See

discussions, stats, and author profiles for this publication at: http://www.researchgate.net/publication/262300668

Supply Chain Operations- Shouldice Hospital

Case Report.
DATASET MARCH 2014

DOWNLOADS

VIEWS

2,459

767

6 AUTHORS, INCLUDING:
Harshaanth Ahuja
University College Dublin
5 PUBLICATIONS 0 CITATIONS
SEE PROFILE

Available from: Harshaanth Ahuja

Retrieved on: 19 September 2015

25th March 2014

SUPPLY CHAIN OPERATIONS

BMGT43830
SHOULDICE HOSPITAL
CASE STUDY REPORT

We declare that the material contained in this project is the end result of our
own work and that due acknowledgment has been given in the bibliography
to ALL sources, be they printed, electronic or personal.

GROUP E
David Taylor - 13201197
Alan Corboy - 13202827
Valentin Rigault - 13202690
Maxime Vi - 13201229
Harshaanth Ahuja - 13202089
Thomas Lane - 07500661

Supply Chain Operations Group Report

Page |1

CONTENTS
1

The Success of Shouldice Hospital ........................................................................................................ 2

1.1

Introduction .................................................................................................................................. 2

1.2

Business Performance................................................................................................................... 2

1.3

Healthcare Performance ............................................................................................................... 2

1.4

Patient and Employee Satisfaction ............................................................................................... 2

Accounting For Success at Shouldice .................................................................................................... 3

2.1

Swift Even Flow ............................................................................................................................. 3

2.2

Controlling Quality ........................................................................................................................ 3

2.3

Reducing Operating Costs ............................................................................................................. 3

2.4

Hospital and Service Design .......................................................................................................... 4

Potential for Expansion at Shouldice Hospital ...................................................................................... 4

3.1

Ontario Hospital Expansion........................................................................................................... 4

3.2

Geographical Expansion and Brand Development ....................................................................... 5

3.3

Potential of a New Facility with New Service Offering ................................................................. 5

3.4

Implementation of Expansion ....................................................................................................... 5

Risks Facing Shouldice........................................................................................................................... 6

4.1

The Risk of Expansion.................................................................................................................... 6

4.2

Brand Protection ........................................................................................................................... 6

4.3

Changing Regulatory Environment ............................................................................................... 6

4.4

Appointment of New Chief Surgeon ............................................................................................. 6

4.5

Issues of Atmosphere Dependence .............................................................................................. 7

Conclusion ............................................................................................................................................. 7

References ............................................................................................................................................ 8

Appendix ............................................................................................................................................. 10

Supply Chain Operations Group Report

Page |2

1 THE SUCCESS OF SHOULDICE HOSPITAL

1.1 INTRODUCTION
Shouldice Hospitals success is reflected in many aspects of its business. Its success can be viewed from
the perspective of its success as a business, the quality of healthcare it provides and its levels of employee
and patient satisfaction.

1.2 BUSINESS PERFORMANCE

Shouldices services are oversubscribed despite a lack of advertising. The lack of advertising is due to
managements fear of services becoming increasingly backlogged. Shouldice Hospital relies instead on
word of mouth, doctors referrals and patients own research to attract customers. The esteem in which
it is held by members of the medical community is reflected in the disproportionately high number of
doctors that are treated at the facility.
The hospitals success can also be measured in terms of its cost, relative to its competitors. Shouldice
Hospital is able to offer external hernia treatments at approximately half the market rate. This is due to
its ability to control costs and maintain swift even flow in its activities. The viability of the business model
is demonstrated by the hospital considering expanding its capacity further.

1.3 HEALTHCARE PERFORMANCE

The Shouldice method of hernia repair was developed by Dr. Shouldice and is performed by specially
trained surgeons at the Shouldice Hospital. In more conventional hospitals, the procedure is often
performed by less experienced surgeons. The hospital has adopted this area as its niche. By focusing
exclusively on one medical condition, it has been possible to tailor all aspects of the patient experience to
a fast and effective recovery. Consequently, it outperforms traditional hospitals in this field of medicine.
The procedure is designed so as to be minimally invasive. The result is that patients require less sedation,
have almost immediate post-operative mobility, may eat during the evening after their surgery and are
discharged on the fourth morning after their operation. This compares favourably to traditional hospitals,
where patients are discharged after five to eight days, or earlier if there is pressure to make more beds
available.

1.4 PATIENT AND EMPLOYEE SATISFACTION

The hospital takes a holistic approach to healthcare and patient satisfaction is high. Patients are
encouraged to interact and socialise with other patients by exploring the hospital grounds. The positive
experience of their time at the hospital is reflected in the desire of some patients to add an extra day to
their stay and their attendance at the annual reunions. Additionally, over 95% of patients at the reunion
conveyed that they were impressed that Shouldice did not feel like a hospital.
The rate of employee turnover at the Shouldice Hospital is low; nurses have approximately 10% annual
turnover and surgeons who have been there for more than five years are likely to remain there
permanently. High turnover amongst hospital staff was common at the time (Kingma, 2001). The low
turnover of surgeons is due to the hospital allowing them maintain a good work-life balance. Low turnover
has been linked to higher productivity due to less experience being lost and less time being devoted to
training new staff (Hancock et al, 2013).

Supply Chain Operations Group Report

Page |3

2 ACCOUNTING FOR SUCCESS AT SHOULDICE

2.1 SWIFT EVEN FLOW
The high level of performance of the Shouldice Hospital is largely due to its use of swift even flow. A
conventional hospital can be classified as a service shop. Shouldice has reduced variation in the service it
provides and reduced the throughput time (Schmenner, 2004). This has resulted in the classification of
Shouldice moving towards that of a service factory as outlined by Schmenner (See Appendix I). The
narrow focus makes it easier to take a holistic view of care, as needs and variation are limited.
The selection of patients with external hernias, who had not previously been operated on, reduced the
variation of treatments required. The selection and training of surgeons resulted in limited variation in
the operating procedures performed on patients. Given the functional nature of the service and the
stability of the supply of inputs, an efficient supply chain strategy is appropriate (Lee, 2002).
The reduction of the seven types of waste facilitates the fast movement of patients through the service
(Schmenner, 2004). Much waiting (waste) was avoided through the scheduling of operations and patient
assessments to ensure the use of doctors time was optimised. Patients arrival the day before the
procedure was scheduled also reduced waste. The ability of patients to walk away from the operating
table reduced the resources needed to transport them and also the need for further assessment later in
the day. The consistency and predictability of demand for inputs to the services provided reduced the
need for inventories and excess capacity. The quality control reduced the number of defects.

2.2 CONTROLLING QUALITY

Quality control is most pertinent in this setting, particularly in the areas of surgical staff, nutrition,
administrative processes, and employee management. The calibre of surgeons is ensured through their
selection by Dr. Obney and their subsequent training in the Shouldice method. This is coupled with the
rotation of staff through surgical teams, sending patients with recurrences to their initial physician and
encouraging the operating staff to take regular breaks.
The quality of food is controlled by preparing meals in-house from fresh ingredients, by three members
of staff. This results in a high level of consistency and staff members are accountable to the hospital,
rather than an external contractor.
ODell would like to make admissions more efficient through the use of more advanced I.T. systems.
Capital intensiveness tends to reduce throughput time and variation in processes (Schmenner, 2004). In
conjunction with the cross-training of staff, this should provide a very reliable service.
The low employee turnover outlined above is associated with an improvement in organisational
performance. This is exacerbated in contexts where employees are highly skilled or have organisationspecific knowledge (Hancock et al, 2013). Additionally, research has shown that hospital staff with low
job satisfaction levels may find it difficult to provide quality patient care and to create a friendly and
supportive atmosphere in a health care setting (Pietersen, 2005).

2.3 REDUCING OPERATING COSTS

Shouldice reduces its operating costs by ensuring the swift even flow of its service. The patient experience
is standardised and the hospitals capacity at each stage of service provision is equal to the anticipated

Supply Chain Operations Group Report

Page |4

demand. This minimises the potential for bottlenecks and excess capacity occurring. Additionally, waste
was removed from as many processes as possible, as outlined above. This suggests that Shouldice have
implemented the principles of lean production in a healthcare setting (Manos et al, 2006).
The hospitals focus and specialisation reduce capital and labour requirements. Operating rooms were
relatively cheap as they did not require dedicated anaesthesiology equipment. Additionally, as most
patients demonstrated good underlying health and were undergoing relatively straightforward surgeries,
there was limited need for high dependency care.
The use of patients as a support network for each other reduced costs. Post-operative patients offered
assurance to newly admitted patients that the procedure was safe, which would have reduced the number
of questions they had for medical staff. This also set high standards for what they expected of themselves
following their operation. The friends they made provided social incentives to get up and exercise,
resulting in reduced need for encouragement from nurses or physiotherapists.

2.4 HOSPITAL AND SERVICE DESIGN

The design of the hospital supported numerous cost saving initiatives. Installation of carpet was carried
out on almost all floors, despite its price and the difficulty in cleaning. The benefits of increased patient
exercise, due to its comfort, is likely to have outweighed its cost. The hospital grounds played a similar
role with the policy of not providing phones and televisions in bedrooms, which also encouraged patient
exercise.
Allowing parents to stay with their children was an added cost, however, it resulted in cost savings in
nursing requirements. Also, the ability to stay with the child would be a prerequisite for many parents
when selecting a hospital and thus played an important marketing role. As Johnson and Baum (2001)
state, the hospital is run as a health promotion setting, through activities that concentrate not only on
the patients, but on their families, the staff, organisation, management, the physical environment and the
surrounding community.

3 POTENTIAL FOR EXPANSION AT SHOULDICE HOSPITAL

3.1 ONTARIO HOSPITAL EXPANSION
Faced with high demand, there is pressure to expand capacity at the existing facility. Given the limited
market research, it is difficult to predict future demand with any certainty. Therefore, the low risk options
of implementing temporary and reversible measures would be advisable.
In the short term, operating rooms could be scheduled more intensively and occupancy ratios of rooms
could be increased. Some of the operating rooms are under-utilised between 1-3pm on weekdays and no
surgeries are performed on weekends. As a temporary measure, an additional bed could be added to a
number of patient rooms. Fisher (1994) outlines that such flexibility would allow the postponement of
decisions to ensure maximum usage of facilities in order to maximise operational efficiency. Feedback
collected could be used to gauge whether the patient experience or operational performance (swift even
flow) is adversely affected and if the demand for the increased capacity is sustained in the long term.

Supply Chain Operations Group Report

Page |5

If the demand proves sustainable, there is a viable case for the construction of an additional floor at the
existing site. The main benefits of this option is the immediate availability of the current staffs expertise,
the existence of critical mass and the tried and tested processes in place at the site.

3.2 GEOGRAPHICAL EXPANSION AND BRAND DEVELOPMENT

The development of a new facility in a new location has many potential benefits. Research has shown
that geographical expansion of service companies could address Shouldices aims in responding to market
demand (Capar et al, 2003). However, researchers have emphasised the need for a brand strategy, a
matter which Shouldices management has yet to implement. Effective branding creates a unified and
consistent image of the services that enable patients to recognise and trust them. This is particularly
important in the marketing of professional services, as clients are unqualified to objectively assess quality
and often rely on their emotions and subjective experiences (DeGeeter, 2008). Moreover, close attention
to perceived quality and brand image are required in the creation of the new site in order to secure brand
equity (Chahal et al, 2010).
It is likely that Shouldice can replicate existing processes at another site, considering the high degree of
experience and the low level of variation in the current service offering. A fall in performance while
expanding abroad can be expected (Capar et al, 2003). This will be made more difficult by the need to
replicate the organisational culture in an alternative market. Otherwise, a new site in the U.S. could highly
cannibalise sales at the existing facility, 42% of which originate from the U.S. Therefore, a new site should
not be located in the north east of the United States.

3.3 POTENTIAL OF A NEW FACILITY WITH NEW SERVICE OFFERING

The risk of cannibalisation of sales necessitates the reconsideration of the service offering. Shouldice has
analysed the idea of diversifying to include alternative treatments, under the Shouldice banner. Such a
policy would not only avoid cannibalisation of sales but also will raise brand visibility (at the risk of brand
dilution). Research has shown that the diversification of a service offering is a high-risk, high-reward
strategy (Mishina et al, 2004). However, creating a new facility and providing a new service would require
new facility design, processes and expertise, in addition to the difficulties underlying the creation of a
second facility as discussed.

3.4 IMPLEMENTATION OF EXPANSION

A number of strategies to expand have been considered. Strategic attention should be given to find the
best site if a new facility is proposed as it involves long-term decisions (Melo et al, 2009). Given the high
risks associated with the development of a new site, as discussed, this is not the preferred option. There
appears to be greater and safer opportunities available in expanding the current facility, which can be
achieved with minimal impact to the quality of service and the operational efficiency of the facility.
Implementation of the expansion needs to be carried out in an incremental manner to avoid the risk of
confusion in the current processes and knowledge sharing will be a determinant in the success of the
brand (Hayes et al, 1986). Although the decision making process of the expansion is made at management
level, the manner of the implementation should involve a bottom-up approach with high levels of
employee involvement (Goodall, 1990). Staff participation could be encouraged through emphasizing the
reversible nature of unsuccessful new initiatives and policies.

Supply Chain Operations Group Report

Page |6

4 RISKS FACING SHOULDICE

4.1 THE RISK OF EXPANSION
The case outlines a number of risks, both short term and long term in nature, which are facing the
Shouldice Hospital. The most prevalent and potentially high impact risk is that of increasing capacity.
From a short term perspective, it is considered that demand for the increased capacity exists, given the
historical responses to increases in capacity. This is coupled with management being effectively fearful
of advertising the service provided, due to the expected increase in demand, which could not currently
be met due to existing capacity constraints.
This business case for expansion needs to be carefully considered, alongside the potential of the less
tangible impacts, which such a decision would lead to. The success of the hospital is a combination of
both the operational efficiency of Shouldice and the service level that is provided through the atmosphere
created by the service provider. The size of the facility clearly contributes to this atmosphere and with a
potential increase in capacity on site, comes a significant risk that the friendly and personal nature of the
service becomes more institutionalised, to the detriment of the customer experience.

4.2 BRAND PROTECTION

A further concern is the imitation of the hospitals methods by other clinics, using similar techniques but
without the same results. This is a difficult situation to overcome because the methods used during
operations cannot be patented or protected in any meaningful way. One way in which this issue could be
overcome would be via the marketing of the service which is currently not undertaken. This could indicate
that the methods that are employed at Shouldice were pioneered and innovated at the hospital and other
facilities are simply imitating the process. Alternatively, there is also the option of freely allowing the
procedures and methods to be emulated, as it is not in the operation method where their real competitive
advantage lies, but in their cost model and the service experience of the patient (Douglas & Ryman, 2003).

4.3 CHANGING REGULATORY ENVIRONMENT

At the time of the case (early 1980s), the hospital industry was rapidly emerging as one of the U.Ss most
heavily regulated, which resulted in New York hospitals spending more than $1 billion coping with
government regulation in 1976 alone (Goldsmith, 1979). Given the potential of a new site located in the
U.S. facing a challenging and different regulatory environment, standardisation and replication of the
Ontario service may not be possible. This further reinforces the recommendation to expand the existing
facility.

4.4 APPOINTMENT OF NEW CHIEF SURGEON

Dr. Obneys retirement will result in much experience being lost at Shouldice. However, it is stated that
he has resisted change in certain procedures which could be improved upon. Therefore, the appointment
could be viewed as an opportunity to implement positive change. It is advised that this appointment is
made internally, given the level of experience of many of the doctors at the facility and taking into account
the relatively low turnover of staff at Shouldice. This is reinforced by recent research, outlining that
hospitals lose $150,000 to $250,000 per year over the first 3 years of employing a physicianowing in
part to a slow ramp-up period as physicians establish themselves or transition their practices and adapt
to management changes (Hirsch, 2013).

Supply Chain Operations Group Report

Page |7

4.5 ISSUES OF ATMOSPHERE DEPENDENCE

The Shouldice brand and the service experienced by the users of the hospital is extremely dependent on
the atmosphere created in the hospital and the attitude of the staff. Customer experience is vital to their
success and this is not dissimilar to many other service industries e.g. restaurants, hotels etc. The
billionaire investor Warren Buffet has recently been quoted as saying, It takes 20 years to build a
reputation and five minutes to ruin it (Watkins, 2013). The main issue is therefore to ensure that these
high standards and attitudes are maintained at all times. Clearly, negative attitudes of only one member
of staff could have a significant impact on the experience of Shouldices customers. It is therefore
imperative that management have staff buy-in to whatever strategy the company pursues in the future.

5 CONCLUSION
It has been demonstrated that Shouldice clearly have an extremely successful business model. This is due
to their implementation of a swift even flow process and the creation of an ethos that emphasises holistic
care. The expansion opportunity that has been presented due to the continued presence of high levels of
demand needs to be carefully considered.
The report has outlined the benefits and drawbacks of each expansion strategy available to Shouldice and
has identified expansion of the current facility as the favoured option. Successful implementation of the
expansion is vital to ensure the continued success of the Shouldice brand. This can be carried out through
the recommendations contained within this report.

Supply Chain Operations Group Report

Page |8

6 REFERENCES
Capar, N., Kotabe, M. (2003). The relationship between international diversification and performance in
service firms. Journal of International Business Studies, 34 (4), pp. 345-355.
Chahal, H., Bala, M. (2012). Significant components of service brand equity in healthcare sector.
International journal of health care quality assurance, 25 (4), pp. 343-362.
Degeeter, M. (2008). Changing perception: Hospital brand as a design strategy. Matthew Healthcare
Design, 9 (12), pp. 10-13.
Douglas, T. J. and Ryman, J. A. (2003). Understanding competitive advantage in the general hospital
industry: Evaluating strategic competencies. Strategic Management Journal, 24 (4), pp. 333-347.
Fisher, M.L., Hammond, J.H., Obermeyer, W.R. & Raman, A. (1994). Making Supply Meet Demand in an
Uncertain World, Harvard Business Review, May/Jun, 72 (3), pp. 83-93.
Goldsmith, J. C. (1979). The health care market: Can hospitals survive? Harvard Business Review, 58 (5),
pp. 100-112.
Goodall, R. 1990. Democratic Management Principles: Involving the Staff in Decision Making. AORN
journal, 51 (6), pp. 1553-1557.
Hancock, J.I., Allen, D.G., Bosco, F.A. McDaniel, K.R., Pierce, C.A. (2013). Meta-analytic review of employee
turnover as a predictor of firm performance, Journal of Management, 39 (3), pp. 573-603.
Hayes, R.H., Clark, K.B. (1986). Why some factories are more productive than others. Harvard Business
Review, September October: pp. 66-73.
Hirsch, L. (2013). Why newly hired physicians lose money for hospitals and need marketing. Healthcare
Success Strategies [Online] Available at: http://www.healthcaresuccess.com/blog/hospitalmarketing/why-newly-hired-physicians-lose-money-for-hospitals-without-marketing.html (Accessed 20th
March, 2014).
Johnson, A., Baum, F. (2001). Health promoting hospitals: a typology of different organizational
approaches to health promotion. Health Promotion International, 16 (3), pp. 281-7.
Kingma, M. (2001). Nursing Migration: Global Treasure Hunt or Disaster in the Making, Journal of Nursing,
8, pp. 205-212.
Lee, H. (2002). Aligning Supply Chain Strategies with Product Uncertainty. California Management Review,
(44) 3, pp. 105-119.
Manos, A., Sattler, M., Alukal, G. (2006). Make healthcare lean. Quality Progress, 39 (7), pp. 24-30.
Melo, M. T., Nickel, S., Saldanha-Da-Gama, F. (2009). Facility location and supply chain management--A
review. European Journal of Operational Research, 196 (2), pp. 401-412.

Supply Chain Operations Group Report

Page |9

Mishina, Y., Pollock, T. G. and Porac, J. F. (2004). Are more resources always better for growth? Resource
stickiness in market and product expansion. Strategic Management Journal, 25 (12), pp. 1179-1197.
Pietersen, C. (2005). Job satisfaction of hospital nursing staff. SA Journal of Human Resource Management,
3 (2), pp. 19-25.
Schmenner, R.W. (2004). Service Businesses and Productivity. Decision Sciences, 35 (3), pp. 333-347.
Shouldice Hosptial Marketing Strategy [Online] 2013. Available at http://www.caseforest.com/casestudy-Souldice-Hospital-Marketing-Strategy.aspx. (Accessed 22nd March 2014.)
Watkins, M. (2013). Social media can dent reputations. Financial Times, November 8, 2013. Available at:
http://www.ft.com/intl/cms/s/0/becbc8b8-3723-11e3-9603-00144feab7de.html#axzz2t1yQUGMD
(Accessed: 20th March, 2014).

Supply Chain Operations Group Report

7 APPENDIX
Appendix I: Schmenners Original Service Matrix

Source: Schmenner (2004)

P a g e | 10