Dive Brief:

• Walgreens Boots Alliance and Microsoft announced a seven-year agreement under which Walgreens will migrate its IT infrastructure to the Microsoft Azure cloud and put its 380,000 employees on the software giant’s Office365 software and application platform, according to a Walgreens press release.

• The partners also are investing an undisclosed amount in a joint research and development effort, potentially including innovation centers in key markets to build healthcare solutions, improve health outcomes and lower the cost of delivering care. Later this year, Walgreens also will pilot up to 12 store-in-store "digital health corners" to promote different healthcare-related hardware and devices.

• The companies also are planning to develop a suite of chronic disease management and patient engagement applications, and leverage Microsoft’s Internet of Things capabilities and devices for non-acute chronic care management, the press release said.

Dive Insight:

This wide-ranging partnership is the latest attempt by Walgreens to reinvent its own core pharmacy business before Amazon or CVS get much further reinventing it for them. It's becoming clear that these companies see traditional business evolving into a broader healthcare play supported by disruptive technology innovations.

In a huge retail sector win for Microsoft, the technology company is also becoming Walgreens’ provider of cloud-based IT and office applications.

Microsoft has been on a run of success in retail, having also forged deals with the likes of Walmart and Gap within the last year. The agreement with Walgreens in some ways resembles the partnership with Walmart because cloud plays a major role in both relationships, and both also appear to be launchpads for joint innovation.

There are not a lot of specifics about the innovation that will be pursued, but the thinking behind this pairing seems similar to that which has driven Amazon's early moves in healthcare and CVS's acquisition of Aetna. Walgreens now seems to be a full-fledged believer in the power of innovation, recently adopting new in-store mobile devices from Zebra Technologies, partnering with FedEx on a next-day prescription delivery service and reportedly testing Internet of Things-enabled store coolers, among other efforts.

For now, the retailer is being decisive about choosing a path it believes will lead to continued success in a changing market. The strategic mindset places Walgreens can be summed up in just a few words: Upgrade and innovate.