Finance Strategy Business Development for Apollo Hospitals

Apollo Hospitals

India's Apollo Hospitals Group

India Overview

Company Overview

Porter's Five Forces

Threat of New Entrants

Supplier Power

Buyer Power

Threat of Substitutes

Competitive Rivalry

Strengths

Weaknesses

Opportunities

Threats

Strategic Alternative Identification & Fit Assessment

Competitive Position, Capabilities, and Deficiencies

Strategic Choice & Strategy Formation

Finance

Income

The Apollo group has an extraordinary success record and has proven that healthcare in India can compete with many first world organizations with third world resources. The company faces a number of challenges in the domestic market and must continue to leverage its success. The organization has a unique source of human capital that can offer many competitive advantages on an international level with regard to technology and education. This analysis will provide a background on India and the Apollo group as well as many perspectives on their opportunities and challenges.

India Overview

India is a diverse nation that is divided into twenty five states and seven territories (Maps of India, 2011). Among these various territories, there are sixteen major languages spoken while estimates of regional languages and local dialects exceed a thousand (Gomes, 2011). The assortment of languages spoken produces an obstacle for India to become more unified as a country and the government has taken steps towards language standardization. Often children in schools learn Hindi as a second language, with English becoming common place for use in primary and higher education which helps to build a level of standardization and an international competitive advantage.

Education has developed as one of strategies of advancing an economy and India has had rapid increases in schools and enrollment in these schools. While there is some struggle to provide educational infrastructure to meet the demands of the exponentially expanding population, however India has focused on education to drive growth and improve human capital. For example, it is estimated that India trains over four hundred thousand engineers a year while the U.S., for comparison, only trains about sixty thousand (Digital Learning, 2008). This strategy has led to a technologically competent segment and driven a large growth rate in market segments such as information technology.

Figure 1 - India Education Growth (Digital Learning, 2008)

India's economy is growing very rapidly and the gross domestic product (GDP) has steadily increased since 1997 by a rate of almost six percent per year (Trading Economics, 2014). India also possesses the second largest workforce in the world only behind China. However, China's total workforce and total population still have a commanding advantage by the numbers. Furthermore, these two countries are often placed in the same categories of economic growth even though the two countries have developed on very different trajectories and used substantially different strategies (Riley, 2008).

Figure 2 - India Growth (Trading Economics, 2014)

Company Overview

Dr. Prathap C. Reddy, Apollo's Executive Chairman stated "The first part of the game is over. I have shown the world that we can provide first-class health care in India." The Apollo group and the Indian Healthcare system in general have proven that they can be a competitive force in the global market. With a total staff of over ten thousand the organization has claimed world class results. Some of the stats include figures such as:

50,000 heart operations with a success rate of 98.5%

Cardiac surgeries using the beating heart technique with a 99.5% success rate

138 bone marrow transplants with a 87% success rate

6,000 kidney transplants with a 95% success rate

The company began operations over twenty five years ago with the dream of helping India become a premier healthcare provider. The first hospital was in Chennai and had one hundred and fifty beds. Now the organization spans over eight thousand beds across forty-six hospitals and has helped over ten million lives. The company has been innovative in many ways to achieve such an impressive growth trajectory. The company now represents an integrated healthcare provider that has expanded vertically as well as horizontally and focuses on patient centered care.

Figure 3 - Patient Centered Model (Apollo Hospitals, 2014)

Mission

Apollo Hospitals' Mission is "to bring healthcare of international standards within the reach of every individual. We are committed to the achievement and maintenance of excellence education, research, and healthcare for the benefit of humanity." (Apollo Hospitals, 2014)

Porter's Five Forces

There are many challenges for modern day healthcare organizations to meet the demands of the growing consumer base. Almost all healthcare organizations are to deliver broad access to health services while improving quality of care and controlling costs and greater competition has often been proposed as a solution that elegantly addresses each element of that challenge (Dash & Meredith, 2010). The level of competition in the market must be balanced with the healthcare needs of the population to promote access to high-quality; efficient care and strategies that are most effective in achieving this balance are open to debate. For example, too much competition for example can lead to duplication of services that create inefficiencies in the system as a whole on a macro level while too few services will not be able to meet the demand of health consumers.

On a micro level however understanding the competition is a vital part of creating a strategic strategy. Prof. Michael Porter's Five Forces Analysis of industry attractiveness is now being applied to healthcare and includes three forces from "horizontal" competition: the threat of substitute products or services, the threat of established rivals, and the threat of new entrants, as well as two forces from "vertical" competition: the bargaining power of suppliers and the bargaining power of customers (Meyers, 2014). When these forces are intense, it is argued that there is generally less room for profitability and the structure of the industry can drive profitability.

Porter stresses that the future will belong to those who create value and lays out his principles of value-based competition (Meyers, 2014):

The focus should be on value for patients, not just lowering costs. Competition must be based on results.

Competition should center on medical conditions over the full cycle of care.

High-quality care should be less costly.

Value must be driven by provider experience, scale and learning at the medical condition level.

Competition should be regional and national, not just local.

Information to support value-based competition must be widely available. Innovations that increase value must be strongly rewarded.

Threat of New Entrants

Hospitals face significant barriers to entering the market because they are heavily regulated and require a substantial amount of infrastructure. If there is already a hospital serving a local market it generally has a bit of monopoly power and it can be extremely difficult for another hospital to establish itself in that market through regulations or by creating market demand. This makes expansion through acquisition a popular growth model by many firms in this industry as they can quickly establish themselves in a market.

Supplier Power

The supply chains in healthcare are complex and dynamic and it can be difficult to make broad generalizations about the amount of supplier power that firm's may have in the hospital's downstream. Drug companies, insurance companies, and medical technology providers can have a considerable amount of power in negotiations with any hospital especially for proprietary-based products. However, the hospital will typically have various supply chain options that can balance negotiating power to some extent but this often must be considered on a case by case basis.

Buyer Power

The buyer's power in the healthcare market can be considered from many different perspectives. Often an individual will purchase healthcare on their own or they can purchase services collectively through insurance companies or sometimes government assistance. Individuals typically have few choices; especially in emergency situations and will have to visit the provider closest to them. Collective agencies have considerably more power but still are limited in providing options for the members that they represent.

Threat of Substitutes

Hospitals by in large have very few substitutes for providing care with a few exceptions. When someone is injured they typically do not have time to consider their options when seeking care. In some non-emergency procedures there is some ability to shop for substitutes such as a hospital in another region or country. However, for the most part, the treat of substitutes is low.

Competitive Rivalry

Competition in the healthcare industry generally is low on the local level because there is a low level of substitutes. However, healthcare providers can compete on various metrics and stronger firms sometimes have the opportunity to acquire other hospital locations. Furthermore, more competitive organizations can also attract the best resources such as healthcare workers. Therefore, although there is typically not much competition in a regional area, there are other levels in which hospitals can compete.

SWOT

Strengths

Broad product and service mix

High technological levels

Market Penetration

Quality Service and Brand Image

Weaknesses

Pharmacy growth issues

Low salaries for staff, international competition

Opportunities

Huge market potential

Growth in medical tourism niche

Develop high tech equipment manufacturing

Threats

Costs of medical equipment (overhead)

International competition

Healthcare staff immigration for high-wages

Strategic Alternative Identification & Fit Assessment

Healthcare has been slow to adopt certain administrative technologies in general. There have been some initiatives to encouraging electronic medical record adoption, forced some of the major players such as Amazon's Web Services (AWS) to make technology that other tech entrepreneurs depend on heavily, finally available to those working in healthcare (Pozin, 2013). "You also have the rise of Accountable Care Organizations," said Barry, "where a doctor's compensation model is shifting away from fee-for-service to pay-for-performance" and this will ultimately lead to doctors collecting more data about their patients and spawn innovation (Pozin, 2013). It is reasonable to suspect that the technological aspect to healthcare will undergo major transitions in the short-term; especially with the healthcare industry beginning to become more globalized. India is well positioned to become a world leader in providing state of the art healthcare industry services with its highly educated and technological develop human capital resources. Apollo and India in general, could become a world leader in streamlining healthcare operations. The pressures of the large Indian population will also force the company to innovate and streamline operations to serve this large market domestically.

The threats facing Apollo can come from many different sources. Their access to comparatively inexpensive labor can both be an asset as well as a liability. In many first world countries the salaries for healthcare staff is relatively higher than in India and there could be an exodus of much of the workforce. India trains more physicians than almost any other country, provides the largest number of emigrant physicians, and has the largest private health-care system; about 11% of physicians practicing in the United Kingdom and 5% of those practicing in the United States of America were trained in India (Loh, Ugarte-Gil, & Darko, 2012). There are also threats from a reform of the public sector system that could increase competition or increase the regulatory environment. There are also threats that can come from foreign players that may wish to enter the healthcare market.

Competitive Position, Capabilities, and Deficiencies

In India, government health care services are organised into several levels. Primary health care is provided through a network of 146,036 health subcentres, 23,458 primary health centres (PHCs), and 4,276 community health centres (CHCs) (Chatterjee, Levin, & Laxminarayan, 2013). The government system has been known to have many inefficiencies and cost variations and by contrast the private systems are more competitive in terms of quality. The advantages of a private system in this environment are clear. India lags behind many of its peer countries in the expenditures on healthcare on the basis of GDP.

Figure 4 - Per Capita GDP Comparison (McKinnsey and Company, 2012)

Private physicians in India are categorized as rural medical providers, non-profit physicians or for-profit physicians; rural medical providers are generally unqualified medical practitioners; non-profit private physicians, who work for nongovernmental organizations or faith-based organizations, provide only 1.32% of the private consultations in India and most private physicians in India work in the for-profit sector (Loh, Ugarte-Gil, & Darko, 2012). The growth of the private sector healthcare industry is largely seen as a failure of the government to keep pace with the growth of the industry and India has begun offering insurance programs so citizens can access the private system as a consequence of this development.

Apollo has many capabilities that it can offer the Indian and international population through its service lineup which includes:

Apollo Munich Health Insurance, joint venture with Munich Health

Apollo Health Street Limited, BPO and IT services company

Apollo Pharmacy, largest retail pharmacy chain in India

Apollo Health and Lifestyle Limited, lifestyle clinic service

Apollo Telemedicine Enterprises Limited, telemedicine service provider

Equipment World, medical equipment advisory

Family Health Plan Limited, health insurance and third party administrator

Keimed, pharmaceutical procurement and supply chain management company

MedVarsity Online Limited, developed over 1500 hours of medical content along with NIIT

Apollo Medskills Limited

Despite the wide array of services offered, these service are only available to a fraction of the population. There are very few hospital beds per captia in India, there is a lack of skilled human resources (relative to the population), and there is also a rise in infections and non-communicable disease (Apollo Hospitals, 2013). These issues face all private firms in India and one of the challenges will be to grow to meet the increasing demands in a sustainable manner that can ensure quality of service is preserved. If companies try to expand too fast to meet the demand then they could become overextend and the quality could be reduced. However, if the companies do not grow quickly enough then someone could enter the market in to capture market share. Therefore a sustainable growth path is a necessity.

Strategic Choice & Strategy Formation

There are many options for Apollo to attempt to continue to grow both horizontally and vertically. The country is aggressively seeking to increase the capacity of the industry and serve the needs of the increasing demand. There are obstacles to overcome in this system however such as the payment structure for services. Although India has a quickly growing middle class, many of these individuals opt to pay for medical services out of pocket which puts pressure on insurance companies to provide affordable solutions (Kohli, 2014).

Apollo needs to implement a technology driven solution to create efficiencies in service that are scalable. The organization needs to automate as many processes as possible through information and systems management. The organization should also leverage India's unique strengths to foster development in the biomedical industries to lower the cost of equipment used in the hospitals. The healthcare industry could serve as an international niche for India similar to their work in other high tech industries.

The Stanford Biodesign Program began in 2001 with a mission of helping to train leaders in biomedical technology innovation and several projects that have spawn from this venture have received regulatory approval and so far more than 150,000 patients have been treated by technologies invented by graduates of the program (Brinton, et al., 2013). Examples such as this could be spearheaded in India to create medical equipment that is competitive in international markets. Biomedical Engineering (BME) is the fastest growing engineering discipline with a projected employment growth of 72% by 2018; innovative technologies are being developed and medical advances are occurring at a rapid rate while global problems are increasing in complexity (Barabino, 2013).