Shouldice Hospital Case Study Bottle Neck Blues

Management 342: Service Operations Management
Spring Semester 2003
Web Page: http://employees.csbsju.edu/jpartridge

Instructor: Jamie Partridge Course Section: 01A (2:40-3:50)
Office: Simons 266 Days 1, 3, 5
Phone: 363-3523(O)/ 202-0694(H) Simons 360
E-mail: [email protected] Office Hours: 12:30-2:30 daily & by appointment

Required Textbook:
Fitzsimmons/Fitzsimmons, Service Management: Operations, Strategy, and Information Technology, Boston, MA: Irwin McGraw-Hill, 2001, 3rd edition.

Suggested Reading:
1. The Wall Street Journal.
2. Handouts.

Course Objectives:
1. To increase students’ understanding of the nature and importance of the service sector in the U.S. economy and in other countries.
2. To aid students in effective decision making in the management of a service organization.
• Students should be able to understand the decision-making process in both domestic and international service organizations.
• Students should be able to understand the decision making process in both for-profit and not-for-profit service organizations.
• Students should be aware of the environmental impacts of a service organization’s actions.
• Students should be aware of the ethical issues involved in a service organization’s actions.
3. To increase students’ analytical abilities in solving problems that service manager's face.
4. To expose students to primary and secondary research tools utilized by service managers to effectively run their organizations.

Course Description/Overview:
Service Operations Management addresses the design and management of systems for services. This course will combine operations, marketing, and human resources aspects of services using both text material and cases. A sampling of topics addressed includes service facility design, layout, and location, service quality, managing queues, managing capacity and demand, the service encounter, forecasting and project management. A wide survey of service industries will be studied including healthcare, financial services, consulting, entertainment, hospitality, airlines, higher education, and environmental services.

Operations management techniques used to be utilized more in the manufacturing sector than in the service sector. However, there is a trend towards focussing more on operations in services. This is mainly due to the increasing importance of the service sector in the U.S. economy. Over 80% of U.S. jobs now originate in the service sector, so more and more emphasis is being placed on increasing productivity and efficiency in the operations of services.

There will be two case studies that will look at service operations both domestically and globally. These cases will also cover organizations in both the for-profit and not-for-profit sectors of the economy. Additionally, there will be a group consulting project, where students will form consulting teams to work with the Paramount Arts District and the St. Cloud Symphony Orchestra. Finally, there will be plant tours scheduled outside of class for extra credit. The dates of the tours will be announced in class at a later date.



Evaluation and Grading:
There will be 3 exams, 2 cases, and 1 major group consulting project (which includes a poster to be exhibited at Celebrating Scholarship Day). Additionally, there will be some homework assignments due throughout the semester.

The final grade will be determined as follows (all dates are subject to change):

Assignment % of Grade Date
Exam I 15.0% February 12
Exam II 15.0% March 27
Exam III 15.0% May 7 (11:00-1:00)
Case I 12.5% February 20
Case II 12.5% March 19
Homework 5.0% Throughout the Semester
Group Consulting Project
Written Report 15.0% May 5
Group Poster 5.0% April 12
Group Presentation at the
Paramount Arts District 5.0% May 1
Total 100.0%

Preparation for Class:
All students are expected to complete assigned readings prior to class. Students are also responsible for all assigned reading material (whether or not it is covered in class). Also, students are responsible for all supplementary material covered in class, but not in the text (including handouts).

Extra credit:
There will be extra credit available in the form of attending plant tours. Students will receive extra credit for attending extra plant tours and writing a short paper on the tour to be turned at the beginning of the class period immediately following the tour. Students who attend plant tours and turn in their papers on time will receive 5 extra points on their next exam.

Rescheduling of Exams:
Make-up exams will be given during the semester only for medical reasons (with a doctor’s excuse), a death in the family, or a school-sanctioned event (with plenty of prior notice). You will take the make-up exam on the day following your return to class. Students who must miss an exam with a legitimate excuse must notify the instructor the day of the exam to qualify for a make-up exam.

Late Assignments:
Assignments are considered late if they are turned in after class on the date that they are due. The instructor will deduct 5 points off of papers turned in on the due date (but after class) and will deduct an additional 10 points per day thereafter. Students who attend class discussion on the day the assignment is due will receive 5 "discussion" points, which will be added to their assignment.

Class Participation/Attendance:
Attendance is expected each time that the class meets. Each day we cover a great deal of material, so it is in your best interest not to miss class.










Major Team Consulting Project: Written Report and Poster

Service Organizations:
Paramount Arts District (3 projects)
St. Cloud Symphony (1 project)

Written Report: Due May 5
Your written report should be approximately 10 pages in length (not including graphs, tables, charts, layouts, maps, project time lines and sources). Include a bibliography of the sources used including interviews, articles, organizational information, etc. and cite your sources when you refer to them. Your papers will be graded on organization, content, and quality of writing. Each group should also provide a copy of their paper to Millword Simpson (Executive Director of the Paramount Arts District), Ellen Nelson (Assistant Director of the Paramount Arts District), and Sandy Nadeau (Executive Director of the St. Cloud Symphony Orchestra).

Each Consultant’s Report should include the following:

1. An Introduction:
This section should provide the reader with an idea of what your consulting project is all about. Provide background on your service organization and an overview of the challenges it faces.

2. An Economic Impact Analysis of your Service Organization:
*** More detailed information will be provided on this later in the semester.
This section should include an economic impact analysis of the Paramount Arts District Programming on the local economy. This analysis should be done in IMPLAN (an economic input-output model). Each group will need to develop a survey and administer this survey at several Paramount performances or Visual Arts Events to determine how much money visitors from outside of the region spend in the local area as a result of patronizing the arts in St. Cloud. This survey data will then be inputted into IMPLAN. This section should include a report of these results, which will indicate the economic impact of the Paramount Arts District programming on the local economy due to increased numbers of visitors to the region. Your sample should include visitors from OUTSIDE of the region and whose primary reason for visiting the region is to patronize your service organization.

3. An Assessment of the Service Quality:
** More detailed information will be provided on this later in the semester.
Report on the quality of the products and/or services at the Paramount Arts District. Provide examples of the cost of quality (detection costs, prevention costs, internal failure costs, and external failure costs). Does your organization do a good job minimizing internal and external failure costs? Does the Paramount Arts District (or the St. Cloud Symphony) have a customer satisfaction survey to measure service quality (if so, include it with your paper). Does either organization offer a service guarantee? Does the Paramount Arts District have effective systems in place for dealing with quality? If not, what could they do to improve quality? As part of your assessment of service quality, you will develop a quality survey for the Paramount Arts District (or the St. Cloud Symphony) to be used by these organizations in the future.

4. An Assessment of the Service Facility Layout:
What type of layout does the Paramount Arts District have? (i.e. product or process).What appears to be the bottleneck operation? Is the layout efficient and effective? Would another layout be better? How would you improve the layout? Include a copy of the layout of the Paramount Arts District at the end of your paper.



5. An Assessment of the Service Facility Location:
How did the Paramount Arts District (or the St. Cloud Symphony) select their location(s)? What are the dominant factors in selecting a location? Has the Paramount Arts District (or the St. Cloud Symphony) always been in their present location(s)? Why did they select St. Cloud? Why did they select their particular site within St. Cloud? Did they make a good selection?
Create a map in the GIS (Geographical Information System) software package ArcView to display the Paramount Art District’s St. Cloud location. ** We will cover how to use ArcView GIS by ESRI during the semester.

6. Project Management for Conducting an Economic Impact Study:
** More detailed information will be provided on this later in the semester.
In short, you will create both a Gantt Chart and a PERT chart using Microsoft Project for Windows of your economic impact study project. ** We will cover how to use Microsoft Project for Windows during the semester.

7. Conclusion:
What recommendations does your consulting team have for your service organization? Provide details on areas that your organization excels in and areas that could be improved.

8. Sources:
Include a bibliography of sources and cite sources throughout your report.

Case Studies:
You will receive a handout for each case towards the beginning of the semester. Cases are to be approximately 5 typed pages. Cases are to be done individually and are due at the beginning of class on the day that we are scheduled to discuss them in class. The following is a list of questions to consider when writing up the cases. Each case will be graded on organization, content and quality of writing.

Shouldice Hospital (Handout): Due February 20
1. How successful is the Shouldice Hospital?
2. How do you account for its performance?
3. As Dr. Shouldice, what actions, if any, would you take to expand the hospital's capacity?
4. How would you implement the changes you propose?

Vancouver Public Aquarium (Handout): Due March 19
1. What are the objectives of the Vancouver Public Aquarium (VPA)? How well has the VPA been fulfilling these objectives?
2. Address the following major problems facing Richard Knight, the Public Relations Director for VPA.
• How to appeal to the school market.
• How to build off-peak attendance (on weekdays and Saturdays).
• How to spend advertising money more efficiently (i.e. the $120,000 promotional budget).
3. Define the major markets and publics of the VPA and indicate how each would be affected by the proposal to close the VPA during weekdays from 10:00 am to 3:00 pm to allow only school groups to visit the aquarium.
4. Should Elizabeth Dewey's (VPA's Educational Programs Coordinator) school program proposal be implemented? What are the major advantages and disadvantages of this proposal?
5. Compare and contrast the Great Lakes Aquarium with the Vancouver Public Aquarium. Which aquarium appears to do a better job satisfying its major markets and publics? Explain.
6. Create a spreadsheet to forecast average daily attendance for 1987 using exhibit 2 as a template. (We will talk about the appropriate forecasting technique to use in class). Also, briefly discuss what type of forecasting technique you would use if you were trying to forecast average daily attendance for 2003 back in 1986. Please include a hard copy of your results with your paper and email the Excel file to me as well.

Syllabus – Management 342, spring 2003 (tentative)

Date Discussion Topics Assignment
Week 1
1/13 The Role of Services in an Economy Ch.1
Welcome to the Experience Economy Handout
1/15 The Nature of Services Ch.2
1/17 Meet with Project Directors for
Paramount Arts District & St. Cloud
Symphony & Service Learning Director

Week 2
1/21 The Nature of Services Ch.2
1/23 Service Strategy Ch.4
Zero Defections: Quality Comes to Service Handout

Week 3
1/27 Journal Article Summary Assignment Due
Service Quality Ch.3
1/29 Service Quality Ch.3
1/31 Service Quality Handouts
Power of Unconditional Service Guarantees,
Getting the Bugs Out, Federal Express,
Use of Bayesian Probabilities to Identify &
Improve Distribution Center Error Rates

Week 4
2/4 Customer Compliment and Complaint Letters Due
New Service Development/Process Design Ch. 5
2/6 The Supporting Facility Ch. 6
Status Report 1 Due Status Report 1 Due

Week 5
2/10 Introduction to Economic Impact Analysis Handouts
2/12 Exam I Exam I
2/14 Service Facility Location Ch. 7


Week 6
2/18 Service Facility Location Ch. 7
Location Theory Handouts Handouts
2/20 Shouldice Hospital Case Case Due

Week 7
2/24 The Service Encounter Ch.8
2/26 Designing and Managing the Customer Handouts
Service Function, Breaking the Cycle of
Failure in Services, The Mismanagement
of Customer Loyalty
Status Report 2 Due Status Report 2 Due
2/28 Internet Services Ch. 9

Spring Break

Date Discussion Topics Assignment
Week 8
3/11 Forecasting Demand for Services Ch. 10
3/13 Forecasting Demand for Services Ch. 10
Selecting Profitable Hotel Sites at Handouts
La Quinta Motor Inns, Demand
Forecasting for a Catalog Retailing Co.

Week 9
3/17 Forecasting Demand for Services Ch. 10
3/19 Vancouver Public Aquarium Case Due Case Due
3/21 Managing Waiting Lines Ch.11

Week 10
3/25 Competing with Time Saving Service, Handouts
Prescription for Waiting in Line Blues:
Entertain, Enlighten and Engage
Status Report 3 Due Status Report 3 Due
3/27 Exam II Exam II


Week 11
3/31 Managing Capacity and Demand Ch.13
Scheduling Doctors’ Activities at a Large Handout
Teaching Hospital
4/4 How to Make a Poster for a Poster Session
4/6 Managing Facilitating Goods Ch.14

Week 12
4/8 Managing Facilitating Goods Ch.14
4/10 Service Supply Chain Management Ch.16
4/12 Poster Session for Celebrating Scholarship Day

Week 13
4/14 Managing Service Projects Ch.16
Using Project Management to Improve Handouts
Month-End Reporting in a Hospital,
What Every Manager Needs to Know
About Project Management
4/16 Managing Service Projects Ch.16
Status Report 4 Due Status Report 4 Due

Easter Break

Week 14
4/23 Managing Service Projects Ch.16
4/25 Productivity and Quality Improvement Ch.18
Incorporating Environmental Concerns Handout
into TQM
Week 15
4/29 Productivity and Quality Improvement Ch.18
5/1 Final Presentation at Paramount Arts District

Week 16
5/5 Study Day – Consulting Projects Due by 5PM
5/7 Final Exam – Exam III (11:00-1:00) Exam III

1. 0Description of Situation and Identification of Problems 1. 1 Service The Shouldice Hospital competitive advantage is that it only conducts external hernia operations and is specifically designed and operated to provide the highest probabilities for successful treatment with “country club like” patient service. Hernia operations typically have a 90% success rate, with Shouldice hernia operations boasting over a 99% success rate. The Shouldice competitive advantage can be summarized into: ? Surgical technique: layered/increased sutured repair technique conducted via local anesthesia ?

Postoperative regimen and facility design supporting early/ongoing ambulation and socialization ? Comprehensive and “country club like” location patient service ? HR structure supporting engaged experienced employees with high morale As shown in Exhibit 1, the clinic generates nearly $3M in annual profits. The Shouldice model is a very profitable model while delivering a higher quality hernia repair service at half the cost. Referring to Exhibit 2 and 3, a Shouldice patient total cost of approximately $3000 compares to the industry average hernia repair total cost of approximately $6000.

1. 2 Description of Process The patient experience at Shouldice consists of an orientation, tea, friendly supportive staff throughout the stay (hernia operation / recovery) all while patients socialize and relax. This is followed by free annual checkups and annual patient reunions at half the cost. A Shouldice Hospital process flow chart is provided in Exhibit 4, followed with a very regimented and efficient protocol, reinforced with training, work procedures, intensive management/oversight and is supported by experienced staff.

When evaluating the process, a current bed capacity bottleneck is identified with occasional early discharges and hostel beds used for overflow. 1. 3 Service Facility Shouldice Hospital is conveniently located close to metropolitan Toronto, just 15miles outside the city, on a sprawling relaxing countryside acreage in a renovated mansion. The Shouldice location is convenient for supplies, equipment, staff and both local and travelling patients.

The hospital is functionally designed with thoughtfully planned features such as low rise stairs conducive to early and ongoing post operative ambulation, but also carpeted for a comfortable, country club vacation feel. 1. 4 Operating Control Systems Alan O’Dell is the hospital administrator overseeing 91 employees and five departments. The Shouldice management team consists of Dr Shouldice leading the six person executive committee and senior surgeon Dr Obney who leads the surgery team and also chairs the seven person Board of Directors. The “focused factory” service delivery system minimizes “hospital” atmosphere with the country location, mansion decor and pre/post operative regimens.

The regimens encourage patient self-care and socialization supported by design features such as low rise stairs and common TV and telephone areas patient need to travel to. The examination and operating room locations are structured to encourage staff interaction, communication and efficiency of resource use. The Shouldice marketing model is based on word of mouth. Shouldice has actually procrastinated issuing their most recent promotional pamphlets due to a concern over increasingly overburdened wait lists. The hospital also conducts customer satisfaction surveys looking for opportunities for improvement.

1. 5 Work Force The 91 Shouldice employees are non-unionized, earn higher than average wages and participate in profit sharing. Shouldice hospital workforce performance management follows a “no termination” policy supported by a coaching, training and rehabilitation programs. Shouldice hospital believes that staff need work-life balance, and staff work Monday to Friday regular hours with very little on-call. As a consequence, Shouldice has extremely low turnover, supporting the model of “always following Shouldice practices and procedures” with experienced staff.

Staff are trained extensively, and when they make a mistake, they are coached and given the opportunity to learn and improve. 2. 0Major Objectives It is not clear in the case how the administrator, Alan O’Dell is evaluated. The hospital wants to continue servicing customers needing hernia repairs, and possibly increase its capacity to meet the increasing demand. Shouldice has been considering expansion, but is unsure about how to accomplish this without affecting its excellent patient service.

The hospital is concerned about competitor misuse and improper use of the Shouldice procedures which detrimentally affect the Shouldice name and reputation. And lastly, the lead Shouldice surgeon is retiring and needing to be replaced with a surgeon that will embrace the regimented Shouldice protocols but also be open to improvement opportunities and change. Shouldice Hospital does not appear to have issues with customer service, work force management or quality but is struggling with what objective to focus upon.

Creating and agreeing upon a vision and mission would help determine the path forward for Shouldice Hospital. The issue of capacity appears to be the most concerning and difficult to answer for Dr Shouldice. 3. 0Identify alternative courses of action. Shouldice Hospital has several options available to them for increasing capacity: •Spend $2M to expand current bed capacity by adding a third floor. This would enable continuing the current process procedures and service model. However it does require significant expenditure.

•Franchise another hospital or outsource to other physicians. Dr Shouldice is very concerned about maintaining the Shouldice reputation, this option would not enable the close monitoring required to ensure the Shouldice procedure and process. In addition other facilities are not designed to facilitate the patient environment to critical so supporting the Shouldice” experience” •Referring to Exhibit 5, Shouldice has the capacity to perform 42 exams per afternoon and operate on 38 patients.

Shouldice is currently only performing 33 operations per day. Increasing beds available then moves the bottleneck back to operating rooms, requiring addition of weekend operations (and staffing) regardless. Current beds needed does not exceed bed and hostel room capacity with weekend operations, therefore offering surgery on weekends is the most economical decision to better utilizes current resources. However, weekend operations is a concern for staff work-life balance and would need to be carefully considered.

•Improve throughput without expanding the facility or running additional days by reducing the time spent per step or by increasing the total time available by increasing workloads and/or changing schedules. Both of these options would probably detrimentally affect patient service and employee morale. 4. 0 Evaluate alternatives and make decisions. Shouldice Hospital is a service model and cannot adjust “inventories” or “level load” demand. Preserving the integrity of the Shouldice name and brand is of significant enough concern to rule out significantly improving throughput or franchising/outsourcing.

The remaining viable options are a $2M facility expansion or conducting surgeries on weekends. The most cost effective of those options considering return on investment and challenges to obtain government funding would be to expand days available for surgery. 5. 0 Propose implementation procedures. To expand to weekend operations, Shouldice management will need to consult the staff. Explaining the problem (servicing patients in need of Shouldice hernia repair), options available and the optimal solution should help convince the staff of the need for the change.

The story of Dr Shouldice and his inspiring goals could be presented to staff in a way that would result in the need for the change being positively versus negatively viewed. Shouldice could hire staff and ask existing staff willing to consider an alternative working schedule after the explaining the benefits of that working schedule. The new schedule could provide the flexibility for longer weekends and weekdays off. Overall, this option has the potential to improve the working environment at Shouldice. A work schedule that does not increase hours of work, but shifts workdays or increases days off may be attractive to some staff.

In addition, with the increased throughput, increased profits should be realized and could be shared with the staff willing to work the alternative schedules. Weekend operations could be achieved without affecting the current culture of the company. Executing a carefully planned change management strategy could result in newly hired staff alongside engaged motivated existing staff supporting the new schedule and increasing capacity while continuing to deliver the top quality “Shouldice” hernia repair. Exhibit 1 – Shouldice Hospital Financials Exhibit 2 – Customer Value Proposition.

Exhibit 3 – HRSDC Stats Canada 1982 Average Income (http://www4. hrsdc. gc. ca/. 3ndic. 1t. [email protected] jsp? iid=22) Exhibit 4 – Shouldice Hospital Process Exhibit 5 – Shouldice Hospital Throughput and Capacity Current Department Capacity: Exam: 6 rooms x 20min/exam x 3 hours x 5 days/week = 270 patients Admitting: 2 staff x 10min/exam x 4 hours x 5 days/week = 240 patients Nursing: 2 spots x 10min/exam x 4 hours x 5 days/week = 240 patients Operating: 5 rooms x 60min/surgery x 7 hours x 5 days/week = 175 patients Doctors: 11 doctors x 60min/surgery x 3 hours x 5 days/week = 165 patients.

Current throughput: AM 4 surgeries x 5 rooms = 20 Lunch PM 3 surgeries x 5 rooms – 2 (90 min) operations = 13 = Total of 33 operations per day or 165 patients per week New throughput AM 5 surgeries x 5 rooms = 25 Lunch PM 3 surgeries x 5 rooms – 2 (90 min) operations = 13 = Total of 38 operations per day or 190 patients per week References Heskett J. “Shouldice Hospital Limited”. Harvard Business School Publishing. 2June2003. Human Resources and Skills Development Canada www. hrsdc.

gc. ca. Financial Security – Income Distribution. http://www4. hrsdc. gc. ca/. 3ndic. 1t. [email protected] jsp? iid=22. Accessed 25/April/2012. Chase, Jacobs and Aquilano , “Operations Management for Competitive Advantage. ” 11th Edition, McGraw-Hill/Irwin, 2006. Goldratt and Cox. “The Goal: a Process of Ongoing Improvement”, 2nd Revised Edition, North River Press, 1992 A case study on Shouldice Hospital. http://www. slideshare. net/tarunkdl/shouldice-hospital. Accessed 25/April/2012.

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