Business Scenario:

As the Canadian population continues to age and interest in home healthcare increase, it is expected the industry revenues will grow because this demographic requires more heath care services relative to other age groups. The current industry size in Canada is $6 billion CAD in annual revenues with a projected growth of 4.3% and in the US the industry is $62 USD billion in revenues with a projected growth of 3.7%.

When comparing product types for senior living there are five categories of care:

Senior apartments - apartments geared for seniors with community activities provided

Independent living - rooms/small apartments with meal plans, light housekeeping, social activities and transportation

Assisted living - Independent living plus assistance with medication management, and daily personal requirements

Memory care - Assisted living plus higher staff to resident ratio, with a focus on memory care services.

Skilled nursing - Assisted living plus 24 hour care plus full nursing staff.

Each of these categories has very different profit margins ranging from more than 50% in senior apartments to approximately 15% for skilled nursing sites.

In Canada and the US the market is highly fragmented. The top 10 providers in Canada service only 25.8% of the market and in the US the top 10 providers' service only 9.9% of the market. This market diversification presents an opportunity to new entrants into the market place. Richview plans to expand their operations throughout major cities in Canada and the US. Richview currently has 12 retirement residences in Canada, with locations in Vancouver, Halifax, Ottawa, Toronto, and Oakville with 1,800 units. In addition, Richview operates another 27 locations with 4,050 units in Arizona, Florida, Denver, North Carolina, California, and Chicago. The corporate head office is located in Brampton, Ontario and the company employs 4,500 full and part-time employees. Maintaining high standards of care and good food quality is a key success factor. Due to the vulnerable health of the residents it is imperative that the residence maintain a high level of cleanliness to mitigate the chance of infectious disease transmission.

The residences are grouped into regions. Each region is a profit center and they produce financial statements on a quarterly basis. Regional managers compete for their bonus with the other regions. The most profitable region receives the highest bonus and the least profitable receives no bonus with a tiered structure in between the two extremes. The bonus structure creates fierce competition between the regions which helps to hold the line on costs as well as generating creative ways to increase revenues. Afifah Haque, the CEO, believes that competition is at the heart of good management.

Each manager is responsible for revenue generation and marketing, purchasing, human resource management, as well as capital repairs to the sites. Head office manages the financing requirements for the business as well as engage in standard setting and menu development. Head office consolidates the regional financial statements and provides quarterly reports to the banks.

The organizational structure is shown below:

The company has been experiencing issues with food expenses and this has Bill Murray worried. The purchasing levels in the system do not appear to agree with the expected consumption in the Western Region. Prices for food seem high, and the volume consumed is also high. In the same region, the purchase price of supplies such as linens and cleaning supplies are also overpriced. This is resulting in lower profitability in the region.

Each region has its own procurement manager. The regional procurement managers have staff that also purchase for the sales teams in the specific region. The Western procurement manager position has been vacant for four months and Nicole Joseph is managing the procurement team directly. She is responsible to approve the purchase orders for food and other supplies. Nicole Joseph has been trying to hire a new procurement manager but HR does not appear to be sending her appropriate candidates. She has rejected all candidates over the past six months. At one point, HR hired a candidate but the individual resigned from the position after only six weeks

The company has been experiencing issues with food expenses and this has Bill Murray worried. The purchasing levels in the system do not appear to agree with the expected consumption in the Western Region. Prices for food seem high, and the volume consumed is also high. In the same region, the purchase price of supplies such as linens and cleaning supplies are also overpriced. This is resulting in lower profitability in the region.

Each region has its own procurement manager. The regional procurement managers have staff that also purchase for the sales teams in the specific region. The Western procurement manager position has been vacant for four months and Nicole Joseph is managing the procurement team directly. She is responsible to approve the purchase orders for food and other supplies. Nicole Joseph has been trying to hire a new procurement manager but HR does not appear to be sending her appropriate candidates. She has rejected all candidates over the past six months. At one point, HR hired a candidate but the individual resigned from the position after only six weeks on the job. The company does not have a policy of holding exit interviews so HR was not apprised of the reason for their departure. Nicole Joseph indicated that the candidate was a bad fit for the team and did not get along with other employees in the area.

Each region also has their own accounting teams that report through the Regional Vice Presidents. These individuals have a dotted line to the CFO. There is no corporate controllers or controllers at the regional sites. The accounting team is responsible to produce all the managerial and financial reports as well as manage all the data input and balance sheet account reconciliations. On a monthly basis the accounting team makes adjusting journal entries for accounting estimates such as allowance for doubtful accounts, and provisions for legal liabilities based on recommendations by the regional vice presidents. Legal liabilities can arise due to customer care and human resource issues. The CFO does not approve these adjustments but it is assumed the regional managers have the knowledge and authority to make these adjustments. There is no formal delegation of authority guideline established for Richview.

The reports produced by the accounting department compare actual results to budgeted results on a monthly and year to date basis and actual results to prior year actual results. Prior to the quarter end, the budget is adjusted for current customer levels. On a go forward basis the actual results are compared to the adjusted budget. The CFO, Nashmia Nigar has indicated this is an appropriate methodology, given the fluid nature of their customer base. The average length of stay for customers is approximately 18 months; with higher number of months for those requiring lower levels of care and lower number of months for those requiring high levels of care. The changes to the budget are approved by the Regional Vice Presidents.

The CIO, Michael Koprich, is responsible for all the computer systems including network maintenance, security, and maintenance of the ERP system. The procurement module of the ERP system has been under constant development. All custom contracts developed by the purchasing department are forwarded to the IT department and they program the system to accommodate the new contracts. The system is tested by the IT department and then the changes are transported into the production system. This process of constant revisions is putting stress on the IT department so the CIO is considering outsourcing to a third party provider the management of data storage and network access maintenance and control. He is planning to keep the ERP maintenance in-house.

Due to the reporting requirements for the TSX, the company must undergo an annual audit of both their IT system and their financial reports. These audited financial statements are also required by the bank to support the continuation of the bank loans. For the bank loans, the company also must meet several debt covenants. The company must maintain a certain debt to equity ratio and they also must maintain their current ratio above a certain minimum level. In the last audit, the company failed the systems security test and now the external auditors were requiring the accounting department to provide supporting documentation for all journal entries. Supporting documentation does not appear to be available for the adjusting journal entries for legal liabilities, adjustments to allowance for doubtful accounts, and nor do the purchasing contracts appear to be signed and approved for several large custom purchasing contracts for which the procurement module was programmed to handle.

Instructions:

Using the case method taught in class (three steps approach of the case analysis), identify three events in the case , analyze the events that you have identified as part of the step 1 using the suggested or any other appropriate management models , and make recommendations to Richview Retirement Residences' management to improve their efficiency and effectiveness

Its a Case Analysis