Thank you for your thoughtful comments Amber. Please see my responses below for each of your questions.
1. I think the reason why this works in India is because of the sheer size of the bottom of the pyramid. There is an extremely high population in the lower class and lower middle class who generate significant demand for low-cost, high quality products or services.
2. I think the paying customers (who would have paid the same in any other hospital) would feel like a part of a larger cause by helping to cross-subsidize the needy patients. Based on my understanding, the hospital goes through income data etc. to verify that the patient actually is financially needy.
3. Aravind is run as a non-profit with the focus on maximizing the social benefit
4. I think this model can be replicated for any procedure which can be done at scale/high volume. This entails the procedure to treat a common condition and should be easy to replicate and standardize. Similar procedures could be heart surgeries, angioplasties, eye surgeries, knee/shoulder surgeries. I myself underwent a knee surgery in the same assembly line format. It was quite an experience!
Thank you for your comment David. You bring up a very pertinent point. As you have pointed out, Aravind focuses on a less complicated procedure to reduce complications. However, if you recollect from our very first case at HBS on Narayana Hrudayalaya, NH is an institution in India which has adopted a similar business and operating model for heart surgeries, which is a much more complicated procedure.
Thank you for your comment Brandon. You have raised a very valid concern in terms of access for the poor. Even though I have not explicitly mentioned in the post, it is pertinent to note that, Aravind transports the people who need surgery from the rural communities to the main hospital for the procedure. They take the patients to the hospital, as opposed to taking the hospital to the patients. However there are many challenges in taking the hospital to the poor. The chief one being issues of hygiene. It is impossible to maintain the quality clinical outcomes and no. of complications, given the risks of infection. Given this practical problem, Aravind chooses to reach out to the patients and bring them to the hospital.
Jorge, thank you for a wonderful post on SpaceX. I have been able to gain a well-rounded understanding of the company.
My first question is around competition from Jeff Bezos’ space company Blue Origin. We recently saw in the news that Blue Origin was able to successfully launch and retrieve a reusable rocket, while SpaceX has not been able to achieve this. With the competitive threat from Blue Origin imminent, do you think SpaceX is well-positioned to face this threat? If not, do you think it will need to change its business or operating model?
Secondly, how far away is SpaceX from designing and producing manned space vehicles? Does it have the capabilities to achieve this in terms of safety and quality? Will NASA allow a private entity to be the main supplier for manned missions?
Lastly, given how durability and quality of parts are mission-critical, can you expand on how Tesla’s quality control function monitors quality of parts sourced from companies which have never produced parts for the space industry.
This is a great post which details out the operating and business models of Indigo which clearly disrupted the Indian airline industry. Given my own understanding of Indigo’s operations, I had the following questions.
1. Flight Routes – How does Indigo’s choice of flight routes impact its cost structure and utilization? Does Indigo only fly the profitable routes to have high utilization and how does it compare with the incumbents? How important a role does utilization play in ensuring that Indigo amortizes down its fixed cost over a large passenger base?
2. Domestic to International – Indigo has been able to use its operating model to be a successful domestic carrier. As it looks to move into the international space too, what changes do you think Indigo will need to make on its operating model?
3. Growth – As Indigo has crowded out the profitable domestic routes, where is its future growth going to come from? Will it venture into the non-profitable domestic routes or is the growth driver going to be international routes?
4. Competition – With low-cost competitors like Air-Asia playing in the India market today, do you think Indigo might need to tweak its business or operating models to better adapt to competitive pressures?
Thanks Ben for the wonderful introduction to Soylent. While I have heard of the product and company due to the multiple funding rounds, I didn’t have much understanding of the product value proposition, distribution and marketing strategy. I believe that Soylent is a product with tremendous scope and potential. Given it is an evolving product and company, I had a few questions on the future for Soylent.
1. Substitute vs Supplement – While Soylent is being marketed as a food substitute, is there value in marketing it as a food supplement especially for those slow adopters?
2. Scaling up – From a utilitarian perspective, Soylent could transform the way organizations like the WFP do nutritional programs in under-developed or famine stricken countries. Soylent could be a boon for the malnourished population. While the operating model to execute on such a business model is completely different from what they possess today, what are your thoughts on this strategy? Would Soylent be willing to gain scale through food/relief programs in under-developed countries?
3. What will be the cost implications of moving from outsourced manufacturing to in-house manufacturing?
4. How is Soylent’s unit economics? Does it make money on unit sold at $9? If yes, what are the drivers of the low cost position – is it process efficiency, procurement, choice of ingredients or product innovation?
Great post Amine. I really liked the way how you brought to life the operating model of IKEA – an innovative industry leader. IKEA is certainly a good example of a company which has effectively employed lean supply chain management practices. I had a few questions regarding this strategy.
1. Can you elaborate on IKEA’s third party manufacturer suppliers? Are they based in Sweden or in low cost locations in developing countries? I am assuming that at this price point, they will need to be sourcing cheap.
2. Since the design and production functions have to work together to ensure standardization, how is this managed with manufacturing being outsourced? Does IKEA have its design teams working with the third party manufacturers?
3. What is IKEA’s raw material procurement strategy?
4. I find it quite incredible that IKEA has a 5 year demand forecast. Given that it has 50,000 SKUs, does IKEA only forecast demand for the base models or for all 50,000 SKUs?
Great post Joe! I really liked the way you laid out the business model and explained the three elements of the operating model which enable the business model. I am fascinated by the technology STEM brings to the fore – both the hardware for the energy storage and the cloud software for the energy monitoring. Storage-as-a-service is a unique way to capture the value created. I have two specific questions –
1. In the financing model, does the customer pay as a percentage of actual energy savings? So, if the actual energy savings is zero or low, will the customer have to pay close to nothing to STEM? Aren’t the energy savings contingent on how the customer has implemented your system and hence how does STEM hedge against it?
2. Are STEM’s storage system and software solution bundled together? Can customers opt for just one of these components and pay for only one of these solutions?
Thank you for your comment Natalie. Let me respond to each of your questions.
1. Expanding Geographically – I will lay out the way Aravind ‘trains’ international hospital administrators. Aravind reaches out to international funding agencies to share the contacts of hospitals which they feel could benefit from the operational improvements. Following that, Aravind contacts these hospitals and invite administrators from these hospitals to visit the Aravind facilities. The administrators spend eight to ten days at the facility, Aravind teaches them the principles of the Aravind operational model and help them develop their own operational strategy based on their business model. Aravind’s press statements indicate that they have been able to help a few hospitals attain 3-4x improvement in throughput. Please refer the following article for more details. https://agenda.weforum.org/2015/08/eye-care-enterprise-vision/
2. Expanding to other surgeries – Aravind has focused primarily on cataract surgery since this operating model fits this surgery type more. But more recently, Aravind has been able to start specialty clinics to address more specific eye conditions like glaucoma.
3. Leader – Dr. V who started Aravind passed away in 2006 and the institution has been able to flourish for the last 9 years even after his demise. This is evidence to how Aravind has been able to institutionalize its systems, processes and operating model.
4. Sustainable model to attract wealthy patients – Aravind has a strong R&D department which has been able to develop cutting edge technologies in eye-care. The high volume of patients and procedures also helps Aravind improve its capabilities in surgery. These factors with high-quality infrastructure (albeit low cost) attracts a good portion of paying patients which has seen secular growth over the last few years.
Thanks for your comment Amine. As you have pointed out, cross-training is an important component to reduce labor cost. By training women from rural communities, they also achieve the social mission of providing employment to the needy and hence exploiting the immense human capital resources in India.
This model of low cost healthcare can be replicated in emerging countries which offer economies of scale and labor arbitrage. I will lay out the way Aravind ‘trains’ international hospital administrators. Aravind reaches out to international funding agencies to share the contacts of hospitals which they feel could benefit from the operational improvements. Following that, Aravind contacts these hospitals and invite administrators from these hospitals to visit the Aravind facilities. The administrators spend eight to ten days at the facility, Aravind teaches them the principles of the Aravind operational model and help them develop their own operational strategy based on their business model. Aravind’s press statements indicate that they have been able to help a few hospitals attain 3-4x improvement in throughput. Please refer the following article for more details. https://agenda.weforum.org/2015/08/eye-care-enterprise-vision/
Joe, thank you for your comment. You have hit the nail on the head with the comparison to Narayana Hrudayalaya. They both use operational efficiency like better throughput time, lower capital/consumable cost and labor arbitrage. As you pointed out the three cost improvement levers are
1. Better throughput (=10x of other countries) – resulting in cost savings of up to US$2500
2. Lower cost of lens – Cost savings of US$90
3. Lower labor and capital cost – resulting in cost savings of US$300-400
Even not considering the labor and capital cost arbitrage, there is significant cost improvements driven through process efficiency and lowering cost of consumables like lens.