Larsson Kolb Dialysis Services

Case developed by Shivram Apte as part of instruction material developed for teaching at Business Schools. Larsson
Kolb is not a real company any resemblance to a real corporation is co-incidental. Case facts are for discussion only
and are not intended to be a demonstrator of correct or incorrect handling of management situation.

The Larrson Kolb Company (LKC) was formed in 1956 by Dr. Larsson (Ph.D. Mechanical
Engineering) and Dr. Kolb (Ph.D. Instrumentation Engineering) with the objective of
manufacturing Haemodialysis machines. They followed the success of their first model the
HDA1c with more sophisticated machines and built a strong reputation for reliability among the
hospital market in Denmark and the Netherlands. The medical fraternity swore by LKC calling
them the Mercedes-Benz of Dialysis Machines. This analogy was not without reason. LKC
machines were built to exacting engineering and medical standards and sold for a large premium
over Dialysis Machines from other manufacturers. The USP of the LKC machines was that there
was no down-time between patients for sterilization of the system. Haemodialysis occurred inside
a disposable filtration cartridge which was changed along with the needle and catheter after every
patient. Over the next few decades the company grew from strength to strength until it came to
occupy a position among the top 3 players in Europe in Dialysis Machines.

By the turn of the century, however, growth in Europe was slowing down and LKC was looking at
expanding in emerging markets such as India. However, India was proving to be a difficult market
to penetrate. Two years after setting up their sales office in India, LKC had not sold a single
machine. The country head resigned citing Headquarters lack of understanding of the Indian
market and unwillingness to consider building more economical models for price-sensitive
markets. LKC top brass recruited another young manager who had graduated 5 years earlier
from a Well-known Institute of Management in India. Rahul Roy had a medical degree in Urology
from AIIMS and had worked in the Nephrology department at a prestigious hospital in New Delhi
for a couple of years before he decided to pursue an MBA.

Rahul joined the company and put together a young team of talented sales people to approach
the market anew. He reckoned that India was now witnessing a rapid proliferation of new private
hospitals that were being built to cater to the growing middle class in new cities such as Gurgaon.
He noticed that these hospitals spent substantially more on building specifications and interior
decoration than the hospitals of old. He surmised that this new generation of hospitals would be
willing to consider the Mercedes-Benz of Medical equipment too. He was wrong.
After eight months of effort, his team was unable to clock any sales. On the verge of resigning, he
tried to think back to his strategy course at this business school. What would his Professor have
suggested in this situation? Think across customer lines. There was an idea! Why concentrate
on selling the machines to hospitals? Why not sell dialysis as a service directly to consumers?
Why not set up a chain of Dialysis centers across the country with their machines and offer
Dialysis as a service to patients.

He knew that Chronic Kidney Disease had a prevalence of 17% in urban India and 6% of these
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17% had stage III kidney failure requiring dialysis twice a week on average. Government
hospitals charged Rs 800 per dialysis service and Private hospitals charged between Rs 1600
2000. He believed there was a market for a premium 5-Star service and he engaged a
marketing research agency to conduct a sample survey. The results of the survey confirmed his
belief that there was indeed a class of customers willing to pay between 4000 and 5000 for
premium medical care if provided in a premium ambience. The consumables for each service
cost about Rs 1000 and he figured other consumables like a disposable paper-fabric bed sheet
and towel set for each patient would be another Rs 100-200. The 5-star service could include a
welcome beverage and free wi-fi for the patients.

He had to put a business plan together soon and started gathering the facts.
For a start, he envisioned a center with 10 machines in Gurgaon. Each machine had a landed
price in India of Rs 2 Crores*. Each LKC machine would be housed in a cabin admeasuring 8ft x
10 ft along with a bed for the patient while s/he was plugged into the machine for the 3-hour
duration.

He needed to estimate his fixed costs starting with rent, power, salaries for doctors and nurse
technicians and build a viability assessment

*For cost comparison, a CT Scan machine cost about 1 Crore and MRI machines cost in the range of 2.5 4 Crores.

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http://articles.timesofindia.indiatimes.com/2013-06-08/india/39833869_1_kidney-disease-
kidney-failure-ckd