Business Models Inc.

Case study: The business model of a hospital

October 21, 2011 | Camilla van den Boom

“The Best Hospital in The Netherlands”

In 2010, the board of the University Hospital Maastricht decided to look for opportunities to redesign healthcare on a free-market basis in some of its departments. The hospital has a clear ambition to become the best hospital in the Netherlands. In January 2010, the board met with the heads of departments to discuss a possible redesign of the departments by means of business modeling. The redesign of the departments aimed to improve the quality and safety, optimize efficiency, and generate additional revenues. They wanted to achieve greater value for customers and shorter lead times of processes, ultimately resulting in better financial results. After some consideration, the decision was made to proceed with business modeling in order to gain a better understanding of the hospital’s own business model and internal organization. Business modeling was used as a catalyst for the evaluation of the hospital’s value proposition to its customers, along with its processes, its costs and its investments in ICT.

Starting with a pilot

The board decided to start with a number of pilot departments. One of them was the Department of Dermatology. Head of Department Prof. Peter Steijlen and Acting Department Head Dr. Maurice van Steensel took up the challenge of being the pioneers in redesigning healthcare on a free-market basis. Under the supervision of Business Models Inc., they set out on their pursuit of value creation by initiating the first business modeling project. The Department of Dermatology team was facilitated by Business Models Inc. in the process of determining the future business model of their department.

“The playing field in healthcare is changing”

In the first phase, the decision was taken not only to focus on process optimization and ICT investments, but also to provide room for the development and formulation of value creation and value propositions for customers. Not only the costs mattered, but also the potential revenue streams. The healthcare sector will in the coming years compete on how to create revenue streams around the free choices of the individual. In the past few years, changes in the rules and regulations in healthcare focused on supply and demand. This was intentionally the focus of the Department of Dermatology. It was also important to integrate a number of established practices drawn from other quality-enhancing projects into the business model project. The holistic approach of Business Models Inc. ensured that those results were not ignored, but were used as sources to formulate, discuss, and implement the business model.

Process and result

The Department of Dermatology had deliberately chosen a cross-section of the department in compiling the list of participants. The belief is that multidisciplinary teams work best, both in the ideation phase of a new business model and later in the implementation phase. When people are invited to help conceive a project, they are the greatest ambassadors of change and renewal. The support is much more reliable and solid if all functions and all hierarchical levels are represented, not just peers and likeminded people. It shows courage to invite everyone to the table, especially also those who have the strongest resistance towards all renewal projects.

The first session provided sufficient discussion. The multitude of questions and remarks demonstrated the importance of a wide audience when working on the business model of the department. Some examples of the questions and comments:

• We have a big problem with finding high-quality staff.
• We have the ambition of becoming the best hospital in the Netherlands, but what does that really mean?
• Greater production does not automatically result in higher turnover or revenues.
• Reduction is often directly associated with loss of productivity and quality.
• We invest heavily in ICT, but has this led to the results we hoped for?
• We want to advance quickly, but also to achieve numerous small successes.
• How can we ensure a sense of urgency among our colleagues?

In order to picture potential for improvement, the team started with determining the position of the department’s current business model. The team discussed questions such as:

• What is our proposition as the Department of Dermatology? What products and services do we provide?
• To whom do we deliver these products and services? Who, in fact, are our customers?
• How do we deliver these products and services to our customers? What channels do we use?
• How do we maintain the relationship with the various customer segments?
• What resources do we need to be able to offer this value proposition?
• What activities do we perform? Who performs which activities?
• Who are our key partners?
• What does our costs structure look like? What are the biggest costs?
• How does our department generate revenue? What are our department’s sources of revenue?

After establishing the position of the current business model, we looked at the vision and the ambition level of the Department of Dermatology, by answering questions such as:

• What is the vision of the department?
• How do we translate this vision into concrete, tangible dimensions?
• What will contribute to the realization of this vision?
• What are the challenges in realizing the vision?
• How do we get there?

It was also important to understand what was happening in the market and what the context in which the department and the team operated looked like. What would the near future look like in the eyes of customers and how would this affect the department? The team answered questions such as:

• What are the trends in the market?
• How will the current legislation change and what impact will it have on us?
• What economic factors are changing?
• What is the competition doing?
• What impact will technological factors have on our department?
• What are the real customer needs? Where is the real pain?
• What aspects cause uncertainties in the market?

After a thorough evaluation of the current business model, it was redesigned on the basis of the identified design criteria. A number of activities were undertaken:

• We used a series of different innovation techniques.
• We defined scenarios and elaborated various business model options.
• We made strategic choices in entering new customer segments and improving the value proposition.
• We chose between potential alternatives for generating revenue for the department and (or) reducing its costs.

The final result of the project was the design of a new business model for the Department of Dermatology.