Private and Confidential
Managing Organization
Final Project Report
on
Narayana Hrudayalaya
Presented to
Prof. Mukta Kulkarni
Indian Institute of Management, Bangalore
Submitted By:
Group 2
Akshay Goenka (1311002)
E.R.Ramesh Kannan (1311015)
Makesh Kumar M (1311028)
Rathi Vaibhav Suresh (1311041)
Siddhant Mishra (1311055)
Vivek Yelisetti (1311068)
Acknowledgement
We would like to take this opportunity to express our sincere gratitude to the people who have been helpful to us during the course of this project.
We would like to thank Narayana Hrudayalaya for allowing us to perform a detailed study about their organization. We thank Mr. Lucky Goyal, Administration Executive, who has been of immense help and a constant source of support while executing the project. We are extremely grateful to Mr. Lucky for having patiently explained the background, organization and operations to us in spite of his busy schedule.
We wholeheartedly thank Professor Mukta Kulkarni for giving us a wonderful opportunity to research on an organization like Narayana Hrudayalaya, which we have thoroughly enjoyed and learned during the time we spent.
We extend our thanks to her who has been an able guide and a pillar of support for us.
This document summarizes a detailed study and analysis of the structure of the organization. It also outlines the strategy and the effects of the external environment on the organizational structure and further developments. The document also highlights the relationship between the structure and strategy of the organization.
Table of ContentS
5. Strategy to Changing Environment 7
6. Organization Life Cycle and Structure 12
6.1 Details of the structure 12
6.2 Analysis of the structure 13
6.3 Life cycle of the structure 13
8. Strategy of NH - A Hot Bed of Innovation & Cost Control 16
8.1 Miles and Snow's Strategy Topology 16
Table 8.1 Average Cost of Heart Surgery 17
LIST OF FIGURES
Figure 5.1 Growth of Medical Suppliers and Consumables market in India 8
Figure 5.2 Financials of NH Pvt. Ltd. till 2010 9
Figure 5.3 Healthcare Metrics of India Figure 5.4 Changing Population Profile 11
Figure 6.1 Organizational Structure 12
Figure 6.2 Mintzberg's Organization Type - Professional Bureaucracy Structure 13
Figure 6.3 Growth Phase of Narayana Hrudayalaya 13
Figure 7.1 Narayana Hrudayalaya - Values 14
Figure 7.2 Strategic Focus - Culture 15
Figure 8.1 Miles and Snow's Strategy Topology 16
Executive Summary
Narayana Hrudayala, as an organization, belongs to the Healthcare Industry, and more specifically is a Medical Care Provider. The industry comprises hospitals, medical infrastructure, medical devices, consumables, clinical trials, outsourcing, telemedicine, health insurance and medical equipment.
Narayana Hrudayala has studied the nuances of the industry and has effectively used them to its benefit, to bring about a revolution by offering low cost health care for all. They follow a professional bureaucracy structure wherein the role of highly skilled specialist surgeons becomes prominent. They also manage the uncertainties effectively by following strategies such as cooptation; Kiran Mazumdar Shaw Chairman of Biocon is in the board of Narayana Health. Narayana Hrudayalaya is part of Narayana Health. They have effectively adopted Thompson's reciprocal interdependence model, every department or group is interconnected which is highly critical in the functioning of a hospital.[1: http://www.narayanahealth.org/about-us - Leadership]
They have a functional structure and all the fit and design tests have earned positive results. They have a market focused functioning, highly flexible culture, the right people are positioned at the right place, the specialists are completely insulated and an optimized integration is present between departments. It is a highly networked and mission oriented organization. They are the analyzers and they innovate everyday to be cost effective without compromising the quality. They are in the coordination phase of life cycle growth. They have an effective market based control strategy wherein profit and loss statements are reviewed on a daily basis. On the whole, they have organized their functioning so effectively such that they have achieved economies of scale as well as economies of scope which is a very rare phenomenon in health care.
Objectives
The following are the objectives for taking up Narayana Hrudayalaya as the organization of study:
To perform an exhaustive study and analyze the organization
To study the effects of external environment on the strategy of the organization
To establish the relationship between the structure & the strategy of Narayana Hrudayalaya
We have conducted interview with Mr. Lucky Goyal, Administration Executive at Naraya Hrudayalaya. This was the primary source of information. Our secondary sources of information were the website of Narayana Hrudayalaya, www.narayanahealth.org and other internet portals.
Industry Background
There have been two major obstacles which have been hindering the healthcare systems in India - Poverty and Population. On the statistics front, 90% of the total private spending on healthcare in India is out of one's own pocket with two out of five hospital interventions paid for by individual loans or sale of assets. Health care spending accounts for 4.2% of the GDP compared to 9.8% of the GDP of the United Kingdom. Private health spending accounts to 73.8% of the total health spending which is indeed the highest proportion in the world.[2: moreforless.reform.co.uk/pdfs/Narayana_Hrudayalaya.pdfâÂÂ]
India is a country in which majority of the population live with limited or no access to quality health care. On the other hand, there are many avenues which provide high quality healthcare to middle-class Indians and medical tourists. Rural areas and poor population are the two markets which have not been mapped extensively and these people have been adapting to natural medicine such as ayurveda. More than two-thirds of the hospitals and healthcare centers are located in the urban areas and only one-fourth of the Indian population has access to western healthcare facilities. [3: http://www.pwc.com/en_GX/gx/healthcare/pdf/emerging-market-report-hc-in-india.pdf]
On a holistic view, there is less than a doctor and less than 1.1 hospital beds per 1000 people because of the huge amount of rural population which doesn't have access to quality healthcare. Close to 80% of the healthcare infrastructure are secondary care services with very minimal primary and tertiary services. With most of the professionals preferring to stay in urban areas, there is a severe dearth of staff shortages and this is the reason why primary care network suffers. [4: Ibid]
There has to be significant increase in the number of healthcare facilities that India has to have. An additional 1.75 Million hospital beds are required to achieve a target of two beds per 1,000 people by 2025. Similarly, an additional 0.70 Million doctors would be required to reach a ratio of one medical doctor per 1,000 people by 2025. [5: Ibid]
When compared to Europeans, Indians are three times more prone to heart attacks. There is excess demand for heart surgeries every year, something close to 2.5 Million people. But there is an imbalance in the supply with the combined capacity of Indian hospitals less than 90,000 surgeries a year. Providing healthcare facilities to the rural areas of the country has become increasingly difficult and challenging with the population close to 700 Million. With the tremendous improvements in research and development coupled with the exponential growth in the country's information and communication technology and decreasing costs, Tele-medicine trend seems a viable option.[6: moreforless.reform.co.uk/pdfs/Narayana_Hrudayalaya.pdfâÂÂ][7: http://www.tradingeconomics.com/india/rural-population-percent-of-total-population-wb-data.html]
The mode of operation includes remote diagnosis, monitoring and treatment of patients through video conferencing or through Internet. Some of the major private hospitals have implemented telemedicine services, and a number of hospitals like Apollo, AIIMS, Narayana Hrudayalaya, Aravind Hospitals and Sankara Nethralaya have developed public-private partnerships (PPPs). [8: http://www.pwc.com/en_GX/gx/healthcare/pdf/emerging-market-report-hc-in-india.pdf]
Organization Overview
"Temple of the Heart" - Narayana Hrudayalaya is a classic example of how the passion of a single person turned into a boon for the society. The love for philanthropy, inclusivity and Mother Teresa made this compassionate Doctor Devi Prasad Shetty establish this renowned organization in 2001 at Bangalore. He had one thing in mind; he wanted healthcare to reach as many needy people as possible. India being a nation of vast diversity in population as well as economic scale, providing affordable health care for all was a challenge for the government. His entrepreneurial nature and the way he managed his organization not only made him to succeed in his mission but also to go far beyond that. Government of India has honored him with the prestigious award 'Padma Bhushan'.[9: http://en.wikipedia.org/wiki/Devi_Shetty]
The hospital was first built in Bangalore with the help of Dr.Devi Shetty's father in Law. Dr. Shetty had a strategy in mind; he aimed at optimizing the medical procedure. He transformed the medical industry from a differentiated model to a low cost model. He relied on increasing the number of consultations and surgeries while keeping the cost low. He built a medical foundation wherein surgeries were performed round the clock and doctors were specialized in performing a particular kind of surgery and they would do as many surgeries as possible in a day. They followed a professional bureaucracy kind of structure. The organization made sure that they were at par with the technological developments and all the equipments were used to their fullest capacity while they maintained a completely process oriented environment. As a result, they were able to optimize and bring down the cost involved, which they used effectively to treat the needy people.
Vision
"Our vision is to provide high quality healthcare, with care and compassion, at an affordable cost, on a large scale" [10: http://www.narayanahealth.org/about-us - NH-Vision & Values]
They are also operating telemedicine service wherein most of the reports and analysis are shared via telephone and internet. 'Hrudaya Post' was launched in rural Karnataka where in poor people can scan and send their reports from a nearby post office and the doctors at NH would provide free consultation and advice. They are also involved in micro health insurance scheme Yashaswini, Arogya Raksha Yojana to provide free consultation and cashless surgery for the poor in collaboration with public and private partners. [11: http://www.dhan.org/askmi/docs/Research%20and%20studies/Case%20Narayana%20Hrudayalaya%20%28health%29.pdf]
They struck the balance by charging nominal rates for the rich and providing free medical assistance for the poor while maintaining cost efficiency. By this way, they were able to expand their noble services across boundaries.
In their growth path they have literally covered most of the streams in health care starting from cardiology to bone marrow transplantation. Apart from providing quality health care, they are also into the education field wherein they provide affordable education and employment in the field of medicine. The organization is growing continuously and they are trying to expand globally.
Strategy to Changing Environment
Narayana Hrudayalaya is a 'focused factory' with heavy emphasis on its core competencies and a demographically inclusive delivery mechanism for its services through cost-effective solutions. A first mover in the business, NH has overcome uncertainties through synergies and operational excellence, and thus has a low uncertainty avoidance index. The inter-organizational relationships NH shares with its suppliers, investors and the government are collaborative by design and ensure that the impact of market monopolies is contained to acceptable levels. Time and again, NH has been applauded for utilizing economies of scale and lean operations to cut costs down. Our analysis of the organization's environmental factors suggests that although the elements are changing with time, the rate of change is gradual and more importantly predictable. This aids in a establishing a stable environment and wringing out inefficiencies by making use of routine tasks and procedures even in a high skill field like cardiac care. The multiplicity of the various environmental factors at play is evident. NH deals with people from varied income groups, nationalities, ethnicities and cultures in a niche segment of medical care. The multiplicity of factors at play is evident. NH deals with people from varied income groups, nationalities, ethnicities and cultures in a niche segment of medical care. It has to co-ordinate with a host of suppliers for equipment and consumables. Collaboration with government agencies is a key to realize the strategic objectives and fuel growth plans. Daily P&L checks suggest high responsiveness in operations, but that feature does not alter the organization's tactical goals to a great extent. Thus, NH operates in a Complex-Stable environment and the associated elements discussed below are a testimony to that idea.
Stability Quotient Complexity Quotient
(Stable)
Industry
Indian healthcare industry was valued at USD 79B in 2012 and is expected to more than double by 2017. This massive increase in valuation is attributable to host of factors such as huge infrastructure development, increasing demand and improving reach of quality healthcare to the lower levels of the demographic pyramid, rising awareness of end users coupled with growing instances of non-communicable diseases, and launch of much needed innovative insurance schemes, reimbursements and various financing policies. Based on current growth rates and policy engagement by the industry and govt., the bed density per 1000 people is expected to grow to 2 by 2025. This calls for a requirement of additional 1.75M beds and 700k doctors in next 10 years.[12: http://www.ibef.org/industry/healthcare-india.aspx][13: moreforless.reform.co.uk/pdfs/Narayana_Hrudayalaya.pdfâÂÂ]
NH Response: The organization has 6 hospitals, 1302 full-time doctors and has a coronary artery disease detection centre, comprehensive cancer care centre with advanced therapeutics, dialysis units, post-operative pediatric cardiac ICU unit in Bangalore, a complex telemedicine network, a bone marrow transplant unit and a centre for organ transplants (kidney, liver and heart transplants). The group has recently built a 300-bed eye hospital next to heart clinic. In the next 5 years, NH plans to grow to a capacity of 30k beds and will thus become the largest private-hospital group in India. [14: http://www.narayanahealth.org/about-us][15: http://www.economist.com/node/15879359]
Raw Materials
The healthcare service providers procure suppliers on daily, weekly or annual basis depending on the shelf lives of the materials. The more expensive high-tech equipment market is dominated by foreign players but the cheaper consumables / disposables area is dominated by domestic manufacturers. India relies heavily on imports for bringing in medical technology to India in the form of medical equipment (65% imported), syringes, needles & catheters (18%), dental instruments & appliances and other medical & surgical devices (44%).The government needs to incentivize entry of local players into the high end medical supplies market and help realize sustainable profits for manufacturers and lower costs for hospitals.[16: http://www.medicalplasticsindia.com/mpds/2010/may/coverstory6.htm][17: KPMG Report: Kbuzz-Issue-16-April-12.pdf]
CAGR 19% CAGR 15% CAGR 19 CAGR 15%
Figure 5.1 Growth of Medical Suppliers and Consumables market in India[18: http://www.medicalplasticsindia.com/mpds/2010/may/coverstory5.htm,]
NH Response: NH purchases suppliers for all medical stores and consumables in bulk and negotiates discounts directly from the manufacturers thereby eliminating distributors from the chain. It effectively reduces obsolescence and product expiry by keeping optimum inventory levels using advanced forecasting techniques. NH has formed collaborations with governments and real estate owners to get land at subsidized rates. It procures costly medical technology at lease or in some cases convinces vendors to park the devices in the hospitals for a pre-defined usage period thereby saving on valuable capital expenditure. NH uses resultant saved capital to commission large-scale projects and scales them in order to fuel the organizational growth and meet its expansion objectives. [19: Narayana Hrudayalaya - Caring with Compassion, by Dr. Sanjeev Sood, Air Force Hospital, Chandigarh]
Human Resources
In 2010, India had about 300 medical colleges which admitted 34,595 students on an annual basis. The country needs to add about 60,000 medical college seats and 90,000 nursing college seats in order to meet the global norms. The seat distribution is skewed towards 6 states - Maharashtra, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh and Puducherry, which make up for 61% of the total seats. Only 11% seats are in the states of Bihar, Jharkhand, Orissa and West Bengal and the north-eastern states. Practitioners are concentrated in Urban India with about 74% of graduate doctors opting to work in cities and towns which constitute only 25% of the Indian population. These workforce shortages present a pressing challenge for hospital chains in India. [20: http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/Emrging_trends_in_healthcare.pdf]
NH Response: NH's ways of handling of diverse resource contingencies are good examples of how firms minimize dependencies in order to ensure uninterrupted supply of manpower and material, and mitigate risks. In order to overcome manpower shortages, NH has recommended that the government open 100 medical colleges every year for the next 5 years (100 seats/college). It has pledged to train 2,000 children every year from rural areas and help them become doctors through training and soft education loans. In 2008, NH had a team of 42 surgeons. The administrative help to the doctors comes from a large support staff which handles the onerous paperwork for surgeons, freeing them to perform up to 12 surgeries a week. They have introduced the best in class pay packages for them in order to attract and retain the best manpower. With low downtime and turnaround time, NH ensures that the scare resource pool is optimally utilized and the cost per surgery is further minimized.[21: Narayana Hrudayalaya - Caring with Compassion, by Dr. Sanjeev Sood, Air Force Hospital, Chandigarh][22: www.wfs.org - THE FUTURIST July-August Edition 2012]
Financial Resources
The hospital services market is an attractive avenue for financial institutions to invest and gain healthy returns. The hospital and diagnostics centre business in India attracted FDI of USD 1.6B in 2012. An increase in foreign investment inflows and private equity (PE) along with the government's aim to increase public healthcare spending to above 6% by 2016 are welcome moves. Service providers plan to invest about USD 1B on IT in 2013. Another revenue stream, the medical tourism industry, helped by a large English speaking workforce and high quality private healthcare businesses, is valued at USD 1B per annum & is poised to double by 2015.[23: http://www.ibef.org/industry/healthcare-india.aspx][24: Gartner report, IBEF]
NH Response: The organization raked in USD 89M as investments from marquee PE companies - JP Morgan American International Group in 2008 for a 25% stake. They continue to hold stake despite growing pressures on NH to improve profit margins from the current levels of 8% and demonstrate better returns on investments to shareholders. The equity base is now well above USD 100 M. NH's USD 2bn project in Cayman Islands is a joint venture where in the partner - Ascension Health Alliance will provide facilities planning, supply chain management and biomedical engineering services while NH will provide the quintessential technical knowhow and align the venture strategically to the group's vision.[25: Tarun Khanna, Tanya Bijlani, HBR, Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor (B)][26: ET: 2013-05-24/news/39476325_1_heart-surgeon-elderly-patient-dr-devi-shetty][27: PR Newswire US, 04/10/2012, Item: 201204101528PR.NEWS.USPR.CG85197]
Figure 5.2 Financials of NH Pvt. Ltd. till 2010[28: Tarun Khanna, Tanya Bijlani, HBR, Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor (B)]
Market
In the 8 years preceding 2010, private sector contributed 70% of the additions to the bed capacity of the hospital industry in India. The industry is however skewed towards secondary services and is constrained for capacity. Primary care services account for only 11% of the health infrastructure while secondary care is 78% of the entire setup. Rural India contributes 50-70% of cases of non-communicable diseases. Hence, the high skew towards urban areas and the substantial demand from Tier II and III cities create a good market opportunity. Emulating the NH model, the new entrants hope to bring in the benefits of economies of scale, standardized procedures, and franchise model of operation and cut costs drastically.[29: McKinsey Report: Executive_Summary_India_Healthcare_Inspiring_pssibilities_and_challenging_journey.pdf][30: moreforless.reform.co.uk/pdfs/Narayana_Hrudayalaya.pdfâÂÂ][31: Hospital Chains in India: The Coming of Age? Bertrand Lefebvre, Jan 2010]
NH Response: Dr. Devi Shetty is a medico-entrepreneur himself and has developed novel synergies between core cardiac care business and his broader philanthropic inclinations. He vouches for a world class healthcare distribution which is equitable for the masses at an affordable cost. Although the services of NH range from oncology to pediatrics, the organization's route to success has been through managing a core set of services with greater standardization, rather than being multi-purpose. These competencies are central to the organization's long-term strategy and are reflective of the founder's humane approach to dissociate quality healthcare from the ability of patients to pay for the same. It is with this spirit that NH has opened telemedicine practices and physical hospital setups in Tier II and III.
Technology
In the years to come, hospital information systems, picture archiving and communications systems, electronic health records and mobile technologies will be the new technologies to look out for. This of course will be complemented by offering cost effective business models. NH uses technology for almost every part of its operations. Teleradiology, which is a means of outsourcing diagnosis of radiological cases, presents a great opportunity for Indian radiologists, who are in surplus as compared to those in developed countries. NH uses technology to create & monitor prescription's - no hand-written prescriptions that could be misinterpreted or misread, and completely eliminates harm/death due to incorrect prescriptions. The Healthcare BPO concept has seen reasonable traction in the past few years and was a USD 24bn industry in 2008. The USD 2 B medical equipment market is growing rapidly too. The area has witnessed great participation from medical equipment giants in the form of investments in India. The hospital chains in India need to focus on 2 key areas of improvement. Firstly, increase the reach of medical technology in the rural India and secondly, keeping the equipment asset base low. [32: http://www.gartner.com/newsroom/id/2344215][33: http://www.medicalfair-india.com/cipp/md_ww/custom/pub/content,oid,1162/lang,2/ticket,g_u_e_s_t]
NH Response: The organization's penchant for innovation is visible. Each machine bought by NH is utilized 15-20 times in a day as compared to 3-4 times a day in US. Within the same 'Health City', specialties share expensive imaging equipment and other facilities such as laser, cyber knife and blood bank, and run them 24x7 instead of using just 33% machine uptime. NH is a pioneer in the telemedicine space. Aided by 800 satellite centers, NH's reach has expanded to 26 countries apart from India. Doctors effectively use video-conferencing tools to observe distant patients. Mobile units relay cardiovascular images back to central units and await further instructions or receive diagnostic reports. They monitor financial reports, services, quality and complaints. Instead of the typical quarterly of end-of-the-year financial statements, NH created daily balance sheets which are sent by SMS to whole organization so as to proactively improve finances. Complaints Management System - NH encourages complaints and proactively acts on them. Earlier they would see 200-300 complaints a day across their operations, but now they have brought it down to 60-80 by real-time monitoring of quality. Thus, NH has used technology, especially IT, extensively in establishing diagnostic controls across hierarchy and managing a system which is highly responsive to internal environment.[34: Khanna, T. et al (2005), "Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor", HBR][35: FASTCOMPANY.COM March 2012 Report][36: http://www.cio.in/ceo-interviews/within-decade-all-indians-will-have-access-high-tech-healthcare-founder-narayana-hrud]
Government
In early 2000s, the government pushed forth an official accreditation system for hospital care in order to standardize healthcare quality and the safety norms in Indian hospitals. The current Dr. Manmohan Singh government too has shown explicit focus on increasing outlay to the health sector in the 12th 5-year plan. Some of the recent initiatives by central and state governments such as permitting 100% FDI for health and medical services, bringing in 348 essential medical items under price control measures, exempting contributions to Central Health Schemes from tax and assigning a USD 800 M budget for medical education are positive signs of the administrations intentions about healthcare spending and regulations. Therefore, interfacing with the government adds to stability in an Indian hospital chain's environment. [37: Hospital Chains in India: The Coming of Age? Bertrand Lefebvre, Jan 2010][38: http://www.ibef.org/industry/healthcare-india.aspx]
NH Response: NH is considered to be instrumental in launching ISRO's telemedicine programme in 2002. It helped run the cardiac care unit in the government hospital in Chamarajanagar, Karnataka. The success led to full-fledged medical programmes in all district hospitals in 2003. This showed how last-mile connectivity in rural healthcare can be achieved with proper collaboration between the government and the organization. The concept of telemedicine, highly relevant in the context of rural India, has impacted the live of the poor in Karnataka, Rajasthan, Kerala, Chhattisgarh and Andhra Pradesh where almost all district hospitals have employed the telemedicine approach towards medical care.[39: Business Today, Aug 10, 2008]
Socio - Cultural
India has managed to improve its life expectancy and infant mortality rate metrics in the last 50 years. However, it is still a laggard when compared to peer countries with similar economic history. This indicates the importance of social and cultural roadblocks in the overall improvement in the healthcare situation. The demographic profile of the population is changing and there is an immediate need of changing the cultural mindset amongst citizens with respect to the importance of healthcare access and delivery.
Figure 5.3 Healthcare Metrics of India Figure 5.4 Changing Population Profile[40: McKinsey Report: Executive_Summary_India_Healthcare_Inspiring_pssibilities_and_challenging_journey.pdf][41: McKinsey Report: Executive_Summary_India_Healthcare_Inspiring_pssibilities_and_challenging_journey.pdf]
NH Response: Cross-subsidy of the cardiac treatments and implementation of telemedicine and tele-consultation is NH's low-cost solution to the prevailing socio-cultural environment in India and beyond. With satellite linkages, NH can connect with people as distant as North East India or Sub-Saharan Africa. NH launched an innovating rural healthcare service called "Hrudaya Post", a postal circle which facilitated scanning and sending of medical records to tertiary arms of the hospital for consultation with a 24 hour turnaround time for analysis. This arrangement has helped save precious doctor hours and money for both the organization and the patients. Its foray into tier II & III Indian cities reaching out to poorer consumers demonstrates how an organization diffuses into its ecology while keeping the core mission and guiding philosophies intact.[42: Entrepreneurial Hospital Pioneers New Model, HBR, 24 Jan 2005][43: Narayana Hrudayalaya - Caring with Compassion, by Dr. Sanjeev Sood, Air Force Hospital, Chandigarh]
International
Buoyed by the growing influx of medical tourists (600,000+ per annum), many Indian hospital chains are going international. Established brands have played the role of consultants for foreign governments and setup units beyond borders. This internationalization is helped by growing credibility of such chains in quality medical care delivery and the support of the native governments.[44: From Dubai to Sultanpur: Hospital Chains in India: The Coming of Age? Bertrand Lefebvre, Jan 2010]
NH Response: The management invested time with the Cayman government in order to get legalities right for setting up a hospital. Indian degrees in medicine were asked to be recognized on the islands. NH has entered into talks with American insurance firms to bringing certain treatments and work unions under the purview of the coverage. The islands were chosen for setting up a 150-bed unit as costs were as low as 40% of that in mainland US. In 2011, patients from 73 countries came to NH in India for treatment. NH has responded to the 23% growth rate in medical tourism by training staff in Arabic, Malay and Mandarin languages. It has made use of tele-cardiology practices and treated over 58,000 patients through 800 centers worldwide, including those in 53 African countries. This shows that NH's philanthropic ethos is ingrained in its international activities. Also, the uncertainty that the foreign activities have brought are being effectively dealt with a smart use of joint ventures in the host-country. [45: Tarun Khanna, Tanya Bijlani, HBR, Narayana Hrudayalaya Heart Hospital: Cardiac Care for the Poor (B)]
Organization Life Cycle and Structure
Details of the structure
The broad level organizational structure of the organization is shown below
Figure 6.1 Organizational Structure[46: Narayana Hrudayalaya / HBS 9-712-402, May 18-2012, Tarun Khanna/Tanya Bijlani]
Dr. Devi Shetty is the Chairman of the organization. His family owns the company (NH Private Limited). The activities of the organization are grouped together by common functions from the bottom to the top; effectively Narayana Hrudayalaya follows a Functional Structure. There is a separate quality assurance department which is managed independently by a Director. In addition to this there is a separate Finance department which has another Director as a head. The Chairman is assisted by an executive board of directors.
The primary focus of the doctors of the organization is to focus on performing surgeries and surgeries only. The senior doctors participate in the administration activities but their primary focus is on patient healthcare. Day-to-day management of the organization is handled by the professionals. The entire management of the organization is handled by the Chief Operations Officer (COO). There is a highly elaborated support staff with a small techno, finance and quality assurance team. The support staffs like the receptionists, patient attendees' aide the doctors for a smooth and an efficient functioning of the process.
All the doctors were trained at hospitals like Harvard Medical School, University of Massachusetts, hospitals in UK and Australia. At every level of the organization, there are people at multiple expertise and knowledge to succeed the people on top. The primary objective is to nurture the talent from within the organization instead of hiring laterally. The organization started off with a 300 bed hospital in 2001, to grow to a 6000 beds healthcare powerhouse in 2013 with 17 hospitals present in 13 locations within the country. The primary structure of the organization is functional with the majority of its workforce falling under the operations division. [47: http://www.narayanahealth.org/about-us - NH Overview]
Analysis of the structure
According to Mintzberg's five organization types, we can classify Narayana Hrudayalaya as a Professional Bureaucracy. Although this organization is not very old and not very big, it has fully elaborated departments with much formalized work. The doctors, highly specialized surgical consultants, pre graduate doctors and junior surgeons provide the services for the organization. The technical support staff is very small and the organization has a large administrative staff to support the doctors and handle the day to day activities.
Figure 6.2 Mintzberg's Organization Type - Professional Bureaucracy Structure
Life cycle of the structure
The organization is currently in the coordination stage (Greiner's stages of evolution), successfully formalised all the processes and structures. As it was evident when Dr. Devi Shetty started the organization, the decisions and motivations were highly sensitive to the market feedback. Later all the roles and the functions of the members of the organization were clearly laid down and the hierarchy was clearly defined. Quality control and finance departments came into existence. With the motive of domestic and global expansion (Cayman Islands example) in the hindsight, there can be various factors which could play a spoilsport. The organization would become too large and complex to manage formally. There would be sources of conflict between the members of the organization. Rather than focusing on providing quality healthcare at cheaper and affordable costs, various procedural issues might crop up.
Figure 6.3 Growth Phase of Narayana Hrudayalaya
Organization Culture
Dr. Shetty's office houses a photo of Mother Teresa along-with her wonderful words - "Hands which help are better than the lips that pray" symbolizing Narayana Hrudayalaya's vision and value system. Dr. Shetty admits of being influenced by the preaching of Mother Teresa. He attributes Mother Teresa as being the inspiring force behind Narayana Hrudayalaya and this force lays the foundation of the culture that NH is built upon. [48: http://www.npr.org/2011/11/03/141996028/devi-shetty-founder-of-narayana-hrudayalaya-hospital]
Figure 7.1 Narayana Hrudayalaya - Values [49: http://www.youtube.com/watch?v=Pvz2JGI-L6Q][50: http://www.narayanahealth.org/about-us - Values]
I nnovation and Efficiency - Constant improvisation of the processes, achieve cost cuts and remain accessible to the rural populace.
C ompassionate Care - Employee indifference to the affluence of the patient and focus only on the health issue and provide comfort to the patient
A ccountability - While dealing with the patients, investors, auditors, employees etc.
R espect - All employees and patients
E xcellence - Maintain high quality technical skill-set of employees with constant focus on job training
The unique mix of these core values has played an instrumental role in helping NH achieve its objective of affordable, accessible and high quality healthcare to millions of people around the globe. This strong foundation has helped the employees at NH to foster a feeling of accountability, ownership and compassion and have consequently helped in disassociating healthcare from affluence. Instead of focusing on lateral entry, there is strong sense to nurture and retain the exiting talent at NH to uphold the culture and as a result there is almost zero attrition-rate among the senior doctors.
The scale at which NH performs critical surgeries warrants a strong interdependence, excellence and technical skill set making training an important aspect of the culture.
Training Nurses
Training forms an integral part of the culture at Narayana Hrudayalaya. There is a strong emphasis on elevating the level of nurses and doctors. Employees are respected and given an opportunity to learn and step up the ladder. NH recently initiated a one of its type program for training the nurses to elevate them to the level on intensivists under the guidance of distinguished faculty, owing to which nurses would be able to perform on par with physicians thereby fostering a strong work culture.
Academic Training
NH runs its own postgraduate programs. Hands on training is given prime importance and trainees/graduates are made to go through a rigorous 6 year training program wherein the take up exams, give presentations and assist/observe the senior surgeons in the operations thereby fast tracking their career progression.
Spirituality
Faith in religion and spirituality plays a very important role at NH. A priest would generally offer prayers at the opening of any major lab. Once a week, employees have spiritual sessions for relaxation from strenuous work.
Relationship of Strategic Focus and Corporate Culture
Figure 7.2 Strategic Focus - Culture
Efficiency, consistency and diligence are vital characteristics that help Narayana Hrudayalaya achieve its objective of cost effective quality healthcare. The NH administration very minutely and acutely looks at the entire processes framework right from land costs, technologies, machinery and manpower employment thereby optimizing all the functions and attaining efficiency at each point in the operating cycle. Narayana Hrudayalaya, thus follows a Communal culture with respect to the Strategy and external environment.
Strategy of NH - A Hot Bed of Innovation & Cost Control
A strategy is a plan for interacting with the external environment, tailoring and monitoring exchange of goods, information and actions to achieve the goals of an organization. Strategy is one of the things that define NH. In this section, we first analyze NH's strategic positioning using the Miles and Snows Strategic topology. In the following section we discuss how Dr. Devi Shetty's brilliant innovative mind helped conquer the problems and tip the balance in his favor.
Miles and Snow's Strategy Topology
Figure 8.1 Miles and Snow's Strategy Topology
Narayana Hrudayala is a clearly positioned as "Analyzer" in this strategy framework. Based on the points we noted above, NH clearly indulges in tight cost control for its core operations. But they also make it a point to balance efficiency and learning, and innovate on the periphery of their core operations. NH has a global perspective towards its operations, and much like conducting a market advantage test; they have identified a key source of advantage and is striving to contribute to making it count.
By 2011, NH has treated patients from 73 countries, a bulk of who travel to India for 'Medical Tourism'. With the high cost of Cardiac Surgery in the US and other countries, travelling to India severely reduced the cost of these surgeries for needy individuals.
Tele- Medicine which was started in the year 2002 is a free service in which NH uses technology such as video conferencing, SMS messages and telephone calls to analyze and diagnose cardiac conditions based on ECG reports, Audio/Visual data, CT scans, X-rays & MRIs. This service is especially useful to people in rural districts who cannot travel to an NH location. Also, the telemedicine scheme connects patients from various countries such as Bangladesh, Pakistan, Malaysia & Mauritius to NH's expertise. NH has set-up a hospital in the Cayman Islands, which is just a one hour flight from Florida, but provides the same cardiac care at 50% of the cost incurred in the US. They have negotiated with US insurance companies for treating patients who would have otherwise been refused treatment for some cases, and with American corporations to provide treatment to their union members.[51: Professor Mukta Kulkarni 's Lecture Notes]
Conclusion: Process Innovation, Economies of Scale and Cost Control
Hybrid Pricing Model
The cost of an average cardiac surgery is very high. [52: http://online.wsj.com/article/SB125875892887958111.html]
Table 8.1 Average Cost of Heart Surgery
NH provides private & semi-private rooms for those who can afford them. This costs $3000 for the surgery plus an extra cost for the rooms which makes the total cost $4000-$5000. These rooms comprise 20% of the hospital the additional revenue offsets the discounts given to the poor, who pay as low as $1500. Another important part of the hybrid-pricing model that NH follows is the different prices of medical tests based on the time of the day. If a poor person is willing to come late at night, he is charged lesser for the same test, as compared to a person who comes within normal working hours. Dr. Shetty helped set up Yashaswini - an insurance scheme for the poor farmers in Karnataka in association with the government. This self-funding scheme covers over 1700 types of operations limited to a set list of diseases. Under this scheme, the person pays a paltry $2 a year, and the scheme pays $1300-$1500 to the hospital for a surgery performed on a needy subscriber. The breakeven cost for such a surgery to the hospital is $1800, and the difference is made up by the hybrid - pricing model described above, or by individual donations to the organization. This ensures one of NH's guiding beliefs - "No one should be denied treatment due to lack of funds". The insurance scheme, on the other hand, makes money by the sheer size of the scheme and the number of people it covers. Registration for the scheme would require an annual premium of Rs. 90, part of which is paid by the governments. Presuming only 8 out of 10,000 patients actually require a surgery, the premium of 90 works out to be good enough to maintain the funds for surgeries.[53: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4493][54: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4493][55: http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCsQFjAA&url=http%3A%2F%2Fwww.nihfw.org%2FWBI%2Fdocs%2FIndia%2520Flagship%2520sessions%2FHealth%2520Insurance%2FHarvard%2520Case%2520Study-Yashaswini.doc&ei=O7UEUojUJMSJrAfDm4HwCQ&usg=AFQjCNGK2IpQLL__N3Qn3pIeU6zI4rMVSw&bvm=bv.50500085,d.bmk][56: http://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCsQFjAA&url=http%3A%2F%2Fwww.nihfw.org%2FWBI%2Fdocs%2FIndia%2520Flagship%2520sessions%2FHealth%2520Insurance%2FHarvard%2520Case%2520Study-Yashaswini.doc&ei=O7UEUojUJMSJrAfDm4HwCQ&usg=AFQjCNGK2IpQLL__N3Qn3pIeU6zI4rMVSw&bvm=bv.50500085,d.bmk]
Salaries to Employees
Typically surgeons are paid on the basis of how many surgeries they conduct- this is a big component of the overall cost for most hospitals. But NH pays surgeons a fixed salary, which is never less than what they would end up making at other hospitals. But here is the secret sauce - they perform more surgeries per day than at any other hospital. Surgeons at NH conduct two to three procedures a day for six days a week, as opposed to one to two performed at other hospitals, and are encouraged to specialize in one to two kinds of procedures, and take proper breaks between operations to maintain quality. NH currently pays only 22% of its revenue on salaries to employees as compared to the global average of 60%.[57: http://www.resultsfordevelopment.org/sites/resultsfordevelopment.org/files/resources/Innovative%20Health%20Service%20Delivery%20Models%20for%20Low%20and%20Middle%20Income%20Countries.pdf]
Input Cost Control
NH engages in relentless bargaining with suppliers and uses their volume to leverage the best deals even in cases when there are no niche suppliers feasible to replace the major suppliers. Some great examples: Instead of sourcing surgical gloves locally, NH imports them from Malaysia in bulk, which results in a whopping 40% saving of cost. They bargain extensively for low costs for stitching sutures. NH realized that sourcing from a major supplier like Johnson & Johnson would be extremely costly, and switched to Centennial, Chennai which halved their cost from $100,000 per year to $50,000 per year. Though machines such as CT Scanners & MRI Scanners are expensive, NH decided to turn the problem on its head and reduced the cost per surgery. They use these machines for 14 hours a day, as opposed to the normal eight hours per day for other hospitals. For blood-gas analysis machines, they convince the supplier to give them the machine for free, and make a profit by selling the chemical reagents used in the machine. Their high volumes make such a deal possible. For Echocardiography and Cardiac Catheterization labs, it is harder to find a cheaper supplier, and the ones that exist have insufficient post-sale service and service centers, which could drive the costs back up. So NH decided to source from GE, but again used their high volume to drive a hard bargain and keep costs low. For capital expenditures like land, NH ensured rock bottom prices by engaging construction companies owned by family members and negotiates with the government to get land at subsidized rates.[58: http://online.wsj.com/article/SB125875892887958111.html][59: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4493]
Questionnaire
We have interviewed Mr. Lucky Goyal who is an Executive - Administration in Narayana Hrudayalaya group of hospitals. The following summarises the important questions which we have considered in our analysis.
How many beds does NH have currently compared to the target of having 30000 by 2015?
What are primary sources of revenue and what are the financials for 2012/13?
One of the important factors that helps NH save a lot of money is the salary structure. Given that doctors at NH receive no less than their contemporaries, how does NH actually manage such cost savings with respect to salaries?
If doctors are required to perform more procedures compared to other hospitals, won't they charge that much higher?
Is there any component where they believe they could attain further cost savings? What are the challenges for the same?
Are there any challenges that are foreseeable in the near future - specifically organization design and expansion?
How easy/difficult it has been to accommodate various medical streams (other than cardiac) into NH's scheme of things?
How much is the influence of founder's pre-2000 experience on current work culture / vision / mission?
How does the SMS system which is being sent to the doctors' everyday work?
How are integrators put into place, if any? How are they justified and what substantial role they do. Is there any use of buffering mechanisms and boundary spanning roles?
Who is behind the techno structure of the organization? Who is designing and operating the process for the hospital?
Are there any recommendations being implemented based on employee feedback?
Questions on Growth stage
References
Managing Organisation - Final Project Report (Group 2) | Page 4 of 21 |
Managing Organisation - Final Project Report (Group 2) | Page 20 of 21 |