Dr.

Shouldice established a speciality hospital in 1945 near downtown Toronto, Ontario, for the treatment of hernia with a
special focus on primary hernia. Starting as a small six room nursing home in 1945 the hospital grew over the years to
become an 89 bed facility by 1982. Dr. Shouldice’s seminal contribution was to develop a surgical technique for the
treatment of hernia which proved to be far superior to the existing practice and had crystallized from his observations over
the years that quick and early ambulation following the operation expedited the trouble free recovery process. This surgical
technique, popularly known as the ‘Shouldice technique’ was based upon incorporating operative and post operative
processes such as the “use of local anaesthetics, the nature of surgical process itself, the design of a facility to encourage
movement without unnecessarily causing discomfort and the post operative regimen designed and communicated by the
medical team”, which facilitated early ambulation. The entire process significantly reduced the stay in the hospital for the
patients and facilitated their early return to their jobs. It was also the cheapest option available to the patients. Besides, the
entire experience of staying in the hospital itself was a pleasant experience for the patients. This constituted a major “value
proposition” for the patients who themselves provided “word of mouth” publicity of the benefits and experience undergone
by them at the hospital and contributed greatly towards the success of the Shouldice Hospital.
Situation analysisFacts of the case reveal that the Shouldice hospital had acquired a huge reputation of a hospital which
offered reliable and quality medical facility for the treatment of hernia at a very cheap cost. This had also led to the
expansion of the hospital from a modest beginning into a modern facility which carried out 6850 operations in 1982. We
carried out the SWOT analysis for the Shouldice Hospital which reveals the following:Strengths•Unique and pioneering
surgical technique for Hernia operation which considerably reduced the suffering of the patients and led to much quicker
recovery as compared to the existing methods. The Shouldice technique enabled the patients to resume their normal routine
and jobs in a much shorter period of time ( one to four weeks) as compared to other hospitals ( two to eight weeks).
•Standardisation of operating procedures which led to efficient utilisation of the medical staff and other resources. Doctors
could conduct 600 operations in a year as compared to 25 to 50 operations per year in other hospitals.
•Experienced doctors and nursing staff through careful recruitment philosophy wherein experience, good education,
knowledge about domestic situation, personal interest and habits (consciously avoiding people with drinking and drug
problems), and their willingness to adhere to the shouldice technique were evaluated to match their value systems with that
of the hospital.
•‘Un-hospital’ like experience for patients through measures such as carpeting the hospital that gave the place smell other
than that of disinfectant. And encouraging interaction and recreational activities amongst the patients and also with the
hospital staff made the stay of the patients a pleasant experience. Matching of roommates based on similar background and
the scheduling of their operation at the same time are examples and care exerted to create a friendly and warm environment
which is believed to lead to faster recuperation. They developed feeling of belongingness to the hospital during the stay.
These patients also proved to be the main source of ‘advertising’ for the hospital through ‘word of mouth’ publicity.
•Unique recuperating techniques that stressed upon ambulation led to minimizing the cost by cutting down on various post
operative patient care activities such as the reduction in laundries, common dining areas, common recreational facilities etc.
This had also resulted low nurse to patient ratio compared to other similar hospitals.
•Offering the cheapest option for treatment of hernia in the region.
•Ensuring uninterrupted workflow through measures such as flexibility in the use of administrative staff•High reliability of
Hernia operation with very small recurrence rate of 0.8 % as compared to high recurrence rates of close to 10 % as in the
United States.
•Motivated doctors and nurses due to higher salaries and profit sharing systems in the form of bonuses compared to other
hospitals in the region, greater leisure and reasonable workload leading to sense of belongingness amongst the doctors and
nurses leading to low turnovers.
•Encouraging group cohesiveness and clan type of coordination mechanism within the organisation leading to greater
operational efficiency.
The above factors resulted in tremendous credibility for the Shouldice Hospital which positioned it in the market as a
hospital which ensured cost effective, reliable, caring and responsive service to the hernia patients. The success of the
Shouldice hospital is reflected through its profitability as shown below:COST CALCULATIONS:SHOULDICE
HOSPITAL(ALL FIGURES IN CANADIAN $)UNIT COSTUNITMIN COSTMAX COST CHARGES ON PATIENT
CHARGES FOR HOSPITAL STAY111DAY444555SURGICAL FEE (PRIMARY
INGUINAL)450OPERATION450450ASSTT SURGEON FEE60OPERATION6060ANESTHETIC FEE (WHERE
REQD)75OPERATION075RECEIPT TO HOSPITAL PER PATIENT9541140 TRAVEL COST (WHERE REQD) 0600
TOTAL COST TO PATIENT 19082880 OTHERS HOSPITALS' COST 20004000 SAVINGS TO PATIENT 8603046
CALCULATION OF REVENUE 68688008208000 HOSPITAL EXPENSES DOCTORS'
SALARY50000ANNUM600000DOCTORS' BONUS TOTAL500000ASSTT SURGEONS'
CHARGES60OPERATION220320ANESTHETISTS' CHARGES300DAY78000NURSE SALARY (FULL
TIME)25000ANNUM550000NURSE SALARY (PART TIME)15000ANNUM330000EMPLOYEE BONUS
ANNUM65000TOTAL HOSPITAL EXPENSES (EXCL ADMN CHARGES) ANNUM2343320ADMIN & MISC
CHARGES ANNUM456680TOTAL HOSPITAL EXPENSES ANNUM28000002800000 CLINIC EXPENSES
20000002000000 TOTAL EXPENSES 48000004800000 PROFIT/EARNINGS 20688003408000In addition to the
profitability the success can also be gauged in generating ‘customer loyalty’ as reflected in the word of mouth publicity
carried out by these patients which was the only advertisement and publicity for the hospital. The customer loyalty is also
reflected in the successful annual patient reunion of the hospital.
Weaknesses•-Has been unable to expand/add capacity despite huge unmet demand which is reflected in the backlog of
scheduled operations which rose to the level of 1200 in 1982.
•Has been not been able to prevent abuse of the Shouldice technique by other competitors causing negative publicity.
Opportunities•Existence of large unmet demand creating possibilities of expansion and increasing market share within and
outside Canada chiefly United States.
•Reputation of the Shouldice technique which was reflected in the competitors aping the technique even while not being
completely conversant with the technique.
Threats•Unscrupulous competitors were promising treatment based on the Shouldice Technique. And since they were not
completely acquainted with the procedures, the quality of treatment was highly suspect which was giving negative
publicity and adversely affecting reputation of the Shouldice technique.
Problem DefinitionIts operating capacity is close to 100% which becomes obvious from the table given below.
DaysMondayTuesdayWednesdayThursdayFridaySaturdaySundayMonday303030 Tuesday 303030 Wednesday 303030
Thursday 303030Friday Saturday Sunday3030 30Total no. of beds utilized60909090603030It is assumed that on
Friday and Saturday patients are not admitted and on Sunday patients, to be operated on Monday, are admitted.
Though the doctors can perform 3-4 operations per day i.e. on an average they are capable of performing 42 (3.5 * 12)
operations but due to constraint of bed capacity they manage to perform only 30 operations per day on an average. Thus,
bed capacity is the bottleneck.
AlternativesThe various alternatives that emerge from the case to address the problems being encountered by the hospital in
meeting the unmet demand are enumerated below.
1.Increase the bed capacity.
2.Make Saturday as working day for surgeons and other supporting staff.
3.Opening new centre either in Canada or in US4.Explore franchisee model5.Maintain status quo.
Evaluation criteria1.Profitability2.Reduction in backlog.
3.Maintaining the quality of serviceEvaluation of Alternatives1.Impact of increasing of bed capacity by 50% (as suggested
in the case) is given in the table below.
DaysMondayTuesdayWednesdayThursdayFridaySaturdaySundayMonday454545 Tuesday 454545 Wednesday 454545
Thursday 454545Friday Saturday Sunday4545 45Total no. of beds utilized901351351351354545From the above
table the maximum number of operation that can be carried out is 45 but without increasing the numbers of doctors as the
average number of operations that can be performed by the doctor are 3.5 per doctor per day i.e. 42 operations per day.
However, the optimum bed capacity enhancement will be 40% i.e. by 36 beds. This is explained in the table given below.
DaysMondayTuesdayWednesdayThursdayFridaySaturdaySundayMonday424242 Tuesday 424242 Wednesday 424242
Thursday 424242Friday Saturday Sunday4242 42Total no. of beds utilized84126126126844242Financial
implication is discussed below.
Additional revenue stream per year : $3 million [12(additional surgery) * 5 (no. Of days per week) * 50(no. of weeks per
year) * 1000] [Assuming average revenue per patient is $1,000]Less: Estimated expenditure on enhancement of bed
capacity by 40%: $1.8 million (For 50% bed capacity addition an estimated expenditure of $2 million has been given in the
case).
Less: Additional expenditure per year: $1.12 million [ 40% of hospital expenditure of $28,00,000]Net revenue gain in the
first year : $ 0.08 million.
Net revenue gain from the second year onwards : $ 1.88 million.
Thus, the entire cost is recovered in the first year itself. Thus, this alternative is profitable. Moreover, this alternative also
reduces backlog. Ensuring the same level of quality of service will be an issue as workload on the staff and doctors will
increase.
2.Adding an additional operating day on Saturday is also a valid consideration. It would utilize idle plant capacity. This is
discussed in the table given below.
DaysMondayTuesdayWednesdayThursdayFridaySaturdaySundayMonday303030 Tuesday 303030 Wednesday 303030
Thursday 303030Friday 303030Saturday Sunday3030 30Total no. of beds utilized60909090906060Financial
implication of this alternative is discussed below.
Additional revenue stream per year : $ 1.5 million [30 (additional surgery per week) * 50 (no. of weeks) * 1000(Assuming
average revenue per patient is $1,000)]Additional expenditure per year : $ 0.56 million [20% (increase in no. of
surgery)]Net profit per year: $ 0.94 million.
This alternative is profitable and it also reduces backlog.
Ensuring the same level of quality of service will be an issue as workload on the staff and doctors will increase and in fact
some of the senior doctors and staff are opposed to it.
3.Opening new centre in Canada or in US can be considered. However the point to consider is whether to have it as
complete hospital or clinic services centre which would act as screening centre for patient requiring surgery. This would
reduce the time spent on non-operation activities by the surgeons.
4.In order to meet the unmet market demand the option of adopting franchisee model on revenue sharing basis could also
be explored. The main hospital could help set up these franchisees by providing the standardised procedures and training
the doctors and other staff. These franchisees can cater to the requirements of profitability and reduction of backlog.
However, the biggest constraint in such an approach is that the same level of quality as the main hospital will be extremely
difficult to replicate. Hence, this option is not a viable proposition.
5.Given the fact that the hospital is a profitable business entity and has a strong reputation in the market of a quality
medical service provider there could be a strong inclination to maintain status quo. In view of these facts there may not be
an immediate stimulus for tampering with the existing setup. However, the risk with such an approach is that the
organisation will become fossilised and might end up losing the position in the market in the long run.
RecommendationBased on the analysis of the alternatives we would recommend adoption of the first alternative i.e. to
increase the number of beds by 40 % as this would generate the maximum revenue. However, the success of this alternative
would depend upon ensuring that the quality of service is not compromised. In case quality cannot be ensured then the
status quo needs to be maintained as the organisation is profitable.
Note : This case analysis has been done indepedently by the author without referring to any external sources. Hence,
bibliography is not required.