Consulting Checklist

Question 1: What is the management team of Grupo Torre Medica aiming to accomplish?

The Grupo Torre Medica is sponsored by ARCU Capital fund. Therefore, the management team should aim to achieve the growth that is necessary to meet the expectation of investors. Investors want to earn as high returns as possible in the operation stage of the search fund. So the management team of GTM need to accomplish:

1. High growth in profit;
2. Within 36 to 48 months (the duration of Operation Stage in Search Fund Lifecycle);
3. Save costs as much as possible while growing;
4. Keep a steady growth thereafter.

Given the managerial goals answered in Question1, the management team should choose growth options with high growth potential, not very long duration (shorter payback period), lower initial costs, high rate of return (highly positive NPV), and high probability of steady growth.

Question 2: Describe the current business model embraced by Grupo Torre Medica: Who are the customers, what services are being offered, and how are these delivered?

The Hub-and-Spoke Network. The hospitals located in urban area act as the hubs, and clinics located in rural areas act as spokes.

Customers: categorified as three groups: Insurance referrals, Doctors’ referrals, and Walk-in patients.

Service offered: healthcare service with specialty in general surgeons, orthopedists, and rehabilitation experts. The clinics mainly provide general healthcare services including diagnosis, routine treatments and follow-up care, while central hospitals provide required surgeries for complicated cases or specialized treatments.

Service delivery: GTM’s attractiveness is to provide the opportunity to gain experience more rapidly. 

1. Equipment: The hospital equipment’s standard is similar to those for a leading mid-market hospital but lack of the ones to carry out complicated surgeries. Most of new equipment is in high quality and high efficiency. The hospital is also fitted with a small laboratory to perform in-house diagnostic tests. The five clinics are all equipped with diagnostic equipment for orthopedics as well as with special-purpose equipment in rehabilitation after an accident.
2. Human capital: The central hospital is staffed with 14 in-house doctors and 30 to 35 “on call” external doctors, who are aided by 65 medical staff. Each clinic is staffed with 5 to 7 doctors, aided by a small group of other medical staff. And each clinic is managed by a non-medical coordinator who in charge of overall operations of the facilities.

Question 3: How should Grupo Torre Medica prioritize its growth options? That is, which of the growth option should be done first, and which (if any) should be permanently shelved?

The growth path we choose for GTM is: First, expand in Mexico City, providing Personal Accidents-related services and Health Services; Second, expand to Cardiac Concierge Service market; Third, expand beyond Mexico City, mainly in Monterrey and Guadalajara; Fourth, if time permits, start to provide “Mico-Insurance”.

We choose to expand in Mexico City first. As GTM has already established a low-cost Hub-and-Spoke Network and gained brand awareness in Mexico City, it’s easier to expand within Mexico City. Health Services is an untapped segment for GTM. Compared with Automotive Accidents market where GTM had captured half of the market share, the growth opportunities in Health Services are vast. And GTM can gain first-mover advantage which will differentiate us from our competitors in the long run. Expanding in Personal Accidents can increase referrals of those who suffer personal accidents and achieve higher brand awareness while the infrastructure requirement keep the same. Therefore, GTM does not have to spend much expenditures to acquire new hospitals or clinics. Since the alternative of expansion in Mexico City has high probability of high growth, relatively short duration, low initial investments, and potential of steady growth, we prioritized this growth plan.

Our next step of growth is to expand business into Cardiac Concierge Services. Heart related conditions are one of the most common health problems in Mexico, so the potential market size is huge, which suggests a higher probability of achieve growth in this market. This plan requires an initial investment of $1 million and variable costs of $25 per patient (per month), while GTM can receive a monthly fee of $36/patient from insurance company as well as 5% of cost saving to insurance provider. Ignoring the 5% cost saving, the breakeven quantity of this service is about 91000 (Break-even = Fixed Cost/(Price – Variable costs) = $1,000,000/($36 - $25)). And the insurance company estimated that they could enroll up to 20,000 patients during the first 3 years after launching, which exceeds the breakeven quantity, enough to cover the initial investment. What’s more, return on the $1 million investment includes higher brand awareness, more patient volume, and strengthened relationship with insurance companies. Although there is uncertainty in patient referrals generation and insurance companies’ incentives for information collection, this plan is still profitable and has huge future market potential.

In the later period (around one year after) of expansion in Mexico City, GTM can start to expand beyond Mexico City, mainly in Monterrey and Guadalajara. The Hub-and Spoke Model operates particularly well in large cities, so GTM should choose Monterrey and Guadalajara as main target since they have comparable size as Mexico City. GTM can get rid of time and financial costs by continuing to use Hub-and Spoke Model in these cities. Expansion beyond Mexico City can largely increase GTM market share, thus increasing brand awareness. There are two attractive features of this alternative. One is that accident referrals can be provided by many of our existing partners, resulting in a consolidated cooperation between GTM and its current insurance provider. The other is that GTM can grow without additional development of new medical capabilities.