What are the strengths and weaknesses of AFH? When AFH was established in 1979, it was by far the one and only private hospital in Dammam, and the second best in Saudi Arabia. Times were good and occupancy rates were high - about 78 %. Its founder, Sheikh Abdulla Fouad, viewed it as another SBU, which he could manage by remote control. However, when the recession hit, AFH was plagued with various problems. Due to the exodus of expatriates, the customer base of private hospitals, and the building of new government and private hospitals, occupancy rates dropped from 70% in 1983 to 44% in 1986.

Earnings dropped by 40 % over the same period, while expenses dropped by only 10 %. Occupancy rates were expected to decline further. AFH was facing the problem of managing contraction: How to fill the empty beds?

The case provides insights into the plights of an investor-owned hospital, and the environment in which its administrators operate. It offers an opportunity to examine a highly capital and labor-intensive and competitive industry. It also offers an opportunity to explore alternative strategies to manage contraction.