Analysis of forces of change impacting Recon’s business operations

The first part of the report examines the forces of change affecting Recon’s business operations. The unfavourable factors include industry 4.0 and digitalisation, the increasing bargaining power of suppliers and buyers, and the threat of new entrants. The second part identifies the firm’s resources and capabilities, which determines the sustainability of the competitive advantages.

The capabilities include strong brand image and reputation, customer service, technology, highly qualified staff, a high number of operating facilities, premium pricing, and resources to conduct complicated surgeries. The third part examines the approaches to implementing the digital operations strategy to improve the value chain.

The use of data analytics, procurement 4.0, automation and robotics, prescriptive analytics, and developing IT infrastructure, are identified as useful in improving supply chain management, service/product quality, and value chain. The fourth section examines the digital ecosystems that Recons operates; the company lacks own digital ecosystem, but partners with providers/companies to enhance its value chain. The last part determines the learning culture to spur digital transformation in the company.

Introduction

Organisations need to align their operational tactics with their business and corporate strategies to guarantee sustainable growth and survival. Strategic improvement practices that respond to the changing business environment helps to enhance superior operational performance (Hill and Hill, 2017). In this regard, firms should strive to improve the quality of operations through strategies that optimise performance and maximise value ((Ritamaki, 2017).  Recon’s current financial performance is strong, evidence of an effective operational strategy. However, the plan fails to accommodate changing business dynamics to improve its operations for sustainable market position in the future. Some of these challenges include rapid consumer behaviour changes that demand higher quality services/products, continuous threat of digitisation and industry 4.0, as well as, suppliers leveraging on digital transformation to increase their value chain. As a result, suppliers continually increase their bargaining power, thus, driving up operational costs for Recon Pty Limited.

Forces of change impacting Recon’s business dynamics

Political factors

The unfavourable government policies influenced by politics, result in a general increment in costs of medical and reconstructive health, which, in turn, hinders the affordability of the Recon’s high-end services. Additionally, the cost-leadership strategy of premium pricing of Recon’s services might not be sustainable in the long-run. According to Flitcroft et al. (2017), the Australian government has been enacting unfavourable legislation meant to restrict some plastic and reconstructive procedures for the last five years (Flitcroft et al., 2017). The legislation subjects the firm to change the approaches to conducting the medical procedures. Similarly, significant improvements in regulations are necessary to prevent General practitioners performing risky plastic surgeries with unfavourable patients and clinical outcomes (Davey, 2016). Nevertheless, the industry was benefiting and growing more from self-regulation (Flitcroft et al., 2017).

Socio-cultural factors

The changing social and cultural standards influence the shift in consumers’ perceptions towards accepting plastic surgery. Currently, more Australians are willing to undergo costly reconstructive procedures to boost their self-esteem, improve confidence, and aesthetic appeal (Delloitte, 2017). According to the International Society of Aesthetic Plastic Surgery (ISAP) (2016), the industry will grow at an annual rate of 9%.  The major market segment of high professional income earners creates a strong networking social environment that will enable the firm to grow its customer base rather than focussing on a niche market as an operational strategy (Delloitte, 2017).

Technological factors

The field of plastic surgery is experiencing rapid growth in innovations meant to ensure the efficiency of surgical procedures, promote patient safety, and better outcomes. Recon Pty Limited strives to adopt the latest technological innovations to maintain a competitive edge over its rivals. However, the firm’s current operational strategy of differentiation and cost-leadership operational strategy is ineffective in dealing with digitisation and industry 4.0. With the rise of industry 4.0 and digitisation of operations, organisations are striving to collect, analyse, and store data in a way that creates efficiency and improves the quality of output (Delloitte, 2017). According to Ben, Jilian and Prasanta (2013), industry 4.0 is the fourth industrial revolution that enables organisations to tackle new challenges in the business environment, improving operations by increasing product quality, revenues, and reducing risk.

Despite the benefits of the technological elements of industry 4.0, the stakeholders of the Australian healthcare sector still have adverse perceptions and attitudes towards embracing the changes. In this regard, Recon’s efforts to implement industry 4.0 are hindered by the unfavourable business environment and views of physicians and managers, who consider technology as a substitute for their jobs. For instance, only 2% of Australian healthcare CEOs are confident of their capabilities to use industry 4.0 compared to 14% globally (Delloitte, 2018). Even more shocking is the fact that only 4% of them believe that technology offers a competitive advantage, yet 71% believe that they have the right workforce to develop operational strategies based on the same (Delloitte, 2018). Further, Recon is affected by the high cost of high-end technology appropriate for the premium facility; the cost of procuring, installation, operating, and maintaining the various innovative technologies is expensive. However, due to these challenges, the Australian government is taking measures to ensure healthcare firms like Recon can harness industry 4.0.  The government has set up test labs at the cost of $5 million, signed collaboration with technologically advanced countries such as the United States, and provided $2.4 billion in funding to increase the country’s innovation and technology capabilities (Australian Department of Industry, Innovation, and Science, 2018).

The threat of new entrants

The threat of new entrants in this industry is high due to the growing market amidst limited barriers to entry such as legal requirements and competition. In 2016, the plastic surgery market had 225,002 operations, which represented a 9% growth; this rate is expected to be 19% by 2025 (Davey, 2016). Similarly, 34.3% of the target customers are high-income earners; this also predicts a lucrative market in the future (Davey, 2016). However, as the market expands, more plastic surgeons are graduating from medical schools with objectives of developing private clinics. Majority of them are young and tech-savvy compared to Recon that has an average age of reconstructive surgeon at 35 years. Therefore, new surgical practices/firms necessitate the needs to change the operation and management strategies to reduce the threat and ensure sustainable business growth.

Bargaining power of buyers

Buyers in this sector have high bargaining power in terms of demanding for higher quality reconstructive services. In this regard, Recon has to constantly improve the product/service quality to meet the changing consumer behaviours and justify the premium pricing. Clients are demanding for more differentiated procedures with high-quality outcomes for maximum satisfaction. Hence, the firm has to continually improve its practitioners’ skills and processes that translate to better customer experiences. However, the operational strategy of differentiation may negatively impact the businesses operating in market segments with low growth.

Resources, capabilities and core competencies

Resources are crucial for an organisation to achieve its mission. Resource-based view (RBV) is a strategic management tool that assists organisations to identify and analyse their resources to determine how they can accomplish a sustainable competitive advantage (Madhani, 2010). Research reveals that firms that possess unique assets and capabilities achieve higher organisational performance and competitive edge over their rivals (Prahalad and Hamel, 1990).  RBV builds and shapes both business and operations strategy to enable a firm to achieve profitability.

Recon needs to continuously develop its resources and core competencies to better organise and manage the resources and capabilities for value creation. Resources are defined as strategic assets (tangible and intangible) that a firm can use to achieve its goals and objectives (Madhani, 2010). In this regard, Recon should develop its core competencies through Research and Development (R&D) that result in innovation and technologies for competitive advantage (Prahalad & Hamel, 1990). In determining whether a resource can lead to a superior market position, it should be valuable, heterogeneous and imperfectly mobile (Madhani, 2010).  Assets that reduce operational costs and increase revenue are seen as valuable. Therefore, Recon should prioritise on resources that are valuable, rare (unique), hard to imitate, and organised for value; this fosters the achievement of sustainable market position. Table 1 below for illustrates the VRIO analysis of Recon Pty Limited resources.

Table 1: VRIO analysis for Recon

Resource/capability/competence

Valuable

Rare

Imitable

Organized for Value

Competitive advantage

Conducting complicated and less common plastic procedures

Yes

No

No

Yes

Temporary competitive advantage

Technology

Yes

Yes

No

Yes

Sustainable competitive advantage

Excellent customer service

Yes

Yes

Yes

Yes

Temporary competitive advantage

Strong brand image and reputation

Yes

Yes

Yes

Yes

Competitive parity

Highly qualified and experienced plastic surgeons

Yes

No

Yes

Yes

Competitive parity

Premium pricing

Yes

No

NO

Yes

Temporary competitive advantage

Around 5 discrete operating theatre facilities

Yes

Yes

No

Yes

Sustained competitive advantage

The principal resources and capabilities for Recon Pty Limited include five operating theatre facilities, excellent customer service, strong brand image and reputation, as well as, premium pricing of its high-end services. Additionally, the firm can conduct less common but complicated reconstructive procedures, technology, and highly qualified and experienced surgeons. Only technology and a vast number of theatre facilities can create a sustainable superior market position for Recon. Besides, most competitors cannot imitate Recon’s use of the latest technology to conduct surgeries with very positive outcomes. Additionally, having many theatre facilities is expensive due to the high operating costs, making it hard for rivals to imitate. However, since many surgical firms in Australia have surgeons with impeccable academic and professional records similar to Recon’s, the level of resource is the only source of competitive parity.

Implementing a digital operations strategy

Supply chain

 The current supply chain management at Recon is not effective in dealing with the impact of industry 4.0. Furthermore, the firm’s suppliers are digitalising their operations, to attain considerable bargaining powers for higher profitability. In this regard, there is a need for a strategy to digitise supply chain operations.  Digital supply chain operations enable the firm to utilise the digitalised flow of information from within and outside the company, as well as, avail products and services to the customer (Iddris, 2018). Research shows that Digital Supply Chains (DSC) can reduce management costs, boost the efficiency of the supply chain and enhance collaboration with suppliers (Iddris, 2018). Further, a McKinsey report shows that firms that digitise their supply chain operations experience an increase of 3.2% in operating revenues and 2.8% in net income per annum (Gezgin, Huang, Samal and Silva, 2017). However, Recon has not initiated any policy or strategy related to DSC.

Since DSC involves transforming the whole organisation, Recon can only digitise its supply chain by adopting new digital technologies and building capabilities, as well as, having a skilled workforce to make it a reality (Schrauf and Berttram, 2016). In this regard, the supply chain managers must be tech-savvy for them to translate customer needs into digital applications (Gezgin et al., 2017; Schrauf & Berttram, 2016).  The first step in implementing a DSC at Recon is to determine the maturity level. The starting point for the firm is a digital novice, and the target is a horizontal collaborator in the next 3 years. At the digital novice level, business units and individual departments carry out discrete supply chain operations (Schrauf & Berttram, 2016). The next step is identifying key technologies and capabilities to execute a DSC; these include prescriptive supply chain analytics, 3D printing, procurement 4.0., integrated planning and execution, and logistics visibility (Schrauf & Berttram, 2016). The procurement 4.0, 3D printing, and perceptive supply chain analytics are necessary at Recon.  The use of big data analytics can also help improve sourcing and reduce supply risk through collaboration with suppliers (Iddris, 2018). Recon should select Google as it big data analytics vendor due to their high competence in cloud computing services. Organisations can also use Enterprise Resource Planning systems (ERP) to implement automation of supply chain activities (Ben et al., 2013). Therefore, the company can improve its DSC by growing capabilities, applying the necessary software applications, and organisational support of digitisation; to accurately predict demand, the source for materials such as surgical tools, and manage the theatre facilities.

Product profile

Recon needs to sustain its superior market position by enhancing the value proposition of its product and service offerings. The secret to sustainable profitability in the organisation is through the digitisation of product and services portfolio (Geissbauer, Schrauf, Koch, and Kuga, 2014).  However, it is essential to differentiate between digital and digitisation of products. According to Ross (2017), digital involves technologies such as AI, machine learning, cloud computing while digitisation focuses on the entire organisation by using innovative technologies and capabilities. Besides, Recon’s IT teams must also be included in the New Product Development process. A report compiled by the Pricewaterhouse Coopers estimates that digitisation of products and services generate over €110 billion annually for European countries (Geissbauer et al., 2014). Additionally, 29% of companies have digitised products together with automated services (Geissbauer et al., 2014).

Recon needs to re-evaluate its business model by leveraging on its strong social networking with customers to enhance value proposition through the development of a digital platform. By focussing on better communication of its value proposition through the use of digital tools, Recon can achieve a higher degree of competitiveness (Nanry, Narayanan and Rassey, 2015; Ross, 2017). Recon’s customers expect higher surgical products/services owing to the premium pricing and high-end brand.

The company can digitise its products by focussing on the actual product and surgical outcomes. In this regard, Recon should deploy appropriate digital technology to ensure that patients get the highest level of care, safety, and better outcomes.  Additionally, Recon could invest in robotics to assist in the more complex surgical procedures to boost the accuracy of processes. Another great technology is 3D bio-printing during reconstructive surgery where customers’ faces or other parts of the body can be printed using skin tissues to cover scars and repair damaged tissues. The use of appropriate quality management techniques to improve process can result in greater product profile. The organisation can turn to social media to get customer feedback on processes that need improvement (Lee, Gowen, and McFadden, 2018). For example, the firm can conduct surveys on Facebook among its loyal consumers to determine the level of patient satisfaction.

Service

Customer service is a core competence at Recon Pty Limited since it has enabled the firm to create and maintain a strong customer and brand loyalty. In light of the changing consumer preferences and wants, digitisation of client services can improve customer experience. To achieve this, first, the company needs to develop a digital transformation framework that overhauls all segments of the business including operations. The process will involve leveraging on multiple technologies and connectivity to transform the customer experience, business model, people skills and operations (Ismail, Khater, and Zaki, 2017).  Digital service focussed on maximising customer experience through coordination of new technologies and people skills for optimal operational performance (Ismail et al., 2017). One such technology is Big Data analytics used to gather and analyse customer information to develop personalised services. Big Data also allows for a more customer eccentric digital operational strategy to enhance value proposition (Bughin and Van Zeebroeke, 2017; Ross, 2017). For example, the firm can use Big Data analytical tools to determine which after-sale services work best for different market segments. Since the professional high-income earners value quality services, the VIP waiting area might suit their needs. On the other hand, automation of systems and services could also help in monitoring the workflow process for efficiency (Parviainen, Tihinen, Kaarianen and Teppola, 2017). For example, Recon can automate its calling systems to improve customer-care services at their facilities. Similarly, the social networking sites and software apps could be utilised to increase responsiveness and interaction with customer’s after-post surgery. The current patient portal can be linked to social media sites for continued customer interaction. Software apps on mobile devices can help patients follow up on doctors’ appointments, keep track of their post-operative care, and connect with other clients who have undergone similar surgical procedures and recuperated successfully.      

Infrastructure choice

Digital transformation involves making new infrastructure choices that support an organisation’s operations strategy.  An excellent operational strategy implementation needs to be informed by a company’s infrastructure to have a positive impact on enhancing the value chain (Hill &Hill, 2017). The current infrastructure of Recon Pty Limited comprises of finance, legal, accounting, IT and general management.  Through a digital transformation model and industry 4.0, the firm can choose to allocate resources to the company infrastructure that will facilitate the development of core competencies (Iddris, 2018; Paraivanen et al., 2017).  Currently, Recon has good relationships with Australian banks to access a line of credit to fund its operational activities.  The firm’s financial operations mainly run on limited software but not entirely digitised.  The Chief Financial Officer (CFO) admits that digitisation of financial transactions and processes is necessary, but no concrete strategy is underway to tackle the issue.  The digitisation of financial operations can help managers to develop high-profit margin services, while also improving efficiency (Nanry et al., 2015).  Recon should also adopt blockchain technology such as cryptocurrencies as a form of payment. However, this option should only be implemented after extensive consultation informed by a report on how block-chain technology can be applied to the business.

Main four technologies that CFOs can use to digitalise the financial services

The technologies for digitising the financial processes include data visualisation, whereby the CFOs access real-time financial information for improving company performance (Chandra, Plaschke, and Seth, 2018). Real-time financial information will result in detailed quarterly reports and dashboards for internal use (Chandra et al., 2018). Secondly, the CFOs could utilise the advanced analytics technology to improve decision making and realise hidden growth opportunities (Chandra et al., 2018). Concerning decision making, demand models and algorithms for the sales forecast can be improved by technology (Chandra et al., 2018). Regarding hidden business opportunities, advanced analytics help to determine ways of optimising pricing, developing predictive models for early warning losses, and track utilisation of resources (Chandra et al., 2018). For instance, Recon does not have a mechanism to warn its shareholders for impending losses, eroding their confidence in the firm.

Additionally, the CFOs could utilise the automation and robotics technology, which improves financial processes through cloud-based budgeting solutions, standardises report generation from individual departments, and reconciles data from multiple sources to form a single truth (Chandra et al., 2018). Recon could also utilise the current information technology (IT), which comprises several office hardware computers and software; to document, store and retrieve patient data. A full digital transformation would require a company to develop an elaborate IT infrastructure and capabilities (Parvianen et al., 2017; Geissbauer et al., 2014). Besides, transformation involves looking for people with the right IT skills and conducting advanced training for the staff to improve their competency (Bughin & Van Zeebroeke, 2017). Therefore, Recon should establish state of the art data centre and expand its IT staff to digitise its healthcare operations.

The accounting functions also need to be digitised to eliminate the current outsourcing strategy and achieve cost-effective internal company-based accounting processes. A firm should not neglect the accounting processes when digitising the financial operations. The high number of corporate scandals rocking big corporations in breach of accounting principles can be prevented through digitisation (Kreher, Sellhorn, and Hess, 2017). Reduction of costs, an increase in the speed of financial reporting, process improvement, and data consistency are some of the benefits derived from digitalised accounting (Kreher et al., 2017). Some of the ways Recon can improve this service is through paperless accounting, cloud computer, visualisation, and real-time reporting tools.

Commercial partnerships and their contribution to Recon’s operations strategy

Since Recon lacks an existing content marketing strategy, digital transformation and partnerships would provide sustainable solutions. The current content marketing maturity level is only 10%, the lowest of any company; this indicates the wide gap available for firms.  Additionally, remarketing through Google and Facebook can help Recon generate leads to its website and other social media sites to improve its content. Digital ecosystems entail partnerships and connectivity between business and platform providers via the Internet of Things. Digital Business Ecosystems (DBE) refer to interrelated organisations that share ICT infrastructure and automated business transactions majorly by Small and Medium-sized Enterprises (Mankinen, 2016). Digital transformation can be facilitated by choosing the right ecosystem to add value to the business process (Geissbauer et al., 2014).  Companies can choose to develop own independent ecosystems or partner with others. However, to unlock the various business opportunities offered by digital platforms, collaboration through partnerships and alliances between firms is the best strategy (Mankinen, 2016).  Besides, companies can achieve the benefits from DBE such as increased value chain and cost-efficiency. Ecosystem relationships enable the business to reduce transaction costs due to the digitisation of operations enabling them to contract more of its critical services from outside the firm (Atluri, Dietz and Henke, 2017).  By developing the right digital ecosystems, organisations can improve supply chain operations and enhance efficiency (Robinson and Hsieh, 2016). Moreover, choosing the right ecosystem for implementing the digital strategy presents immense opportunities for firms to re-brand and re-invent (Robinson et al., 2016). However, it is crucial that collaborations through partnerships serve to strengthen industry growth and provide mutual business opportunities for all the parties involved (Essabar, Zrikem and Zolgadri, 2016). In this regard, it is imperative that the powers and influences of both parties are considered (Essabar et al., 2016). Therefore, Recon Pty should seek to become part of another value-adding system through partnerships and strategic alliances.

The company can decide to form partnerships and alliances with digital platform providers such as Amazon, Facebook, and Google. For example, Recon can partner with Amazon for automation of its customer services via Alexa. Additionally, Google can offer cloud-computing services, while Epic Systems can offer software in healthcare electronic health records and Clinical Decision Support (CDS).  Commercial partnerships enable the Recon to create a new system of digital healthcare that will reduce medical costs, improve patient care, and safety of plastic surgery customers. Further, commercial partnerships improve business relationship through trust, improving price transparency, and reducing switching costs to encourage healthy competition (Atluri et al., 2017). Through specific collaborations, companies in a DBE can benefit from faster data architecture that enables faster adoption of emerging technologies. For instance, Recon’s partnership with Google can enable the firm to adopt and implement the latest cloud-computing solutions.

Digital ecosystems also present firms with new business growth opportunities to increase value chain while also enhancing their sustainable competitive advantage (Mankinen, 2016). One of the business opportunities brought by digital ecosystems is data monetisation (Atlur et al., 2017). Interfacing with new partners creates large volumes of data that can be commercialised to increase revenues for the business. For instance, Recon Pty Limited can sell data to surgical tool manufacturing companies for marketing purposes. Similarly, Recon could establish a new business model in the ecosystem and enable customers to choose which one suits their needs.

Implementation of learning culture to facilitate continuous operational improvement

Every business strives to be more “agile” through digital transformation. In this regard, organisations need to identify their maturity level and determine market position through digital transformation. However, a successful digital change is only achievable through developing a learning culture throughout the organisation (Ismail et al., 2017). A digital learning culture enables a firm to develop necessary skills to execute the operational strategy while also engaging and retaining a highly competent workforce (Kane, Palmer and Phillips et al., 2017). It is imperative that firms focus on establishing a digital learning culture for transformation rather than just a digital workforce (Kane et al., 2017). A digital maturity model illustrates how a company will prepare for digital change through appropriate leaning based mechanisms (Kane et al., 2017). A digitally mature organisation use 70% of digital to conduct all aspects of the business (Kane et al., 2017). In this regard, Recon Pty Limited should ensure its managers keep up to date with digital trends to develop strategies that utilise them.

To implement a learning culture, Recon should develop own digital maturity models or use ones that have been proven to be effective.   For instance, Recon could utilise the digital transformation maturity model developed by Deloitte (see figure below)

The model, as shown above, includes five major capabilities that organisations must possess to be digitally mature; these include customers, strategy, technology, operations and organisational culture (Kane et al., 2017). An organisation must incorporate staff input to generate ideas that might digitally transform culture to achieve the above maturity model. The second method is to innovate through experimentation with different digital products/services such as mobile apps for Recon that lets customers access all information on hand-held devices.

Conclusions and Recommendations

Organisations are not exempted from the digital transformation facilitated by Industry 4.0. In the efforts to successfully implement the industry 4.0 and attain its benefits, Recon Pty Ltd should evaluate the forces affecting change-implementation including the political, socio-cultural, technological, and competition. Similarly, Recon should then prepare the necessary resources, capabilities, and core competencies to match the digitisation strategies required in the supply chain, product development, plastic surgery service, and infrastructure. In this regard, Recon Pty Limited should implement mechanisms to digitise its value chain operations. First, the firm can improve its digital supply chain by deploying various technologies such as procurement 4.0 and prescriptive analytics. Second, product profile can be enhanced through 3D bio-printing and robotics to improve the outcomes during reconstructive surgery. Thirdly, customer service should be developed through the automation of processes and a strong social media presence to enhance the digital experience. Additionally, Recon could strengthen the implementation of industry 4.0 through commercial partnerships and development of tech-savvy organisational culture. The adoption of industry 4.0 or digitisation would result in significant benefits such as a reduction in management and operational costs, increased operational performance, and improvement in the value chain.

References

Australian Government Department of Industry, Innovation, and Science (2018).Industry 4.0 [Online]. Available https://www.industry.gov.au/funding-and-incentives/manufacturing/industry-40 [Accessed on 29th October 2018]

Ben, C., Jillian, M., & Prasanta, D.(2013). Trends in modern operations management. International Journal of Operations & Production Management, 33(11).

Bughin, J., & Van Zeebroeke, N.(2017). 6 digital strategies, and why some work better than others. Harvard Business Review [Online].Available at https://hbr.org/2017/07/6-digital-strategies-and-why-some-work-better-than-others [Accessed on 29th October 2018]

Chandra, K., Plaschke, F., & Seth, I. (2018).Memo to the CFO: Get in front of digital finance or get left back. McKinsey Quarterly.[Online]. Available at https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/memo-to-the-cfo-get-in-front-of-digital-finance-or-get-left-back [Accessed on 30th October 2018]