DSE7100 Managing Service Operations

Discussion of Shouldice Hospital Limited Case

Assignment #2:
Questions for Shouldice Hospital Limited
1. How Successful is the Shouldice Hospital? 2. How do you account for the success of the hospital? 3. What is the strategic service concept of Shoudice Hospital? How are the elements in the service systems designed and managed to support the strategic service concept? 4. As Dr. Shouldice, what actions, if any, would you take to expand the hospital·s capacity? 5. How would you implement changes you propose?

How is Shoudice different from other Hospitals?
²Patents do not feel that that are staying in hospital ²Patients are taking a vocation ²This is a club ²Focused

200 backlog of scheduled operations ‡ Demand appears to expand with supply ‡ Superior quality Shouldice Method of Hernia operation imitated by competitor ‡ Low recurrence rate.How Successful is Shouldice Hospital? ‡ 140.80% vs 10% ‡ High degree of employee satisfaction .000 highly satisfied ´Alumniµ(past patients) ‡ 1. 0.

Cost Comparison: Shouldices vs.102 Others $2000-4000 $0 5 days 10 days $750-7500 $2750-11500 10.025-12. employee and insurer $1.650 .00% $275-1150 $3.617-6.80% Expected Cost of Recurrence $13-48 Total cost to patient. Other Hospitals Shouldice Costs of typical operations $954 (p9) Transportation $200-600 Time Lost from work in Hospital 4 days Time lost from work while recovering 5 days Value of time lost (ranging from $50 to 500 per day)$450-4500 Total before Allowance for recurrence $1604-6054 Probability of Recurrence 0.

20) X6.596.000 1.400 3.041.800.596.250 2.650 .250 1.How About the Profitability of Shouldice Hospital? Hospital: Revenues (4 days X $111/day x 6.000 241.850 patients/year) Cost Profit: Clinic: Revenues (($450+ 60 + 75 X 0.400 2.850) Cost Profit Total Profit 3.000.837.

000 = 40% .000.000.837.650 x 1.650/5.837.50 / 7.Return on equity ‡ Total Depreciated Assets: $5 mil ‡ Return on Asset: ± 1.000 = 37% ‡ What is the return on Asset if they expand the capacity by 50% at the cost of $2 mil? ± 1.

´The Dream World µ ‡ Shoudice is offering: ² high quality service at low price ‡ Shodice is having ² Highly satisfied customers ² Happy Employees ‡ Shouldice is also ² making 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 .

older in age. family oriented ² Nurses: people oriented.S. essentially in good health ² large market potential: 600. team oriented . assist patients ² Staff: flexible. in 1979 ‡ Internal Focus ² Doctors: Dedicated to quality of shoudice method.000 operations in U. tolerance for boredom.A Focus Strategy ‡ Market Focus ² focus on a narrow segment of potential patients who have hernia and ² they are predominantly male.

Operating Concept ‡ Shouldicce achieves outstanding results as a low price and at a high profit because: ² 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 ² the cost of providing the service on the other. .

housekeeping and laundry ‡ Structure hospital jobs that involves more counseling and positive interaction with the patients .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.

30 by less focused surgeon Sharing of expensive services such as anesthetist Short and relatively regular hours for surgeon high compensation ($50.How did they do that? ² The Clinic is a focused factory resulting in: ² Highly productive surgeon: ‡ 300 hernia/yr Vs.000) Opportunities for surgeons to observe and and advise one another ² Peer group pressure that leads to higher level of selfcontrol of quality ² A conscious effort is made to make Shouldice a ´familyµexperience ² ² ² ² .000 + $40.

nurses .The elements in the service system to support the service Concept (managerial elements) ‡ Service encounter ² Doctors and nurses are carefully recruited ² Employees trained to help / counsel patients ² Communal dinning for doctors. staff and patients ‡ Quality ² adherence to Shouldice method ² opportunity for surgeon to observe & advise one another .

The elements in the service system to support the service Concept (managerial elements) ‡ Managing capacity & demand ² Admission by appointment: scheduled service ² Screening patients: easier to estimate the service time ² walk-in patients or local residents on waiting list to make up cancelled reservation ‡ Information ² Medical Information questionnaire ² Free annual check-up -> unique data base on the result of the surgery ² Annual 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 ² Maximum degree of customer participation ² Efficient and low cost ² Avoid a typical hospital atmosphere ‡ Facility design ² Acres of gardens to encourage exercise & rapid recovery ² minimize hospital feeling (carpeting and odorless disinfectant etc) ² Stairways are designed for patients to use right after operations ² No TVs and Telephones in rooms to encourage walking ² 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 ² large city near air port -> access to worldwide market ² large local population to fill up cancelled bookings ‡ Capacity planning ² Elective procedures -> scheduled operations ² Balancing Capacity and improving capacity utilization ² 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 .

5 hrs/room/day x 1. 3.1 hrs/patient x 5 days/week)/ = 188 patients /week ‡ Surgeons: ‡ 11 surgeons x 3. and use of 14 ´hostelµ rooms for two nights each week) .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.5 days average stay) ‡ 103 rooms = 148 patients (assuming use of weekend for convalescence.Shoudice Hospital Limited: Analysis of Capacity Capabilities Operating Rooms: ‡ (5 rooms x 8.

How to expand the capacity? ‡ Aim : increase capacity & maintain control of service quality ‡ Alternatives: ² Add Saturday operations ² Add a new floor (45 more hospital beds) ² Establish a new facility for hernia ² Expand to other types of operations ² Others? .

Please Help Shoudice to make the Decisions ‡ Which alternative do you recommend? ‡ Why? ‡ How do you implement the solution that you are recommending? .

500 Less cost 176.000/2.500 Return on investment = 800.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+0.000=40% .20 x 75) = $976.000.

kitchen.Add in a new floor (45 beds) ‡ Disadvantages ² Require to schedule doctors to the full capacity of five days per week ² Increase work load on admissions. housekeeping and accounting ² Further staggering of meal hours for patients (100 seat dinning room) ² Disruption during construction ‡ Advantages ² Easy to control and maintain quality ² Retain the culture and environment . laundry.

250 Net increase in profit: 550.000 for no additional investment .20 x 75) = $674.250 Less cost 124. 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.Schedule Saturday as an Operating Day ‡ Use 89 + 14 rooms.

strong opposition by the senior doctors ² Operating close the the theoretical capacity of the facility ‡ Advantages ² No investment is needed ² Can still maintain quality .Schedule Saturday as an Operating Day ‡ Disadvantages ² Require to schedule 23-25 operations on Saturday ² Six surgeons and a supervising surgeon have to work on Saturdays ² Additional other personnel ² Violates the implied contract that Shouldice has with its surgeons.

Shoudice·s time Control of quality It is difficult to create the same culture and atmosphere Potential competition with the existing facility ‡ Disadvantages .A Second Facility for Treating Hernia ‡ Advantages ² ² ² ² ² ² ² ² ² 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.

Discussion Questions 1. How are the distinctive characteristics of a service firm illustrated by Shoudice Hospital? . Describe Shoudice Hospital¶s service package. 2.

access to worldwide market. large local population to fill up cancelled bookings . .Shoudice Hospital¶s Service Package ‡ Supporting Facility ² Acres of gardens to encourage exercise & rapid recovery ² Carpeting and odorless disinfectant etc to minimize hospital feeling ² Stairways are designed for patients to use right after operations ² No TVs and Telephones in rooms to encourage walking ² Operating rooms are located in semicircle to encourage doctors to help each other and use the same anesthetist ² Located to a large city: Toronto.

‡ Explicit Services ² Quality hernia surgery using the Shouldice method. low recurrence ² Very experienced doctors .Shoudice Hospital¶s Service Package ‡ Facilitating Goods: ² Medical supplies ² Food. medicine etc.

Shoudice Hospital¶s Service Package ‡ Implicit Services ² Peace of mind/low risk ² Independence/Dignity/Control ² Social experience. fraternity ² Excused absence from work without guilt ² A vocation .

Shoudice Hospital¶s Distinctive Characteristics ‡ Customer Participation in the Service Process ‡ Simultaneity ‡ Intangibility ‡ Perishability ‡ Heterogeneity .

END Thank You .

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