Impact of Environmental Changes on Organisational Strategy

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1. Introduction

This report has been prepared on the request of the CEO of Crossover Technologies Limited (Crossover), a UK headquartered supplier of a range of services to health care professionals. The company has four major service groups, namely, (a) medical transcription, (b) scheduling, (c) billing and coding, and (d) customised software solutions. With delivery centres in the United States, the UK, India and Africa, Crossover has been growing steadily since its founding in 2000.

The US government’s recent decision on widening the health care net in the country in order to include millions of additional people, presently uncovered by health insurance, in its ambit has been accompanied with the framing of policies and regulations for health care professionals; calling upon them to introduce and maintain Electronic Medical Records (EMR) for all their patients (Adams, 2009, p1). This decision has created an enormous new market for suppliers of such services and has radically altered existing perceptions and paradigms in the sector (McCullagh, 2009, p1). Observers expect an enormous shaking up of the sector to occur because of changes in workforce requirements, adoption of HR strategies and policies, new entrants, and introduction of game changing software (McCullagh, 2009, p1).

Whilst Crossover and other industry participants have been anticipating such a development in the US, its actual occurrence has proved to be unsettling and most companies are reviewing their strategic options in this radically changed environment. Crossover has on its own been developing proprietary web based software, which, it feels, will help in improvement of its competitive advantage and in the growth of its market share. Overall projected scenarios of the industry are however unclear, because of the possibility of entry into the sector by big players with deep pockets, ramping up of operations by existing sector participants, and development of alternate products by different companies.

This report deals with evaluation of the causes for the development of a paradigm shift and the identification of the different external factors that are expected to impact the organisation. The report analyses the existing strategy of the company and evaluates the possible outcomes of the existing strategic programme of Crossover. The concluding section deals with the actual impact of environmental changes and paradigm shifts on the various organisational strategies of market participants.

2. Organisational Overview

Crossover was founded in 2000 by two UK based entrepreneurs as a private limited company with equity from personal sources, as well as from family and friends (Crossoverint.com, 2008, p1). The company aimed to provide services to small and medium medical practices, comprising of one to twenty doctors, in the US and in the UK, for the maintenance of clear and easily accessible records of the medical histories of their patients (Crossoverint.com, 2008, p1). Such records were at that time prepared by the secretarial staff of such practices, either from personal dictations from doctors or from notations on the physical records of individual patients (Crossoverint.com, 2008, p1). Crossover entered the medical transcription business by establishing two small medical transcription centres in South Africa and India (Crossoverint.com, 2008, p1). Health care professionals in the US and the UK would dictate the medical history of patients into recording machines, the contents of which would be transmitted across continents over leased lines (Crossoverint.com, 2008, p1). The voice recordings would be converted into data processed word formats by accent trained workers, edited carefully, and sent back to the clients before the commencement of the next working day (Crossoverint.com, 2008, p1).

Whilst the initial years were difficult for the company because of numerous production associated problems, Crossover was able to grow steadily in the US market, especially in the affluent Boston Philadelphia corridor (Crossoverint.com, 2008, p1). The company has, over the years, added staff to its Indian and South African delivery centres and introduced services in areas of scheduling, billing and coding, and customised software solutions for the health care sector (Crossoverint.com, 2008, p1). Crossover has gained a reputation for quality that has helped it in retaining clients despite the entry of new competitors and rampant occurrence of price cutting between companies to wrest away business (Crossoverint.com, 2008, p1).

The company has grown at an annualised growth rate of approximately 13% during the last five years. Its current turnover is approximately 40 million USD (Crossoverint.com, 2008, p1). Crossover employs 450 persons, 375 of whom are based in the delivery centres at Cape Town and Bangalore (Crossoverint.com, 2008, p1). The majority of the marketing staff is located in the US (Crossoverint.com, 2008, p1). The corporate headquarters of the business continues to be in the UK, primarily because of its midway location between the delivery centres and the main market of the company (Crossoverint.com, 2008, p1). Medical practitioners in the UK are however beginning to look at EMR seriously and Crossover hopes to achieve some growth in UK revenues in the coming years (Crossoverint.com, 2008, p1).

Crossover has invested the major portion of its profits during the last 3 years into the development of a web based technology that can be bought and installed by individual practices (Crossoverint.com, 2008, p1). The new system has numerous features that simplify and add flexibility to the existing EMR process (Crossoverint.com, 2008, p1). Doctors can manage their complete medical records efficiently with the system, and use voice recording options, if they wish to dispense with transcontinental transcription processes (Crossoverint.com, 2008, p1). Installation of such systems is expected to result in substantial savings of recurrent costs for health care practices (Crossoverint.com, 2008, p1).

Crossover derives practically 80% of its revenues from the medical transcription division. The other service divisions came about primarily because of demand from existing clients and the company has made little effort to grow them, both in terms of internal competencies and in terms of sales.

3. Environmental Changes and Development of Paradigm Shift

The US government passed a path breaking health care reform bill in March 2010 (Lotich, 2010, p1). The bill aims to make health care more affordable to Americans through (a) the introduction of substantial tax cuts that will benefit middle class families investing in health care, and (b) by reducing premium costs for the families who are unable to afford coverage today (Lotich, 2010, p1). The legislation is expected to help approximately 32 million Americans, (who are at present uncovered), to invest in health care coverage (Lotich, 2010, p1). Approximately 95% of the population of the country is now expected to be covered under health care (Lotich, 2010, p1). The bill will also bring about far greater accountability in the health care sector through the introduction of appropriate rules and regulations for insurance companies and medical practitioners (Lotich, 2010, p1).

The health care bill places significant emphasis on implementation of electronic medical records and systems, considering them to be instrumental to the ultimate success of health care reform policies (McCullagh, 2009, p1). A recent report from Accenture predicts that approximately 60% of US doctors in small and medium practices, which do not presently use EMRs, intend to purchase and install EMR systems in the coming two years (McCullagh, 2009, p1). Considering that only 6% of such practices use EMRs at present, the expansion in demand is expected to be exponential in nature (McCullagh, 2009, p1). Such increase in adoption of EMR is expected to come about because of two specific causes, financial incentives for implementation of EMR systems and federal financial penalties for their non-adoption (McCullagh, 2009, p1).

The intention of hundreds of thousands of doctors in the US to buy and implement EMR systems is expected to radically change a number of premises about the EMR industry and associated businesses like medical transcription. The medical transcription industry will be impacted in several ways by the passing of the health care bill. The market for services to health care practitioners is expected to explode in the coming years and generate work of magnitudes that can be compared to the Y2K period. The requirement for implementation of EMRs in the US will lead to the creation of an enormous new market in EMR services. This will in turn spur the formation of thousands of companies across the world that aim to provide such services and lead to the creation of millions of jobs. Market expansion will lead to a surge of new entrants from across the world, especially from countries like India, Brazil and South Africa, and lead to the fresh demand for thousands of jobs in developing countries. With it being difficult to meet such sharp demand in services in such a short period, the increased needs of the US health care sector will inevitably lead to (a) the entry of companies with lesser competencies, (B) quality issues, (c) HR and training challenges, and (d) the inevitable demise of many start-ups.

The exponential increase in demand will also lead to intense work in development of software and applications by resource rich organisations and to the possible generation of breakthroughs and game changing software. The coming years are thus expected to be uncertain in areas of market size, product development, service formulation, entry of new entrants, development of substitute technology, creation of jobs, cross continental transfer of wealth and services, and intensification of competition. A paradigm shift of such dimensions will very obviously have numerous strategic implications for industry participants, including companies like Crossover.

4. Strategic Implications of Paradigm Shift in Business Environment

The anticipated alteration in the US health care services environment will obviously have wide strategic ramifications for market participants (Henry, 2008, p 14-36). The extent of competitiveness in a market is fundamentally gauged, with the use of Porter’s five forces analysis, from the power of buyers, the power of sellers, the possibility of new entrants, the threats from substitutes, and the intensity of competition between market participants (Henry, 2008, p 14-36).

The power of buyers in the sector is expected to reduce because of the enormous anticipated increase in the number of medical practices intending to purchase and implement EMR services. The power of suppliers, namely EMR and medical transcription companies, is not very high at present because of low levels of interest for EMRs among medical practices. Whilst the power of suppliers should in the normal course of events increase with such projected increase in demand, their power could be reduced by the entry of numerous new entrants in the market place. The threat from substitutes is also expected to be extremely high, with high resource organisations like Google readying their EMR products for the market. Competition amongst existing suppliers is keen at present and is expected to intensify further, as all participants shore up their infrastructure and pitch for increased market share. The overall market is thus expected to be in a state of flux even as competitive activity is expected to increase.

The market for medical transcription in the US has until now been influenced mostly by costs considerations, with suppliers ready to provide transcription services at fees ranging from 8 to 12 cents per line (Crossoverint.com, 2008, p1). Whilst the price of medical transcription services is expected to increase in future because of greater demand, as well as financial incentives to medical practices for EMR implementation, the benefit of such increase in prices and market demand may well be offset by greater required investment in infrastructure and recruitment and training costs (Crossoverint.com, 2008, p1).

Porter’s theory of generic strategies calls upon companies to choose between strategies that aim either at cost leadership or at differentiation of products and services (Gilligan, 2005, p 7-28). Whilst cost leadership in this area of business will possibly require substantial investments in infrastructure, size of workforce, and training, companies could also find lucrative niche markets through differentiation of services, introduction of new products, and improvement of quality (Gilligan, 2005, p 7-28). Companies will therefore be required to choose specific strategies for the future, whose relevance and market suitability could well decide the success, failure and the ultimate fortunes of such organisations (Gilligan, 2005, p 7-28).

Companies like Crossover have different services in their service portfolio, some of which provide them with growth and sustenance, even as others either pull them down or provide hope for the future. The Boston Consulting Group (BCG) Matrix separates such portfolio components into easily understandable categories like Cash Cows, Stars, Dogs and Question Marks. Cash Cows denote product groups that generate cash and are in the mature period of the product lifecycle, even as Stars represent product groups that are expected to do well and drive organisational growth in future (Business Resource…, 2010, p1). Dogs represent products that are adversely affecting business operations, whilst Question Marks represent groups that are yet to show indication of advantage or disadvantage (Business Resource…, 2010, p1).

Crossover, for instance has only one Cash Cow, the transcription business, and its other services can be categorised, either as dogs, or more charitably as question marks. The company does however have a proprietary software product that could become a Star in the changed environment and drive the company’s growth considerably in the coming years. Crossover thus faces very important strategic challenges and will need to take important strategic decisions in the near future in light of the shifting of the basic paradigms of its business sector.

Crossover will have to give serious thought to the changing environment of its business sector, forecast likely scenarios and competitive environments, take note of the shifting paradigms and decide upon a medium and long term corporate strategy (Baker, 1992, p 3-19) defined paradigm to be sets of rules that define boundaries and instruct organisations on how to behave within such boundaries (Alhujailli, 2008, p1). With the basic premises, assumptions and the boundaries of its business sector going through radical alteration, Crossover will need to decide between staying with its established business of medical transcription and trying to take advantage of its existing infrastructure, customer base and skill sets to grow its business, or change the established rules of the game and establish new paradigms for the business (Alhujailli, 2008, p1).

The company has over the past few years developed proprietary software that can help doctors to manage their EMR records on their own with great efficiency and dispense with cross continental medical transcription processes. The product provides doctors with the option of recording case details and updating medical histories from any location of their choice, choosing between voice recognition and transcription facilities, and handling medical records on their own or through Crossover. The development of the software through the joint working of its software personnel at South Africa and India has also led to its development at a fraction of the cost that would have been incurred in the UK or the USA and the company can therefore sell it at an extremely attractive price to thousands of doctors.

Crossover will need to decide on making a serious effort to sell its proprietary software product and by so doing shift or possibly pioneer a new paradigm in the EMR sector, wherein medical practices become increasingly self-reliant in handling their medical records, or stay with its established medical transcription business and take advantage of the anticipated market expansion to grow its business. The first option appears to be the more optimal strategic decision for the company because of associated first mover benefits and the opportunity to increase growth substantially in its chosen business sector. Continuing with its current service mix might well lead to obsolescence, growing irrelevance, and loss of competitive advantage to other fleet footed, innovative and dynamic market participants. Whilst the company will necessarily have to fund its product introduction through the funds generated from its medical transcription business, it will have to alter its business model of providing economical transcription services to clients from distant locations by incorporating the selling of a pioneering and potentially game changing product to a much wider audience in its market strategy. The decision will also require the company to change from its current strategy of cost leadership to one of product differentiation and target a significantly increased market.

Such significant strategic changes will require Crossword to bring about important changes in its organisational culture and make marketing of products an important business objective. Organisational cultures are developed over time and whilst represented by a range of symbols and totems are usually manifested in organisational attitudes towards market aggressiveness, innovativeness, internal communication, hierarchical structures, and taking of risks. Crossword is likely to have an entrenched service oriented culture, which whilst customer friendly, may possibly lack the market aggression and initiative of successful selling organisations.

The senior management will thus have to bring about changes in organisational culture. Changing organisational culture is a difficult task because of changed resistant attitudes of employees. Experts like Kotter and Lewin recommend the implementation of carefully planned stage wise implementation of change management initiatives for achievement of optimal results. Crossover will be well served by the use of their theories in the formulation of its change management programme.

5. Conclusions

This review of the recent developments in the market for services to small and medium health care professionals reveals how the passing of health care legislation in the US has radically changed the existing paradigms of this sector, introduced huge opportunities for market participants to grow and develop their businesses, and created significant challenges that will need to be overcome by such participants for organisational success in a dramatically altered environment.

The analysis also reveals the significant effect of environmental changes on the competitiveness of specific business sectors, with special regard to, in this case, increase in intensity of competition and the possibility of threats from substitutes and new entrants. Such changes can, as in the case of Crossover, require companies to forecast likely market scenarios in the short and medium term, and thereafter make critical strategic decisions on alteration of strategic objectives, selection of markets, allocation and use of resources, and assumption of the role of paradigm shifters. Crossover’s future success will depend upon the strategic choices it makes today and on the ways in which it deploys its many market and organisational resources and strengths in response to the changed business environment.

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