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

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

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

Shoudice is offering:

High

quality service at low price

Shodice

is having

Highly satisfied customers Happy Employees

Shouldice is also

Making

high profit

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

A Focus Strategy

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: 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

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?

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?

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 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 familyexperience

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 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

Information

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 Acres of gardens to encourage exercise & rapid recovery

Facility design

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)

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

Where

is the bottle neck? How should they increase the capacity? How should they implement that change?

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 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)

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 No investment is needed Can still maintain quality

Advantages

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

Requires a significant investment and Dr. Shoudices time

Disadvantages

Control of quality
It is difficult to create the same culture and atmosphere Potential competition with the existing facility

Shoudice Hospitals 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 Hospitals Distinctive Characteristics

Customer Participation in the Service Process Simultaneity Intangibility Perishability Heterogeneity

END
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