I really enjoyed my time at Shouldice. It was I really enjoyed my time at Shouldice. It was like a ‘hernia holiday’like a ‘hernia holiday’

I was actually sad to leave, we had so much I was actually sad to leave, we had so much fun...fun...

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..

Hospital specializes in hernia repair surgeryCurrently facilitates 7,000 surgeries per yearEffective operations with quick turn-a-roundPatients subject to early ambulation, which promotes healing

Hospital only accepts patients with Hospital only accepts patients with uncomplicateduncomplicated

external hernias, in external hernias, in otherwise good healthotherwise good health..

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

30/36 30/36 ArrivalsArrivals1–3 pm1–3 pm

If OK:If OK:Check-in Check-in & admin& admin

DinnerDinnerat 6 pmat 6 pm

Check by Check by MD MD

(15 mins)(15 mins)

Tea & Tea & cookiescookiesat 9 pmat 9 pm

Blood Blood testtest

Day 1Day 1

Day 2Day 2

Explain Explain process process stepssteps

Local Local anaesthesia anaesthesia

(-20mins)(-20mins)

Surgery Surgery (40 mins)(40 mins)

Rest in Rest in room room

(2-3hrs)(2-3hrs)

Start Start eating & eating & moving moving

DinnerDinnerat 6 pmat 6 pm

Tea & Tea & cookiecookie9 pm9 pm

Day 3Day 3

LooseLoosen n

stitchestitches s

Walk, play, & eat Walk, play, & eat with your with your buddies buddies

If not OK…If not OK…

DinnerDinnerat 6 pmat 6 pm

Tea & Tea & cookie cookie 9 pm9 pm

Day 4:Day 4: Remove stitches, walk, play, eat, Remove stitches, walk, play, eat, check out check out

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

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

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) 3,596,250Cost 2,000,000

Profit 1,596,250

Total Profit 1,837,650

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

priceShodice is having

Highly satisfied customersHappy Employees

Shouldice is alsoMaking high profit

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 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

Market Focusfocus on a narrow segment of potential

patients who have hernia andthey 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 A Focus Strategy

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 surgeonSharing of expensive services such as

anesthetistShort and relatively regular hours for surgeonhigh 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 qualityA conscious effort is made to make Shouldice

a “family”experience

THE ELEMENTS IN THE SERVICE SYSTEM TO SUPPORT THE SERVICE CONCEPT (MANAGERIAL ELEMENTS)

Service encounterDoctors and nurses are carefully recruitedEmployees trained to help / counsel

patientsCommunal dinning for doctors, nurses ,

staff and patients Quality

adherence to Shouldice methodopportunity for surgeon to observe &

advise one another

THE ELEMENTS IN THE SERVICE SYSTEM TO

SUPPORT THE SERVICE CONCEPT (MANAGERIAL ELEMENTS)

Managing capacity & demandAdmission by appointment: scheduled

serviceScreening patients: easier to estimate the

service timewalk-in patients or local residents on waiting

list to make up cancelled reservation Information

Medical Information questionnaireFree annual check-up -> unique data base

on the result of the surgeryAnnual 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)

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)

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)

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)

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)

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

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

DisadvantagesRequire to schedule 23-25 operations on

SaturdaySix surgeons and a supervising surgeon have to

work on SaturdaysAdditional 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

AdvantagesNo investment is neededCan still maintain quality

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

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

Facilitating Goods:Medical suppliesFood, medicine etc.

Explicit Services Quality hernia surgery using the Shouldice method, low

recurrence Very experienced doctors

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

Customer Participation in the Service Process

Simultaneity Intangibility Perishability Heterogeneity

ENDThank You