SHOULDICE

CASE SOLUTIONS- GROUP MEMEBERS- Achal Goel (199278088), Piyush Raj

(199278001), Rishab Gupta (199278006), Rohit Dawra Gul (199278027)

1. How successful is the Shouldice Hospital?

Shouldice Hospital has not spent anything significant on marketing as they rely on word of
mouth. This shows that how Shouldice patients are satisfied with the surgery. Due to good
efficiency, Shouldice has been able to charge almost half of what is the industry standard.

I have done the profit analysis for Shouldice hospital using the figures mentioned in the case
to gauge how successful it has been. For cost, I have taken budget estimate for 1983. As I
believe total cost of its operations won’t exceed beyond the budget for 1983. Total number
of operations for 1982 has been given, so I have taken the same. For revenue of general
anaesthetic, I have considered approximately 10% of total operations would require it.

Financial Analysis (Table 1)

Cost
Total Budget 4800000
No of Operations 6850
Cost/operation 700.7299

Revenue
Stay charge 444
surgery charge 450
Assistant Surgeon 60
Total charge/operation 954
Total charge 6534900
Revenue for general anesthesia 51375
Overall Revenue 6586275

Profit 1786275

Shouldice Hospital is earning good profit despite having a low fee for the stay and operation.
Hence, we can infer that Shouldice Hospital has been very successful till now. Shouldice has
not been able to cater the demand hence it is looking to increase the capacity, this shows
that there is still more demand in the market.
2. How do you account for its performance?

Shouldice Hospital’s performance accounts for 2 factors: Satisfaction of Employees and

Patients. It has taken various initiatives to ensure the performance is consistent and results
oriented.

1. Unique Technique
Dr. Shouldice came up with a very successful technique after years of research for curing
Hernia. It has a success rate of more than 99%. In addition to it, the number of
operations performed per doctor is also more than the standard technique performed
by others. It was also regarded as “bread and butter” operation.

2. Experience
New customers learn from the experience of past patients, which has led to the success
of the hospital. Low cost of surgery with a memorable experience is what patients
remember. It also takes care of the past patients with free annual check-ups. Patients
with similar backgrounds were assigned same room to make them have healthy
discussions. Patients are encouraged to explore the hospital and make new friends,
which helps them psychologically.

3. Employee Satisfaction
Employees earn higher than other surgeons and staff working in other hospitals.
Employees get time to spend with families which keep them happy and motivated. They
encourage staff to interact with patients and have an empathy towards them. They used
to share profits as well. Hence these measures made employees loyal to Shouldice.

3. As Dr. Shouldice, what actions, if any, would you take to expand the hospital's capacity

Option 1 : Doing Operations on Saturday

Making doctors work on Saturday will increase the capacity by 20%, hence the number of
operations in a year will increase by 6850*0.20 = 1370 which is more than the current
backlog Shouldice has. Therefore, this option will help to increase the capacity enough to
clear the backlog without any significant investment.

However, Shouldice is known for employee friendly culture and we have seen that Dr Obney
& Alan O’Dell do not agree with the solution. One of the advantage of working at Shouldice
is that Doctors get more time to spend with the families. This option will surely have some
backlash from employees. It will also add a strain on existing resources

Option 2 : Add more beds by constructing one more floor

This option will increase the capacity by 50%. Therefore, the number of operations in a year
will increase by 6850 * 0.5 = 3425. This will help to clear the backlog of 1200 as well as cater
to the additional demands. Also, the number of beds is a bottleneck to perform maximum
operations. It is given that each doctor can perform 3-4 operations in a day. With 12 doctors
at Shouldice, the number of operations in a day should be 36-48. However, it ranges from
30-36 currently. Hence, we are not utilising the full capacity here.
 However, this option will require a significant investment of 2million. Also, there will be
regulations which need to be followed.

Option 3 : Open a new center in US

This will be a market expansion strategy by Shouldice. As approximately 42% patients came
from United States, therefore there is a huge demand in United States as well. The places
figured out already have private hospitals, so market demand won’t be a problem.

However, there are a lot of risks associated with this option. As Shouldice is known for its
execution and operation, it will be difficult to supervise both the hospitals in 2 different
countries and maintain a quality service. This option also requires the significant investment.
The government regulation might also not favour as Shouldice has been currently working
without unions, so US may have unions and higher wages as well.

Therefore, considering the pros and cons of all three options, Option 2 looks a good solution
to go ahead.

4. How would you implement changes you propose?

As we have suggested option2 i.e. to increase bed capacity by 50%, we will be proposing
changes for the same.
The case says that a single doctor performs 3-4 operations a day, and there are total 30-36
operations in a day. As the number of beds is a bottleneck here, the capacity of operations in
a single day cannot be increased beyond 36.
Number of beds = 89
Average no of days of stay of a patient = 4
Therefore, in a week on Wednesday & Thursday, the bed occupancy will be maximum and
will stop the clinic to perform at maximum capacity.
With 50% increase in bed capacity the number of beds will become around 134. 50%
capacity will allow the doctors to perform around 45 operations in a day. Therefore, 134 bed
capacity will be able to sustain the 45 operations in day.
As the number of operations will increase by approximately 12 from 33 to 45 in a day, we
can calculate the additional profit from this and then calculate the break-even point for it.

From Table1 in answer of Q1, we can see that profit per operation is around $254.
Profit/operation =$254
Increase in number of operations in a day = 12 (from 33 to 45)
Increase in number of operations in a year = 3000 (12*5*60)
Increase in profit = 254*3000 = $762000
Investment to construct one more floor = $2million
No of years to break-even = 2million/762000 = approx. 3years

Therefore, we can see that the investment of 2million will break even in 3 years and will also
help in eliminating the backlog. Also, we need not hire more doctors as they are being
underutilised currently due to less number of beds. Therefore, this option helps to increase
our capacity by just increasing the infrastructure. If the existing doctors feel the additional
pressure, then hiring more 1-2 doctors can compensate that. This will also not cause a
significant dent in our profits.