Apollo Hospitals in India - Case Study Example

Apollo Hospitals in India Apollo Hospitals in India Executive Summary Dr. Pratap C. Reddy pioneered the first corporate hospital in India as Apollo Hospital in the year 1983. The organization aimed to offer the best and diverse medical services and facilities to private patients who could afford to pay for medical treatment they receive. The case study has been analyzed using Porter’s five forces model, SWOT, and CSF analysis. The findings suggest that Apollo has been a great success in the corporate hospitals market of India. It has been successfully able to engage reputed doctors and surgeons who have contributed to the growth of its patient base. The conditions in the industry have been tough and Apollo has to make certain strategic decisions to expand its network. However, despite its strong leadership and financial position it does aim to increase its financial risks in expansion due to high competition and initial investment requirements. Therefore, it must adopt a different strategy through diversification, licensing, partnerships or even making it a public limited company that could bring in new capital from shareholders. Analysis Key Performance Apollo Hospital is a profit generating organization and it reported profits for consecutive ten years. Despite tough competition in the Indian healthcare industry the hospital was able to generate strong demand for its services. The revenue grew almost six times from INR57.192 million to INR374.426 million in 1994. The bed occupancy of Apollo Hospital has improved from 40.4% in 1990 to 70% 1994. All other performance indicator reflected a strong business model implemented by Apollo Hospitals that allowed the organization to remain ahead of its competitors in these years. Approach to Case Study The current case study analysis combines examination of external factors with the organization’s internal analysis to form a discussion of critical success factors (CSF) of Apollo Hospitals. The reason for choosing PESTEL, Porter’s Five Forces, and SWOT analysis tools for this case study is that they allow a better understanding of the strategy followed by Apollo Hospital to be the first to address healthcare needs of Indian population and its ability to outperform other companies. In addition, this report includes important conclusions from the case study and set forth recommendations for the organization to deal with the growing demand of high quality healthcare in India and tough competition from other corporate hospitals that followed Apollo Hospitals by making their entry with huge investments. Porter’s Five Forces Model Threat of Substitutes There is not threat of substitutes as healthcare is the basis need of humans. However, there is a threat from advancement in the healthcare technology and its implementation by other corporate hospitals. This could make treatment facilities obsolete or ineffective provided by a hospital, but this is a slow process. Overall, threat of substitutes is limited. Threat of New Entrants For establishing new corporate hospitals there are several challenges in the form of high capital investments required and longer payback periods. However, private healthcare industry offers great opportunities for investors to make profits in the long run. This is the reason that new corporate hospitals rapidly followed Apollo Hospital business strategy. The case highlighted expectations of 150 corporate hospitals by 1995 and that figure to reach 250 by 2000. Overall, threat of new entrants is high. Degree of Rivalry The competition between corporate hospitals is intense. They compete not only on the basis of their reputation in terms of medical services and residing doctors and surgeons, but also on the basis of their pricing for various services. Competition targets patients by addressing their dissatisfaction from medical or non-medical operations. The completion comes from both public and private hospitals. Furthermore, there are high exit barriers making it difficult for investors to forego their investments. Overall, the degree of rivalry remains intense. Bargaining Power of Suppliers The reputation of a healthcare facility highly depends on affiliation and practice of doctors and surgeons who are considered as suppliers of services at the hospital. One source of patients is through referrals made by doctors and surgeons. It could be suggested that these practitioners have the ability to determine their fees and terms of practice that makes their ability to switch to other hospitals easier. Overall, bargaining power of suppliers is on the higher level. Bargaining Power of Buyers The bargaining power of patients in healthcare industry is weak. Although, marketing of hospitals and services are much needed, but once the relationship is established then patients do not change their preferences for receiving healthcare. There have little alternatives as patients in general continue their treatment with the same doctor or surgeons over a period. Also, access to medical services at certain hospital make it difficult for them switch. Overall, bargaining power of buyers is limited. SWOT Strengths Weaknesses S1 Strong leadership and reputation of Dr. Reddy. W1 There is an absence of any local business models to follow or challenge. S2 Strong corporate culture and association of employees with the organization. W2 Repeated patients’ dissatisfaction in relation to non-medical services provided by the hospital. S3 Deliverance of high quality and wide medical services and high-tech facilities. S4 Experienced and well reputed doctors, surgeons and other medical staff. S5 Well-established contracts with corporations. S6 Strong financial position with revenues reaching INR374 million in 1994. S6 Strong brand name and reputation both in India and outside India. Opportunities Threats O1 Rising demand for high-quality healthcare services in India. T1 Better salaries and working terms offered by other institutes may result in decline of referral patients. O2 Licensing Apollo brand to private investors under IHC can expand its network. T2 Emigration by medical practitioners to other countries. O3 Joint collaboration with international medical providers. T3 Improvement in healthcare services by private nursing homes and government hospitals. O4 Increase in the income level of a large middle class Indian market. O5 Willingness of investors to invest in Apollo hospitals inspired by almost double growth in shareholders’ equity O6 New business strategies such as HMO can generate new opportunities. Source: (O’Connell & Loveman, 1996 ) Critical Success Factors for Apollo Hospitals Impact on Business Probability of Impact High Medium Low High Customer Satisfaction, Quality of Service, Access to Market, Changes in Regulations, Competition International medical service providers Medium Change socio-culture and economic conditions in India Low Advancement in Technology Political Conclusions/Recommendations 1. Apollo hospital being the pioneer in providing private healthcare facilities and services continues to be a major player in shaping up the Indian healthcare industry. 2. By providing license to other investors to use Apollo’s brand can generate an alternate stream of revenues. However, this could also have a negative effect on its brand image if licensees do not maintain the same level of quality. 3. Diversifying business by providing HMO seems appropriate for the organization that aims to expand its patient base. However, the company does not have any prior experience of managing such service that could fail and weaken the brand of Apollo. 4. The organization aims to restrict its financial risks and at the same expand its network, it can do by making the company public. Through IPO of the company’s shares can actually bring in fresh capital to invest in new hospitals. 5. The competition in the Indian private healthcare industry is becoming intense and it is important for Apollo to adopt an aggressive business strategy to form alliances with international organizations and investors to attract foreign direct investment in India. 6. Apollo hospital could also introduce commission-based scheme for patient referrals by doctors. This could reduce their perception of threat from Apollo Hospitals. 7. Apollo hospitals also face challenges in terms of customers’ dissatisfaction arising from non-medical operations. Reference O’Connell, J., & Loveman, G. W. (1996 ). Apollo Hospitals of India (A) . Cambridge, MA: Harvard Business School. Read More