University of Stockholmgroup 2

1

University of StockholmGroup 2

School of Business98-12-02

Marketing Department

Tutor: Bengt Gustavsson

Case 3

The Shouldice Hospital

Authors: Marcus Lindquist

Leif Wicklund

Julia Hilgers

Gabriel Martinez

Nicklas Norrby

TABLE OF CONTENT

1. Introduction......

1.2. Main problem......

2. Description of the case......

2.1 The 6 criteria of a good service......

2.1.1 Professionalism and skills......

2.1.2 Attitudes and behavior......

2.1.3 Accessibility and flexibility.......

2.1.4.Reliability and trustworthiness.......

2.1.5.Recovery.......

2.1.6 Reputation and credibility.......

2.2 The Augmented Service Offering......

2.2.1 The service concept......

2.2.2 The basic service packing......

2.2.3 Augmentation of the offering......

2.2.3.1 Accessibility of the service......

2.2.3.2 Interactions......

2.2.3.3 Customer participation......

2.3 The Shouldice HR Policy......

2.3.1 Recruiting Policy......

2.3.2 Training Policy......

2.3.3 Compensation Structure......

2.3.4 Open Door Policy......

2.4 The Shouldice sourcing policy......

2.4.1 Housekeeping......

2.4.2 Laundry......

2.4.3 Catering......

2.4.4 The anesthetist......

2.5 The characteristics that differentiate Shouldice Hospital......

3. Capacity increase......

3.1 The alternatives......

3.1.1 The current situation......

3.1.2 New floor......

3.1.3 New hospital outside Canada......

3.1.4 Franchising......

3.1.5 Opening on Weekends......

3.1.6 Public health care......

3.2 Analyses of the viable expansion alternatives......

3.2.1 Opening an additional floor:......

3.2.2 Opening on weekends......

4. Price increase......

5. Recommendations......

1. Introduction

This is paper is based on the Shouldice hospital case. First of all we will describe the main problem and look for the highlights. Thereafter we will describe the situation at the hospital through the theory. We will focus on the service delivery, the service quality and the market situation. We will also analyze the sourcing policy and to what degree it is successful. Before starting the analysis we will describe the main characteristics that differentiates Shouldice from other hospitals.

After having a basic background to the case and the situation, we will look at the different expansion alternatives and the benefits and drawbacks related to each of them. Finally we will discuss other options for profit enhancement.

1.2. Main problem

The Shouldice operation doesn’t face any major challenge. Quality is good. Customers are satisfied. Employees seem to be content. However, the current demand is higher than Shouldice’s capacity. Whether this is a problem or not can always be discussed.

If Shouldice would have been a non-profit operation aiming at serving as many customers as possible, the limited capacity is regarded as a problem. Hence the challenge would be to increase capacity.

However, since Shouldice is a profit oriented operation[1], the limited capacity is regarded as constrain for revenue and profit increase. Hence the challenge is to increase profit. Profit can be increased through three basic alternatives;

1. Increasing revenue at current capacity
2. Lowering costs at current capacity
3. Increasing capacity at current cost/revenue ratio

Our discussion will focus the increased profitability issue.

2. Description of the case

In this chapter we are going to explore Shouldice in the light of certain models described in the course literature. We are also focusing on critical factors for the hospital not described in the theories. This is to analyze the case, and from the analyzes draw some conclusions that can lead to suggestions to how the hospital could handle the situation.

2.1 The 6 criteria of a good service

The following section is describing the hospital from the perspective of the “6 criteria of a good service”. The theory is meant to provide a conceptual model of services as objects of marketing viewed with the eyes of the customer.

The 6 criteria of a good service is based on a large number of studies of how customers perceive a good service. These criteria offer a good summary of the studies.[2] The criteria and the implications for this case are the following:

2.1.1 Professionalism and skills

The customers realize that the service provider has the employees, skills, knowledge and systems to solve the customers’ problems in a professional way. In this case it is the way the surgeries are performed. Shouldice has achieved a well respected position due to its special methods. There is also a backlog for its services. A large part of the clients heard of Shouldice through “word of mouth”. Hence we conclude that the hospital performs well with regard to professionalism and skills.

2.1.2 Attitudes and behavior

The customers experience a true concern and interest in solving their problems from the service providers’ employees. Staff at Shouldice feel that the attitudes of the patients are the most important element in the hospital’s treatment program. As some patients asked to stay an extra day we can draw the conclusion that the attitudes and behavior of the employees are conceived well by the patients.

2.1.3 Accessibility and flexibility.

The customers feel that the service provider, its location, operating hours, employees and systems are easy to get access to and are flexible to the customers needs. Due to the location in Toronto, patients from outside that region might feel there are some difficulties in getting there. Though, the patients at the hospital seem to enjoy the possibility to have their family members staying with them at the hospital. This indicates some flexibility that is appreciated by the customers.

2.1.4.Reliability and trustworthiness.

The customers can rely on the provider to keep its promises and act upon the best interest of the customer. As this corporation is a hospital and the reliability and trustworthiness criterion is fundamental to any hospital operation, we do not think there is any problems related to this matter.

2.1.5.Recovery.

The customers realize that the service provider, if something goes wrong, will immediately and actively take actions to find a solution. The ability to recovery is another fundamental criterion for a hospital. It is vital for a hospital that a surgical recovery function works well.

In the other activity areas such as after operation stay, there can occur situations that will not have the same kind of implications as in surgery. Whether the recovery function works well or not in other areas than surgery, we cannot comment on. This is mainly due to lack of information.

2.1.6 Reputation and credibility.

The customers believe that the service provider’s operation can be trusted and that the operation stand for good performance, which can be shared by the consumer and the service provider. The backlog of patients and the turn up at the annual patient reunion, are evidences that the Shouldice reputation is undoubtedly good. This also indicates a high credibility.

2.2 The Augmented Service Offering

In this section we are going to describe the service process at Shouldice Hospital in terms of the Augmented Service Offer – model[3]. This model discuss how to manage the service process so that both functional quality, how the process functions, and the technical quality, what the service leads to, are taken into account. Thus, the whole interactive marketing process is included in the model. The model is divided into three phases:

1. Developing a service concept.
2. Developing a basic service packing.
3. Augmentation of the offering.

2.2.1 The service concept

The service concept determines the intentions of the service provider. In this case it is to perform hernia surgery.

2.2.2 The basic service packing

The basic service package includes three groups of services:

1. The core service. This is the main reason for being on the market. In this case it could consist not only of the special method of surgery performed at the hospital, but also the process of handling the patients in connection with the surgery, e.g. pre-examinations, diagnosis.

1. The facilitating services, which are needed so that the core service can be used. This could be the surgeons, nurses and administration, which are needed to perform the hernia surgery.

1. The supporting services, which are not required for the core service but which help to distinguish the service package from the competitors. This could be the handling procedure of patients used at Shouldice, the interior and special atmosphere created by the staff as well as the facilities in which the patients are during their stay at the hospital.

Fig. 1 The Augmented Service Offering

The service concept

The Core service

Accessibility of Interactions

the service

Facilitating Supporting

services services

Customer

Participation

2.2.3 Augmentation of the offering

Further, the service process can be distinguished by the other elements in the model:

2.2.3.1 Accessibility of the service

Making the service accessible so that the service can be easily used or consumed. That is to have the right mix of competence and resources in the service process. In the case of Shouldice this is partly the location of the hospital, which cannot be relocated easily, but also the number of employees and their related skills. This part also constitutes of the technology, the systems and the customer orientation of those. Although the hospital is located in Toronto, many patients travel from the U.S. or Europe to undertake surgery at Shouldice. This could implicate that the physical location is not so important in a matter of a surgery. The skills and number of employees seem to be sufficient relative to the number of patients currently at the hospital. The systems and technology of the hospital seem to be adequate, as the patients sometimes want to stay an extra day. However the fact that 1.200 persons are waiting for surgery is a sign of poor accessibility.

2.2.3.2 Interactions

The developing of interactions between the consumer, and the service provider and the resources that the customer confronts, impact the perception of the service quality of the customer. The short waiting time the customers experience, from arriving at the hospital and undergoing pre-examination and the actual surgery, is an example of such an interaction. The interactions with other customers also fall in this category. The extensive contact between patients and the exchange of experiences are examples of a good service quality for the customer.

2.2.3.3 Customer participation

Enabling customer participation in the service process means that the customer has the possibility to influence the service process and on the perceived quality. This can be described as the patients giving the correct information about the problems to enable the doctor to give a sufficient diagnosis. The way the patients are encouraged to exercise and to walk from the operating room after surgery are examples of such a customer participation, especially as this is not common in hospitals.

2.3 The Shouldice HR Policy

Deficiencies in HR policy many times create provider Gap 3, where service delivery is not performed according to service standards. Gap nr 3 does not seem to be a major issue at Shouldice. We believe the explanation can be found in the Shouldice HR policy. Important aspects of the Shouldice HR policy are:

• Recruiting Policy
• Training Policy
• Compensation Structure
• Open Door Policy

2.3.1 Recruiting Policy

In interviewing prospective doctors, Shouldice goes beyond the basic skills set and emphasize traits and attitudes related to how the doctors will fit into the overall atmosphere at Shouldice. This policy is different to other hospitals where formal competence and experience are being regarded as the prime criteria. If a prospective doctor has the wrong attitude, there is no room for him at Shouldice, regardless of his skills. Like Dr. Obney expressed it; “ This is no place for prima donnas.”

Through this different recruiting policy, Shouldice is able to select people that fit into the Shouldice culture. The recruiting policy is a key element to preventing gap nr 3 to occur.

2.3.2 Training Policy

The Shouldice training policy can be characterized as solid, secure and conservative. Shouldice allows sufficient “on the job training” for newcomers before they are left on their own. A newcomer is gradually growing into his area of responsibility through assisting senior doctors. Once the skills are sufficient he takes over on his own, however always under supervision of and support by a senior doctor.

Although we believe this training procedure is standard at any hospital, we get the impression that Shouldice is a bit more conservative and careful in leaving newcomers on their own.

An important element of the Shouldice training policy is the treatment of recurrences. The doctor who performed the first operation has to be present at the recurrence to learn from his mistake. The Shouldice training policy assures functional quality and is an other important element to why gap nr 3 is closed.

2.3.3 Compensation Structure

We believe the Shouldice bonus system and profit sharing plan increase the level of motivation among doctors as well as other staff.

Increased motivation among front-line personnel is a key element in delivering service according to standards. This is particularly true in health care where face-to-face contacts with customers is the mean of communication.

Since the Shouldice staff seem to be fairly motivated, we believe it can be partly explained by the compensation structure. However, we believe other elements such as the overall spirit among the staff is as important. An effective compensation structure helps to close gap nr 3, but can never be used as an isolated program to close that gap. The compensation structure must be regarded as a tool to sustain a positive spirit and to keep motivation high.

2.3.4 Open Door Policy

Superiors’ openness is an additional contributor to a general good spirit at Shouldice. The Shouldice open door policy is an evidence to openness. When a superior demonstrates openness through always having his door open, the subordinates get the feeling of accountability and trust. Closed doors generate a feeling of secrets being discussed which in turn lead to insecurity among others. In the longer context, closed doors have a negative motivation impact, as well as open doors have a positive impact.

Many companies claim they have an open atmosphere, but don’t apply it in practice. Shouldice proves this policy through action. We believe the Shouldice open door policy is a contributor to increased motivation and thus one explanation to why gap nr 3 is closed.

2.4 The Shouldice sourcing policy

Outsourcing of services becomes more and more frequent in any operation. There are many benefits associated with outsourcing services, yet some key risk aspects must also be considered. One of the risk elements are lessened control over service quality[4].

Shouldice has a well pronounced quality policy and rely heavily on its reputation. To outsource some of its simpler services such as housekeeping, laundry and catering would likely lead to certain productivity gains and cost savings. However, Shouldice has chosen not to outsource. We believe Shouldice has taken a conscious decision not to outsource any of its services. We believe this is mainly related to the quality control issue and the severe implication a quality defect would have on Shouldice’s reputation.

2.4.1 Housekeeping

Shouldice performs its own housekeeping. In that way Shouldice can assure the housekeeping staff to act according to service standards. If a problem occurs, Shouldice can fix that instantly. In a situation where the housekeeping service was outsourced, and a quality issue had to be fixed, Shouldice had to negotiate improvements with a subcontractor. Such a procedure would be far lengthy and inefficient than discussing the issue with Shouldice’s own personnel. Hence we believe the risk associated with outsourcing the housekeeping does not balance eventual cost savings.

2.4.2 Laundry

The laundry service is another area that typically would be outsourced. We do not believe the quality assurance aspect can be an explanation to why Shouldice has chosen not to outsource its laundry service. We believe the explanation must fall in the area of no cost savings as well as staffing flexibility. If there is a need for temporary assistance in the housekeeping area for instance, Shouldice can move laundry resources temporary to the housekeeping area. Such a procedure would have been impossible if the laundry services had been outsourced.

2.4.3 Catering

As far as catering services is concerned, we believe it is one of the important physical evidences attached to the Shouldice servicscape. Using fresh raw material in cooking and enabling the customers to talk to the kitchen staff every day, are pronounced features of the Shouldice customer services. We believe those features would be difficult to enable through a catering service being outsourced. Hence the reason not to outsource the catering service must be explained through the quality control aspect.

2.4.4 The anesthetist

Yet it seems obvious that Shouldice has a policy not to outsource any of its customer interfaced services, the anesthetist is the exception. We cannot see any explanation to why the anesthetist is an outsider, other than that Shouldice has been unable to recruit that function. Using an anesthetist 250 days a year for a fee of $ 300 per day, corresponds to an annual cost of $ 75.000. That amount equals a doctor’s salary including bonus. Consequently we cannot conclude there are any cost savings associated with outsourcing the anesthetist.

2.5 The characteristics that differentiate Shouldice Hospital

In terms of the Augmented service offering model, the main things that seem to make this hospital different from others can be summarized in two main points. Core service and supporting service.

• Core service. Shouldice have a special surgery method that allows the patients to recover fast.

• Supporting services. The staff and the patients together create a special atmosphere between both staff members and patients. This is also influenced by the design of the facilities and the option for family members welcomed to stay at the hospital for free.

There are however other features characterizing Shouldice, such as the interactions between patients, their exchange of experiences and the opportunity to make friends. There is also the customer participation, which leads to quicker recovery for the patients, as they exercise by walking around freely in the premises.