Aravind Eye Hospital

One of the Harvard Business School alumni shared an inspiring case study on building a competitive strategy from Joan Magretta's book "Understanding Michael Porter: The Essential Guide to Competition and Strategy" on Aravind Eye Hospital.

India’s Aravind Eye Hospital was founded in 1976 by an idealistic retired army surgeon, Govindappa Venkataswamy, known as Dr. V. Dr. V. didn’t need a detailed market segmentation map to identify a large population with a dramatically underserved need. Millions of Indians suffer from preventable blindness because they can’t afford cataract surgery. Starting with just eleven beds and three doctors, Aravind has become the world’s largest provider of eye care in the world, performing about 300,000 surgeries a year, at least two-thirds of them for free.

Aravind has an extraordinary value proposition. Correction: it has two value propositions. One is aimed at affluent customers who want the best eye care money can buy. These customers want to be seen by state-of-the-art doctors in state-of-the-art facilities, and they are willing to pay the going market rate for such advanced medical care. That’s one value proposition.

The second is for those who can’t afford to pay and who would otherwise become blind. Aravind offers them sight, and the independence that goes with it. The medical care is identical to that provided to the paying patients—same doctors, same operating rooms. The hotel function (room and board) is vastly stripped down. But the price is stripped down even further, all the way to zero.

Aravind has thrived by meeting vitally important needs for two distinct customer segments, at different price points. What’s most remarkable is that Aravind is financially self-sustaining—it depends neither on government money nor on charitable donations, although its success has increasingly attracted the latter. Instead it has a strategy that has proven to be sustainable for over three decades.

The original inspiration for Aravind came from, of all places, McDonald’s. Dr. V. wanted to produce cataract surgeries as efficiently and as consistently as McDonald’s produced hamburgers. He designed a system that does just that.

Essentially, while a surgeon is operating on one patient, the next patient is already prepped on a table behind him. When one operation ends, the surgeon simply turns around and starts the next one. Not a minute of the skilled surgeon’s valuable time is lost. Everyone in the operating room, including the surgeon, is trained to follow a standardized procedure. Every step in the process is carefully integrated to produce an efficient whole.

The results speak for themselves: Aravind, in 2009–2010, performed about 5 percent of all eye surgeries in India, employing only 1 percent of the nation’s ophthalmic manpower. The achievement mirrors that of Henry Ford’s assembly line for the Model T, which made Ford workers five times more productive than the auto industry average. Aravind has made cataract surgery affordable by applying the core design elements that Ford used to make cars affordable for the masses: standardization of activities, specialization of labor and equipment, and a high-volume production line that never stops.

The operating model drives Aravind’s ability to create value, but it’s not the whole story. After all, what good is being a low-cost producer in a market where even low cost is too expensive? Dr. V.’s solution: charge paying customers market rates. Because Aravind’s costs are so much lower than other providers, each paying customer subsidizes free care for two. That, very roughly speaking, is the arithmetic of Aravind’s competitive advantage.

Aravind’s value chain choices support its ability to attract paying customers, who are housed in a separate wing or building that offers every modern comfort. The real draw, however, is the quality of the medical care. Aravind is professionally state of the art. It has developed a premier teaching and research institute, with affiliations with leading eye centers around the world. Its doctors are world class.

Those of you who understand the challenges faced by hospital administrators are now probably shaking your heads. How do you get surgeons to agree to be treated like assembly line workers? A Porter's five forces analysis of this industry would tell you that surgeons have all the leverage to demand shorter hours, higher pay, and more autonomy. Yet Aravind is able to do something that continues to elude healthcare delivery in the United States. Aravind tracks costs, time, and results —even postsurgical outcomes—all of which can be traced back to specific doctors and the data used to help them improve their performance.

There is a glib answer for how Dr. V. was able to find doctors willing to accept these conditions. His original hires were family members. They simply couldn’t say no. There is a more serious answer as well. Dr. V. has built an organization that offers two powerful nonmonetary rewards. One is its commitment to professional development and excellence. Consider, for example, the extensive training it provides and its professional affiliations. The second is an appeal to selfless service and compassion. This is an organization on a mission. And that mission, as intangible as it sounds, contributes to Aravind’s competitive advantage in tangible ways. Aravind’s values allow it to recruit and retain the talent it needs and to configure its activities in an extraordinary way— a way that is perfectly tailored to its value proposition.

Aravind provides quality eye care at a price everyone can afford. That’s its value proposition. Its tailored value chain turns that promise into a strategy.