Sound Strategy for a Healthy Merger
Project management helps Fortis Healthcare in the smooth integration of 10 hospitals it acquired from Wockhardt Hospitals
By Panchalee Thakur
The healthcare sector in India has seen significant changes in the past couple of decades with the steady growth of corporate hospitals. Advanced infrastructure, a clinical team with global exposure, and global benchmarks in healthcare delivery have marked the journey of the corporate healthcare industry in India. However, in the past few years, stiff competition has put the viability of private standalone hospitals at risk. Hospital owners are looking at consolidating assets through mergers and acquisitions as a strategy for survival and growth.
Consolidation gives smaller hospitals access to a large pool of shared resources, best practices, and larger funds for infrastructure investments. It enables hospitals to meet the increased demands from the domestic and international market. However, integration of the acquired entity with the parent company faces many pitfalls, unless it is planned and executed well. Fortis Healthcare, a leading healthcare provider in India, has made several acquisitions in India and abroad in the past decade. Fortis understands how crucial integration is for the success of a merger. In 2009, Fortis Healthcare adopted project management to integrate 10 hospitals that it acquired from the Wockhardt group.
The Wockhardt-Fortis Deal
Fortis Healthcare bought 10 hospitals, including two hospitals under construction, from Wockhardt Hospitals Ltd. for Rs. 9.09 billion (US$ 202 million) in 2009. Two of the hospitals are in Mumbai, five in Bangalore, and three in Kolkata. At the time of purchase, the total staff strength was 3,800 and bed capacity 1,902. The focused specialties of these hospitals were cardiac sciences, orthopedics, neuro-sciences, woman care, and minimal access surgery. Though most of the employees moved over to Fortis Hospitals, Wockhardt retained some of the functions such as finance, information technology, supply chain management, and project management. This meant Fortis had to build these functions from scratch. The brand ‘Wockhardt Hospitals’ was not part of the deal, since Wockhardt retained the rights to the brand. Fortis had a brief window to transition the brand. So, Wockhardt Hospitals transitioned into a new entity called Fortis Hospitals Ltd. for a brief period. Eventually, it merged into the parent entity, Fortis Healthcare Limited.
At that time, Fortis had 29 hospitals of its own with total bed strength of over 3,200. The group had presence in 21 cities in India and in one overseas location, Mauritius. Fortis was already a well-known healthcare provider in north and west India and was now looking to acquire a pan-India presence after the Wockhardt acquisition.
The merger has given the new hospitals access to more
Phase-wise Integration Using Project Management
resources and larger funds for better infrastructure
For Fortis, the strategic drivers for the acquisition were pan-India presence, a larger scale of operation, access to the trained and experienced resource pool, and a stronger financial position. The merger would help Fortis in the aggressive growth plans that it has envisaged in the years ahead.
The Fortis management realized that to achieve these objectives, the integration had to be smooth and fast. It set a stiff timeline of 90 days to complete some of the major initiatives undertaken as a part of the integration. Fortis wanted to identify the strengths of Wockhardt Hospitals and plug the gaps, so that the two corporate entities with their own distinct identities and culture are well-aligned. The first step towards integration was a detailed diagnosis of Wockhardt Hospitals’ structure. The key findings became a part of the integration planning framework.
The strengths identified during the diagnostic phase:
- Lean corporate structure empowerment/delegation
- Trust and cohesion in the leadership team, open to change
- Team with extensive hospital experience
- High integrity, desire to win
Some of the gaps/improvement areas identified:
- Absence of key verticals – IT, finance, supply chain, project management
- Roles need more clarity
- Improvement required in management and operational processes
- Decision matrix to be better defined
- More rigor in business planning and review needed
- Better communication and organization alignment
- Improve employee engagement processes
Mr. Ramesh Krishnan, vice president - integration and growth, Fortis Healthcare International, says, “A lot of the initiatives undertaken during integration are time critical and have to be handled with sensitivity because they involve employees. The management undertook a balanced approach between realizing economic value to justify the cost of acquisition on the one hand, and realizing intangible value creation for internal stakeholders on the other. Hence, project management becomes extremely important during an integration of this scale.”
The Integration Planning Framework
Fortis saw to it that the confidence of employees
and patients in the brand did not suffer during the transition
The integration planning framework provided broad guidelines to methodically address the gaps identified during the diagnostics stage. The verticals that the framework covered were human resources, finance, project management, supply chain management, operations, and branding and marketing. Fortis engaged reputed consultants with deep domain knowledge and experience to recommend industry best practices for each of these verticals. The recommendations were mapped against the overall corporate objectives so that the final outcome was aligned with the corporate vision. This was crucial to retain the trust and confidence of employees and patients.
“Integration is a two-way process. It is important to strike a balance between the work cultures of both the organizations for a successful integration. We knew how important it was to consider the aspirations of our people. An important aspect of the integration was our human resource initiative, ‘People connect’,” adds Mr. Krishnan.
The first casualty at the time of management change is usually the people in the organization. The Fortis Human Resource (HR) initiatives were aimed at retaining the trust and confidence of its 3,800 employees, besides implementing the challenges identified during the diagnostic phase.
The HR department took care to get employee buy-in for new performance and incentives systems that were being introduced. A major step was to issue new employment letters to each Wockhardt employee the very next day after the integration. It ensured there was no ambiguity in their minds about the status of their employment and quelled all possibilities of unnecessary speculation and negativity. The result was spectacular—zero attrition.
The other major task for HR was to recruit people for IT, finance, projects, and supply chain management.
A major challenge the new entity faced was the transition of over 3,000 legal documents and licenses from Wockhardt to Fortis.
Operations were segregated between smaller and larger hospitals. The smaller hospitals got dedicated teams to drive business with more focus on key performance indicators. The status of the clinical team in these centers was changed from visiting to full-time, ensuring a higher sense of loyalty, and better delivery of services. Overall, the steps taken were to strengthen operations and institutionalize the change.
Fortis had to build a new finance team after the acquisition. The diagnostic phase also revealed several gaps in the finance processes and functions, which needed immediate attention. The changes were aimed at streamlining finance processes with better reporting, control, and review mechanisms.
A key finding at the diagnostic phase was the need to infuse more rigor into business planning. Fortis established a projects vertical, including architects and project management professionals, with vast experience in healthcare projects. The team took over the new projects that the group had already committed to, including a new super-specialty hospital in Kolkata, expansion of the Mulund oncology center in Mumbai, and the refurbishment of one of the smaller Bangalore hospitals. In the following months, the project team used project management best practices to complete the projects successfully. The team helped bring down costs and delivered projects on time even with scope increase.
“Project management is not so widely accepted in the Indian healthcare industry. Healthcare as a corporatized industry is just over two decades old and not yet so mature. Only a few of the leading healthcare groups follow project management as part of decision-making,” says Mr. Krishnan.
Supply Chain Management
Fortis introduced several enterprise-wide process rigors to strengthen supply chain management. The main objective behind these initiatives was higher efficiency for cost reduction and better inventory management. In general hospital supplies, the focus was on standardization and variety reduction, which enabled cost savings through bulk orders. Fortis invested in an advanced enterprise resource planning system for better supply chain management. By the end of the second quarter of 2010-11, the company had already made cost savings of Rs. 10 crore.
Branding and Marketing
Acquisitions often attract negativity among consumers. In the case of a hospital, it could give rise to fears about change in doctors or drop in quality. Fortis realized the importance of timely and accurate communication about a smooth integration to its target audience. It designed a special marketing campaign during the integration phase for both the internal and external audience. The campaign focused on effective brand transition that reinforced the collective strengths of Fortis and the Wockhardt Group. The brand transition campaigns kicked off at the initial stages of the integration and continued over three phases.
Project Management Office
Fortis established a Project Management Office (PMO) as a new initiative following the gaps analysis. The PMO would help improve process efficiencies, and thereby bring down time and cost overruns in projects and adhere to quality standards. It would cover all new initiatives in supply chain, pricing, business development, and internal audit findings implementation, new initiatives in all hospitals, and help unlock value across functions.
The PMO is an integral part of the Fortis growth strategy as it embarks on an ambitious growth plan. Inorganic growth through mergers and acquisitions is an important aspect of this strategy. Fortis acquired the first hospital, the reputed Escorts Heart Institute in New Delhi, in 2005. The group has since acquired 27 hospitals, taking the total number of hospitals to 76. Of these, 68 are in India. Outside India, it has acquired hospitals and other healthcare businesses in Mauritius, Hong Kong, Singapore, Vietnam, Australia, and Dubai.
“Each integration brings with it certain unique challenges. It’s important to go with an open mind. A key learning for us has been that decision-making must be based on data and not gut feel or previous experiences. Organizations must have robust business reporting tools, and must slice and dice the data to help make effective business decisions. And project management is the core capability that helps organizations get a handle on the myriad aspects of an integration for an effective strategy and execution,” says Mr. Krishnan.