Shouldice Hospital Limited. Case Study Analysis

EXHIBIT 1 Acceltion,s Service Guarantee Quaury oF Srnvlcn GueneNTEE TheAccelIionQualitvofServiceGuaranteedefines,AcceI1ion,sassurance*, Ifj:r:fl”. ‘,f”,iljtm3;:ru:mlFj *-Hiri,””” dil;;affi,. irn ” 1. Perfonnance Guarantee a”ri,,iuo. , or’te-. *r,sea ne. “i,, is the same as Accellion guarantees that the performance of the. Net-work uproading and downloading content, Accellion service’ will be no t*t p”. “*t of that w1n hich’;;. hr;”*d by a benchmik origin as a resurt of usine the site being accessejfrom r. ‘ ‘r””‘ibii , ffi,ltji’fi ::,Ti:T:t ‘u p”‘f”‘””ilffi, p”,ro. *u,'”” *iTly*il? ::T::#? Jr:[:il:,:xHi. il:ilabilitv, 3.

Customer Service -“,****,L,;;tr o;;;,%li o, o”. ;r,o. ,. excludingForce Maieureand schedured Maintenance for customers Guarantee should Accellion fail to meet the service levels set out in sections 1 and 2 with one (L) month’s service fee ror Accenion will credit ttre monttirir””tua-*n”r,,n” r”,i”[Gl3bove account .;;”d;;;;iili,i”t*. mer the customer,s ritten notice to Accellion of such failure gives w withi’ii;;6) aays rrom ttre J* ,””r1 rrrr”re occurred. with this requirement,wil r”rr”it. rt”t”;il;;/r The Customer’s rrii”* t”. “*fry right to receive such credit. Accellion will notify the c”ttom”‘. ,o L:::I”frffixirabre or anv other iI* ir’i1 ;s r,or. , liauyrf;;;y*. J of scheduled Maintenance. I reas””;;;ni”;;ii p;fi;’, ffir;tn” c,,i. -,””. 1;J;;i;;ii,”””,saryf the service acrion to *”fffflflffi[rffi;’;::lJ;:,Ji;:;”*,”. :il$J;t3i:J:fl*f;::il::#*il::::”* 4. Security and privacy policy ,o any inquiry in re,a,ion,o Accellion has comolete respect for the Customer’s privacy and that of any custome,r data stored in Accellion service does not require Acce,ion servers. The Customers i” prtJa” i”y;a:lr’r”i;;te servers’ All information provided details for the data being stored on the to a”. “uio”iy’ tLr” c”. r. i’,”r’;;;r”i’i;, he Customer,, ;il:ilT I”v r,u,,” u”t”,, ,or” b”r,”rit. A,ccerion w,I not hat the Disclosure of Customer’s itrtt'”‘ti. ” 5. iui]’i. A. “”[ion’s ;t;il:;,,, &:i:T””,t:ffi:1nir. ;r’,1;li:ffi;d##Hi; ilJ’A’ff1″‘X;1T’. |,H:”fiH^dr:1[:o’aut, to possession shalr i-tu”t *'” . ifntI . ,*p. ffity onlybe made where such disclosure is *a to the terms or use or “,,]o,” Accellion will ensure-that th” ct’stom””s informatiorr and data [areJ ke{1cur9 or imProPer use’ which includes t’trqg;ii*r;uur” rt”p, io rr. ri,fil,tr1r,. mer,s adenrity d protected from unauthorized access i before granring access. EXHllBlr Dear Team, 2 orAcclrion

Email to All Accellion staff Announcing the Launch of the oos Guarantee [T X’:i’ji:#:ffi11:;J:T? ,i? :]”#t’^Y^:l:1*8 vua,ry ot ervlce guarantee read it over very carefully. vo” iulLri”Ji;;;;;1/”;”*u16 Quarirvof service suarantee (Qos). prease Please ancr puts t ‘” ownership o in this company to deliver. C”r,o. “”. , ompanf c ustomers aon,r wen+ . “J9,flT? ‘L”l31d irt nuts *he -o*r,”rrnipi”n ever d o,. ,;t;;t-;1q6btcDDrve’ ;”;;;;” ,;;h#; theirnetwo’rkrip;*;;irr”rilrhcfi–,*–. –. ,f1. ‘-t-“,LevelAgreement(sLA);ttruy;”rt**i *::::;ilffl:r. H,ffi :Slfl a*Xi A;::#J:ffi “‘,,*:mf :'”**:*;$ii+,r,fr;y:’^,'”j,:nTffi 18,. #,”l*iF:iqd-. i””;’ffi “H? ::1H:J:”H:'”;T”;1f 3″tr:; As a member of the Accellion –Lt, vl\_. 1. team, you are key to our client,s satisfaction. Thanks in advance for your suPport in making our clients and ourselves successful. |.. 4? j:|ir!. -. ‘!. ii. ‘,l:*||-:i;:1:”|:|i||::l.. ;:::1,;:::;:;j::i. ];::|:i:]i::::::jl:]]j:::::]:. :::]] L. what is the marketing impact of a well-designed guarantee? 2. Eaaluate Exhibit the_ seraice design of Acceilion,s guarantee shown in r-. How ffictiae wilr it ui rn communicating seraice exceuence to potentiar and current customers? would you recommend any changes to its design or imple_ mentation? 3′ will he guarantee be successfut in creating a curture for seraice exceilence within Aiceilion? whit erse may be needed for achieoing such a culture? . Do you 4’ think customers mEht take adaantage of this guarantee and “stage” seraice f;ilures to inaokeTlrr’grorantee? If yes, how could Acceuion minimize potentiar iheating on its guarantee? The Accellion Service Guarantee Sg1r Case 16 Shouldic e Ho spit al Limite d (Abri dge d) JeuEs Hpsrprr AND Rocnn HellowELL A Canadian hospital specializing in hernia operations is considering whether and how to expand the reach of its seraices, including expansion into other specialty areas.

Various proposals haae been adaanced to increase the capacity of the hospital without demotiaating the staff or losing control oaer seraice quality, which, in addition to achieoing excellent medical outcomes, has created a aery deaoted base of patient “alumni. ” Options include adding Saturday surgical operations, building an extension, and constructing a neTD hospital in another location, perhaps in the United States. TWo shadowy figures, enrobed and in slippers, walked slowly down the semi-darkened hall of the Shouldice Hospital. They didn’t notice Alan O’Dell, the hospital’s managing director, and his guest.

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Once they were out of earshot, O’Dell remarked good nature dLy, “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 discussi. g their hernia operations, which had been performed the previous morning. HrsroRY An attractive brochure that was recently printed, although neither dated nor distributed to prospective patients, described Dr. Earle Shouldice, the founder of the hospital: Dr. Shouldice’s interest in early ambulation stemmed, ffi:.? :T,]1;5,T? j:T]:J”H-“,H,::,T#|’^# 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 sur gery. They had all moved about freely with no ill effects. By 1,940, 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 postoperative egimen. With these things in mind, he began to develop a surgical technique for repairing herniasl 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 130acre estate with a 17,}}0-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

Hospital 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-rec o g nrzed authority, b ecame surge on-inchief. By 2004,7,600 operations were performed per year. THr SHouLDtcE METHoD Only external (vs. internal) abdominal hernias were repaired at Shouldice Hospital. Thus most first-time repairs, “primaries,” were straightforward operations requiring about 45 minutes. The remaini. g procedures involved patients suffering recurrences of hernias previously repaired elsewhere. Many of the recurrences and very difficult hernia repairs required 90 minutes or more. In the Shouldice method, the muscles of the abdominal wall were affanged in three distinct layers, and the opening was repaired-each layer in turn-by overlapping its margins as the edges of a coat might be overlapped when buttoned. The end result reinforced the muscular wall of the abdomen with six rows of sutures (stitches) under the skin cover, which was then closed with clamps that were later removed. (Other methods might not separate muscle layers, often involved feH,er :ilil’;,”#:1″3i*:ffi’:T,'”:nvorvedtheinsertionot

CoPyright O 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800515-7685, write Harvard Business School Publishing, Boston, MA021,63, or go to http://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadshee! or transmitted in any form or by any means–electronic, mechanical, photocopying, recording, or otherwise-without the permission of Harvard Business School. Professor James Heskett prepared the original version of this case, “Shouldice Hospital Limited,” HBS No. 583-068.

This version was prepared jointly by Professor James Heskett and Roger Hallowell (MBA 1989, DBAI997). HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illusfrations of effective or ineffective management. 592 A typical first-time repair could be completed with the use of preoperative sedation (sleeping pill) and analgesic (pain 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 recovery. THe PaTIENTS’ ExpERIENcE

Most potential Shouldice patients learned about the hos- pital 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 upersonal physician and then contacted Shouldice directly. Many *tru 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% of shouldice patients came from outside the province of ontario, most of these from the United States. Anoth er 60″/o of patients lived beyond the Toronto area. These out-of-own patients often were diagnosed by mail using the Medical Information Questionnaire shown in Exhibit L. 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 n the past six months to a year, or whether a general or local anesthetic was required). At this point, a patient was given a operating date and sent a brochure describing the hospital and the shouldice method. If necess ary, 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 duy before the operation, a patient joined other atients in the waiting room. He or she was soon examined in one of 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 typic ally 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 fter arrivin 8 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, containi^g 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 unpack ing, getting acquainted with roommates, shaving themselves in the area of the opera- tion, and changing into pajamas. At 4:30 P. M. , a nurse’s orientation provided the roup of incoming patients with information about what to expect, including the need for exercise after the opera- tion and the daily routine. Accordi. g to Alan OiDell, “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 duy. Patients to be operated on early were awakened at 5:30 A. M. tcl be given preop sedation. An attempt was ade to schedule operations for roommates at approximately the same time. patients were taken to the preoperating room where the circulating nurse administered Demerol, an analgesic, 45 minutes before surgery. A few minutes prior to the first operation at 7:20 A. M. , the surgeon assigned to each patient administered Novocain, a local anesthetic, in the operati. g 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 the completion of their operation, during which a few patients were “cha tty’, and fuily aware of hat was going on, patients were invited to get off the operating table and walk to the post-operating 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 physiologicai [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. n the duy 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 “crass” admitted that duy. on the fourth morning, patients were ready for dis- charge. 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 shouldice Hospital Limited (Abridged) 593 (HIBIT ;”EF 1 Medical lnformation O,uestionnai re 5 ‘n,ti,rBER (or Rural Route or P. O. Box) Province/State

Town/City SHOULDICE HOSPITAL 7750 Bayview Avenue Box 379, Thornhill, Ontario L3T 4A3 Canada Phone (418) 889-1 125 Telephone # (Thornhill – One Mile North Metro Toronto) tq-Frhrr. 1^i il3$-1- rr=CBlv’lATlON: Please give name of lnsurance Company and Numbers. MEDICAL .nS,-IANCE: (Please bring hospital certificates) INFORMATION nLR3r:,r- ‘. a – r. l IJCE: (Please bring insurance certificates) OTHEH SURGICAL INSURANCE Patients who live at a distance often prefer their examination, admission and operation to be arranged all on a single visit – to save making two lengthy journeys. The whole kEl&anr:r Name of Business Are you the owner? f Retired Yes – purpose of this questionnaire is to make such arrangements possible, although, of course, it cannot replace the examination in any way. Its completion and return will not put you Former Occupation No under any obligation. Do you smoke? Please be sure to fill in both sides. tr-! n? -? : asr,ssrcn date? (Please give as much advance notice as possible) ry*esi:,-s =-(–, Sa:-‘:a;’ cr Sunday. ffiEr h ,s *crJ FOR OFFICE USE ONLY Type of Hernia This information will be treated as confidential. ;I”EXIEEIEEIRIE: ffi iMEfrgles ory’ cqJd n=trr [email protected] :rE] cr*en rr d yotrr operatirn a tir lrctrr ru=ight EXHIBIT 1 (Conttnueol

PLEASEBEACCURATE! :Misleadrngfuures.. *fi€rl. cFeox€€]r3′ admissionday,couldmeanposFonementolyqJropeGlhontrlll”,yc’-,,[e,Etri Waist (muscles THIS IS YOUR CHART – PLEASE MARK IT! APPROXIMATE SIZE. ” Walnut (or less) Hen’s Egg or Lemon GraPefruit (or more) INFORMATION ESSENTIAL EXTRA and put that apply to your hernias Use only the sections v. lu H a / in each relaxed)””””””””””””‘ins’ is your health now E treatment: Pressure Excess bodY fluids Chest Pain (“angina”) lrregular Heartbeat Ulcers Anticoagulants (to delaY blood-clotting or to “thin the blood”) F t ‘ Name of anY Prescnbe: pills, tablets or caPsutres 1otake regularlY – A nY condition Please tick regular for which You are having Diabetes Asthma & Bronchitis Y ,JI GOOD ; Blood ,JI Chest (not exPancld’ il il t] t] I il I il 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 element of the Shouldice Program.

Accordi^g to Dr. Byrnes Shouldice, son of the founder, a surgeon on the staff, and a 50% owner of the hospital: Patients sometimes ask to stay an extr a 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 botheri. g them for a long time. hospital and has regular hours. ” Accordi. g to Dr. They are immediately able to get around, and they’ve got a three -duy holiday ahead of them with a Per- 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 ,::it i ? ffi : ”’il” JilI% IL:x *,x’*#: have the run of the 3 patients, make friends easily, and hospital. In summer, the most common after-effect from the surgery is sunburn. he’s told. This is no place for prima donnas. Tue NuRsEs’ ExPERtENcE Dr. Shouldice added: 34 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 acutecare 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 counseli. g 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 junior resident in surgery performs. Hernia repair Tiaditionally recruiting. ” hernia is often the first operation that

The hospital employed 10 full-time surgeons and other major operations. This is quite wrong, ES 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 fer*hernia repairs each year. But at Shouldice Hospital a surgeon learns the Shouldice technique over a periol of several months. He learns when he can go fast anc when he must go slow. He develops a pace and a L?. xli;J!. T,:i'””*11:1′-x1’*:1i#;il’It;. TJ: geons. We teach each other and try to encourage a 8 each duy. a scrubbing scheduled operation at 7:30 A. M. hortly before the first 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 scrubbrng, 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 Shouldice Hospital Limited (Abridged) tr– achieve absolute perfection. Excellence is the eneml’ of good. 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 Surgeofl, d scrub nurse, and a circulating nurse. The operatirg load varied from 30 to 36 operations per duy. As a result, each surgeon typically performed three or four oPerations A typical surgeon’s duy started with a L’ regarded as a relatively simple operation compared to group effort. And he learns not to take risks Tne DocroRs’ ExPERIENcE 595 ‘ a Chief Surgeon Degani assigned surgeons to an oPerating room on a daily basis by noon of the preceding da1′ This allowed surgeons to examine the specific patienE hat they were to operate on. Surgeons and assistants H-ere rotated every few days. Cases were assigned to give do. tors a non-routine operation (often involving a recurrenc€ several times a week. More complex Procedures ^’er€ assigned to more senior and experienced members of th” staff. Dr. Obney commented: If something goes wrong, we want to make sure tha: we have an experienced surgeon in charge. Experience is most important. The typical general surgeon mai perform 25 to 50 hernia operations per yeaL Ours Perform 750 or more. The L0 full-time surgeons were paid a straight salan’ typically fi,aa,000. In addition, bonuses to doctors \’ere distributed monthly. These depended on Profit, indir-icual productivity, and performance. The total bonus Pc-‘i paid to the surgeons in a recent year was aPProximate-‘r $400,000. Total surgeon compensation (including benefir was approximately 15% more than the average income for kitchen staff several times a d,ay, and the hospitar staff to o’D efi, “weuse arl fresh ingredients and prepare the food from scratch in the kitchen. ,, The director of housekeeping pointed out: a surgeon in Ontario. Training in the shouldice technique was important eat together. Accordi^g to ecause the procedure could not be varied. It was accomplished through direct supervision by one or more of the senior surgeons. The rotation of teams and frequent consultations allowed for an ongoing opportunity to appraise performance and take corrective action. where possibre, I former shouldice patients suffering recurrences were assigned to the doctor who performed the first operation “to allow the doctor to rearn from his mistake. ,, Dr. obney commented on being a shouldice surgeon: ilH:*XX##’#Hlti:iJf mx;^:”x$::: ing notes [for confidence], e.. oriaging eachither, and walking around, getting exercis.. briourse, e,re in the rooms straightenirg ,p throughout the day. This gives the housekeepers ; chancl to josh with the patients and to encourage them to exercise. A doctor must decide after several years whether he to do this for the rest of his liie because, just a Iultt in other speciarties-for exampre, radiology_h. s loses touch with other medical disciplines. If h; stays for five years, he doesn’t leave. Even among younger doctors , few elect to leave. ?,. i. |. 1.. lrt|ii;. ;|ii|:. :. ||::)|:|ii||. |i::|||||:. :|::||:::|:::|:::::::::::::::::::::::::::::::::: The shouldice Hospital contained two facilities in one uilding-the hospital and the clinic. On its first-level, the hospital contained the kitchen and dining rooms. The sec_ ond level contained a large, open tounge area,the admis_ sions offices, patient rooms, and a spacious grass-covered Florida room. The third revel had aaaitiond fatient rooms and recreational areas. patients could be seln visiting in each others’rooms, walking up and down hallways, loung_ irg in the sunroom, and making use of light recreational facilities ranging from a pool table to an exercycle. Alan o’Dell pointed out some of the features of the hospital: The rooms contain no telephone or television ets. If a patient needs to make a call or wants to watch terevi_ sion, he or she has to take a walk. The steps are designed specialry with a smalr rise to alow patients recently operated on to negotiate the stairs without undue discomfort. E-“”Iy rqluru foot of the hospital is carpeted to reduce the hospital feeling and the possi_ bility of a fall. Carpetir,g urro gives tf,e phce a smell other than that of disinfJctant. ‘ This- facility was designed by an architect with input from Dr. Byrnes shouldice and Mrs. w. H. uiquhart (the daughter of the founder). The facility was discussed for years and many changes in the lans were made before the first concrete was poured. A number of unique policies were also instituted. For example, parents accompanying children here for an operation stay free.. you may wonder why we can do it, but we learned that *. rrre more in nursing costs than we spend for the parent’s room and board. have- only three on my housekeeping staff for the entire facility. one of the reasons for ; f”* housekeep_ that we don’t need to change rinens during a ::? ,tr patient’s four- duy stay. Arso, the medical staff doesln,t The clinic housed five operating rooms, a labor atory, and the patient-recovery room. In totar, the stimated cost to furnish an operating room was $30,000. This was con_ siderably less than for other hospitals requiring a bank of equipment with which to administer anesthetics for each room. At shourdice, two mobile units were used by the anesthetists when needed. In addition, the complex had one “crash cart” per floor for use rf a patient should suffer a heart attack or stroke. ilin|,4|’i|4? l|:j:i|’i|:|j|!. :||i:|. |::::::|||:::;:i. :|:::):’:|::::::|::::|::::):::::::::’:1: 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 or employees here. Nobody is fired. [This was later reinfor. “-d by Dr. shouldice, who described a situa_ tion involvirg two employees who confessed to theft in the hospital. They agreed to seek psychiatric help and were allowed to remain on the itu. l As a resurt, turnover is low. our administrative and support staff are non_ union,. b”, we try to maintain a pay scale higher than the union scale for comparabl. Jou, in the area. we have a profit-sharing prin that i, ,. prrate from the docto*: year the administrative and support -LTt staff divided up $60,000. If work needs to be done, peopre pitch in to herp each other.

A unique aspect oi o,,r, 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 immediatlly. we don,t have an organization chart. A chart tends io make people think they’re boxed in jobs . a r try to stay one night a week, having dinner and ristening to the patientJto find out how things are really goinf uro. rnd here. Patients and staff were served food prepared in the same kitchen, and staff members picked up iood from a cafeteria line placed in the very .. r,t. , of the kitchen. This pro’ided an opportunity for everyone to chat with he Operating Costs The 2004 budgets for the hospital and clinic were close to $8. 5 millions and $3. 5 million, respectively. 6 Shouldice Hospital Limited (Abridged) Sgz EXH lB lT FIoor Supenisor 2 Organization Chart Lab (4) Operating Laundry Room Housekeeping Office Accounting Medical Grounds (3) (2) Supervisor I Head Head Nurse urse (2) Record (2) Dietary (r7) I5 (2) (3) i al[eets three limes a year or as needed. bUeets as needed (usually twice a month). lnformallv reports to Executive Committee. Physical Surgeons Assistant Plant (12) Surgeons (7) Anesthetist (t) pared to an average charge of $5,240 for operations per_ ormed elsewhere. if. l. rlii. ,i. l. ,,:::. ::i:ll|::::l. ::. :::l:.. ::::|:. :|:::|::. :::::|:’. ::|::):|::::::::::: Hernia operations were among the most common per_ formed on mares. In 2000 an estimated r. ,000,000 such operations were performed in the united states alone. Round-trip fares for traver to Toronto from various major cities on the North American continent ranged from roughly $20A to $600. when our backlog of scheduled operations gets too large, we The hospitar arso provided annual checkups to alumni, free of charg.. Muny occurred at the time of the According to Dr. Shouldice: wonder patient reunion. The most recent eunion, featuring dinner and a floor show, was held at afirst-class hotel in down_ town Toronto and was attende d by 1,000 former patients, many from outside Canada. ho* many peopre decide instead to p”rfor* the operation. Every have their rocal doctor time we’ve expandea o11 capacity, th” backrog has declined briefly, onry to climb or,. u again. Right now at 2,400,]1 ir rarger than it has ever been and is grow_ irg by 100 every six months. The hospitar relied entirely on word-of-mouth adver_ tising, the importance of which was suggested by the results of a poil carried out by i. :i|,i. ]||,)|:i. ||. ;|,. ii:. ||:||:. |,. )||:|:||. :||,.. |:|||::::||:::’. ::::::::::::: when asked about major questions confronting the man_ agement of the hospital, Dr. shourdice cited I aesire to seek ways of increasing the hospitals capacity while at the same time maintaining . oriror over the quatity of service delivered, the future role of government in the operations of the hospital, and the use of the shouldice name by potential competitors. As Dr. shouldice put it: Im a doctor first and an entrepreneur second. For students of Depaul lrxiriuit 3 shows a portion results). Although little systematic data about university as part of a project of these atients had been collected, Alan o’Dell remarked that ,,if we had to rery on wearthy patients onry, our practice would be much smaller. ,, Patients were attracted to the hos pitar, in part,by its reasonable rates. Charges for a typical operation were four days of hospital sta y at $? 20 p. iau anda $650 surgical fee for a prim ary inguinar (the most common example, we courd refuse permission to other doctors ah. – hospitar. The y may copy our technique and Tisappry it or misinform *,. i. patients about the use of it. rni, resurts in failure, and we are f, who want to visit hernia). An additional fee of $300 was assessed f generar anesthesia was required (in about 20% of cases). These charges com_ ExHlBlr Direction: you. 5. B concerned that the technique will be blamed. But Shourdice Hospitar Annuar Patient Reunion Data For each question, please place a check mark as it applies to 4 /7 22 Nationalitv Directions: please place a check mark in nation you represent and please write in your province, state or country where it applies. Canada America Europe J6 -]] province sate a”*r, ee 2 /o ua’rl ,o/ // 63% 5 /6 /960 7 5′ %dt 39. 54% 5/. /6% fl. 63% 4/. 56% 30. 23% /6. 26% occupation Ilave you been overnight in a hospital other than u*@’ houldice befone your operation? !* j! _ No lZ What brought Shouidice Hospital to your attention? Friend 8′ ,1 Doctor Rerative . . , 6r. 1//o _0. %% EzW,/. rticre ,9 , Did you have a si’,gle 26; or double /6 other 4 ,iiJ”#Zw hernia operation? 56,/4% fi. s6% 9. Is this your first Annual Reunion? yes No fi .10 . , If no, how many reunions have you iiM ,,a”fz’,fl ^tt 10. Do you feel that Shouldice Hospital to, ,* * – per,son? “r””0 Most definitely Definitety 6 JZ Very iittle Not 66,05% /a%% 7 Z_. reaubrc _fl 42. 6J% 6-/0 ruo,rn,re – 5 z17J% !:;::::; :’r’; #, at all Shouldice Hospital Limited (Abridged) 599 EXHIBIT 3 (Continued) fhat impressed you the most about your stay at Shouldice? check one answer for each of the following. for operation and hospital P1ease s Not Somewhat 27. 9d1 Imporiant /4 Somewhat Imporbant 32. 56% // Somewhat Important 25. 5/l /5 Somewhat Important 34. 5E% Not 7 /6. 26% Important 32. 56% Not ImPortant 6 /S,6dl 3 6,96% Not 27,9/k Somewhat 5 /0 Important 25 Important n. fi% 23,2fl1 56. /5% ” sbouldice Hospital hardly seemed like a hospital at all. ” Somewhat Very 5 /3 Importani 25 Importani Important //. 63% 30. 23% 55. /4% give the MAIN REASON why you reiurned for this annual In a few words, reunion. Very Important 2 4. 65% Somewhai

Very 39. 53% Friendships witb Patients Not Important / 2. 3? l Not Important 3 6’96% Not ImporLant we’re doctors, and it is our obligation to help other Alan O’Dell added his own concerns: surgeons learn. On the other hand , it’s quite clear that others arc tfying to emulate us. Look at this ad. [The advertisement is shown in Exhibit 4. ) 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 2O%. Throughout the year, no oPerations are sched- How should we be marketing our services? Right now we don’t advertise directly to patients.

We’re uled 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 even afraid to send out this new brochure we’ve pu: together, unless a potential patient specificallrrequests it, for fear it will generate too much demand. Our records show that just under 1% of our EXHIBIT 4 Advertisement by a Shouldice Competitor could expand our number of beds by 50%, and schedule the operating rooms more heavily. On the other hand, given Sovernment 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 surgerf, yancose veins, or diagnostic services (e. 9. , colonoscopies). For now we’re also beginnirg the process of groomirg someone to succeed Dr. Degani when he retires. He’s in his early 60s, 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 Satutday operating program on the premise that he won’tbe here and won’t be able to maintain proper control. 500 Shouldice Hospital Limited (Abridged) Canadian Hernra Ctinic Hernias (Ruptures) Required Under local anesthesia as by Canadian method. No Overnight Hospital Stay, Co nsult atio n s Witho ut Char ge 23061St. Rd. 7 BOCA R{ION, FLA. 33433 482-7755 patients are medical doctors, a significantly high percentage. How should we capttahze on that? I’m also concerned about this talk of Saturday operations.

We are already getting good utrltzation 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 floatirg around among the staff about it. And the staff is not pleased. 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 wedge between the two groups. As one put it, “I’d hate to see the practice split over the issue. ” EruDNOTES 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 thes e,by far the most common are inguinal hernias, many of which are caused by u 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, 85oh of all hernias occur in males. 2. 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 1″. the literature f or these types of hernia varied greatly. However, one text stated, “In the United States the gross rate of recurrence for groin hernias approaches 70″/”. ” monet ary references in the case are to Canadian dollars. $1 US equaled $1. 33 Canadian on February 23, 3. A11 2004. n Exhibit 2 was prepared by the casewriter, based on conversations with hospital personnel. 4. The chart 5. This figure included a provincially mandated return 6. on investment. The latter figure included the bonus pool for doctors. SIUDY OuEsrtoNs L. What is the market for this seraice? Hout successful is 2. Shouldice Hospital? Define the seraice 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 take to expand the hospital’s capacity and how utould you implement such changes? Shouldice Hospital Limited (Abridged) 601

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