Shouldice Hospital, Ltd

Shouldice Hospital, Ltd.

Production and Operations Management Case

Shouldice Hospital is located just outside Toronto, Canada and specialises in treating patients with hernia. The hospital faces the challenge of working effectively in the long-term. It seeks to increase the number of patients while competing effectively against competition. Hernia operations (and all medical care) are services; they can easily be imitated by competitors, and having a competitive advantage over other hospitals that operate in this field is delicate. Shouldice Hospital’s main competitive advantage is that it differentiates by having a relaxing atmosphere (like an experience of being at home or at a country club) instead of being a typical hospital. Patients are also encouraged to talk to other patients. The strengths are in the patients’ perceived quality of the hospital, the high quality services provided to patients (both medical and experiential) and to some extent the lower price the hospital charges to its patients relative to its competitors. The price to patients for staying at Shouldice hospital is roughly half of that of competitors. Over the last 55 years, the hospital has treated 300,000 patients with hernia with 99% success. It also has a low recurrence rate (0.8% instead of 10% of competitors). Employees are generally pleased; doctors have a 15% higher salary than those who work in Ontario. The low turnover means employees gain more experience at Shouldice hospital.

Shouldice hospital details

-5 operating rooms

-12 surgeons who work full-time, 8 part time assistant surgeons

-34full time nurses 24h , during no operations: 6 ft nurses

-82% of hernia operations are straight forward with few complications

-18% of hernia operations are of patients who have previously failed operations from somewhere else

Table 1: Current bed capacity (89 hospital beds)

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

26

26

26

13

26

26

26

13

26

25

25

12.5

25

25

25

12.5

13

26

26

26

Rooms used

39

52

78

89

89

63.5

38.5

% rooms used

44%

58%

88%

100%

100%

71%

43%

operations only take place on weekdays: Monday to friday admissions are allowed Sunday to Thursday (not Saturday) presuming half remain 3 nights and half stay for 4 nights

checkin

operation

checkout

Increasing productivity

1. At the hospital, 30 to 36 (average 33) operations take place per day across 5 operating rooms. 33×5=165operations a week

2. 33/5=6.6 operations take place per operating room per day

3. Some operating rooms have 7 operations taking place per day

4. Therefore there is potential of having 7operations take place each of the 5 operating rooms per day, this would increase the number of daily operations from 33 to 38.

5. Since doctors carry out 3-4 operations per day, it would be wise to hire 2 extra doctors for every day to make sure things are running smoothly (so that doctors don’t make mistakes and to keep standards high for employees and customers’ experience with the hospital).

6. 38daily operations x 5days (weekdays)=190 operations per week

Increasing capacity/the amount of beds by +50% (+44 beds which amount to 133 beds)

Shouldice hospital has specialised employees who have experience. It focuses on a niche segment of patients. Increasing capacity has a risk of deteriorating the service quality of employees. The hospital at the time of the case is running at very optimal levels and patients seem very satisfied. A way to increase output is to invest in capital and time for construction of a new sector to house 50% more beds. Construction however can be a very strong disadvantage as the hospital has built its reputation around its atmosphere. There would also be needs to increase the amount of workforce (from housekeeping, the kitchen, laundry, to accountants, to admissions, to nurses to doctors) and useable communal areas such as surgeries and the dining area. The construction will cause significant disruption, however in the long run as it is located at the same site, the hospital will have more control to bring back the atmosphere and culture it stands for.

If the existing 89 rooms increased in capacity by 50% there would be 133 rooms (133.5) (see table 2 below). This would fix the bottleneck problem of beds with under capacity.

Table 2: Bed capacity+50% (total of 133 hospital beds)

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

38

38

38

19

38

38

38

19

38

38

38

19

38

38

38

19

19

38

38

38

Rooms used

57

76

114

133

133

95

57

% rooms used

43%

57%

86%

100%

100%

71%

43%

-operations only take place on weekdays: Monday to friday

-admissions are allowed Sunday to Thursday (not Saturday)

-presuming half remain 3 nights and half stay for 4 nights

checkin

operation

Checkout

Having operations on Saturdays

The benefits of operating extra shifts on Saturday is that there is a greater percentage of rooms used (see table 3) and there is no deterioration in service quality and the only costs are wages and time. The most likely negative effect this will have is make the employees angry, especially senior doctors who conduct operations, which is why the hospital should hire additional employees for Saturday instead of overloading the ones it has during the week.

Table 3: Working on Saturdays (as well)

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

26

26

26

13

26

26

26

13

25

25

25

12.5

25

25

25

12.5

13

26

26

26

25

12.5

25

25

Rooms used

64

64.5

77

89

89

88.5

63.5

% rooms used

72%

72%

87%

100%

100%

99%

71%

-operations take place Monday to Friday and Saturday

-presuming half remain 3 nights and half stay for 4 nights

checkin

operation

checkout

Increasing beds by 50% and operating on Saturday

Table 4: Increasing beds by 50% and operating on Saturday

133/3=44.33(to maximise patients)

Monday night stay

Tuesday

night stay

Wednesd- night stay

Thursday

night stay

Friday

night stay

Saturday

night stay

Sunday

night stay

Arrived Monday

44

44

44

Arrived Tuesday

44

44

44

Arrived Wednesday

44

44

44

Arrived Thursday

44

44

Arrived Friday

44

44

44

Arrived Saturday

44

44

44

Arrived Sunday

44

44

44

Total stay

132

132

132

132

132

88

132

(6×132)+88=880 operations a week

880 operations/190current operations=4.63x

Increasing beds by 50%, working on Saturdays and maximising workload (see table 4) would increase productivity by 463%. This would mean that there would be a heavy investment required in time and capital(such as surgeries), to hire over 4 times the amount of existing staff, would need time and would most likely disrupt the current relaxing cosy image the hospital currently has. The hospital management most likely does not have the expertise to run such a large scale operation.

Creating a secondary site for hernia treatment

Franchising

By expanding through franchising, the quality of the service and the reputation of Shouldice Hospital brand name would face risk due to lack of control. There is a great potential to have a high revenue inflow, it is an opportunity but it comes with risks, as the hospital has always been in one location.

This alternative meets face to face with competitors, and Shouldice can expand out of near Toronto and perhaps operate in the USA in a densely populated area that will bring it many patients. This would be expensive. Although Shouldice hospital has the know-how in procedures (and principles on how to run that specific hospital, behave to its employees and so on) and creating the right atmosphere setting; adapting the already established cosy atmosphere would be difficult to adapt. Shouldice Hospital might face strong competition with the franchise.

Expanding to other types of operations is out of the question as Shouldice Hospital specialises and is well renowned for hernia treatment; in addition surgeons and their assistants do not want to be cross trained.

Shouldice hospital also has the option to not take any action. The hospital is doing well as it is. The case does not present enough data from competitors other than the fact that services can easily be replicated.

Another course of action is to team up or buy out competition. They have expertise but can also be trained. If you can’t beat them you can join them.

Table 5: Comparing courses of action

50% extra beds

Saturday Operations

Franchising

Cost

-Very high

expensive

$2m

-Low

-Either increase wages of existing doctors or hire new ones

-Medium

-Training Shouldice Hospital’s principles would be required

Completion Time

-High, need to plan and build

-Need to hire and train staff across departments

-Low/Medium

New employees might need training = takes time

-Medium

Depends on franchiser’s investment

Difficulties

-Construction goes against the image Shouldice Hospital has

-Will need more staff (from all departments), capital/surgery, there are many hidden costs

-Low expertise in running a bigger hospital. Might have to hire external managers who have run hospitals in the past

-Would a larger hospital damage the warm/home feeling of the hospital?

-bad word of mouth during construction would have a negative impact

-If the hospital has a higher capacity but does not meet demand in the future it will have a greater problem than it does at the moment as it would have invested a lot

-It only partly addresses the bottleneck problem

-Senior doctors might react negatively about working on Saturday, might create tension and unproductive competition between younger doctors and older doctors, this might disrupt harmony among employees,

therefore they would need to be trained and explained to about the situation. It is necessary for the hospital to keep its existing professional employees. They can train additional workforce.

-If existing employees are used, there is a risk of service quality diminishing in quality

-Does not address the bottleneck issue at the current location of operations

-What Shouldice Hospital stands for might be at risk

-no control over operations

-Franchisee might turn into a competitor

-Employees would be less experienced with the principles of the hospital, they might nip some of our employees

-If the franchisee has problems, Shouldice hospital may be held partly accountable

-Will be difficult to monitor

Advantages

-Fixes bottleneck problem

-Increases beds by 50% and hence allows more patients to be served

-Patient Capacity would increase +20% or 1500 people per annum

-Low investment

-The hospital keeps operating successfully as it is already doing, just at a slightly better productive rate

-Potential to earn revenues fast

-Goes head on with competition

-Can expand fast in densely populated areas with hernia sufferers, in Canada or the USA, if the USA, they might have different laws, so it would be a good idea for the hospital to see what it can and can’t do in the USA.

-42% of customers are already from the USA

Conclusion

Shouldice hospital needs to fix its bottleneck problems in order to operate and compete effectively against competition. There are 3 main alternatives (see table 5).

The hospital has the capacity to have 50% more beds; however this is extremely expensive, and would require hiring extra personnel in every department in order for existing workers to continue operating smoothly and efficiently. The hospital also does not have the experience of running a larger scale hospital. It would also threaten the cosy image. The construction would benefit the long run but in the short run it would just aggravate both patients and employees.

Operating on Saturdays only partly helps the bottleneck situation. This is the cheapest of the 3 potential solutions, however the hospital might need to hire and train new doctors which might take a slight amount of time until they gain experience.

Franchising gives Shouldice the opportunity to expand and operate in a different region. The problem however lies in control. The hospital will not have complete control, it just gives the guidelines. This is risky and is quite expensive to do effectively. Shouldice hospital must communicate its values or else the hospital risks losing its reputation.

The proposed recommendation would be for Shouldice Hospital to hire additional staff, to continue operating successfully as it is on the right track and avert risk or diversions. Shouldice Hospital should operate at its maximum capability during weekdays and Saturday (38 operations instead of 33 per day=228 operations per week instead of 165). This will only partly help solve the bottleneck, but the benefits outweigh the risks. It is imperative that the hospital provides its doctors with the correct training; it must explain to senior surgeons that they must not feel threatened and instead they should guide new doctors towards excellence for everybody to benefit.