4. Out of the 5 dimensions of SERVQUAL, which one is considered as the most important for Shouldice. Provide the evidences from the case to support your answer. 5. "Tangibles" is one of the dimension of SERVQUAL. Describe in details the "Tangibles" of Shouldice Hospital and how they contribute to its brand value or positioning. 6. Discuss why Shouldice is able to offer cheaper treatment costs for a high value services? Two shadowy figures, enrobed and in slippers, walked slowly down the semi-darkened hall of the Shouldice Hospital. They did not notice Alan O'Dell, the hospital's Managing Director, and his guest. Once they were out of earshot, O'Dell remarked good naturedly, "By the way they act, you'd think our patients own this place. And while they're here, in a way they do." Following a visit to the five operating rooms, O'Dell and his visitor once again encountered the same pair of patients still engrossed in discussing their hernia operations, which had been performed the previous morning. HISTORY A n attractive brochure that was recently printed, although Ineither dated nor distributed to prospective patients, described Dr. Earle Shouldice, the founder of the hospital: Dr. Shouldice's interest in early ambulation stemmed, in part, from an operation he performed in 1932 to remove the appendix from a seven-year-old girl and the girl's subsequent refusal to stay quietly in bed. In spite of her activity, no harm was done, and the experience recalled to the doctor the postoperative actions of animals upon which he had performed surgery. They had all moved about freely with no ill effects. By 1940, Shouldice had given extensive thought to several factors that contributed to early ambulation following surgery. Among them were the use of a local anesthetic, the nature of the surgical procedure itself, the design of a facility to encourage movement without unnecessarily causing discomfort, and the post operative regimen. With these things in mind, he began to develop a surgical technique for repairing hernias 2 that was superior to others; word of his early success generated demand. Dr. Shouldice's medical license permitted him to operate anywhere, even on a kitchen table. However, as more and more patients requested operations, Dr. Shouldice created new facilities by buying a rambling 130 -acre estate with a 17,000 -square foot main house in the Toronto suburb of Thornhill. After some years of planning, a large wing was added to provide a total capacity of 89 beds. Dr. Shouldice died in 1965. At that time, Shouldice Hospigel Limited was formed to operate both the hospital and clinical facilities under the surgical direction of Dr. Nicholas Obney. In 1999, Dr. Casim Degani, an internationally recognized authority, became surgeon-in-chief. By 2004 7,600 operations were performed per year. THE SHOULDICE METHOD Only external (vs. internal) abdominal hernias wetc repaired at Shouldice Hospital. Thus most first-time repaits, "primaries," were straightforward operations requiring about 45 minutes. The remaining procedures involved patients suffering recurrences of hernias previously repaired elsewhere. 3 Many of the recurrences and very difficult heinhis repairs required 90 minutes or more. In the Shouldice method, the muscles of the abdominal were arranged in three distinct layers, and the opening repaired, each layer in turn, by overlapping its margins 210 the edges of a coat might be overlapped when buttoned Tit end result reinforced the muscular wall of the abdomen wity six rows of sutures (stitches) under the skin cover, which was then closed with clamps that were later removed: (Othe methods might not separate muscle layers, often involved fewer rows of sutures, and sometimes involved the insertion of screens or meshes under the skin.) A typical first-time repair could be completed with the 2 of pre-operative sedation (sleeping pill) and analgesic (paii killer) plus a local anesthetic, an injection of Novocain in the region of the incision. This allowed immediate post operative patient ambulation and facilitated rapid recovens The Patients' Experience Most potential Shouldice patients learned about the hospital from previous Shouldice patients. Although thousands of doctors had referred patients, doctors were less likely to recommend Shouldice because of the generally regarded simplicity of the surgery, often considered a "bread and butter" operation. Typically, many patients had their problem diagnosed by a personal physician and then contacted Shouldice directly. Many more made this diagnosis themselves. The process experienced by Shouldice patients depended on whether or not they lived close enough to the hospital to visit the facility to obtain a diagnosis. Approximately 10 percent of Shouldice patients came from outside the province of Ontario, most of these from the United States. Another 60 percent of patients lived beyond the Toronto area. These out-of-town patients often were diagnosed by mail using the Medical Information Questionnaire shown in Exhibit 1 on page 495 . Based on information in the questionnaire, a Shouldice surgeon would determine the type of hernia the respondent had and whether there were signs that some risk might be associated with surgery (for example, an overweight or heart condition, or a patient who had suffered a heart attack or a stroke in the past six months to a year, or whether a general or local anesthetic was required). At this point, a patient was given an operating date and sent a brochure describing the hospital and the Shouldice method. If necessary, a sheet outlining a weight-loss program prior to surgery was also sent. A small proportion was refused treatment, either because they were overweight, represented an undue medical risk, or because it was determined that they did not have a hernia. Arriving at the clinic between 1:00 P.M. and 3:00 P.M. the day before the operation, a patient joined other patients in the waiting room. He or she was soon examined in one of the six examination rooms staffed by surgeons who had completed their operating schedules for the day. This examination required no more than 20 minutes, unless the patient needed reassurance. (Patients typically exhibited a moderate level of anxiety until their operation was completed.) At this point it occasionally was discovered that a patient had not corrected his or her weight problem; others might be found not to have a hernia at all. In either case, the patient was sent home. After checking administrative details, about an hour after arriving at the hospital, a patient was directed to the room number shown on his or her wrist band. Throughout the process, patients were asked to keep their luggage (usually light) with them. All patient rooms at the hospital were semiprivate, containing two beds. Patients with similar jobs, backgrounds, or interests were assigned to the same room to the extent possible. Upon reaching their rooms, patients busied themselves unpacking, getting acquainted with roommates, shaving themselves in the area of the operation, and changing into pajamas. At 4:30 P.M., a nurse's orientation provided the group of incoming patients with information about what to expect, including the need for exercise after the operation and the daily routine. According to Alan O'Dell, "Half are so nervous they don't remember much." Dinner was then served, followed by further recreation, and tea and cookies at 9:00 P.M. Nurses emphasized the importance of attendance at that time because it provided an opportunity for preoperative patients to talk with those whose operations had been completed earlier that same day. Patients to be operated on early were awakened at 5:30 A.M. to be given pre-op sedation. An attempt was made to schedule operations for roommates at approximately the same time. Patients were taken to the preoperation room where the circulating nurse administered Demerol, an analgesic, 45 minutes before surgery. A few minutes prior to the first operation at 7:30 A.M., the surgeon assigned to each patient administered Novocain, a local anesthetic, in the operating room. This was in contrast to the typical hospital procedure in which patients were sedated in their rooms prior to being taken to the operating rooms. Upon completion of their operation, during which a few patients were "chatty" and fully aware of what was going on, patients were invited to get off the operating table and walk to the post operation room with the help of their surgeons. According to the Director of Nursing: "Ninety-nine percent accept the surgeon's invitation. While we use wheelchairs to return them to their rooms, the walk from the operating table is for psychological as well as physiological [blood pressure, respiratory] reasons. Patients prove to themselves that they can do it, and they start their all-important exercise immediately." Throughout the day after their operation, patients were encouraged to exercise by nurses and housekeepers alike. By 9:00 P.M. on the day of their operations, all patients were ready and able to walk down to the dining room for tea and cookies, even if it meant climbing stairs, to help indoctrinate the new "class" admitted that day. On the fourth morning, patients were ready for discharge. During their stay, patients were encouraged to take advantage of the opportunity to explore the premises and make new friends. Some members of the staff felt that the patients and their attitudes were the most important element of the Shouldice program. According to Dr. Byrnes Shouldice, son of the founder, a surgeon on the staff, and a 50 percent owner of the hospital: "Patients sometimes ask to stay an extra day. Why? Well, think about it. They are basically well to begin with. But they arrive with a problem and a certain amount of nervousness, tension, and anxiety about their surgery. Their first morning here they're operated on and experience a sense of relief from something that's been bothering them for a long time. They are immediately able to get around, and they've got a three-day holiday ahead of them with a perfectly good reason to be away from work with no sense of guilt. They share experiences with other patients, make friends easily, and have the run of the hospital. In summer, the most common after-effect of the surgery is sunburn." The Nurses' Experience Thirty four full-time-equivalent nurses staffed Shouldice each 24 hour period. However, during non-operating hours, only six full-time-equivalent nurses were on the premises at any given time. While the Canadian acute-care hospital average ratio of nurses to patients was 1:4, at Shouldice the ratio was 1:15. Shouldice nurses spent an unusually large proportion of their time in counseling activities. As one supervisor commented, "We don't use bedpans." According to a manager, "Shouldice has a waiting list of Nurses wanting to be hired, while other hospitals in Toronto are short-staffed and perpetually recruiting." The Doctors' Experience The hospital employed ten full-time surgeons and eight part-time assistant surgeons. Two anesthetists were also on site. The anesthetists floated among cases except when general anesthesia was in use. Each operating team required a surgeon, an assistant surgeon, a scrub nurse, and a circulating nurse. The operating load varied from 30 to 36 operations per day. As a result, each surgeon typically performed three or four operations each day. A typical surgeon's day started with a scrubbing shortly before the first scheduled operation at 7:30 A.M. If the first operation was routine, it usually was completed by 8:15 A.M. At its conclusion, the surgical team helped the patient walk from the room and summoned the next patient. After scrubbing, the surgeon could be ready to operate again at 8:30 A.M. Surgeons were advised to take a coffee break after their second or third operation. Even so, a surgeon could complete three routine operations and a fourth involving a recurrence and still be finished in time for a 12:30 P.M. lunch in the staff dining room. Upon finishing lunch, surgeons not scheduled to operate in the afternoon examined incoming patients. A surgeon's day ended by 4:00 P.M. In addition, a surgeon could expect to be on call one weekday night in ten and one weekend in ten. Alan O'Dell commented that the position appealed to doctors who "want to watch their children grow up. A doctor on call is rarely called to the hospital and has regular hours." According to Dr. Obney: "When I interview prospective surgeons, I look for experience and a good education. I try to gain some insight into their domestic situation and personal interests and habits. I also try to find out why a surgeon wants to switch positions. And I try to determine if he's willing to perform the repair exactly as he's told. This is no place for prima donnas." Dr. Shouldice added: "Traditionally a hernia is often the first operation that a junior resident in surgery performs. Hernia repair is regarded as a relatively simple operation compared to other major operations. This is quite wrong, as is borne out by the resulting high recurrence rate. It is a tricky anatomical area and occasionally very complicated, especially to the novice or those doing very few hernia repairs each year. But at Shouldice Hospital a surgeon learns the Shouldice technique over a period of several months. He learns when he can go fast and when he must slowdown. He develops a pace and a touch. If he encounters something unusual, he is encouraged to consult immediately with other surgeons. We teach each other and try to encourage a group effort. And he learns not to take risks to achieve absolute perfection. Excellence is the enemy of good." The clinic housed five operating rooms, a laboratory, and the patient-recovery room. In total, the estimated cost to furnish an operating room was $30,000. This was considerably less than for other hospitals which require a bank of equipment with which to administer anesthetics for each room. At Shouldice, two mobile units were used by the anesthetists when needed. In addition, the complex had one "crash cart" per floor for use if a patient should suffer a heart attack or stroke. ADMINISTRATION Alan O'Dell described his job: "We try to meet people's needs and make this as good a place to work as possible. There is a strong concern for employees here. Nobody is fired. [This was later reinforced by Dr. Shouldice, who described a situation involving two employees who confessed to theft in the hospital. They agreed to seek psychiatric help and were allowed to remain on the job.] As a result, turnover is low. Our administrative and support staff are non-union, but we try to maintain a pay scale higher than the union scale for comparable jobs in the area. We have a profit-sharing plan that is separate from the doctors'. Last year the administrative and support staff divided up $60,000. If work needs to be done, people pitch in to help each other. A unique aspect of our administration is that I insist that each secretary is trained to do another's work and in an emergency is able to switch to another function immediately. We don't have an organization chart. A chart tends to make people think they're boxed in jobs. 5 I try to stay one night a week, having dinner and listening to the patients, to find out how things are really going around here." Operating Costs The 2004 budgets for the hospital and clinic were close to $8.5 million 6 and $3.5 million, respectively. 7 THE MARKET Hernia operations were among the most commonly performed operations on males. In 2000 an estimated 1,000,000 such operations were performed in the United States alone. According to Dr. Shouldice: "When our backlog of scheduled operations gets too large, we wonder how many people decide instead to have their local doctor perform the operation. Every time we've expanded our capacity, the backlog has declined briefly, only to climb once again. Right now, at 2,400 , it is larger than it has ever been and is growing by 100 every six months." The hospital relied entirely on word-of-mouth advertising, the importance of which was suggested by the results of a poll carried out by students of DePaul University as part of a project (Exhibit 3 on page 500 shows a portion of these results). Although little systematic data about patients had been collected, Alan O'Dell remarked that "if we had to rely on wealthy patients only, our practice would be much smaller." Patients were attracted to the hospital, in part, by its reasonable rates. Charges for a typical operation were four days of hospital stay at $320 per day, and a $650 surgical fee for a primary inguinal (the most common hernia). An additional fee of $300 was assessed if general anesthesia was required (in about 20% of cases). These charges compared to an average charge of $5,240 for operations performed elsewhere. Round-trip fares for travel to Toronto from various major cities on the North American continent ranged from roughly $200 to $600. The hospital also provided annual checkups to alumni, free of charge. Many occurred at the time of the patient reunion. The most recent reunion, featuring dinner and a floor show, was held at a first-class hotel in downtown Toronto and was attended by 1,000 former patients, many from outside Canada. Exhibit 3: Shouldice Hospital annual patient reunion data. Direotion: Por and qugation, plosen place a dbook mark as It appllea to gou. you. 1. Hex Male 24f9.94K 3. a. Eleve you been ovarnight in a bospital other than ibetiliee bofore your operation? 7. That broughi abouidion Hoapital to your athention? a. Did you bave a aingle S,HCXAS or double W,SOKN hornis operation? 10. Do you feal that ahouldioe Hobputhel oared tor you as a persen? 11. What impresed you the most about your otay at Bhouldios? Plonest eheak ont anmer for eaah of the followites. "I'm a doctor first and an entrepreneur second. For example, we could refuse permission to other doctors who want to visit the hospital. They may copy our technique and misapply it or misinform their patients about the use of it. 'This results in failure, and we are concerned that the technique will be blamed. But we're doctors, and it is our obligation to help other surgeons learn. On the other hand, it's quite clear that others are trying to emulate us. Look at this ad. [The advertisement is shown in Exhibit 4.] Exhibit 4: Advertisement by a Shouldice competitor. This makes me believe that we should add to our capacity, either here or elsewhere. Here, we could go to Saturday operations and increase our capacity by 20 percent. Throughout the year, no operations are scheduled for Saturdays or Sundays, although patients whose operations are scheduled late in the week remain in the hospital over the weekend. Or, with an investment of perhaps $4 million in new space, we could expand our number of beds by 50 percent, and schedule the operating rooms more heavily. On the other hand, given government regulation, do we want to invest more in Toronto? Or should we establish another hospital with similar design, perhaps in the United States? There is also the possibility that we could diversify into other specialties offering similar opportunities such as eye surgery, varicose veins, or diagnostic services (e.g. colonoscopies). For now, we're also beginning the process of grooming someone to succeed Dr. Degani when he retires. He's in his early 60 s, but at some point we'll have to address this issue. And for good reason, he's resisted changing certain successful procedures that I think we could improve on. We had quite a time changing the schedule for the administration of Demerol to patients to increase their comfort level during the operation. Dr. Degani has opposed a Saturday operating program on the premise that he won't be here and won't be able to maintain proper control." Alan O'Dell added his own concerns: "How should we be marketing our services? Right now, we don't advertise directly to patients. We're even afraid to send out this new brochure we've put together, unless a potential patient specifically requests it, for fear it will generate too much demand. Our records show that just under 1 percent of our patients are medical doctors, a significantly high percentage. How should we capitalize on that? I'm also concerned about this talk of Saturday operations. We are already getting good utilization of this facility. And if we expand further, it will be very difficult to maintain the same kind of working relationships and attitudes. Already there are rumors floating around among the staff about it. And the staff is not pleased." Exhibit 5: The Shouldice Hospital grounds is a haven for rest and recuperation. The matter of Saturday operations had been a topic of conversation among the doctors as well. Four of the older doctors were opposed to it. While most of the younger doctors were indifferent or supportive, at least two who had been at the hospital for some time were particularly concerned about the possibility that the issue would drive a wedge between the two groups. As one put it, "I'd hate to see the practice split over the issue." STUDY QUESTIONS 1. What is the market for this service? How successful is Shouldice Hospital? 2. Define the service model for Shouldice. How does each of its elements contribute to the hospital's success? 3. As Dr. Shouldice, what actions, if any, would you like to take to expand the hospital's capacity and how would you implement such changes? "Professor James Heskett prepared the original version of this case, "Shouldice Hospital Limited," HBS No. 683-068. This version was prepared jointly by Professor James Heskett and Roger Hallowell (MBA 1989, DBA 1997). HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. 2 Most hernias, knows as external abdominal hernias, are protrusions of some part of the abdominal contents through a hole or slit in the muscular layers of the abdominal wall which is supposed to contain them. Well over 90% of these hernias occur in the groin area. Of these, by far the most common are inguinal hernias, many of which are caused by a slight weakness in the muscle layers brought about by the passage of the testicles in male babies through the groin area shortly before birth. Aging also contributes to the development of inguinal hernias. Because of the cause of the affliction, 85% of all hernias occur in males. 3 Based on tracking of patients over more than 30 years, the gross recurrence rate for all operations performed at Shouldice was 0.8%. Recurrence rates reported in the literature for these types of hernia varied greatly. However, one text stated, "In the United States the gross rate of recurrence for groin hernias approaches 10%," 4 All monetary references in the case are to Canadian dollars. \$1 US equaled \$1.33 Canadian on February 23, 2004. 5 The chart in Exhibit 2 was prepared by the case writer, based on conversations with hospital personnel. 6 This figure included a provincially mandated return on investment. 7he latter figure included the bonus pool for doctors