Total cost to patient, employee
and insurer
$1,617-6,102
Others
$2000-4000
$0
5
days
10 days
$750-7500
$2750-11500 10.00% $275-1150
$3,025-12,650
5
How About the Profitability of Shouldice Hospital?
DSE7100 Managing Service Operations
Discussion of Shouldice Hospital Limited Case
1
Assignment #2:
Questions for Shouldice Hospital Limited
1. How Successful is the Shouldice Hospital? 2. How do you account for the success of the hospital? 3. What is the strategic service concept of Shoudice
(ranging from $50 to 500 per day)$450-4500
Total before Allowance
for recurrence
$1604-6054
Probability of Recurrence
0.80%
Expected Cost of Recurrence $13-48
9
What is the Unique Service Concept?
• What does Shouldice hospital offer to its customers?
• The hernia surgery (the Shouldice method) • Peace of mind/low risk/Low Recurrence • Indocial experience, fraternity • Excused absence from work without guilt • A vocation
Hernia operation imitated by competitor • Low recurrence rate, 0.80% vs 10% • High degree of employee satisfaction
4
Cost Comparison:
Shouldices vs. Other Hospitals
2
How Successful is Shouldice Hospital?
• 140,000 highly satisfied “Alumni”(past patients)
• 1,200 backlog of scheduled operations • Demand appears to expand with supply • Superior quality Shouldice Method of
Total Profit
3,596,250 2,000,000
1,596,250
1,837,650
6
Return on equity
• Total Depreciated Assets: $5 mil • Return on Asset:
– 1,837,650/5,000,000 = 37%
• What is the return on Asset if they expand the capacity by 50% at the cost of $2 mil?
– 1,837,650 x 1.50 / 7,000,000 = 40%
7
“The Dream World ”
• Shoudice is offering: – high quality service at low price
• Shodice is having
– Highly satisfied customers – Happy Employees • Shouldice is also – making high profit
Hospital? How are the elements in the service systems designed and managed to support the strategic service concept? 4. As Dr. Shouldice, what actions, if any, would you take to expand the hospital’s capacity? 5. How would you implement changes you propose?
Shouldice
Costs of typical operations
$954 (p9)
Transportation
$200-600
Time Lost from work in Hospital 4
days
Time lost from work while
recovering
5
days
Value of time lost
Hospital:
Revenues
(4 days X $111/day x 6,850 patients/year)
Cost
Profit:
3,041,400 2,800,000 241,400
Clinic: Revenues (($450+ 60 + 75 X 0.20) X6,850) Cost
Profit
8
How is all of this achieved?
What are the major reasons for the success?
• Maximizing the difference between perceived quality and value to the patient on one hand and the cost of supplying services on the other.