Shouldice Hospital:
Operations Assessment
Shouldice Hospital has been devoted to repairing hernias for over half a century. Although the Shouldice
system has led to great competitive positioning, the hospital is falling victim to its own success. Demand
for Shouldice services is so much higher than its current capacity of 89 beds that it is in a constant state of
operations backlog, which grows by 100 patients every 6 months. Thus, Shouldice needs to find a
solution to its single most critical question – how to expand the hospital’s capacity while simultaneously
maintaining quality control of service delivery.
The analysis below is designed to assess the current operations at the hospital, in addition to explaining
our recommendation that Shouldice should invest $4MM in a new unit, which will increase bed
capacity by 50% and require its surgeons to perform Saturday surgeries. As the financial analysis
shows, this change will allow Shouldice to capture unmet demand without compromising its unique
system of patient and employee care. Lastly, our recommendation will be also juxtaposed to other
options we evaluated as potential solutions, but that neither make financial sense nor solve the current
dilemma for the hospital.
Hospital Overview
Shouldice Hospital is a “focused factory:” a hospital with a specific area of expertise that gives it
competitive strength resulting in lower cost, higher quality service for its patients, and better pay for and
loyalty from its employees. Specializing in external abdominal hernias, Shouldice doctors execute the
“Shouldice Technique” developed by founder Dr. Edward Earle Shouldice. This precise technique has
resulted in early ambulation and higher success rates (greater than 99%) for Shouldice patients for over 55
years. However, what makes Shouldice so successful is that it is not just a hernia-healing hospital, it is an
experience.
To the delight of patients, Shouldice is more like a country club than a hospital: warm, inviting, and
relaxing versus cold, sterile, and frightening. The main house, reminiscent of a mansion, is situated on a
sprawling 130 acre estate outside of Toronto, Canada. The comprehensive patient experience includes
orientation, evening tea, patient socializing, and encouraging nurses and housekeepers. The service
continues beyond patient stays and continues at free annual check-ups and lavish patient reunions.
Patients actually get this superior technique and remarkable environment for approximately half the cost
of going elsewhere. Overall, the Shouldice experience is one that patients love and tell their friends and
family about, making word-of-mouth the hospital’s primary marketing vehicle.
Shouldice is also an experience for its employees. Shouldice employees are never fired, can participate in
profit-sharing, and earn higher wages than union workers and other surgeons. Doctors make
approximately 15% more than the average surgeon in Ontario, receive monthly bonuses, and are able to
work regular hours leaving them time for personal lives and families. These human resource practices
have led to extremely low turnover, which supports the administration’s goal of having very experienced
staff that can properly and effectively execute the hospital’s practices and procedures.
The Shouldice competitive advantage boils down to 4 keys to success, which are the following:
 Distinctive technique
 Experienced staff
 Comprehensive patient experience
 Thoughtful employee policies
These 4 elements work in unison (See Appendix 1: Shouldice Advantage) at Shouldice to promote healthy
and happy patients, in addition to content and loyal staff. As the hospital itself states, “Shouldice
Hospital is a total environment.”
Bottleneck Analysis (See Appendix 2: Analysis Assumptions)
Process Flow
2
Incoming
Patients
Bottleneck
Day 1
42 Exams
4 Sent Home
33 Surgeries
38 Surgery
Candidates
89 Beds
Available
Day 2
Bottleneck
116 Extended
Stay
Day 2-5
Discharged
Day 4-5
Bottleneck
Shouldice has the capacity to perform 42 examinations per afternoon and send 38 eligible
patients to the operation rooms. However, it only performs 33 operations per day, so the
bottleneck between these 2 processes is the number of operations being performed per day.
Shouldice performs 33 operations per day, which generate daily bed demand of 116 on
Wednesday and Thursday, and 99 on Tuesday (See Appendix 3: Shouldice.xls), all exceeding the
current bedding capacity of 89. So between these 2 processes, the number of available beds is the
bottleneck.
Overall, the bottleneck for Shouldice is the number of available beds. The hospital has to
increase its bed capacity by 30% [(116-89)/(89)] to simply meet its current operation schedule.
Current operation schedule
 Morning operations: (4/room)*(5 rooms) = 20/morning
 Afternoon operations
- Assume 50-minute time slot (45min+overhead)
- Number of available slots = 150min/50min*5 rooms = 15/afternoon
- On average each operation takes (1*90%)+(2*10%) = 1.1 slots
- Total operation capacity = (15)/(1.1) = 13/afternoon
Actual operation capacity
 Consider morning operations between 8:30AM to 12:30 PM
- Available slots per room = (4)*(60 min)/(50 min) = 4.8
- Total operation capacity = (4.8 slots)/(1.1 slot per operation)*(5 rooms) = 20
 There is 1 operation per room before 8:30 AM
 Total operation capacity per morning = (20)+(5) = 25
Therefore, total operation capacity per day equals 38/day [(25/morning)+(13/afternoon)] without
having to increase the number of surgeons and/or operating rooms.
Bottleneck Solution
3
As we established above, the current bottleneck lies in the room capacity of 89 and that an increase in the
number of rooms will fix this bottleneck. The next question then becomes – how many rooms should be
added? To answer this, we asked ourselves how many operations the hospital could perform if the current
89 room capacity did not exist.
In analyzing the “next” bottleneck, we found that the number of operating rooms would be the next
constraining resource. Currently there are 30 to 36 operations performed daily at the clinic, for an
average of 33 operations. Spread across the 5 existing operating rooms, this averages out to 6.6
operations per room, per day, with some rooms having 7 operations per day and some rooms having only
6. Broken down to the specific hours of the day, assuming that there are 4 operations performed in each
room during the morning hours (from 7:30 AM to 12:30 PM), a total of 20 operations are performed
before lunch each day at the clinic. After lunch, the remaining 13 operations are performed.
We believe that this represents an opportunity for improvement. Since each of the normal operations take
1 hour, and there are 5 hours available during the morning, 5 operations could be scheduled in each
operating room from 7:30 AM to 12:30 PM. This would represent an increase of 1 operation per room, or
a total of 5 across the 5 operating rooms per day at the hospital. Currently we do not see any opportunity
for improvement during the afternoon session, as there are only 3 hours available in each room and a
small amount of slack must be built in to the model to allow for a small percentage of the procedures that
take 90 minutes.
The resulting model would have 25 operations performed each morning and 13 performed each afternoon,
for a total of 38 operations each day. A comparison of the current model and the revised model is shown
in the diagram below:
7:30am
Current
Throughput
7:30am
4 Surgeries
x 5 rooms =
20 total
Revised
Throughput
5 Surgeries
x 5 rooms =
25 total
12:30pm
12:30pm
Lunch
Lunch
1:00pm
1:00pm
3 Surgeries
x 5 rooms – 2
90 min. ops =
13 total
3 Surgeries
x 5 rooms
– 2 90 min
ops =
13 total
33
Operations
Per Day
4:00pm
38
Operations
Per Day
4:00pm
The new model of 38 procedures per day, when scheduled across a 5 day week, results in a schedule that
requires at least 133 rooms be available during peak days of the week.
The diagram below illustrates the revised hospital admittance schedule and resulting peak day capacities:
4
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Total
Monday
38
0
0
0
0
0
38
Tuesday
38
38
0
0
0
0
38
Wednesday
38
38
38
0
0
0
19
Thursday
19
38
38
38
0
0
0
Friday
0
19
38
38
0
0
0
Saturday
0
0
19
38
0
0
0
Sunday
0
0
0
19
0
0
38
76
114
133
133
95
57
57
The new need for 133 rooms represents a 50% increase in capacity when compared to the current capacity
of 89 rooms.
Recommendation Analysis (See Appendix 4: Alternative, Non-Feasible Recommendations)
Recommendation
Shouldice should invest $4MM in a new unit, which will increase bed capacity by 50% and
require its surgeons to perform Saturday surgeries.
Bottleneck
Since Saturday operations do not require higher bedding capacity, the result is the following:
 Bed capacity will increase to (89)*(1+50%) = 133, which exceeds the number of beds
currently needed (116) thus eliminating bedding capacity as the bottleneck.
 With 133 beds available, 38 new patients can be accommodated per day, thus 38
operations can be performed per day.
 The daily examination capacity, daily operation capacity, and number of beds available
all line up perfectly, with no individual factor as bottleneck.
Cost/Revenue
 Current profit per operation = $571 (See Appendix 3: Shouldice.xls)
 Number of added operations per year = (7600/33)*(38)*(1+20%)-(7600) = 2901
 Profit increase = ($571)*(2901) = $1,656,471/year
 Cost increase = 1 time investment of $4,000,000
 Payback period for the investment = (4,000,000)/(1,656,471) = 2.4 years
Conclusion
Based on the qualitative and quantitative analysis provided herein, our recommendation is that
Shouldice should invest $4MM in a new unit that will increase the hospital bed capacity by 50%
and require its surgeons to perform Saturday surgeries. With this plan, the throughput rate
increases to 38% (2901/7600 = 38%) and provides a payback period of only 2.4 years. Both
financially and operationally speaking, adoption of this recommendation solves the hospital’s
dilemma of how to increase capacity while simultaneously maintaining quality control of service
delivery. Therefore, considering the increased throughput rate and short payback period, this
recommendation is a sound plan for Shouldice Hospital to adopt.
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Appendix 1: Shouldice Advantage
Distinctive Technique
Comprehensive
Patient
Experience
Thoughtful
Employee
Policies
Experienced Staff
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Appendix 2: Analysis Assumptions
Known
1.
2.
3.
4.
5.
facts
There are 6 exam rooms.
Each examination takes 20 minutes.
There are 5 operation rooms.
There are total of 89 beds for patient accommodation.
No surgeries on Saturday or Sunday.
Assumptions
1. Surgeons examine incoming patients from 1:30 PM to 4:00 PM (150 minutes) Sunday
through Thursday.
2. 10% of patients examined in the facility are sent back home.
3. 33 operations are performed each day Monday through Friday.
4. Primary operations take 45 minutes to finish, recurrence operations take 90 minutes to
finish.
5. 10% of all the operations are recurrence operations.
6. Assistant surgeons, nurses and house keeping staff have no impact on the overall capacity.
7. Average patient hospital stay is 3.5 nights.
8. Adding number of operations doesn’t change net profit per operation.
9. Only operation process and financial performance are analyzed, human factor is not
considered in this part of the analysis.
10. 1 new unit is included in analysis as an additional room, rather than separating 1 room for
renovation and 1 room for a new unit.
11. Saturday surgeries will not increase surgeon’s weekly hours at the hospital.
Calculations
 Maximum exams per room: (150)/(20) = 7
 Maximum exams per day: (7)*(6) = 42
 Maximum number of patients eligible for operation per day: (42)*(90%) = 38
 Surgeon utilization in the morning: (5)/(10) = 50%(at most 5 surgeons working at any
given time)
 Surgeon utilization in the afternoon: 100% (5 surgeons operating, the other 5 surgeons
examining)
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Appendix 3: Shouldice.xls
Bed Capacity
Daily Admit Rate
Number of Beds
Stay Length
Inputs
33
89
3
Saturday Surgery
No
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Total Number in
Hospital
Inputs: Admit rate, Number of Beds, Nights of stay,
Saturday surgeries
Outputs: Number of beds used each night
Nights
Arrived on Monday
Monday
33
0
0
0
0
0
33
Tuesday
33
33
0
0
0
0
33
Wednesday
33
33
33
0
0
0
0
Thursday
0
33
33
33
0
0
0
Friday
0
0
33
33
0
0
0
Saturday
0
0
0
33
0
0
0
Sunday
0
0
0
0
0
0
33
66
99
99
99
66
33
33
Profit Analysis
Process
Total Operations/patients per year
Operations per day
Number of beds
7600
33
89
Budget
Hospital
Clinic
Total
Cost per operation
Operations per doctor
8500000
3500000
12000000
1579
760
Revenue
Room Charge for 3.5 nights
Surgery Charge(all surgery)
Total Charge per Operation
Total revenue for operations
Revenue for general anesthesia
Overall revenue
Revenue per operation
Total Profit
Profit per Operation
1440
650
2090
15884000
456000
16340000
2150
4340000
571
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Appendix 4: Alternative, Non-Feasible Recommendations
Additional Beds/Floor
Cost
High:
$4MM
Complexity
High:
Planning, construction, etc.
High:
Directly addresses the
Capacity-Building
bottleneck & increases beds by
Potential
50%
Constituent
Impact
Allows more patients to be
serviced @ Shouldice
Has minimal impact on staff
Saturday Surgeries
Low:
Small increase in doctor’s
salaries
Franchising
Moderate
Low:
Only impacts doctor’s schedules
Moderate
Moderate:
Capacity +20% but does not
address the bottleneck
Low:
Does not address capacity
issues at current facility
Chair of the Board & Chief
Surgeon opposed along w/40%
of older doctors
Could create wedge between
young & old in environment
where experience is key
Difficult to control quality of
service
Brand equity potentially
compromised
May take some business from
current facility
Alternative Recommendation #1
Invest $4MM in a new unit to increase bed capacity by 50%.
Bottleneck
 Bed capacity will increase to (89)*(1+50%) = 133, which exceeds the number of beds
currently needed (116) thus eliminating bedding capacity as the bottleneck.
 With 133 beds available, 38 new patients can be accommodated per day, thus 38
operations can be performed per day. In this scenario, the daily examination capacity, daily
operation capacity, and number of beds available all line up perfectly, with no individual
factor as bottleneck.
Cost/Revenue
 Current profit per operation = $571 (See Appendix 3: Shouldice.xls)
 Profit increase after increasing bedding capacity and number of operations is
($571)*(7600/33*38-7600) = $657,515/year
 Cost increase is: 1 time investment of $4,000,000
 Payback period for the investment = ($4,000,000)/(657,515) = 6 years
Conclusion
 No. Operations: +15%
 Bottleneck: Eliminated
 Investment Payback: 6 years
Alternative Recommendation #2
Perform Saturday surgeries without making other facility changes.
Bottleneck
 Maximum number of beds needed remains the same at 116, but number of days that
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bedding needs exceed bedding capacity increases from 3 (Tues, Wed, and Thurs) to 4 (Tues,
Wed, Thurs, and Fri).
Cost/Revenue
 Currently profit per operation = $571 (See Appendix 3: Shouldice.xls)
 Profit increase after adding operations = ($571)*(7600)*(20%) = $868,000/year
 No increase in cost
Conclusion
 No. Operations: +20%
 Bottleneck: Aggravated
 No Upfront Investment, profit increase 20%
Alternative Recommendation #3
Franchise additional, off-site locations to expand operational capacity.
Bottleneck
 No initial bottlenecks would exist at franchised locations, but that will not last
Cost/Revenue (qualitative)
 Rapid expansion – domestic and international – increases revenue flow
 Remove management and operational burden at main facility
 Remove potential conflict between older and younger doctors
 Lessens threat of disrupting corporate culture
 Meet competitive threat
Conclusion
 Quality of service/brand is jeopardized due to outsourcing
 Loss of control and monitoring problems arise
 Current bottleneck in operations at main facility is not resolved
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