DSE7100 Managing Service Operations Discussion ofDiscussion of ShouldiceShouldice Hospital Limited Case Hospital Limited CaseAssignment #2: Assignment #2: Questions for Questions for ShouldiceShouldice Hospital Limited Hospital Limited1.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 hospitals capacity?5.How would you implement changes you propose? How Successful is Shouldice Hospital?140,000 highly satisfied “Alumni”(past patients)1,200 backlog of scheduled operationsDemand appears to expand with supplySuperior quality Shouldice Method of Hernia operation imitated by competitorLow recurrence rate, 0.80% vs 10%High degree of employee satisfactionCost Comparison: Shouldices vs. Other HospitalsShouldiceOthersCosts of typical operations$954 (p9)$2000-4000Transportation$200-600$0Time Lost from work in Hospital 4days5daysTime lost from work while recovering5days10daysValue of time lost (ranging from $50 to 500 per day)$450-4500$750-7500Total before Allowancefor recurrence$1604-6054$2750-11500Probability of Recurrence0.80%10.00%Expected Cost of Recurrence$13-48$275-1150Total cost to patient, employee and insurer$1,617-6,102$3,025-12,650How About the Profitability of Shouldice Hospital?Hospital:Revenues (4 days X $111/day x 6,850 patients/year)3,041,400Cost2,800,000Profit: 241,400Clinic:Revenues ($450+ 60 + 75 X 0.20) X6,850) 3,596,250Cost2,000,000Profit1,596,250Total Profit1,837,650Return on equityTotal Depreciated Assets: $5 milReturn 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 EmployeesShouldice is alsomaking high profitHow 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 RecurrenceIndependence/Dignity/ControlSocial experience, fraternityExcused absence from work without guiltA vocation Market Focusfocus on a narrow segment of potential patients who have hernia andthey are predominantly male, older in age, essentially in good healthlarge market potential: 600,000 operations in U.S. in 1979Internal FocusDoctors: Dedicated to quality of shoudice method, tolerance for boredom, family orientedNurses: people oriented, assist patients Staff: flexible, team orientedA Focus Strategy Operating ConceptShouldicce 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 andthe cost of providing the service on the other.How did they do that?Patients are carefully screenedPatients are active participants in the service delivery processThe avoidance of general anesthestics allows a wide range of involvement of patientsStaff is freed from much disagreeable workReducing the cost of nursing, housekeeping and laundryStructure hospital jobs that involves more counseling and positive interaction with the patientsHow 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”experienceThe 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 patientsQualityadherence to Shouldice methodopportunity for surgeon to observe & advise one anotherThe 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 reservationInformationMedical 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-mouthThe elements in the service syst