Robinhood are pioneering new approaches that will reshape entire industries. The fatal mistake is ignoring them because they’re “too small to matter.” Netflix seemed like an inconsequential minnow to Blockbuster only a few years before it fracked the DVD rental giant out of existence.

Operational Excellence Isn’t Enough

To return to the farming metaphor, CEOs and strategy leaders have to break out of the mentality that all will be well if they just focus on growing the best crops. That’s surprisingly hard to do because it’s often exactly how they got to their positions—but it’s crucial to avoid being fracked.

Leaders need to adopt a future-focused mindset and be in a constant state of paranoia. They should be asking how they could get fracked, whether they are being fracked regardless of internal performance, and what they are doing to fight fracking. In practice that means having multiple initiatives and experiments in play aimed at riding macro forces, as well as responding to substitutes and potential piranhas.   

If not, they risk waking up tomorrow to find their water on fire and barren soil where they once tilled fertile land.