ONE PAGE PER QUESTION(2 QUESTIONS) FROM READINGS - TWO PAGES NEEDED
Question # 1: How Acıbadem should leverage its relationship with IHH and collaborate with Parkway-Pantai?READING ATTACHED
Question # 2: Please read book Redefining Global for this: Why do so many global strategies fail--despite companies' powerful brands and other border-crossing advantages? READING ATTACHED
9-315-120 M A Y 2 2 , 2 0 1 5 Professor Regina Herzlinger, Executive Director Esel Çekin (Istambul Research Center), Senior Researcher Natalie Kindred (Case Research & Writing Group), and Research Associate Gamze Yucaoglu (Istambul Research Center), prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. R E G I N A H E R Z L I N G E R E S E L Ç E K I N N A T A L I E K I N D R E D G A M Z E Y U C A O G L U Acıbadem Healthcare Group In 1993, Mehmet Ali Aydınlar, now CEO of Acıbadema Healthcare Group, bought a small, unprofitable community hospital and began relentlessly working to build a best-in-class health care brand. By 2011, it was Turkey’s only premium nationwide hospital network when it was acquired by International Healthcare Holdings Berhad (IHH), the world’s second-largest publicly listed health care group (after U.S.-based HCA) and a private hospital leader in its home markets of Singapore and Malaysia. In 2015, IHH had a presence in 10 Asian and Middle Eastern countries.1 Aydınlar remained Acıbadem’s CEO and held 25% of its equity, in addition to 3.5% equity in IHH. Acıbadem and Parkway-Pantai, which managed IHH’s Asian holdings, shared corporate ownership, leading market positions, premium reputations, and aspirations for regional expansion— but, to date, they operated largely separately. Aydınlar and IHH Managing Director and CEO Dr. See Leng Tan were considering areas for collaboration and synergies, but cultural and operational differences posed barriers. For example, the entrepreneur- and manager-led Acıbadem network operated under a single brand and was highly integrated, while IHH’s Asian assets used multiple brands, were more decentralized, and were doctor-led. Aydınlar and Tan wanted Acıbadem and Parkway-Pantai to seize opportunities in their respective regions to expand internationally. They sought to capitalize on Turkey’s uniquely advantageous location among Europe, Asia and the Middle East, surrounded by transitional markets with inadequate health care systems and growing upper classes eager for better health care options. Acıbadem could tap these markets by expanding regionally, and by drawing foreign patients to its Turkish facilities. But should Acıbadem first focus expansion on the Middle East and the Gulf, Russia, Central and Eastern Europe, or Western Europe? What growth model should they pursue —building full-service hospitals, specialized chains, or outpatient centers; seeking a public-private partnership for hospitals or staying independent; working with governments to serve publicly insured patients or serving only private payers; channeling patients back to Turkey or serving them at home? And how? a Pronounced a-hch-bah-dum. For the exclusive use of A. GUPTA, 2021. This document is authorized for use only by ATUL GUPTA in 2021. 315-120 Acıbadem Healthcare Group 2 How should they balance regional ambitions with the significant potential to grow Acıbadem in Turkey and serve domestic patients? Turkey Covering 784,000 square kilometers at the intersection of Asia, Europe, and the Middle East, Turkey had a population of 76.4 million, of whom roughly 75% was ethnic Turkish and 18% Kurdish. The median age was 29. About 73% of the population lived in urban areas, including 14 million people in Istanbul and 4.6 million in the capital, Ankara. After a decade of economic and political reforms, Turkey’s largely liberalized economy had grown at 4.1% in 2013 and, despite unrest on its Syrian border, continued attracting substantial foreign investment.2 Turkey was a country in transition. Traditional agriculture accounted for 25% of employment. Income inequality was great. The bottom 10% of households controlled just 2% of overall income. But GDP per capita had increased from $4,600 to nearly $11,000 between 2003 and 2013.3 A strong entrepreneurial tradition was expanding and transforming the industrial and service sectors.4 A NATO member and associate member of the European Community, Turkey entered talks to join the European Union (EU) in 2005, but a membership agreement had stalled, in part due to concerns over interference by Turkey’s government in the country’s press and judiciary.5 (See Exhibit 1 for a map of the region, Exhibit 2 for a currency chart, Exhibit 3 for economic data, and Appendix A for a brief recent political and economic history.) Acıbadem Background Building a Hospital Network In 1990, a group of doctors approached Mehmet Ali Aydınlar, an accountant by training, for advice about establishing a hospital in Istanbul. At the time, Aydınlar was immersed in his role as the founding head of a 30-employee accounting firm in Istanbul serving 130 corporate clients. The timing was fortuitous: he had been looking for new investments. He decided to take a 10% stake in the new venture: a 50-bed hospital built from scratch and filled with second-hand equipment. Opened in 1991, the hospital was named Acıbadem after the district in which it was located. It was among the lower- quality hospitals on the Asian side of Istanbul. (Bosporus is a strait connecting the Black Sea and Sea of Marmara in Istanbul, while dividing Istanbul into the better-developed European side and the Asian side.) Over the next two years, the doctor group built three more hospitals and acquired a fourth, with Aydınlar, a silent partner, holding stakes of 4% to 15% in each. As was standard in Turkey, the doctors managed the hospitals. By 1993, as the doctors who owned the hospital were struggling under $1.5 million in high- interest debt, Aydınlar proposed that he buy the flagship Acıbadem hospital based on a total enterprise value of $2 million. To fund the purchase, he sold his stakes in the other hospitals, took two mortgages, and sold his car, his wife’s car and jewelry, and an investment property.b But financing was just one of many challenges. As Aydınlar—who lacked any health care management experience—began working to make Acıbadem profitable, an economic crisis rocked Turkey, causing a 5.5% real GDP contraction and inflation spiking to 100%.6 In a period dubbed “Turkey’s lost b These figures were converted from Turkish Lira to USD at the average 1993 rate of 5,151 via, likeforex.com accessed May 2015. For the exclusive use of A. GUPTA, 2021. This document is authorized for use only by ATUL GUPTA in 2021. Acıbadem Healthcare Group 315-120 3 decade”7 Aydınlar decided to devote his career to the hospital business, which he viewed as a way to contribute to Turkish society while also building long-term value for his family. His first major decision—to formalize Acıbadem’s finances—outraged the hospital’s medical staff. According to Aydınlar, at the time, all Turkish hospitals operated in a grey economy, keeping no records of patients’ payments or physicians’ earnings. When he declared that all revenues would be recorded—and taxed—the physicians threatened to quit. In an impassioned speech, Aydınlar pitched Acıbadem as a new model for Turkish health care: it would be managed professionally and transparently,c and the institution’s needs would come before those of its physicians. His vision of industry leadership and growth that would benefit all who committed convinced most of the physicians. To spark Acıbadem’s turnaround, he made another provocative decision: to target high-income patients—customers of the top hospitals on the European side of Istanbul—by positioning Acıbadem as best-in-class in quality and service. At the time, all of Istanbul’s hospitals offered similar prices, following twice-yearly price increases set by one of the leading hospitals. When Aydınlar announced a 400% increase in Acıbadem’s prices over the industry standard, its physicians again balked, worried that demand would plummet. The following month, Acıbadem’s capacity utilization fell 20%, only to climb back to full capacity within a month. The price increase also facilitated increased profitability, through which Aydınlar funded the company’s growth. But by mid-1994, low brand awareness limited Acıbadem’s appeal to the A+ patient segment. To bolster the brand, Aydınlar opened an Acıbadem-brand outpatient clinic on Bagdat Street, the Asian side’s high-end shopping and commercial district. The clinic’s location increased visibility for its brand, and its success prompted him to open two more outpatient clinics by 1998, including one on a high-end commercial street on the European side. He also overhauled the Acıbadem hospital, quadrupling its size and filling it with brand new medical equipment. In 2000, he opened a second hospital by renting its facilities in a half constructed state as the hospital group renting the facilities before had to vacate them due to financial difficulties. “We were doing very well,” he recalled. “All our facilities had consistent quality, and our customer profile had improved dramatically.” He added that despite Acıbadem’s strong performance, he was financially conservative: “I try to play it safe because Turkey has a very turbulent economy. I keep a strong capital base, with reserves for operating costs.” As Acıbadem’s fortunes grew, so did Aydınlar’s appetite for growth.