Capacity Planning at Shouldice Hospital

Executive Summary

The Shouldice Hospital operating in Canada is a facility treating patients for external abdominal hernia in a unique way. The affordable charges coupled with speedy ambulation have earned a significant reputation among patients and the hospital is being recommended by word of mouth to others by the patients satisfied with having their treatment in this hospital. There are certain issues currently confronting the hospital administration with the furtherance of the business in an efficient way. The issues involved relate to the clearance of the backlog of operations. For reducing the backlog, the hospital can resort to the expansion of the existing capacity and at the same time maintaining control over the quality of service provided. There is another issue of handling piracy of the treatment and bad-mouthing because of wrong pirated treatment provided by other hospitals and the resulting problems to the patients. There is the issue of electing the next chief surgeon who should succeed the current chief Dr. Obney. After a careful evaluation of all the alternative plans of action, it is proposed that the capacity of the hospital can be increased by introducing Saturday working in addition to the operations on weekdays.

To implement this plan, it is necessary that awareness be created among employees at all levels through workshops to stress the need for expanding the capacity. The introduction of Saturday working and doing operations on Saturday seems to be the most feasible solution taking into account the time and cost factors. This solution also seems to leverage the existing capacity to the optimum level in terms of providing quality service to the patients. In case if the hospital is unable to clear the backlog in operations by working on Saturdays, the hospital may think of opening an additional facility in other countries like the United States.

It is also proposed to select a suitable successor to the current chief surgeon by a systematic assessment of the capabilities of all the other surgeons available to serve the hospital and to look at new candidates by scheduling structured interviews to assess the new aspirants.

The need to computerize the administrative process and train the staff for using the computerized applications is also identified as a measure to improve the efficiency of the operations of the hospital.

Introduction and Problem Statement

Shouldice Hospital has been one of the successful hospitals renowned for maintaining the quality of service provided. The company is able to carry on its business successfully by a focused service delivery system characterized and recognized by the success rate of its surgeries. The hospital has other key success factors such as low employee turnover, ability to maintain high quality standards, comparatively lower costs and yet remaining profitable and above all getting a positive feedback from the satisfied patients. One of the major strengths of the hospital contributing to its success is the training provided to its staff on Shouldice surgical methods and implementing efficient and cost-effective operations for treating hernia. The hospital while following stringent staff training policies, strives to preserve a friendly atmosphere among the patients and the staff. Because of these inherent strengths and the reputation among the patients, there is a continuous demand for operations.

The Shouldice Hospital, Ontario, Canada provides satisfying treatment to the patients for external abdominal hernia. The current capacity of the hospital is estimated at treating 6850 patients per year. The hospital extends treatment using Shouldice Method to operate upon, which is tested over time. The patients are expected to stay in the hospital for four days on an average for recuperating from the surgery. The hospital runs its business successfully using the selling point of its distinct surgical procedure. The patients are satisfied with the affordable charges of the hospital, which are comparatively low as well as with the speedy ambulation. The reputation of the hospital is spread among friends and relatives by the word of mouth of the satisfied patients. The hospital operates successfully with its niche capability of treating hernia patients.

However, the hospital faces a shortage of capacity to conduct surgeries on patients, leading to a backlog of patients.

Because of the backlog and long waiting periods, there is a tendency among the patients to be consulted and operated upon by other doctors. In this context, the hospital is confronted with several issues like to take a decision on finding ways to reduce the backlog in operations. The hospital can do this by expanding the capacity; but the hospital has the obligation to maintain the quality of its service. The main issue to consider is the manner in which the capacity can be expanded without sacrificing the quality level. Another issue is the piracy of the treatment method offered by the hospital. Many of the clinics or doctors make a false claim that they follow the original Shouldice method of treatment and finally the operations performed by them fail bringing bad reputation to the Shouldice Hospital.

The hospital faces another issue of selecting a new surgeon to succeed Dr. Obney, the current chief surgeon who is to retire soon. Retention of the existing pool of talented doctors and attracting new doctors who would be willing to be trained in the Shouldice method is another human resources issue to be solved by the hospital.

Methodology and appropriate hypothesis or case questions

The method for solving the issues faced by Shouldice Hospital is to find the short term and long-term objectives and then find the solutions for each of these objectives. The short term and long-term objectives are stated as below:

Short-term objectives

The short-term objectives are:

1. To expand the capacity of the hospital so that it can clear the backlog by increasing the number of patients that can be operated upon
2. To select a suitable surgeon with appropriate qualifications and experience to succeed

Dr. Obney, the current chief surgeon who is due for retirement soon.

Long term Objectives

The long-term objectives are:

1. To ensure the maintenance of the quality in service delivery to retain the satisfaction of the patients
2. To sustain the leadership position in the field of hernia operations
3. To maintain and improve the brand equity connected with the unique treatment through Shouldice method
4. To achieve the objective of overall profitability and at the same time extend the hospital services to the society by passing on a proper knowledge of Shouldice method of treating patients to fellow surgeons

Evaluation Criteria

Irrespective of the solutions chosen to mitigate the issues, there is the overall obligation for the hospital to ensure that there is no reduction in the quality of service delivery by the hospital. The hospital should ensure that the action plans are not only economically viable but should also meet the governmental regulations concerning the profitability of not for profit organizations. Cost effectiveness is another major consideration in implementing the alternatives. The hospital has to ensure that it takes into account the concern to maintain the harmony among the employees of the hospital. The employees must receive all the decisions, which the hospital wants to take to tackle the issues, wholeheartedly so that they will remain committed to the decisions about service delivery. It is all the more important that the strengths of the hospital must be leveraged to take the maximum advantage of the decisions taken by the hospital. Since it is imperative that the backlog in the patients need to be cleared as early as possible, the hospital should formulate the action plans at the earliest.

Summary of Results – Available Alternatives

The following is a list of alternatives available to the Shouldice Hospital, from which it can choose the options, which it considers appropriate, based on the evaluation of the option using the criteria spelt above.

1. It is possible for the hospital to expand their capacities by deciding to conduct operations on Saturdays also, which are holidays hitherto. This will lead to an increase of 20% in the existing capacity levels
2. Another alternative is to add an additional floor of rooms to the existing facility. This would cost the hospital an additional capital investment of $ 2 million. The hospital needs to obtain the necessary permission from the local government. This decision will result in the expansion in the number of existing beds by 50%. This decision can increase the number of operations that can be scheduled more heavily.
3. The hospital may decide to expand its capacity into other geographical areas preferably the United States. In order to maintain the same level of quality in service delivery in the new facility, the hospital may consider the option of transferring 6 out of the 12 existing specialized surgeons to the new facility. The hospital may also think of expanding in other medical areas like providing consultation and treatment including surgery in respect of eye diseases, varicose veins, and hemorrhoids.
4. There is a possibility that the surgeons and other supporting staff to work on alternate shifts so that operations could be scheduled at all times of the day. This way the hospital can use the capacity of the operation theatres to the optimum level.
5. In the matter of selection of the successor to Dr. Obney as the next Chief Surgeon, candidacy of the existing surgeons has to be considered. If the option of appointing a specialized surgeon from external sources, the person appointed should be a well-designed orientation for being acquainted with the existing practices and for motivating the existing surgeons and other medical staff in a fitting manner.
6. There is no organized marketing of the services of the hospital attempted currently. It is in the interest of the hospital to ensure additional turnover, that the hospital should create an awareness among the public about the genuineness of Shouldice method of surgery. This can be done by adopting a specific marketing strategy. This would also serve to protect against the piracy of the treatment method to some extent.

Identification of Challenges in Local Context – Evaluation of alternatives/Managerial Implications

The available alternatives have been evaluated to identify the relevant challenges the hospital has to face if an option is chosen.

1. If the hospital increases, the capacity by scheduling to conduct operations on Saturday there will be no additional capital cost as the hospital can use the existing facilities and it does not violate any governmental regulations. This choice will also enable the hospital to leverage its existing strengths to the maximum, while ensuring the quality of the services. This will be an immediate and effective solution. However, the concerns of the employees for working on Saturdays need to be addressed.
2. The second option of building an additional floor involved a capital outlay of $ 2 million. While this move will result in the increase in the capacity by 50%, there will be additional requirements of qualified and experienced surgeons and other supporting staff who need to be trained in the Shouldice method of treatments. This solution cannot be considered as an immediate one as the construction will also take some time.
3. There will be an extensive capital expenditure involved in the plan of expanding the capacity to another geographical location such as the US. In addition, the hospital may not be able to maintain the same quality level, if the existing staff is divided for serving both facilities. The governmental regulations in the United States need to be taken into account. Although this plan is likely to benefit 42% of the American patients, there are risks involved in expanding to a foreign nation. If the hospital thinks of diversifying into treatments in other medical fields, the hospital may have to compromise on the low cost and high quality advantage hitherto enjoyed by it.
4. Introducing shift system is similar to the option of working on Saturdays, which enables the hospital to leverage its strengths without incurring additional costs and this option will meet the desired time schedule for meeting the extra demand. However, considering the given facts of the case the hospital may have to face employee resentment if asked to work on shifts.
5. The hospital cannot postpone the selection of a successor to Dr. Obney any further. Soon this needs to be accomplished to carry out any of the chosen plans swiftly.
6. Even though by advertising the services the hospital can increase the demand and fight the piracy to some extent, such a move will attract more patients increasing the current backlog of patients.

Recommendations/Action Plan/Suggestions

Complete analysis of the available alternatives suggests that the hospital should implement the option of working on Saturdays and select a successor to Dr. Obney immediately. This option seems to be the most feasible one in terms of cost and in leveraging the existing strengths of the hospital in providing quality service delivery to the patients.

In order to implement this solution it is imperative that the employees must be made aware of the urgent need for expanding the capacity of the hospital. The hospital may conduct workshops to educate the workers in this respect and to allay any doubts cast in the minds of the employees.

The selection of the new chief surgeon should be done after a careful evaluation and assessment of the capabilities of all the existing surgeons in the hospital. There is nothing wrong in interviewing external candidates to find a suitable head for the operations.

It is important that the administrative process be computerized completely with proper training extended to the concerned employees.

If for any reason the hospital cannot implement the plan of working on Saturdays, as a contingency plan the hospital may consider expanding the capacity by building an additional floor. Although this plan needs some additional capital expenditure to be committed, this would lead the hospital towards expansion in to another geographical location in the long run as it is an important step in the growth of the hospital.

There are some information adequacy issues in the case in that there is no complete information on the internal dynamics of the hospital and on the issues surrounding the selection of the successor to Dr. Obney. There is no information on the market standing and working pattern of other hospitals functioning on similar style, including the working on Saturdays. With this information, the decision-making process would have been facilitated largely.

Question 1

How well the hospital is currently utilizing its beds?

• Current Level
• Number of Operations
• 6850 operations/50 weeks = 137 operations/week (with a peak of 165/week)

Existing Capabilities

• Examination Rooms: 6 Rooms x 3 hrs (1-4PM) x 5 days/week x 60 min/Hr/10 min/patient = 240 patients/week
• Admitting Procedure: (2 people x 4hrs (1-5 pm) x 5 days/week x 60min/hr)/10min/Patient) = 240 patients/week
• Nursing Stations: (2 stations x 4 hrs (1-5 pm) x 5 days/week x 60 min/hr)/ (10 min/patient) = 240 patients
• Operating Rooms: (5 rooms x 8.5 hrs/room/day x 1.1 hrs/patient x 5 days/week = 188 patients/week
• Surgeons: 11 surgeons x 3.5 operations/day x 5 days = 178 patients/week
• Hospital Rooms: 89 Rooms = 134 patients per week assuming use of weekends for convalescence and 3.5 days average stay; 103 rooks = 148 patients (assuming use of weekend for convalescence, 3.5 days average stay and use of 14 hostel rooms for two nights each week.

From the above data, it is clear that the hospital uses its capacity well subject to the constraints of hospital rooms. The existing hospital rooms can accommodate 134 patients and the hospital has performed 137 operations per week.

Question 2

Table showing the effect of conducting operations on Saturdays:

Question 3

• With Additional Capacity of 50%
• Total number of Rooms: 89 + 45 = 134
• Total number of patients per week = 193
• 137 current throughput/148 theoretical = x/193 theoretical
• New throughput = 193/ (137/148) = 179 patients/week
• No of patients per day = 179/5 = 36 operations
• Additional patients per year = (179-137) x 50 = 2100

The hospital can increase the number of operations by 2100 patients more which is approximately 30.66% more than the current level

With 5 operating rooms the hospital can perform 188 patients/week and with 12 surgeons 178 operations can be performed. Therefore, the hospital can use the additional capacity of 50% with the existing operation rooms and surgeons.

Question 4

With additional capacity of 45 beds the calculations are:

• Total Investment 45 x $ 100,000 = $ 45,000,000
• Average rate/surgery = $ 2,400
• Total Surgeries/year = 6850 + 2100 = 8950
• Total Revenue/year = 8950 x $ 2400 =
• Total Surgeons cost/year = 8950 x $ 800
• Net Revenue/year = $ 14,320,000: Net Revenue for 5 years = $ 71,600,000

However, there is no information on the other fixed costs and hence it is not possible to assess the financial feasibility of the decision precisely to add 50% more beds.

Question 5

The service design of Shouldice Hospital has been made about the needs of a single type of patient. The hospital makes its services available at a fraction of the total cost of alternative health care facilities that the patients could get. The hospital has standardized the operating procedure and effective integration of strategy and systems. This has enabled the hospital to offer exceptional service delivery and value to its customers.

Service Blue Print