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Cont..

Hospital specializes in hernia repairsurgery

Currently facilitates 7,000 surgeries per

yearEffective 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.

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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 bycompetitor

Low recurrence rate, 0.80% vs 10%

High degree of employee satisfaction

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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 thecost of $2 mil?

1,837,650 x 1.50 / 7,000,000 = 40%

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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

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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 patientswho have hernia and

they are predominantly male, older in age,essentially in good health

large market potential: 600,000 operations in U.S.in 1979

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

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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 differencebetween perceived quality and the value of the service provided patientson one hand and

the cost of providing the service on the other.

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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 thepatients

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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 andadvise one another

Peer group pressure that leads to higher level ofself-control of quality

A conscious effort is made to make Shouldice afamilyexperience

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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 servicetime

walk-in patients or local residents on waiting listto 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

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The elements in the service system to supportthe 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 odorlessdisinfectant etc)

Stairways are designed for patients to use right afteroperations

No TVs and Telephones in rooms to encourage walking

Operating rooms are located in semicircle to encouragedoctors to help each other and use the same anesthetist

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The elements in the service system to supportthe 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

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The Capacity Decision

Where is the bottle neck?

How should they increase the

capacity?How should they implement that

change?

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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) = 270patients /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)/(10min/patient)=240 patients /week

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Shoudice Hospital Limited: Analysis of Capacity

CapabilitiesOperating 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 convalescenceand 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)

S h d l S t d O ti

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Schedule Saturday as an OperatingDay

Disadvantages Require to schedule 23-25 operations on Saturday

Six surgeons and a supervising surgeon have to work onSaturdays

Additional other personnel

Violates the implied contract that Shouldice has with itssurgeons, strong opposition by the senior doctors

Operating close the the theoretical capacity of the facilityAdvantages

No investment is needed

Can still maintain quality

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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. Shoudices time Control of quality

It is difficult to create the same culture and atmosphere

Potential competition with the existing facility

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Shoudice Hospitals Service Package

Supporting Facility Acres of gardens to encourage exercise & rapid

recovery

Carpeting and odorless disinfectant etc to minimizehospital feeling

Stairways are designed for patients to use right afteroperations

No TVs and Telephones in rooms to encourage walking

Operating rooms are located in semicircle toencourage doctors to help each other and use thesame anesthetist

Located to a large city: Toronto, access to worldwidemarket, large local population to fill up cancelledbookings

.

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Shoudice Hospitals

Distinctive Characteristics Customer Participation in the Service Process

Simultaneity

Intangibility

Perishability

Heterogeneity

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ENDThank You