Operations Management

Case 1: Shouldice Hospital Limited

Submitted to
Prof. Janat Shah Indian Institute of Management Bangalore

By: Group Number 13

Arun Singh Mohan Lal Mahesh S Rajkamal Narasimhan

0511153 0511171 0411106 0411114

Group 13

Indian Institute of management, Bangalore

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Situation Analysis
Group 13 Indian Institute of management, Bangalore Page 2 of 12

The Shouldice center employs its own technique, called the Shouldice method for repair of hernias. Only external types of hernias are treated. Approximately 82% of surgeries are primaries, requiring 45 minutes. The rest 18% involve recurrence of hernias repaired elsewhere. These are more complex, requiring 90 minutes. Due to the efficacy of the Shouldice method, recurrence rate for all operations at Shouldice is 0.8%, compared to 10% in the Unites States. Moreover, the Shouldice method allows immediate patient ambulation and rapid recovery. Most patients are ready for discharge by the fourth morning. The Hospital has a capacity of 89 beds. There are 5 operating rooms where 33 to 36 operations are performed on an average day. No operations are performed over the weekend. The Hospital employs 12 full-time surgeons, 7 part-time assistant surgeons, and one anesthetist. The nursing staff consists of 22 full-time and 18 part-time members. An operating team consists of a Surgeon, an assistant surgeon, a scrub nurse, and a circulating nurse. A surgeons typical day begins at 7:30 A.M. and ends by 4:00 P.M. Each surgeon typically performs 3 to 4 operations each day. Training of a new surgeon in the Shouldice technique is important because the procedure cannot be varied. There is time-based rotation of teams and frequent consultations among doctors. A patient at Shouldice requires minimal post-operative care. Patients are encouraged to move about and carry on their day-to-day activities with minimal physical assistance. This allows Shouldice to operate with a much lower nurse-to-patient ratio than a typical hospital. Employees at the Shouldice have very competitive pay scales. The remuneration has both fixed and bonus components. There is no organization chart, and administrative

Group 13

Indian Institute of management, Bangalore

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employees are cross-trained to take over each others work if required. Nobody is fired. As a result, turnover is low. The hospital relies entirely on word-of-mouth advertising. The center performs 145-165 operations per week. In spite of this, there is a backlog of scheduled operations that is as large as 1200 in 1982. Approximately 42% of patients come from the United States. A typical surgery at the Shouldice costs approximately $1029. Operating Costs for the hospital and clinic are close to a total of $4.8 million. Revenues are close to $6.8 million. Thus, operating profits are close to $2 million annually. The Shouldice Hospital is a successful organization and admired by most of the people who had relation with it or who have heard of it. However, due to its unique surgery method, although without mass advertisement, the operating capacity is close to %100. Thus, they have a fear of not meeting the demand in the future. Moreover, some of the hospitals and surgeons take benefit of the Shouldice method in their advertisement although they hardly perform it perfectly. This leads the hospital to become notorious. To sum up, they have problems in meeting demand and abuse of the method, which is unique to them, and have expending business opportunities while keeping the quality level.

Group 13

Indian Institute of management, Bangalore

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Problem Definition
To increase the capacity of the hospital to cater to the ever increasing backlog of operations and at the same time maintain the quality of service delivered.

Performance Analysis
Shouldice Hospital follows highly structured and standardized process. The benefits of this are reflected in its performance. The total time taken to discharge a patient is 4 days in any case. The initial diagnose and information is taken through a mailed questionnaire and the arrival time of the patient is fixed after that. It saves time and helps better utilization of the staff time and bed occupancy. The similar process in other hospitals takes on an average 7 days. So the cycle time is about half of its competitors. Their operational method is different from other hospitals. They have their own style. The patients, who were experienced hernia operation in Shouldice, can return their normal daily lives much before the other patients that had experienced the similar operation at other hospitals. And the recurrence rate for all operations performed at Shouldice is about 0.8% while in the United States it was about 10%. The schedule of operations for each doctor is well planned and it ensures that every doctor and the required staff is fully utilized. The operating procedures are designed in such a way to ensure fast turn over without sacrificing the quality of patient care. The unique Shouldice method gives the hospital an assembly line like operating structure. It translates to 600 operations on an average by every doctor while a similar doctor performs only 25-50 such operations in a year. First, the facility was completely designed for hernia operations. In Shouldice, all the patients were encouraged to walk up and down the halls and to get in dialog with the other patients and the surgeons. In thought of encouraging the patients, the steps between the floors are constructed with a smooth inclination, there are not TVs at the bedrooms

Group 13

Indian Institute of management, Bangalore

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and the rooms were designed as if it were a home instead of a hospital. Every square foot of facility is carpeted to reduce the hospital feeling and the possibility of a fall. In addition to being different in terms of operating method, Shouldice Hospital also allows its personnel to have a better work-life balance that its competitors. They mostly have regular hours with five working days in a week. The work is scheduled to avoid repetitious processes. Experience and a good education are the criteria for selection of the surgeons. A great and important employee empowerment exists here. The surgeons have the authority during the operations. Experienced ones allow the doctors to learn from their mistakes. Training in Shouldice technique is important since the procedure could not be varied. There is a time-based rotation of teams and frequent consultation among the doctors. The utilization of support staff like nurses and assistant surgeons is also optimum. The nurse to patient ratio is low as compared to other hospitals due to the unique Shouldice method, which allows faster ambulance of the [patients and hence minimum assistance of nurses. The main thrust of the nurses is on counseling activities which ensures satisfaction of the patients. The secretaries are required to learn all the administration work so that they can be rotated in case of emergency. Theres no organization chart and there is a profit sharing plan for the employees. This has resulted in absence of union and low turn over of the administration staff. All the unique operation management of Shouldice Hospital has resulted in value for the patient. The patient gets expert and complete attention, saves in hospital stay time and is charged much lower as compared to other hospitals. During the stay in the hospital also, patients are given full support and assurance through counseling and mixing with other patients. They feel comfortable to stay in the hospital during the procedure. The general environment of the hospital is congenial and homely. The hospital relies only on word of mouth advertisement and even then the backlog is increasing every year. This shows the popularity and goodwill of Shouldice Hospital in the market.

Group 13

Indian Institute of management, Bangalore

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The layout of the hospital is quite spartan. No attention is paid to the dcor of rooms and all the rooms are equipped only with minimum requirements. The rooms are made for two patients and food facilities are self service based. They have their own style in hernia operations. And they think that some of the other centers are trying to imitate their style. But to avoid from bad word of mouth, the founders of the hospital try to eliminate this kind of information theft. They also keep some records for their patients. They contact with the patients who live far from the hospital (almost half of all patients) by mail. After the first diagnosis by mail, the patients are given a date. And a confirmation card is sent them as the last step for a certain date. If the card doesnt return they contact with the patient by phone. All the rooms are prepared for two patients (they will go under operation in the same date). And the hospital is closed for two weeks in December in which the demand is also the least. No weekend operations are held in Shouldice. The founders of the hospitals avoid from advertisement due to afraid of high demand that cannot be meet with the existing capacity. By the help of differentiated managerial and structural elements from other hospitals, Shouldice is going on its hernia operations successfully.

Group 13

Indian Institute of management, Bangalore

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Generation and Evaluation of Options

Increase Hospital Capacity by increasing the number of working days by one: The best way to increase the capacity and maintain the quality of service is by increasing the working days. By increasing the working days there is no extra cost incurred except the usual cost on doctors and other admin expenses. As seen in Appendix 1 there is a net increase in profit to $0.46 million by increasing the working days. This also enables the decrease in the backlog of orders and at the same time provides service to the patients at the same level of quality. But this option would create some resistance among employees. This could be countered by paying better incentives for the extra day. Increase in working days also improves the utilization of the beds. As seen in appendix 2 the utilization is 71.4% with 5 days working but with the increase in working days to 6 the beds utilization has increased to 85.7%. The increase in working days is hence inevitable as the demand for hernia operation is raising steadily and therefore the need to cater to the extra demand by increasing the working days. Increase hospital capacity by adding another floor of rooms and increasing the number of working days: As seen above the best way to increase capacity and maintain the quality of service is to increase the number of working days. But going forward the hospital will not be able to cater to the increasing demand. Hence the hospital has to think of expansion. This can be done by investing $2 million to build an additional floor which will increase the number of beds up to 50%. Since the number of operating theatres remain the same, the maximum number of operations per day will be limited to 37 (see appendix V). This would result in an incremental profit of $0.366 million in the first year and $2.366 million henceforth. This option will bring in more revenue and reduce backlogs catering to the increasing market demand.

Group 13

Indian Institute of management, Bangalore

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Recommendation
It is recommended that Shouldice hospital should invest in expansion and make Saturday a working day. Also

If shouldice method is not yet patented, it is very hard to prevent competitors from taking advantage or abuse of this method. Franchising can be adopted so that rather than owning and managing the new branches, quality assurance and inspection of these branches can be assured. By doing so, the anxiety of the employees, about whether the current environment will be preserved, can be avoided and there will be no harm to value chain within the organization.

As for diversifying at other locations into other specialties, we suggest that they do this using a different brand name so that in case of failure, there will be no harm to current business.

Group 13

Indian Institute of management, Bangalore

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Appendix
I. Cost Analysis Budget for operating costs For hospital= $ 2.8 million For clinic = $ 2 million Total budget for operating costs= $ 4.8 million No of operations per year = 6850 Hence Average Cost per patient borne by the hospital = $ 4.8 million / 6850 = $ 701 Net profit increase using proposed solution Net profit per patient = 1029 - 701= $328 Saturday Functioning- increases the working days by 52 No of operations per year = 6850 No of working days per year = 261 Hence, number of operations per day= 6850/261= 27 Hence net profit increase per year = 328 * 27 * 52 = $ 0.46million II. Present scenario with 30 operations per day on an average and 5 working days
Mon Tues Wed Thurs Fri Sat Sun Total Utilization Mon 30 Tues 30 30 Wed 30 30 30 Thurs 30 30 30 Fri Sat Sun

30 30

30

30 60 66.7%

30 90 100.0%

90 100.0% 30 6 2.5

90 100.0%

60 66.7%

30 33.3%

30 30 33.3%

450 71.4%

Operating Rooms 5 Surgeons 12

Operations Oper/Room Oper/Surg

Group 13

Indian Institute of management, Bangalore

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III. Increase in the number of working days by one : Saturday working

Mon Tues Wed Thurs Fri Sat Sun Total Utilization Mon 30 Tues 30 30 Wed 30 30 30 Thurs 30 30 30 Fri Sat Sun

30 30 30

30 30

30 30 60 66.7%

30 60 66.7%

30 90 100.0%

90 100.0%

90 100.0%

90 100.0%

60 66.7%

540 85.7%

IV. Calculations from the above table

Operating Rooms 5 Surgeons 12 Cost of expansion Operations Oper/Room Oper/Surg Beds Cost/Bed Total Rev/Oper Surgeon Incr Rev Oper/Week Rev/Week Payback Rev/yr 30 6 2.5 30 $100,000 $3,000,000 $1,300 $600 $700 35 $45,500 65.9 $2,366,000

Incremental Revenue

Additional

Profit = 2.366-2=0.366 million

Group 13

Indian Institute of management, Bangalore

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V. OPERATION THEATER CAPACITY UTILIZATION

7:30 AM 8:30 9:30 10:30 11:30 12:30 1:00 2:00 3:00 4:00 PM

OT1

2 0 1

3 1

OT2

OT3

OT4

1
7:30 AM 9:00

2
10:30

3
12:00 1:00

4
2:30

5
4:00 PM

OT5

The number of operation performed in 1982 = 6850 operations Assuming the same for the current year, the number of operations per day = 6850/(52*5) = 27 (approx) Number of critical operations = 18% of total operations = 5 per day (approx) Number of operation theaters = 5 Number of operation theater hours available = 8 hours [from 7:30 to 12:30 and from 1:00 to 4:00] Maximum utilization of the OT occurs when all critical operations are performed in one OT and the rest 4 OT are used for normal operations. Time taken for a normal operation = 1 hour Time taken for a critical operation = 1 to 1 and a half hour (as given in case) = 1 and a half hour (keeping max value) Number of normal operations in this way = 8x4 = 32 Number of critical operations in this way = 5 Total = 37 operations Therefore the 5 OTs can be used to perform a maximum of 37 operations.

Group 13

Indian Institute of management, Bangalore

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