Thyrocare- life, logic and logistics- 24x7 1

Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
Thyrocare: Life, Logic and Logistics- 24x7

It is a quiet summer morning in rural Tiruchirapalli located in the Southern Indian state of
Tamil Nadu. A sudden din catches the attention of a clutch of farmers. One of their mates,
affectionately known as Thambi, has received word that his wife Thangam’s medical
condition has worsened. She needs urgent attention and Thambi drops everything and heads
home immediately on his motorcycle. His face turns pale when the usually ever smiling doctor
turns to him with a grim face. Thangam’s condition has worsened since the last check-up.
Treatment can commence only after a series of specialized tests are conducted and time is of
the essence. The physician is not aware of any diagnostic facility, even in Trichy town, that
will be able to provide reliable results for the tests within 24 hours. Thambi is getting
impatient. The doctor looks at Thambi and says: “Get the tests results from Mumbai”.
Everyone around is dumbstruck. Thambi musters courage and says “Doctor, you know our
financial condition. How am I to get to Mumbai and have the results for you by tomorrow. Do
you mean to tell us that we have no hope?” The doctor gives a reassuring smile and gives
Thambi an address in Trichy town, an hour’s drive on his motorcycle, where he can drop off
the test samples. Thambi is perplexed. “How will this help?”, he asks. The doctor explains
that this place is a franchisee for the World’s Largest Thyroid Testing Laboratory, Thyrocare,
based in Thane, 30 kilometers from downtown Mumbai. Once dropped off, Thangam’s sample
will be airlifted to Mumbai and test results will be with Thambi by the next morning. Thambi
is exhilarated. There is finally hope and all it would cost him is the ride to Trichy and Rs 150.
This is the magic of Thyrocare - hope for millions of Indians in circumstances similar to
Thambi and Thangam. How does Thyrocare deliver such an economical, reliable and speedy
diagnostic service?

It all began in 1996 when a former research scientist at the Bhabha Atomic Research
Centre (BARC) in Mumbai, Dr A Velumani, was midway through one of his long
morning walks. Like all his other bright path-breaking ideas, the soft breeze of the
Mumbai mornings framed with the picturesque rising run on the horizon, was the
seed for perhaps this most crucial decision of Dr. Velumani’s life.

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
Having been awarded a PhD after his research on Thyroid, 14 years of teaching and
a long career at the BARC specializing in Radio Immuno Assay (RIA), that morning
saw Dr Velumani taking the first step towards entrepreneurship. He decided to quit
his government service job at the BARC and join hands with a friend and start a
business of his own. All he had was his simplicity, driven by truth, his knowledge and
seed capital of Rs.96000 – money he received as his Provident Fund settlement. But
he had a dream – a dream of providing the cheapest thyroid testing facility in the
country and pass on the benefits of the low cost to his customers - patients,
pathologists, doctors, hospitals and nursing homes. Moreover, his aim was to provide
this cost effective service at uniform rates throughout the length and breadth of India.

Why Thyroid Testing?
Almost 2 % of India’s population is affected by Thyroid disorders. It is essential to
view this in the context of the fact that only 40% Indians can afford medicines,
diagnostics and tests. Inaccessibility and unaffordability mean that 90% diseases are
detected only at the last stage or remain undetected. Hence, provision of an
economical and reliable diagnostic service is a national health care imperative.

Thyrocare’s founding principle was to provide a low price for specialized Thyroid
testing that would help to convert customers from the unorganized labs. But to do this
he had to keep costs relatively low, which would ensure that he would be in a
position to effectively capitalize on this opportunity. Dr Velumani kept the focus of the
organization in line with his core competence - Thyro-Immunodiagnostics.

Thyrocare’s Business Model
Since inception, Thyrocare have not catered to walk-in patients, unlike the
unorganized labs. They have never had a microscope on their premises and do not
carry out routine blood and urine pathology tests. They have carved out a niche for
themselves in specialized serum based diagnostic procedures, with world standards
of delivering test results within 5 hours of receipt of the sample.

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
Dr Velumani focused primarily on technology and innovation as the foundations for
building his low cost operations model. This was critical as he had committed to
providing his testing services at low prices to consumers. Moreover, the network of
collection centers (operated by franchisees in various parts of India) developed a
national market and generated a sustained, large flow of samples for testing at the
centralized lab located in Thane. To sustain the hub and spoke collection system,
interest of the franchisees needed to be built up with high margins. To create trust
and generate critical volumes needed to build Thyrocare’s operations, branding was
considered crucial. Dr Velumani worked hard on creating a unique identity and image
for Thyrocare across all stakeholder groups. This has helped defend Thyrocare’s
competitive stance.

Creating Sustainable Competitive Advantage


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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
Keeping costs low relative to the competition, while simultaneously using a reliable
and accurate testing method was the core issue that Thyrocare needed to address, in
order to build a sustainable competitive advantage.

The initial operations saw Thyrocare using the extremely cumbersome but cost
effective RIA technology, a method avoided by most pathologists as it required BARC
accreditation (which Dr Velumani possessed) and a specialized training of 6 months.
RIA was used effectively by Thyrocare as it addressed the clear intent to process
samples at low cost. The method did not compromise on the quality of testing and
accuracy of test results. Economies of scale were built by creating a large network of
franchisees, who provided the inflow of samples and received high commissions.
Thyrocare’s bottom line was largely volumes-driven.

Thyrocare also decided to work with radically different profit mark-ups. The general
trend in the diagnostic industry was to work with a 500% mark-up. This was
anathema to Dr Velumani who decided that to build critical mass and provide a cost
effective service, Thyrocare would work with a reasonable 40% margin.

Other pioneering innovations by Thyrocare in building volumes and keeping costs
down, included the active adoption of networking franchisees using IT systems – a
first in pathological testing. Each franchisee was allotted computer passwords, right
from the launch of the system in 1996, to ensure confidentiality. In the words of Dr
Velumani, “With IT at the back end and biotech at the front end, Thyrocare created a
business out of nowhere.”

Thyrocare decided to operate with one central processing laboratory to ensure
consistency and standardization of results. Mumbai was selected as the central
processing hub due to its connectivity with the rest of India. Air based logistics ensure
delivery of samples to Mumbai by night from anywhere in India which allows
overnight sample processing and extra time to conduct longer duration tests.

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
The test results are ready before dawn and electronically transmitted via the
Thyrosoft network to franchisee location where the sample was picked up from.
Results are thus ready for delivery by the next morning.

A Strategic Shift
The cumbersome RIA Testing methods used by Thyrocare in the initial period of its
operations were placing constraints on Thyrocare’s growth. There was an urgent
need to shift to an alternate, reliable and cost effective diagnostic technique.
Thyrocare found its answer in a technique called Chemiluminescence. This technique
needed high initial infrastructural investments which were an entry barrier for the
competition.

Business economics and experience indicated that daily volumes of anything over
2,500 samples would ensure feasibility & profitability of testing using this new
process. Today, Thyrocare processes 6,000 samples and carries out 30,000 tests
daily. This strategic shift has been a key driver for the sustained cost leadership of
Thyrocare.

The shift away from RIA was a trigger that improved Thyrocare’s operating margins.
RIA was cost effective as a diagnostic method upto 2500 samples per day, until
which point Chemiluminescence had higher relative operating costs. Beyond 2500
samples per day, RIA method was relatively more expensive than
Chemiluminescence.

Thyrocare could discard RIA due to its volumes of 6000 samples per day. The
competition, with fewer than 1000 samples per day, could not shift to the new
technique as with sample volumes below 2500, Chemiluminescence was not a viable
option.

Thyrocare has emerged as the largest thyroid-testing laboratory in the world. In India,
it was instrumental in transforming diagnostics testing into an industry. Having the
distinction of being the first organized, reliable and cost effective service, it has now
built up an enviable brand equity.
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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
Thyrocare’s growth has been extremely impressive. With a 200% CAGR, Thyrocare
more than doubles its turnover every year. The Annual turnover in FY 2004-05 was
Rs 25 crores.

Thyronomics : Generating economies of scale
Thyrocare has successfully leveraged their nationwide collection network, technology
and innovation to build economies of scale. The low cost structure that emerged
consequently must be sustained to ensure the financial viability of operations and
maintain their edge over the competition.



Thyrocare’s reach makes specialized laboratory tests available, affordable and
accessible to the common man. This reach ensures adequate sample volumes,
which drastically reduce the sample processing cost per unit. Higher volumes make
transporting the specimen through air cargo cheaper and faster. The IT integrated
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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
network allows instant data transfer and reporting within Thyrocare. Tracking systems
within the IT framework allow doctors to correlate patient reports tested at any centre
within the Thyrocare network over any period. Most importantly, using a single central
processing lab ensures standardisation of sample processing quality, minimization of
costs and consistent results.

Thyrocare follows stringent international quality standards, and is ISO 9001-2000
certified. It is also the first diagnostic laboratory to be graded ‘A’ by CRISIL in Nov
2002. This grade reflects good quality of delivered service. A healthcare institution
graded in this category depicts that it has facilities, equipment, manpower and
service quality levels which are consistent with the highest standards in the Indian
healthcare industry.

Thyrocare has a National toll free number for use by its customers and franchisees.
All inbound and outbound communications are internet based, ensuring speed,
instant solutions, appropriate query handling, low costs and minimum response time.
Effective, seamless communication between the network and the processing
laboratory is ensured.

Competition
Many pharma majors and foreign players have set up shop in India in the past five
years for a slice of the Indian pathology pie. Besides the unorganized /stand-alone /
individual owned patho / diagnostic /scan laboratories numbering almost 40,000,
there is serious competition from the pharma majors like Raptakos Brett, Specialty
Ranbaxy Laboratories (SRL), Nicholas Piramal as well as home-grown chains like
Elbit, Medinova, Ehrlich, Anands, Dr. Lal's and Metropolis.

SRL, the only other national player accounts for only 25% of Thyrocare’s sample
volumes. SRL has made huge investments but high operational costs ensure a high
price and lower clients margins. SRL has a good national network with strong nursing
home tie-ups, contract research affiliations and an international presence besides the
Ranbaxy brand equity.

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004


Similarly, Dr Lal’s in Delhi and and Metropolis in Mumbai provide local metro
competition to Thyrocare. A JV between Dr Reddy’s and Gribbles of Australia called
Pathnet, wound up in 2 years due to insufficient volumes. Reliance life sciences foray
has also not been significant. It is noteworthy that total competitive sample collections
are not even 50% of Thyrocare’s volumes of 6000 per day.

Thyrocare’s cost & volume economies, network, first mover advantage, brand equity,
delivery speed and nationwide reach do provide barriers to the entry of new players
into this industry. One of the most important factors favouring Thyrocare’s operations
is the fact that Dr Velumani made no investments on purchasing machinery. With the
huge quantity of reagents required for testing the samples on an ongoing basis,
Thyrocare managed to get the reagent suppliers to install testing instruments (10
machines @ Rs 50 Lakh each) on their premises with a commitment to purchase a
large volume of reagents in return. Limited reagent requirements of the competition
did not make similar deals possible with other players, who had no option but to
purchase their own equipment at huge cost.

Today a new player has to invest approximately Rs 10 Crores upfront including Rs 5
Crores each on machinery and operations. Factor in, the time frame, systems and
the logistical framework required to generate optimal volumes and it becomes evident
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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
as to why Thyrocare would continue to dominate in the near future.

When Thyrocare entered the market, competitors declared the low cost model as
quality deficient and inaccurate. However, consistency of results and the power of
demonstration helped reinforce faith in Thyrocare’s tests and systems. Dr Velumani
is proud when he says: “We have not a single tie clad marketer on our rolls. Our
entire marketing is done by our competitors”. He does however believe that the entry
of competition will lead to growth and standardization in the diagnostics industry.

Looking towards the Future
Dr Velumani has ambitious plans for Thyrocare. Thyrocare has expanded its range of
services from purely thyroid testing to preventive care. Aarogyam, a comprehensive
health care package of 36 tests is positioned as a value package for executives and
corporates at 25% of the currently prevailing costs. Tie-ups with corporates,
hospitals, medical insurance players and rural forays in partnership with the
government are also planned to expand the scope and depth of operations. Being an
established brand, Dr Velumani intends to include all new tests and procedures
under the Thyrocare umbrella only.

Dr Velumani hopes that Thyrocare will be able to position itself for contract research
opportunities with pharma majors in the coming future, thus emerging as a valuable
service partner in clinical research, testing and diagnostics. They are also exploring
vertical integration opportunities in allied areas. Thyrocare has set up a Thyrocare
educational Institute at Coimbatore to ensure a steady supply of qualified, trained
personnel.

Thyrocare hopes to expand internationally, albeit in the characteristic slow and
cautious manner of Dr Velumani. Expansions abroad could involve off shore
processing of samples collected in European and Middle Eastern nations. Dr
Velumani hopes that he can one day collect samples from Shanghai and report
results overnight at a cost of only 20 US cents!

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
However, international operations would necessitate a careful study of the organized
competition and regulatory frameworks. The demographic shifts, lifestyle changes
and growing affluence have charted an encouraging growth trajectory for the
diagnostics Industry.

Dr Velumani agrees that Thyrocare will soon need to deal with pressing internal
issues including developing an efficient middle management, decentralization and
succession planning. He believes the time has perhaps come for Thyrocare to
discard its conservative, risk averse outlook and rethink its insistence on working with
zero debt in order to provide an effective catalyst for its expansion plans.

The metamorphosis of Thyrocare from a fledgling diagnostic laboratory into the
World’s largest Thyroid testing facility has been a fascinating journey. It speaks
volumes about the power of technology and innovation and the triumph of the
entrepreneurial spirit while pursuing “social profits”.








Word count: 2546
Key words: Entrepreneurship, strategy, services, franchising


This Case Study has been developed by Rahul Mirchandani and Amit Rangnekar, Doctoral
students at the Narsee Monjee Institute of Management Studies (NMIMS), Deemed University,
Mumbai under the guidance of Dr SR Ganesh, Senior Professor at NMIMS . The authors can
be reached at rahul_aries@hotmail.com / amitrangnekar@gmail.com

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Rahul Mirchandani & Amit Rangnekar - NMIMS-PhD-2004
References & bibliography
• Subramaniam, V. (2002), "Spearheading Thyrocare¨, The Hindu
businessline, 24 June,
http://www.blonnet.com/life/2002/06/24/stories/200206240015020
0.htm (1Nov05)
• "Thyrocare - Indian lab major¨, Express healthcare management, 4
May 2003,
http://www.syedzia.org/blogs/indiamedinfo/archives/000389.html
(12Nov05)
• Krishnan, G. (2004), "Still in the lab¨, Business World, 12 July,
http://www.businessworldindia.com/july1204/indepth03.asp
• Thyrocare technologies limited website at www.thyrocare.com

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