Shouldice Final

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Slide 1:

The Centre of Excellence for Hernia Repair The global leader in external abdominal wall hernia surgery for over 65 years I really enjoyed my time at Shouldice . It was like a ‘hernia holiday ’ I was actually sad to leave, we had so much fun...

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HISTORY Dr. Edward Earle Shouldice graduated from the University of Toronto in 1916. During World War II, he was called to serve on the Medical Examining Board. Dr. Shouldice , a major in the army, found that many young men willing to serve their country had to be denied enlistment. These men needed surgical treatment to repair their hernias before they could be pronounced physically fit for military training In 1940, hospital space and doctors were scarce, especially for this non-emergency surgery Contributing his services at no fee, he performed an innovative method of surgery on seventy of these men. The delighted recruits soon made known their success stories and by the war's end, more than 200 civilians had contacted the doctor and were awaiting surgery. The scarcity of hospitals beds however, created a major problem. There was only one solution; Dr. Shouldice decided to open his own hospital .

Cont..:

Cont.. Hospital specializes in hernia repair surgery Currently facilitates 7,000 surgeries per year Effective operations with quick turn-a-round Patients subject to early ambulation, which promotes healing Hospital only accepts patients with uncomplicated external hernias, in otherwise good health .

Case talks about:

Case talks about Our Patient Care A unique program of care and recovery A welcoming, supportive atmosphere A relaxing, resort-like setting A lifetime of care and support World’s largest database on hernia repair Our People Our Doctors Surgical training Our nurses Our support staff A total environment Diet counselling Massage therapy Annual follow-up examinations Doing a single procedure and repeating it with high frequency allows you to become a perfectionist.

Shouldice Business Process: 4 Day Lead Time:

Shouldice Business Process: 4 Day Lead Time 30/36 Arrivals 1–3 pm If OK: Check-in & admin Dinner at 6 pm Check by MD (15 mins) Tea & cookies at 9 pm Blood test Day 1 Day 2 Explain process steps Local anaesthesia (-20mins) Surgery (40 mins) Rest in room (2-3hrs) Start eating & moving Dinner at 6 pm Tea & cookie9 pm Day 3 Loosen stitches Walk, play, & eat with your buddies If not OK… Dinner at 6 pm Tea & cookie 9 pm Day 4: Remove stitches , walk , play , eat , check out

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Patients do not feel that that are staying in hospital Patients are taking a vocation This is a club Focused How is Shoudice different from other Hospitals?

How Successful is Shouldice Hospital?:

How Successful is Shouldice Hospital? 140,000 highly satisfied “Alumni”(past patients) 1,200 backlog of scheduled operations Demand appears to expand with supply Superior quality Shouldice Method of Hernia operation imitated by competitor Low recurrence rate, 0.80% vs 10% High degree of employee satisfaction

Cost Comparison: Shouldices vs. Other Hospitals:

Cost Comparison: Shouldices vs. Other Hospitals Shouldice Others Costs of typical operations $954 (p9) $2000-4000 Transportation $200-600 $0 Time Lost from work in Hospital 4 days 5 days Time lost from work while recovering 5 days 10 days Value of time lost (ranging from $50 to 500 per day)$450-4500 $750-7500 Total before Allowance for recurrence $1604-6054 $2750-11500 Probability of Recurrence 0.80% 10.00% Expected Cost of Recurrence $13-48 $275-1150 Total cost to patient, employee and insurer $1,617-6,102 $3,025-12,650

How About the Profitability of Shouldice Hospital?:

How About the Profitability of Shouldice Hospital? Hospital: Revenues (4 days X $111/day x 6,850 patients/year) 3,041,400 Cost 2,800,000 Profit: 241,400 Clinic: Revenues (($450+ 60 + 75 X 0.20) X6,850) 3,596,250 Cost 2,000,000 Profit 1,596,250 Total Profit 1,837,650

Return on equity:

Return on equity Total Depreciated Assets: $5 mil Return on Asset: 1,837,650/5,000,000 = 37% What is the return on Asset if they expand the capacity by 50% at the cost of $2 mil? 1,837,650 x 1.50 / 7,000,000 = 40%

“The Dream World ”:

“The Dream World ” Shoudice is offering: High quality service at low price Shodice is having Highly satisfied customers Happy Employees Shouldice is also Making high profit

How is all of this achieved? What are the major reasons for the success?:

How is all of this achieved? What are the major reasons for the success? Maximizing the difference between perceived quality and value to the patient on one hand and the cost of supplying services on the other.

What is the Unique Service Concept?:

What is the Unique Service Concept? What does Shouldice hospital offer to its customers? The hernia surgery (the Shouldice method) Peace of mind/low risk/Low Recurrence Independence/Dignity/Control Social experience, fraternity Excused absence from work without guilt A vocation

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Market Focus Focus on a narrow segment of potential patients who have hernia and They are predominantly male, older in age, essentially in good health Large market potential: 10,00,000 operations in US Internal Focus Doctors: Dedicated to quality of shoudice method, tolerance for boredom, family oriented Nurses: People oriented, assist patients Staff: Flexible, team oriented A Focus Strategy

Operating Concept :

Operating Concept Shouldicce achieves outstanding results as a low price and at a high profit because: Everything done by the hospital is designed to maximize the difference between perceived quality and the value of the service provided patients on one hand and the cost of providing the service on the other.

How did they do that?:

How did they do that? Patients are carefully screened Patients are active participants in the service delivery process The avoidance of general anesthestics allows a wide range of involvement of patients Staff is freed from much disagreeable work Reducing the cost of nursing, housekeeping and laundry Structure hospital jobs that involves more counseling and positive interaction with the patients

How did they do that?:

How did they do that? The Clinic is a focused factory resulting in: Highly productive surgeon: 300 hernia/yr Vs. 30 by less focused surgeon Sharing of expensive services such as anesthetist Short and relatively regular hours for surgeon High compensation ($50,000 + $40,000) Opportunities for surgeons to observe and advise one another Peer group pressure that leads to higher level of self-control of quality A conscious effort is made to make Shouldice a “family”experience

The elements in the service system to support the service Concept (managerial elements) :

The elements in the service system to support the service Concept ( managerial elements) Service encounter Doctors and nurses are carefully recruited Employees trained to help / counsel patients Communal dinning for doctors, nurses , staff and patients Quality Adherence to Shouldice method Opportunity for surgeon to observe & advise one another

The elements in the service system to support the service Concept (managerial elements):

The elements in the service system to support the service Concept (managerial elements) Managing capacity & demand Admission by appointment: Scheduled service Screening patients: easier to estimate the service time Walk-in patients or local residents on waiting list to make up cancelled reservation Information Medical Information questionnaire Free annual check-up -> unique data base on the result of the surgery Annual reunion to keep alumni informed and gather customer feedbacks-> loyal customer base -> effective word-of-mouth

The elements in the service system to support the service Concept (structural elements):

The elements in the service system to support the service Concept (structural elements) Delivery system Maximum degree of customer participation Efficient and low cost Avoid a typical hospital atmosphere Facility design Acres of gardens to encourage exercise & rapid recovery Minimize hospital feeling (carpeting and odorless disinfectant etc) Stairways are designed for patients to use right after operations No TVs and Telephones in rooms to encourage walking Operating rooms are located in semicircle to encourage doctors to help each other and use the same anesthetist

The elements in the service system to support the service Concept (structural elements):

The elements in the service system to support the service Concept (structural elements) Location Large city near air port -> access to worldwide market Large local population to fill up cancelled bookings Capacity planning Elective procedures -> scheduled operations Balancing Capacity and improving capacity utilization Needs to increase capacity

The Capacity Decision:

The Capacity Decision Where is the bottle neck? How should they increase the capacity? How should they implement that change?

Shoudice Hospital Limited: Analysis of Capacity:

Shoudice Hospital Limited: Analysis of Capacity Current Throughput 6,850 Operations/50 weeks = 137 operations/week ( with a peak of 165/week) Capabilities Examination Rooms: (6 rooms x 3 hrs (1-4 PM) x 5 days x 60 min/hr) / (20 min / exam) = 270 patients /week Admitting Procedure: (2 people x 4 hrs (1-5 PM) x 5 days/week x 60 min/hr) / (10min/patient) = 240 patients/week Nursing Station: (2 stations x 4 hrs (1-5 PM) x 5 days/week x 60min/hr)/(10 min/patient)=240 patients /week

Shoudice Hospital Limited: Analysis of Capacity:

Shoudice Hospital Limited: Analysis of Capacity Capabilities Operating Rooms: (5 rooms x 8.5 hrs/room/day x 1.1 hrs/patient x 5 days/week)/ = 188 patients /week Surgeons: 11 surgeons x 3.5 operations /day x 5 days = 178 patients/week Hospital rooms: (see transparency) 89 rooms = 134 patients per week (assuming use of weekends for convalescence and 3.5 days average stay) 103 rooms = 148 patients (assuming use of weekend for convalescence, 3.5 days average stay, and use of 14 “hostel” rooms for two nights each week)

How to expand the capacity?:

How to expand the capacity? Aim : increase capacity & maintain control of service quality Alternatives: Add Saturday operations Add a new floor (45 more hospital beds) Establish a new facility for hernia Expand to other types of operations Others?

Add in a new floor (45 beds):

Add in a new floor (45 beds) Total Number of Rooms: 89 +45= 134 Total number of patents per week = 193 137 current throughput/148 theoretical = x / 193 theoretical New throughput = 193 x (137/148)= 179 patients / week Additional patients per year=(179-137) x 50=2100 additional revenue for the clinic = 2100 x (450+0.20 x 75) = $976,500 Less cost 176,500 Return on investment = 800,000/2,000,000=40%

Add in a new floor (45 beds):

Add in a new floor (45 beds) Disadvantages Require to schedule doctors to the full capacity of five days per week Increase work load on admissions, kitchen, laundry, housekeeping and accounting Further staggering of meal hours for patients (100 seat dinning room) Disruption during construction Advantages Easy to control and maintain quality Retain the culture and environment

Schedule Saturday as an Operating Day:

Schedule Saturday as an Operating Day Use 89 + 14 rooms, 3.5 average stay Total number of patents per week = 180 137 current throughput/148 theoretical = x / 180 theoretical New throughput = 180 x (137/148)= 167 patients / week Additional patients per year=(167-137) x 50= 1450 additional revenue for the clinic = 1450 x (450+0.20 x 75) = $674,250 Less cost 124,250 Net increase in profit: 550,000 for no additional investment

Schedule Saturday as an Operating Day:

Schedule Saturday as an Operating Day Disadvantages Require to schedule 23-25 operations on Saturday Six surgeons and a supervising surgeon have to work on Saturdays Additional other personnel Violates the implied contract that Shouldice has with its surgeons, strong opposition by the senior doctors Operating close the the theoretical capacity of the facility Advantages No investment is needed Can still maintain quality

A Second Facility for Treating Hernia:

A Second Facility for Treating Hernia Advantages New location close to the customers, say USA Improve its competitive position and increase its profits Operate in a less restrictive environment New Opportunities for existing personnel Transfer of knowledge and expertise to the new facilities Disadvantages Requires a significant investment and Dr. Shoudice’s time Control of quality It is difficult to create the same culture and atmosphere Potential competition with the existing facility

Shoudice Hospital’s Service Package:

Shoudice Hospital ’ s Service Package Supporting Facility Acres of gardens to encourage exercise & rapid recovery Carpeting and odorless disinfectant etc to minimize hospital feeling Stairways are designed for patients to use right after operations No TVs and Telephones in rooms to encourage walking Operating rooms are located in semicircle to encourage doctors to help each other and use the same anesthetist Located to a large city: Toronto, access to worldwide market, large local population to fill up cancelled bookings .

Shoudice Hospital’s Service Package:

Shoudice Hospital ’ s Service Package Facilitating Goods: Medical supplies Food, medicine etc. Explicit Services Quality hernia surgery using the Shouldice method, low recurrence Very experienced doctors

Shoudice Hospital’s Service Package:

Shoudice Hospital ’ s Service Package Implicit Services Peace of mind/low risk Independence/Dignity/Control Social experience, fraternity Excused absence from work without guilt A vocation

Shoudice Hospital’s Distinctive Characteristics:

Shoudice Hospital ’ s Distinctive Characteristics Customer Participation in the Service Process Simultaneity Intangibility Perishability Heterogeneity

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