Professional Documents
Culture Documents
Case 3
The Shouldice Hospital
TABLE OF CONTENT
1. INTRODUCTION...............................................................................................................................................3
1.2. MAIN PROBLEM..............................................................................................................................................3
2. DESCRIPTION OF THE CASE.......................................................................................................................3
2.1 THE 6 CRITERIA OF A GOOD SERVICE.............................................................................................................4
2.1.1 Professionalism and skills......................................................................................................................4
2.1.2 Attitudes and behavior...........................................................................................................................4
2.1.3 Accessibility and flexibility....................................................................................................................4
2.1.4.Reliability and trustworthiness..............................................................................................................4
2.1.5.Recovery.................................................................................................................................................4
2.1.6 Reputation and credibility......................................................................................................................5
2.2 THE AUGMENTED SERVICE OFFERING...........................................................................................................5
2.2.1 The service concept................................................................................................................................5
2.2.2 The basic service packing......................................................................................................................5
2.2.3 Augmentation of the offering..................................................................................................................6
2.2.3.1 Accessibility of the service.............................................................................................................................6
2.2.3.2 Interactions.....................................................................................................................................................6
2.2.3.3 Customer participation...................................................................................................................................7
2.3 THE SHOULDICE HR POLICY..........................................................................................................................7
2.3.1 Recruiting Policy....................................................................................................................................7
2.3.2 Training Policy.......................................................................................................................................7
2.3.3 Compensation Structure.........................................................................................................................8
2.3.4 Open Door Policy..................................................................................................................................8
2.4 THE SHOULDICE SOURCING POLICY................................................................................................................8
2.4.1 Housekeeping.........................................................................................................................................8
2.4.2 Laundry..................................................................................................................................................9
2.4.3 Catering..................................................................................................................................................9
2.4.4 The anesthetist........................................................................................................................................9
2.5 THE CHARACTERISTICS THAT DIFFERENTIATE SHOULDICE HOSPITAL...........................................................9
3. CAPACITY INCREASE..................................................................................................................................10
3.1 THE ALTERNATIVES......................................................................................................................................10
3.1.1 The current situation............................................................................................................................10
3.1.2 New floor..............................................................................................................................................10
3.1.3 New hospital outside Canada...............................................................................................................11
3.1.4 Franchising..........................................................................................................................................11
3.1.5 Opening on Weekends..........................................................................................................................11
3.1.6 Public health care................................................................................................................................12
3.2 ANALYSES OF THE VIABLE EXPANSION ALTERNATIVES...............................................................................12
3.2.1 Opening an additional floor:...............................................................................................................12
3.2.2 Opening on weekends...........................................................................................................................12
4. PRICE INCREASE...........................................................................................................................................13
5. RECOMMENDATIONS..................................................................................................................................14
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1. Introduction
This is paper is based on the Shouldice hospital case. First of all we will describe the main
problem and look for the highlights. Thereafter we will describe the situation at the hospital
through the theory. We will focus on the service delivery, the service quality and the market
situation. We will also analyze the sourcing policy and to what degree it is successful. Before
starting the analysis we will describe the main characteristics that differentiates Shouldice
from other hospitals.
After having a basic background to the case and the situation, we will look at the different
expansion alternatives and the benefits and drawbacks related to each of them. Finally we will
discuss other options for profit enhancement.
The Shouldice operation doesn’t face any major challenge. Quality is good. Customers are
satisfied. Employees seem to be content. However, the current demand is higher than
Shouldice’s capacity. Whether this is a problem or not can always be discussed.
If Shouldice would have been a non-profit operation aiming at serving as many customers as
possible, the limited capacity is regarded as a problem. Hence the challenge would be to
increase capacity.
However, since Shouldice is a profit oriented operation 1, the limited capacity is regarded as
constrain for revenue and profit increase. Hence the challenge is to increase profit. Profit can
be increased through three basic alternatives;
In this chapter we are going to explore Shouldice in the light of certain models described in
the course literature. We are also focusing on critical factors for the hospital not described in
the theories. This is to analyze the case, and from the analyzes draw some conclusions that
can lead to suggestions to how the hospital could handle the situation.
1
Telephone interview with Assistant Administrator Steven Dixon on 98-11-30
4
The following section is describing the hospital from the perspective of the “6 criteria of a
good service”. The theory is meant to provide a conceptual model of services as objects of
marketing viewed with the eyes of the customer.
The 6 criteria of a good service is based on a large number of studies of how customers
perceive a good service. These criteria offer a good summary of the studies. 2 The criteria and
the implications for this case are the following:
2.1.5.Recovery.
The customers realize that the service provider, if something goes wrong, will immediately
and actively take actions to find a solution. The ability to recovery is another fundamental
criterion for a hospital. It is vital for a hospital that a surgical recovery function works well.
2
Grönroos, Christian, Service Marketing Theory. Back to Basics, p. 11.
5
In the other activity areas such as after operation stay, there can occur situations that will not
have the same kind of implications as in surgery. Whether the recovery function works well
or not in other areas than surgery, we cannot comment on. This is mainly due to lack of
information.
In this section we are going to describe the service process at Shouldice Hospital in terms of
the Augmented Service Offer – model 3. This model discuss how to manage the service
process so that both functional quality, how the process functions, and the technical quality,
what the service leads to, are taken into account. Thus, the whole interactive marketing
process is included in the model. The model is divided into three phases:
1. The core service. This is the main reason for being on the market. In this case it could
consist not only of the special method of surgery performed at the hospital, but also the
process of handling the patients in connection with the surgery, e.g. pre-examinations,
diagnosis.
2. The facilitating services, which are needed so that the core service can be used. This could
be the surgeons, nurses and administration, which are needed to perform the hernia
surgery.
3. The supporting services, which are not required for the core service but which help to
distinguish the service package from the competitors. This could be the handling
procedure of patients used at Shouldice, the interior and special atmosphere created by the
staff as well as the facilities in which the patients are during their stay at the hospital.
3
Grönroos, Christian, Service Marketing Theory. Back to Basics, p. 12.
6
Customer
Participation
2.2.3.2 Interactions
The developing of interactions between the consumer, and the service provider and the
resources that the customer confronts, impact the perception of the service quality of the
customer. The short waiting time the customers experience, from arriving at the hospital and
undergoing pre-examination and the actual surgery, is an example of such an interaction. The
interactions with other customers also fall in this category. The extensive contact between
patients and the exchange of experiences are examples of a good service quality for the
customer.
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Deficiencies in HR policy many times create provider Gap 3, where service delivery is not
performed according to service standards. Gap nr 3 does not seem to be a major issue at
Shouldice. We believe the explanation can be found in the Shouldice HR policy. Important
aspects of the Shouldice HR policy are:
Recruiting Policy
Training Policy
Compensation Structure
Open Door Policy
Through this different recruiting policy, Shouldice is able to select people that fit into the
Shouldice culture. The recruiting policy is a key element to preventing gap nr 3 to occur.
Although we believe this training procedure is standard at any hospital, we get the impression
that Shouldice is a bit more conservative and careful in leaving newcomers on their own.
An important element of the Shouldice training policy is the treatment of recurrences. The
doctor who performed the first operation has to be present at the recurrence to learn from his
mistake. The Shouldice training policy assures functional quality and is an other important
element to why gap nr 3 is closed.
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Since the Shouldice staff seem to be fairly motivated, we believe it can be partly explained by
the compensation structure. However, we believe other elements such as the overall spirit
among the staff is as important. An effective compensation structure helps to close gap nr 3,
but can never be used as an isolated program to close that gap. The compensation structure
must be regarded as a tool to sustain a positive spirit and to keep motivation high.
Many companies claim they have an open atmosphere, but don’t apply it in practice.
Shouldice proves this policy through action. We believe the Shouldice open door policy is a
contributor to increased motivation and thus one explanation to why gap nr 3 is closed.
Outsourcing of services becomes more and more frequent in any operation. There are many
benefits associated with outsourcing services, yet some key risk aspects must also be
considered. One of the risk elements are lessened control over service quality4.
Shouldice has a well pronounced quality policy and rely heavily on its reputation. To
outsource some of its simpler services such as housekeeping, laundry and catering would
likely lead to certain productivity gains and cost savings. However, Shouldice has chosen not
to outsource. We believe Shouldice has taken a conscious decision not to outsource any of its
services. We believe this is mainly related to the quality control issue and the severe
implication a quality defect would have on Shouldice’s reputation.
2.4.1 Housekeeping
Shouldice performs its own housekeeping. In that way Shouldice can assure the housekeeping
staff to act according to service standards. If a problem occurs, Shouldice can fix that
instantly. In a situation where the housekeeping service was outsourced, and a quality issue
had to be fixed, Shouldice had to negotiate improvements with a subcontractor. Such a
procedure would be far lengthy and inefficient than discussing the issue with Shouldice’s own
4
Scheuing, Eberhard E., “Sourcing Services” in Edvardsson & Modell, Service Management, 1996
9
personnel. Hence we believe the risk associated with outsourcing the housekeeping does not
balance eventual cost savings.
2.4.2 Laundry
The laundry service is another area that typically would be outsourced. We do not believe the
quality assurance aspect can be an explanation to why Shouldice has chosen not to outsource
its laundry service. We believe the explanation must fall in the area of no cost savings as well
as staffing flexibility. If there is a need for temporary assistance in the housekeeping area for
instance, Shouldice can move laundry resources temporary to the housekeeping area. Such a
procedure would have been impossible if the laundry services had been outsourced.
2.4.3 Catering
As far as catering services is concerned, we believe it is one of the important physical
evidences attached to the Shouldice servicscape. Using fresh raw material in cooking and
enabling the customers to talk to the kitchen staff every day, are pronounced features of the
Shouldice customer services. We believe those features would be difficult to enable through a
catering service being outsourced. Hence the reason not to outsource the catering service must
be explained through the quality control aspect.
In terms of the Augmented service offering model, the main things that seem to make this
hospital different from others can be summarized in two main points. Core service and
supporting service.
Core service. Shouldice have a special surgery method that allows the patients to recover
fast.
Supporting services. The staff and the patients together create a special atmosphere
between both staff members and patients. This is also influenced by the design of the
facilities and the option for family members welcomed to stay at the hospital for free.
There are however other features characterizing Shouldice, such as the interactions between
patients, their exchange of experiences and the opportunity to make friends. There is also the
customer participation, which leads to quicker recovery for the patients, as they exercise by
walking around freely in the premises.
When looking trough the glasses of the 6 criteria of a good service there are two criterions
that stand out.
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Attitudes and behavior. The staff feels that the patient’s attitude is the most important
element in the Shouldice method. It also seems to be a special feeling in the premises.
Reputation and credibility. There is no doubt Shouldice has a special reputation which has
resulted in that Shouldice never had to market itself, part from the word of mouth method.
This indicates that the credibility is also very high. .
3. Capacity increase
In this part of our analysis we are going to show different expansion alternatives which can be
used by Shouldice. In the text the author describes that there is an aim on the managerial side
to increasing the hospital’s capacity and simultaneously maintain the control over the quality
of the service delivered. Both sides must be taken into consideration because the wrong use of
these factors can jeopardize the unique atmosphere in the hospital. The main challenge of the
management is to keep this very special atmosphere, which is produced by the number of
people, the physical evidence and the well organized process. If an unbalance occurs between
these three factors the exclusivity will be destroyed and the hospital cannot longer compete
with this very special feature.
First, we will describe Shouldice’s actual situation, and then the different alternatives will be
discussed in terms of benefits and drawbacks. After a first look at the different options we will
discuss the viable alternatives in detail. The different alternatives are:
A new floor
A new hospital outside Canada
Franchising
Opening on weekends
Using the public health care
Benefits Drawbacks
Optimal number of beds Lack of capacity
Optimal number of personnel
Optimal communication between the personnel
(doctors, nurses, housekeepers, patients)
Special good atmosphere.
Skilled personnel.
Facility in one building, hospital and clinic.
lounge, reception area; bottom level: operation, laboratory, patient recovery room) the
Shouldice hospital could open a fourth level, which have to be integrated with the old ones. It
is important that there is no conflict in the architecture of the building, so that the atmosphere
still remains the same.
Benefits Drawbacks
Increased capacity Risk of loosing friendly atmosphere,
Capacity increase kept in the same facility optimized communication and control
Integration with other floors
Benefits Drawbacks
Satisfying the demand outside Canada Problem to build up the same atmosphere
Creating new customers. Control problem for the parent operation
Quality problem
Significant investment.
3.1.4 Franchising
Franchising to license the name and the method of operating hernias.
Benefits Drawbacks
Satisfying demand inside and outside Problem to build up the same atmosphere
Canada Communication with parent operation
Financial risk reduced Quality control?
Shouldice philosophy might be destroyed or
mixed with other ideas
Benefits Drawbacks
Increased number of satisfied patients Process (timetable) must be shifted
Atmosphere remains, because of same size of Older, high skilled doctors have to work on
the building weekends
Quality and personnel control Wedge between the younger and the older
doctors
Requires additional bed capacity
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Local doctors, who are trained to handle these kind of operations, should take care of the
unproblematic patients, who then can leave Shouldice after just a couple of days. In that way
Shouldice can release capacity. The local doctors are the ones who do a part of the recovery,
which Shouldice normally does.
Benefits Drawbacks
Increased number of patients Lack of control over the local doctors
Work share with local doctors Lack of quality
Atmosphere remains the same Lack of communication
Just problem patients in the hospital Reputation could be damaged
High patient flow can have a negative
influence on the atmosphere
Shouldice Hospital’s success is based on the great atmosphere they have managed to create.
This atmosphere brings up a good relationship between the employees and the customers. It is
obvious that this interaction is very successful. Therefore the best alternatives are the ones
that can increase the capacity of the hospital, delivering more service, but retain Shouldice’s
own values.
From our point of view the most workable alternatives for expansion are: “open a new floor”
and “open on weekends”.
It is true that Shouldice may challenge problems related to lack of communication between
the patients and personnel and among the patients. The number of patients could also be a
problem, so Shouldice can be unable to customize patient treatment. However, having a good
strategy and a good human resources policy, new employees can be recruited and trained by
the current employees, who know exactly how to create this personal atmosphere and
customize the treatment of the patients. It is also important that Shouldice mix old and new
employees so that the problems of communication and the integration of the floors, are
minimized.
will become exhausted. This will have a quality impact with significant worse atmosphere. In
the end Shouldice’s customers will experience dissatisfaction.
It is clear that Shouldice need a good strategy in terms of efficient structure and organization.
If this is possible, Shouldice will maintain its quality and its special atmosphere. Which will
lead to increased number of satisfied customers and higher profitability.
4. Price increase
The US market for hernia operations is estimated to an annual volume of 600.000 operations.
Shouldice performs 145-165 operations per week, corresponding to an annual number of
approximately 8.000 operations. The Shouldice market share is estimated to 1.3 %.
The Shouldice pricing is competitive and attractive. In total, a customer ends up paying
around $ 1.000 for the entire package including operation and stay. Competition offers a
similar service for a total cost of $ 2.000 to $ 4.000. One of the explanations to why
competition is more expensive is the number of days a patient needs to stay at the hospital
after operation. On average a Shouldice patient leaves on the fourth day. Competition usually
requires the patients to stay for five to eight days.
Another important benefit of the Shouldice method is the total time off work for a patient is
significantly lower compared to the competitors. The average total time off work is eight at
Shouldice.5 At other hospitals, the off work time can be as long as eight weeks.
Addressing the US market, Shouldice has to consider the travelling costs to Toronto as a
disadvantage. However a round trip ticket to Toronto range from $ 200 to $ 600. Hence the
current pricing enables Shouldice to be competitive in spite of the travelling costs that must be
taken into consideration.
We believe Shouldice’s superior reputation can justify a total cost of $ 2.000 for the entire
service including travelling. A $ 1.500 price level must be competitive. With a market share
of only 1.3 %, and a back-log of 1.200 patients, we do not believe a price increase will have a
major impact on long term demand.
Based on an average volume of 8.000 operations, a $ 500 incremental revenue per operation
will bring additionally $ 4 M revenue to Shouldice. We believe such an approach is far
superior to increasing capacity at current price level.
To avoid intricate discussions about price raise and to what degree it is justified, we
recommend Shouldice to restructure its pricing. We believe the best way is to price the
service at a fixed package price including operation and stay. Such a move will avoid direct
comparison with historical prices.
5
Your stay at Shouldice hospital, www.shouldice.som/operate.htm
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5. Recommendations
Shouldice Hospital’s success is based on the great atmosphere they have managed to create.
This atmosphere creates a good relationship between the employees and the customers. It is
obvious that this interaction is very successful. It is important that Shouldice focus on keeping
its core services intact.
Since the hospital is the non-profit part of the organization and the clinic is the profit part, the
way to increase profits is to increase the number of surgery performed, or raise the prices for
the surgery. The fees for staying at the hospital is regulated by Canadian law and cannot be
raised. The options are therefor to increase capacity, both in number of beds and in number of
surgery performed, or to raise prices for the surgery.
There seem to be too many risks associated with increased capacity regardless of any option.
Quality control, keeping the good atmosphere, maintaining the reputation etc. There is also
the risk of new legislation, in the U.S. or in Canada, which can change e.g. taxes, medical
insurance policy etc. Such a change can effect the business conditions significantly. Hence a
large investment can be too risky. We therefor recommend Shouldice to postpone the
expansion alternatives for the future.
Taking it all together the best way to increase profit in the short run seems to be a price raise.
Yet the hospital is a non-profit operation, the clinic is not. The clinic can charge for its
operation at a free market price.
Shouldice should be able to raise its prices and remain competitive. A price level of $ 1.000 -
$ 1.500 for an operation seems to be a fair market price. A price level of $ 1.000 for the
operation will mean a total cost of $ 1.500 including stay. For a US citizen travelling costs
has to be taken into consideration. Since a round trip ticket to Toronto only range from $ 200
to $ 600, Shouldice will still be competitive. Competing hospitals offers a similar service for $
2.000 to $ 4.000.
However a price raise can be an exposure. Changes in local and foreign legislation as well as
medical insurance regulation could have an impact on the cost reimbursement from the
insurance companies.
In a longer context, Shouldice can consider increased capacity if the backlog of customers
remains large. However, we believe increased capacity should not be consider in the nearest
future.
One possible option could be to expand the operation into completely new areas such as
homes for old people. Shouldice can use its know-how in creating a positive atmosphere and
their experiences in caring people.