The Aravind Eye Hospital, Madurai, India: In Service for Sight 1) Identify the key factors that led to Aravind’s success. What was Dr. V’s role in all this? What was the support staff’s role in all this? Key success factors: The key success factor was to align a great social benefit with a sustainable business model. The conservative financial management with no debt allows sustainable growth.
The vision and mission of the organization is well articulated and the collaborators are well aligned with it via spiritual affinity with the cause.The business model of doing treatment for free and having sponsors handling the customer acquisition and transportation costs has proven to be successful. Dr. V’s strategy of providing quality care in less developed areas of the county has avoided competition and given access to an untapped market. Dr. V’s role: Dr. V’s role is to keep the organization vision and mission alignment.
He was also the founder of the first hospital (Aravind) in 1976. Dr. V. ideas also incentivize family and community to work with or participate at the project. Support Staff role: The support staff plays a pivotal role in the project.By allowing to work at lower wages and by working aligned with the mission of the organization they help keeping productivity and motivation high and costs low. 2) Are there any weakness at all with Aravinds model? The main weaknesses are: 1) Reducing profitability per patient: The paid patients are growing at a slower rate than the free patients which means that the average cost per patient is increasing (please check exhibit 1 for details) 2) Higher growth of free patients: The number of patients selected for surgery after screening is low and the avg. ate of free patients is higher than the paid patients: 3) Capacity and Utilization problem: The utilization rate of the “Tirunelveli” and at the “Theni” units is low causing higher overhead per patient and “Madurai” unit is over-utilized.
Check Exhibit 4 for details. 4) Aligning cost structure with product demand: The center performs all types of surgery and has personnel and equipment to support it but 80% of its patients demand only two types of procedures (ICCE and ECCE).This causes higher overhead and lower average margin per patient. Check Exhibit 2 for details. ) Low conversion rate: At Tirunelveli and Theni units only a few percentage of the screened candidates become a patient. This might be because of a less efficient marketing campaign or because that market does not have as many customers.
6) Overhead and product cross-subsidy: The fixed costs are high (two thirds) and ad demand is uncertain and not recurring, in the long run the revenues can be impacted (the hospitals can run out of customers in the areas served). Considering that in 1991, a total of 51,490 patients were served this means that the Variable cost per patient is approximately R$ 109. 6 and the overhead (Fixed costs) is R$ 222.
25 totaling a cost of R$ 332. 21 per patient on average and considering that the average revenue per patient R$ 696. 12 the average markup per customer is 106%. But if we take in consideration that the average price of an ICCE is R$ 750 and for ECCE is R$ 2,000 and they represent 61% and 19% of the volume of the surgeries (respectively) we can conclude that those surgeries have a much higher average profit margin and a most likely cross subsidizing the other procedures.
7) Market depletion: The business models depend on finding new patients.Due to type of treatment that is applied each patient generates revenue only once (the patient gets “cured” and does not generate recurring revenues. At the time of the case there is a huge unmet demand so market depletion is not a threat in the short term but as time goes by he will need to reach further to find more patients. 8) Channel conflict: Almost all customers are acquired via screening camps and those are organized in conjunction with local organizations and are not divided by geography. As such there could be channel conflicts (more than one organization trying to acquire customers in the same market area. 3) How should Dr.V expand the Aravind model to other parts of India, Asia, and Africa? Before expanding to other areas Dr. V.
should take some actions to strengthen his financial position in India: 1) Capacity and Utilization: If possible he should shift capacity from Tirunelveli and Theni to Madurai. It is important to set an agreement with the companies to sponsor the additional transport costs to bring the patients from other areas to Madurai. This can also be implemented as a cost sharing. 2) Lowering costs: (a) Dr.
V. might consider doing ICCE and ECCE procedures only. Those are both the most frequent and the most profitable. b) Manufacturing the IOL and reducing the costs from R$ 800 to R$ 100 can generate savings of R$ 2.
5 million per year and increase the gross profit margin in 7. 8%. 3) Advertising: (a) Tiruvelneli and Theni have a very low conversion rate (from screening to patients), Dr. V. should investigate if this market has demand enough and if it does invest in advertising. (b) Dr. V.
built a good brand over time. He might consider being the prime in the advertising campaign to acquire more patients. 4) Product: One idea to be considered is to better equip the hospitals and train the personnel to increase the ECCE and decrease the ICCE surgeries.Those are better to the patient but also shorter recovering time (increase the utilization of the hospital) and are also more profitable. Dr.
V. might also consider procedures that generate more recurring revenue (longer treatments, chronic diseases, etc). 5) Placement: Although Dr. V does a great humanitarian work by providing such important service for free for those that cannot pay we cannot forget that is the paying patients that sustain the organization and make possible the free treatment to exist. As such it is vital to the growth of the organization the increase of paying ustomers. Thinking in that direction Dr. V should consider opening a paid-only unit closer to a more developed city.
Expanding into India, Asia and Africa: 1) The first thing needed is consistency on the service delivered. While in India the direct presence of Dr. V. guaranteed that the service in all units was provided at the same level of quality and consistency.When going abroad the coordination becomes more difficult.
To ease and address that Dr V. should: a. Document the mission, vision, process and procedures that were successful India. . Craft a detailed training and “indoctrination” procedure to align the resources with the mission c. Detail the monitoring and control mechanisms.
2) The second thing is having a good understanding the market and the consumers on each geography: d. Market size, segmentation, targeting and positioning e. Patient behavior f. Competition g.
Economic considerations (how much can that market afford? ) h. Operational and logistics considerations (can we get supplies in and out of that country? i. Human Resources (do we have skilled resources available? Do we have to invest in training and development? ) 3) Exhibit 1 – Forecast of patients: Exhibit 2 – Patient Profile: Exhibit 3 – P&L Exhibit 4 – Capacity and Utilization: ——————————————– [ 1 ]. Based on information provided on Exhibit 4 of the case [ 2 ]. Dividing total revenue on Exhibit 6 with total patients on exhibit 4. [ 3 ].
As per page 9 paragraph 1 of the case. [ 4 ]. Based on information from Exhibit 5