3/26/2013 Shouldice Hospital Limited (Abridged) Summary of case discussion Indicators of success
Profits – Revenue = 7600 * (320*4 + 650 + 300*20%) = $15 mil. – Costs = $8. 5 mil for hospital + $3. 5 for clinic $ $ – Profits = $3 mil
Word? of? mouth advertising – Afraid of advertising for fear of generating too much demand.
The backlog of demand – Currently 2400, growing at 100 / 6 mo.
A high percentage of doctors as patients
L Low recurrence – 0. 8% vs. 10% at other hospitals
Low employee turnover 2 1 3/26/2013 Capacity at key resources Examination – 6 rooms x 3 patients/hr x 3 hrs/day (1? 4pm) x 5days/wk = 270 patients/wk
Operating rooms – 5 rooms x 7hrs/day x 5days/wk x 1 patient /(hr. room) = 175 patients/wk
Surgeons – 10 surgeons x 1 patient/(hr. surgeon) x 8 hrs/day x 5 days/wk = 400 patients/wk
Rooms – Assume patients stay for 4 nights, and level demand – Number of patients per day (Sun – Thur) = 89 rooms/4 = 22 – Capacity = 5days/wk x 22/day = 110 patients/wk “Rooms” is the bottleneck. So indeed capacity expansion, if any, should start with this resource.
Notice that this processing rate does not add up to 7600 patients per year that Shouldice is handling. Possible reasons: patients stay for fewer nights, or they admit more patients toward the end of the week, or there is an “overflow” area in the hospital.
Why patients like Shouldice?
Low price – $1990 (excluding travel) vs. $5240 at other hospitals
Low recurrence rate
Facilities/decor – Investments made in assets such as carpeting, common areas (the Florida room e. g. ), low stairs, nice grounds.
Socialization/ambiance Schedule patients with similar backgrounds in the same room – Group activities (e. g. , tea and cookies) to alleviate anxiety and build p relationships – Create pleasant, non? hospital? like atmosphere
Fast recovery – Days vs. weeks at other hospitals – Early ambulation (confidence, medical benefits)
Why employees like Shouldice?
Doctors – Regular hours, on-call but rarely called g, y – Good pay – Low-risk surgery, opportunity to be the best in class
Nurses – Minimal physical assistance – Counseling activities, instead of changing bedpans Staff – Cross-training, helping each other – Interactions (e. g. , in the dining room) – Strong concern for employees, nobody is fired 5 The focused factory model
A narrow market segment (a simple type of hernia repair), ensured by a careful screening process
An innovative procedure that emphasizes early ambulation which leads to An innovative procedure that emphasizes early ambulation which leads to quick recovery
• Standardized procedure, not to be varied
Patients are basically well, allowing demand to be inventoried (and thus easy scheduling)
Family? tyle management allows a highly specialized workforce to “decompress,” leading to happy employees with low turnover
Low investments by sharing resources (e. g. , anesthetists, nurses)
Help patients help themselves (eg tea and cookies to mix pre? operative Help patients help themselves (e. g. , tea, and cookies to mix pre? operative patients with a post? operative patients)
Attention to details: no TV in the room; carpeting; low? rise stairs for easy walking; walk from the operating table; gardens; good food, etc.
Options for capacity expansion
Saturday operations – Pros: no investment – Cons: interferes with regular work schedules
Invest to build more rooms – Pros: keep regular work schedules – Cons: heavy utilization of other resources
Another hospital – Pros: there is a market (1 million hernia operations a year ( p y in the U. S. ), save travel costs for patients – Cons: Quality control? Sources of doctors.
Another procedure – What? Expertise? Markets? Too many questions.
Most students chose either the second or third options.
Key learning points
The focused factory approach leads to more added value (and thus higher competitive added value (and thus higher competitive advantage): it increases the customer’s willingness? to? pay and lowers the cost, at the same time.
The devil is in the details: many operational details, although seemingly routine and minute, play an important role in shaping strategic decisions (such as capacity expansion here).
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