Shouldice Hospital - Operations Assessment

Shouldice Hospital:

Operations Assessment

Shouldice Hospital has been devoted to repairing hernias for over half a century. Although the Shouldice system has led to great competitive positioning, the hospital is falling victim to its own success. Demand for Shouldice services is so much higher than its current capacity of 89 beds that it is in a constant state of operations backlog, which grows by 100 patients every 6 months. Thus, Shouldice needs to find a solution to its single most critical question – how to expand the hospital's capacity while simultaneously maintaining quality control of service delivery.

The analysis below is designed to assess the current operations at the hospital, in addition to explaining our recommendation that Shouldice should invest $4MM in a new unit, which will increase bed capacity by 50% and require its surgeons to perform Saturday surgeries. As the financial analysis shows, this change will allow Shouldice to capture unmet demand without compromising its unique system of patient and employee care. Lastly, our recommendation will be also juxtaposed to other options we evaluated as potential solutions, but that neither make financial sense nor solve the current dilemma for the hospital.

Hospital Overview

Shouldice Hospital is a "focused factory:" a hospital with a specific area of expertise that gives it competitive strength resulting in lower cost, higher quality service for its patients, and better pay for and loyalty from its employees. Specializing in external abdominal hernias, Shouldice doctors execute the "Shouldice Technique" developed by founder Dr. Edward Earle Shouldice. This precise technique has resulted in early ambulation and higher success rates (greater than 99%) for Shouldice patients for over 55 years. However, what makes Shouldice so successful is that it is not just a hernia-healing hospital, it is an experience.

To the delight of patients, Shouldice is more like a country club than a hospital: warm, inviting, and relaxing versus cold, sterile, and frightening. The main house, reminiscent of a mansion, is situated on a sprawling 130 acre estate outside of Toronto, Canada. The comprehensive patient experience includes orientation, evening tea, patient socializing, and encouraging nurses and housekeepers. The service continues beyond patient stays and continues at free annual check-ups and lavish patient reunions. Patients actually get this superior technique and remarkable environment for approximately half the cost of going elsewhere. Overall, the Shouldice experience is one that patients love and tell their friends and family about, making word-of-mouth the hospital's primary marketing vehicle.

Shouldice is also an experience for its employees. Shouldice employees are never fired, can participate in profit-sharing, and earn higher wages than union workers and other surgeons. Doctors make approximately 15% more than the average surgeon in Ontario, receive monthly bonuses, and are able to work regular hours leaving them time for personal lives and families. These human resource practices have led to extremely low turnover, which supports the administration's goal of having very experienced staff that can properly and effectively execute the hospital's practices and procedures.

The Shouldice competitive advantage boils down to 4 keys to success, which are the following:

• Distinctive technique

• Experienced staff

• Comprehensive patient experience

• Thoughtful employee policies

These 4 elements work in unison (See Appendix 1: Shouldice Advantage) at Shouldice to promote healthy and happy patients, in addition to content and loyal staff. As the hospital itself states, "Shouldice Hospital is a total environment."

Bottleneck Analysis (See Appendix 2: Analysis Assumptions)

Process Flow

Bottleneck

Shouldice has the capacity to perform 42 examinations per afternoon and send 38 eligible patients to the operation rooms. However, it only performs 33 operations per day, so the bottleneck between these 2 processes is the number of operations being performed per day.

Shouldice performs 33 operations per day, which generate daily bed demand of 116 on Wednesday and