Shouldice Hospital

1. How successful is the Shouldice Hospital? Generate a P&L statement using available information from the case. Treat each of the two operations—hospital and the surgery—separately. Hospital: Revenues (4 days X $111/day x 6,850 patients/year)3,041,400 Cost2,800,000 Profit: 241,400 Clinic: Revenues ((($450 + 60 + 75) X 0. 20) X 6,850 patients/year)) 3,596,250 Cost2,000,000 Profit1,596,250 Total Profit1,837,650 2. How do you account for its successful performance?

The following factors account for the success of Shouldice hospital: •Unique and pioneering surgical technique for Hernia operation which reduced the suffering of the patients and led to rapid recovery as compared to the existing methods. The Shouldice technique enabled the patients to resume their normal routine and jobs in a much shorter period of time (one to four weeks) as compared to other hospitals (two to eight weeks).

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This technique resulted in 140,000 highly satisfied “Alumni”(past patients). •Doctors could conduct 600 operations in a year as compared to 25 to 50 operations per year in other hospitals, which was possible by the standardization of operating procedures. This standardization led to efficient utilization of the medical staff and other resources.

•To adhere to the Shouldice technique and match the value system with that of the hospital, experienced doctors and nursing staff were recruited carefully.

•Due to the following techniques adopted by Shouldice created a warm and welcoming environment for patients: oCarpeting the hospital gave the place smell other than that of disinfectant oEncouraged interaction and recreational activities amongst patients and also with the hospital staff oMatching of roommates based on similar background and the scheduling of their operation at the same time are examples and care exerted to create a friendly environment which led to faster recuperation oDeveloped feeling of belongingness to the hospital during the stay •Unique recovering techniques that stressed upon ambulation led to minimizing the cost by cutting down on various post-operative patient care activities such as common dining areas, common recreational facilities etc.

This also resulted in low nurse to patient ratio compared to other similar hospitals (0.44) •Offering the cheapest option for treatment of hernia in the region •High reliability of Hernia operation with very small recurrence rate of 0. 8 % as compared to high recurrence rates of close to 10 % as in the United States. •Doctors and nurses were motivated by way of higher salaries and profit sharing systems in the form of bonuses compared to other hospitals in the region and reasonable workload leading to sense of belongingness amongst the doctors and nurses leading to low attrition.

•Encouraged group cohesiveness and fraternity type of coordination mechanism within the organization leading to greater operational efficiency. The above factors resulted in remarkable credibility for the Shouldice Hospital that position edit in the market as a hospital which ensured cost effective, reliable, caring and responsive service to the hernia patients. 3. Prepare a patient process flow diagram from arrival through surgery and determine the capacities at each stage. For this diagram, only indicate major points in the process, e.g. , admitting, examination, operating room surgeries, etc.

Use the actual hours of operation for each step in the process to determine the capacity of each step. Where is the bottleneck? Bottleneck in the Design Flow: •Shouldice has the capacity to perform 42 examinations per afternoon and send 38 eligible patients to the operation rooms. •It only performs 33 operations per day, so the bottleneck between these 2 processes is the number of operations being performed per day.

•Shouldice performs 33 operations per day, which generate daily bed demand of 116 on Wednesday and Thursday, and 99 on Tuesday, all exceeding the current bedding capacity of 89. So between these 2 processes, the number of available beds is the bottleneck. •Overall, the bottleneck for Shouldice is the number of available beds. •The hospital has to increase its bed capacity by 30% [(116-89)/(89)] to simply meet its current operation schedule. 4. Do a detailed analysis of potential on-site capacity expansion alternatives (on a per week basis).

Assume an average of 3. 5 days stay at the hospital for each patient, including surgery, and Sunday admits. This means that half the patients spend three days while the other half spend four days. Alternatives to be considered: An assumption must be made, due to limited information in the case, that the expansion alternatives being considered are to meet an unmet market demand and is not driven by addition profit or other reasons. 1. Add an additional day by operating on Saturday •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= 1,450 •Additional revenue for the clinic = 1450 x (450+0. 20 x 75) = $674,250 – Cost $124,250 •Net increase in profit: 550,000 for no additional investment •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 theoretical capacity of the facility •Advantages •No investment is needed •Can still maintain quality 2. Increase additional beds by 50% by adding a new floor •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 = 2,100 •Additional revenue for the clinic = 2100 x (450+0.

20 x 75) = $976,500 – Cost $176,500 •Return on investment = 800,000/2,000,000=40% •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 3. They can meet the unmet market demand with external capacity by opening a new facility in US or Canada •Advantages.

•New location close to the customers, i. e. USA or Canada •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 •Challenging to monitor the quality of service provided •It is difficult to replicate the same culture and atmosphere that is so successful in the parent facility •Potential competition with the existing facility.

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