3.1.3 Time and Cost Effective Process: The hospital follows a standardized, cost and time effective work method. Depending on the progress of the ongoing surgery, the next patient to be operated is sedated, different from typical hospital procedure in which patients are sedated in their rooms. The operating room furnishing is done in lesser cost than other hospitals. Optimal use of the time and effort of the employees are exercised. One local anesthetist is hired for a single day so that he can supervise all the five operating rooms.
3.2 Organizational Aspects
3.2.1 Collaborative Culture: The hospital maintains informal structure with collaborative culture and creates an ecosystem of trust and unity among its employees. Any employee can approach the administrator directly for professional or personal help and support. Interactions among employees are encouraged.
3.2.2 Employee Satisfaction: The hospital gives importance to the employees and show high concern for them. Nobody is fired here to sustain the ecosystem of trust and security leading to higher level of commitment. It avoids having organization chart so that employees do not feel they are boxed into typical works. It even rotates the surgeons, assistants and nurses so that they get to perform non-routine work. A surgeon's typical day ends at 4:00 pm after in contrast to longer working hours in other hospitals. Also the pay scale of employees was higher as compared to competitors.
3.3 Customer Satisfaction
3.3.1 Treatment of the patient in terms of friendliness and helpfulness is exceptional. The quality of doctors they have is high and this directly leads to greater success rates in operations and fewer cases of recurring hernia. This fact is also corroborated by the high ratings given by patients during the annual reunion.
3.3.2 The patients are provided with constant consultation to remove their fears and apprehensions and give them reassurance. The patients are made to walk to the post operating room with the help of their surgeon right after the operation as a psychological boost. The larger portion of the nurses' efforts is devoted to consulting the patients. There is no TV or telephone in the room to encourage patients to interact with each other and make new friends. Sometimes patients themselves request to stay an extra day at the hospital.
3.3.3 Patients are treated with due importance. The critical patients are handled by senior surgeons only so that they feel more secured. The administrator makes it a point to have dinner with the patients one night a week and listening to them. Though the rooms are semiprivate, but still patients with similar jobs, backgrounds or interests are assigned the same room to the extent possible and an attempt is also made to schedule operations for roommates at approximately the same time. Parents accompanying children here for operation can also stay for free.
4. SWOT Analysis
Strengths
- Unique method of operation facilitating immediate ambulation, rapid recovery and low rate of recurrence
- Cost effective work method
- High quality surgeons
- Rich collaborative and motivated organizational culture
- Reasonable costing and high level of customer satisfaction leading to huge demand
- Psychological approach of treatment
Weaknesses
- Only a single specialized type of operations
- Backlog of scheduled patients due to limited capacity
- Depends only on word-of-mouth advertising
- Resistance to change from senior doctors
Opportunities
- Huge potential market; 600,000 hernia operations in 1979 in USA alone
- Can engage in other type of surgeries such as eye operation, varicose veins or haemorrhoids etc.
- Can invest outside Canada for e.g. in USA
- Can increase the number of beds by 50% by adding one new floor of rooms to the hospital
Threats
- The future role of Canadian Govt. in the operations of hospitals
- The use of Shouldice method by potential competitors
- Probable drift among employees regarding working on Saturdays
- New competitors in the market employing innovative marketing and advertising techniques
5. Process Flow
6. Bottleneck
Before analyzing the alternatives it's important to analyze which resource is proving to be the bottleneck in the whole process. Observing the process flow, in the whole process of admitting, doing tests, operating and treating the patient, the hospital is using following critical resources which may be a potential bottleneck:
1. Operating Rooms
2. Surgeons
3. Beds
According to the case, Dr. Shouldice wants to expand capacity and "schedule the operating rooms more heavily". This clearly implies that the availability of operating rooms is not a bottleneck and some other resource is causing non-utilization of operating rooms to their full capacity.
The second potential bottleneck can be the number of surgeons. But according to the case, with the available surgeons the total number of operations that can be performed in a day is 60 [appendix 1.1], whereas the average number of operations actually performed in a day is 30 - 36. Hence, the surgeons are also not the bottleneck in the process flow.
Therefore, it can be concluded that the availability of beds in the hospital is the bottleneck in the whole process flow and the number of beds in the hospital has to be increased to fully utilize the already available capacity of other critical resources.
7. Problem
The primary concern of Dr. Shouldice is to increase the capacity of the hospital and at the same time maintain the quality of the medical service for which it is respected.
8. Available Options
Following are the three ways in which hospital's capacity can be increased,
1. Operations on Saturdays
2. Add another floor of rooms to the hospital
3. Expanding to other locations outside Canada
9. Evaluation of Options
As we concluded in our bottleneck analysis, the critical resource that is constraining the serving capacity of the hospital is its number of beds implying that though option 1 i.e. starting Saturday operations may increase its capacity, the hospital will still be operating at suboptimal utilization levels of its staff's capacity. Additionally, it'll result in employee dissatisfaction, especially among old surgeons which may potentially destabilize the organization. On the profitability dimension too, option 1 is generating less per patient profits compared to option 2 [Appendix 1.3]. Hence, we reject this option.
Option 2, if executed will solve the bottleneck problem in the existing process flow and hence will increase the optimality of utilization levels of other resources. Since, this option is increasing capacity of the hospital by optimally utilizing already available employee hours; it will only have positive implications on employee satisfaction, if any. On the profitability dimension too this option performs better than option 1 [Appendix 1.3]. Hence, we recommend this alternative.
Option 3 is an attractive option and according to the preliminary analysis, it might prove to be a hugely profitable venture [Appendix 1.3]. However, as discussed in the case, Shouldice Hospital is committed towards maintaining the quality of its services. Profit is not the primary motive of the organization, proven by the fact that only the clinic is being operated on a for-profit basis whereas the hospital is operated on a non-profit basis. It'll be very difficult to maintain the same levels of quality in the services in the new establishments outside Canada given the unique culture and attitudes of the staff of the organization responsible of its sustenance. Also, this expansion is more likely to result in a dilution of its respectable image. Hence, at this point we'll not recommend this option to the organization.
10. Conclusion
We recommend adding an additional floor of rooms to the hospital to address the capacity issue of the hospital. The new beds will enable the hospital to maximize its capacity utilization. To address the other concern of the use of the Shouldice name by potential competitors, we recommend the organization to patent the Shouldice Method in its name. After filing and securing the patent, the organization will be able to take necessary legal action against such competitors. However, in the long term, to ensure that the patients have easy access to a surgeon expert in the technique, the hospital should start resident training programs, awarding certifications to appropriately trained doctors at the end of the program. This will ensure that the technique is used only by the doctors properly trained by the organization.
11. Appendix
Appendix 1.1
Appendix 1.2
The following gives capacity calculations for the various resources in the system.
OPERATION THEATER
Minimum time for surgery: 45 mins (82%)
Maximum time for surgery: 75 mins (18% average 60-90 mins)
Average time for surgery: 51 mins
Allow for Delays (10% of the avg. time): 5 min
Total time for a surgery: 56 min
Morning session: 5 hours
Afternoon session: 3 hours
No. of operation theaters: 5
Maximum no. of operations in morning: 5*5*60/56 = 25 (after rounding off)
Maximum no. of operations in afternoon: 5*3*60/56 = 15 (after rounding off)
Maximum no. of operations in a day = 40 operations/ day
= 200 operations/ week (5 working days in a week)
Actual value (from case) : 145- 165
HOSPITAL BEDS
Number of beds available in hospital: 89
Number of beds available in clinic : 14
Total number of beds available : 103
Since each patient stays for 3 days most of the time
Maximum number of patients handled by (non-empty) system: 103*5/3
= 171 patients/ week
In this system, bottleneck is in the hospital bed
Hence, maximum number of patients treated a week: restricted to 171
Appendix 1.3
Profitability Calculations
Option 1: Operations on Saturdays
Operations increased - 20% of 155 = 31
Cost per operation = 2,000,000/(155*50) = $258.06
(Total working weeks 52 - 2 (weeks for maintenance) = 50 weeks)
Increase in cost = $8000
Revenue per patient 450 +0.49*60 = $479.4
($450 surgical fees, 49% of assistant fees towards revenue)
Profit per patient = $479.4 - $258.06 = $221.34
Total profits per year = 221.34*31*50 = $343,077
Assuming salaries of surgeons are not increased and there will stiffness in the staff for working on Saturdays.
Option 2: Additional Floor and Maximizing utilization of OTs
Cost of Floor = 2,000,000
Increase in no. of beds = 50% of existing = 103+51=154
Costs per patient admitted: 2000000/(155*50) = $258
(15 patients admitted per week for 50 working weeks, 2 weeks maintenance; budget costs estimated per year for clinic were $2 million as per 1983)
Revenue per patient 450 +0.49*60 = $479.4
($450 surgical fees, 49% of assistant fees towards revenue)
Profits per patient (479.4-258) = $221.4
Increase in profits (per year) 221.4*45*50 = $498,150
(By using operation rooms to maximum utility, we can operate (200-155) or 45 patients more, leading to increased profits)
Option 3 : Establishing new facility elsewhere
Cost of adding a level to the hospital = $2,000,000
Cost of constructing a similar hospital = 3 * $2,000,000
(The current hospital has 3 levels)
= $6,000,000
Cost of adding one level of clinic = ($2,000,000 * 14) / 45
(Each hospital level has 45 beds; one clinic level has 14 beds)
= $650,000
Cost of constructing a similar clinic = 4 * $650,000 + 5 * $30,000
(The current clinic has 4 levels, 5 operating rooms)
= $2,750,000
Total cost of construction = Cost of Hospital + clinic
= $6,000,000 + $2,750,000
= $8,750,000
It is also to be noted that the cost of acquisition of land elsewhere (US) is not known. But industry standards typical put the land costs at about 45-50 % of the costs.
Going with the above statement,
Cost of land = 50% of construction costs
= $4,375,000
Total cost of hospital project = $13,125,000
Profits per patient (479.4-258) = $221.4
(as calculated in option 2)
Average number of patients per week = 155
Total number of weeks in operation per year = 50
Total profit from new hospital per year = $221.4 * 155 * 50
= $1,715,850
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28-Sep-10 Operations Management 3
