Harvard Case - Business Process Outsourcing at Apollo Health Street
"Business Process Outsourcing at Apollo Health Street" Harvard business case study is written by Christopher Williams, Chandra Sekhar Ramasastry. It deals with the challenges in the field of General Management. The case study is 16 page(s) long and it was first published on : May 3, 2011
At Fern Fort University, we recommend Apollo Health Street (AHS) pursue a phased approach to business process outsourcing (BPO) for non-core functions, focusing on IT management, customer service, and administrative tasks. This strategy will allow AHS to leverage the cost advantages and expertise of specialized BPO providers while maintaining control over core competencies like patient care and medical research.
2. Background
Apollo Health Street is a leading healthcare provider in India facing increasing competition and pressure to reduce costs. The case study highlights AHS's consideration of outsourcing non-core functions to improve efficiency and focus on core competencies. The main protagonists are Dr. Sharma, the CEO of AHS, and Mr. Singh, the head of IT, who are tasked with evaluating the BPO opportunity.
3. Analysis of the Case Study
Strategic Framework: We will employ a combination of Porter's Five Forces and SWOT analysis to assess AHS's competitive landscape and internal capabilities.
Porter's Five Forces:
- Threat of New Entrants: High, due to the increasing number of private healthcare providers entering the Indian market.
- Bargaining Power of Buyers: Moderate, as patients have limited choices but can switch providers based on cost and quality.
- Bargaining Power of Suppliers: Moderate, as AHS relies on a range of suppliers for medical equipment and pharmaceuticals.
- Threat of Substitutes: Moderate, as alternative healthcare options like telemedicine and home healthcare are emerging.
- Competitive Rivalry: High, with existing players competing aggressively on price, quality, and service.
SWOT Analysis:
Strengths:
- Strong brand reputation and established patient base
- Expertise in medical research and patient care
- Experienced management team
- Growing presence in emerging markets
Weaknesses:
- High operating costs
- Inefficient processes in non-core functions
- Limited IT infrastructure and expertise
- Lack of a clear outsourcing strategy
Opportunities:
- Growing demand for healthcare services in India
- Potential for cost reduction through outsourcing
- Access to specialized BPO expertise
- Expansion into new markets
Threats:
- Increasing competition from domestic and international players
- Regulatory changes and evolving healthcare landscape
- Economic downturn affecting healthcare spending
- Cybersecurity risks associated with outsourcing
Key Insights:
- AHS faces intense competition and needs to improve efficiency to remain competitive.
- Outsourcing non-core functions can free up resources and expertise for core competencies.
- Carefully selecting BPO providers and managing the transition is crucial for success.
4. Recommendations
Phased BPO Implementation:
- Phase 1 (Short-term): Focus on outsourcing IT management to a reputable BPO provider with expertise in healthcare IT. This will help AHS improve IT infrastructure, security, and efficiency.
- Phase 2 (Medium-term): Expand outsourcing to customer service functions, leveraging BPO providers with experience in handling high call volumes and providing excellent customer support.
- Phase 3 (Long-term): Outsource administrative tasks such as payroll, accounting, and human resources, freeing up internal staff for more strategic initiatives.
Key Considerations:
- Selection of BPO Providers: Conduct a thorough due diligence process to identify BPO providers with relevant experience, robust security measures, and a strong track record.
- Contract Negotiation: Ensure clear contractual agreements covering service level agreements (SLAs), data security, and intellectual property rights.
- Change Management: Communicate the BPO strategy effectively to employees, address concerns, and provide training to ensure a smooth transition.
- Performance Monitoring: Establish key performance indicators (KPIs) to track the effectiveness of outsourcing and ensure BPO providers meet agreed-upon standards.
5. Basis of Recommendations
- Core Competencies: Focusing on outsourcing non-core functions allows AHS to concentrate on its core competencies of patient care and medical research.
- External Customers: Outsourcing customer service can enhance customer satisfaction by providing faster response times and improved service quality.
- Competitors: By reducing costs and improving efficiency, AHS can better compete with other healthcare providers in the market.
- Attractiveness: Outsourcing offers significant cost savings and potential for increased revenue through improved efficiency and productivity.
Assumptions:
- AHS can identify reputable BPO providers with the necessary expertise and experience.
- The transition to outsourcing can be managed effectively with minimal disruption to operations.
- Employees will adapt to the changes and embrace the benefits of outsourcing.
6. Conclusion
Implementing a phased approach to BPO for non-core functions will enable AHS to leverage the cost advantages and expertise of specialized BPO providers while maintaining control over core competencies. This strategy will enhance efficiency, reduce costs, and improve AHS's competitive position in the dynamic Indian healthcare market.
7. Discussion
Alternatives:
- In-house Development: AHS could choose to invest in developing internal capabilities for IT management, customer service, and administrative tasks. However, this would require significant investment in time, resources, and expertise.
- Partial Outsourcing: AHS could choose to outsource specific tasks within non-core functions instead of entire departments. This would offer less cost savings but provide more control over the outsourced processes.
Risks:
- Data Security: Outsourcing sensitive data to third-party providers poses risks of data breaches and security vulnerabilities.
- Quality Control: Maintaining quality standards and ensuring service levels meet expectations can be challenging with outsourced functions.
- Employee Morale: Outsourcing can lead to job losses and affect employee morale, potentially impacting productivity.
Key Assumptions:
- The BPO market in India is mature and offers reliable providers with expertise in healthcare.
- AHS has the necessary internal resources to manage the outsourcing process effectively.
- The Indian government's regulatory environment will remain supportive of BPO operations.
8. Next Steps
Timeline:
- Month 1: Conduct a detailed assessment of potential BPO providers and finalize a shortlist.
- Month 2: Negotiate contracts with selected BPO providers and secure necessary approvals.
- Month 3: Develop a comprehensive change management plan and communicate the BPO strategy to employees.
- Month 4: Begin transitioning IT management functions to the chosen BPO provider.
- Month 5: Monitor performance and address any issues arising during the transition.
- Month 6: Evaluate the success of Phase 1 and plan for the expansion of outsourcing to customer service functions.
Key Milestones:
- Selection of BPO providers
- Contract negotiation and signing
- Implementation of change management plan
- Successful transition of IT management functions
- Performance monitoring and evaluation
- Expansion to customer service and administrative tasks
By following these recommendations and taking a phased approach to BPO, Apollo Health Street can unlock significant cost savings, improve efficiency, and enhance its competitive position in the Indian healthcare market.
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Case Description
The managing director of Apollo Health Street (AHS), a healthcare business process outsourcing (BPO) company headquartered in Pennsylvania, United States, was pondering two dilemmas: securing short term growth for his company, and finding new ways to compete in a changing industry. AHS was itself a subsidiary of Apollo Health Enterprises Ltd. (AHEL), an integrated healthcare company located in Hyderabad in southern India. AHS had been growing at 80 per cent compound annual growth rate (CAGR) since 2005, aiming to reach $100 million in sales by March 2010. Its target was to increase annual sales to $500 million within three years in a highly competitive space, which if successful would move AHS into the top three BPO companies in the healthcare sector. How should it secure short term growth? The second dilemma was how to plan for the future. Industry analysts had predicted that over the next five to 10 years, healthcare BPO would become unrecognizable from its current form. The managing director believed that although scaling up would strengthen the company's position for the short term, the company should also be looking for solutions to stay relevant to the customer. How should AHS influence the shape of healthcare BPO in the future? What new ways of competing could the company pursue?
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