Is franchising a solution?

by Anjali Sastry on November 30, 2008

We had a fascinating discussion about the promise that franchising offers in the quest for efficient, scalable, sustainable models for global health delivery in resource-constrained settings. Could being “in business for yourself but not by yourself” offer a way to link social benefits to individuals’ drive to build and create?

First, it’s important to understand what franchising offers. Our MBA students have that one down–please post comments to discuss what you think the value, and the drawbacks, might be in drawing on franchising to address the global health delivery gap. Look through some of these links, then come up with your own analysis.

Social entrepreneurs have discussed social franchising in recent years. Here’s a discussion on Social Edge hosted by Benjamin Litalien, President & CEO of Social Franchise Ventures (January 2007). Noting that “there are real risks associated with choosing the franchise route. So, as the social benefit community begins to engage the franchise sector it is critical to go in with eyes wide open, realizing that a disciplined approach is vital to tapping into the value that seems so apparent” he lists some pros and cons .

To begin to explore franchising for global health delivery in a little more depth: a blog post entitled Franchising Health Care as a Business Model for Social Marketing by Craig Lefebvre makes many of the points that came up in class:

One of the shortcomings of social marketing and social change programs is the lack of attention given to their business models. ….. the idea about now being able to build a potentially sustainable program that includes quality control measures and requires the staff to pay close attention to the marketplace, and benefit when they do, is an appealing option…. But the research needed to figure out better business models and how to transition from one to another in a social change program’s life cycle is way behind what the need is.

How to sort out which models work and why, when it comes to franchising? One starting point is a small set of published papers in this area:

Dominic Montagu, 2002. Franchising of Health Services in Developing Countries Bay Area International Group. (June 1).

Jeff Ruster, Chiaki Yamamoto, and Khama Rogo. 2003. Franchising in Health: Emerging Models, Experiences, and Challenges in Primary Care. Public Policy for the Private Sector (June; No. 263)

Edith Patouillard, Catherine A Goodman, Kara G Hanson and Anne J Mills. 2007. Can working with the private for-profit sector improve utilization of quality health services by the poor? A systematic review of the literature. International Journal for Equity in Health.

David Lehr, 2008.  Microfranchising at the Base of the Pyramid.  Acumen Fund working paper. (August.)

Bishai DM, Shah NM, Walker DG, Brieger WR, Peters DH. Social Franchising to Improve Quality and Access in Private Health Care in Developing Countries. Harvard Health Policy Review.  Vol. 9, No. 1, Spring 2008: 184-197.

Finally, a useful resource has just been created by the University of California, San Francisco, featuring brief and up-to-date reviews of issues in private sector healthcare delivery in developing countries–check out Private Sector Delivery of Healthcare Goods and Services the many resources reachable from Private Healthcare in Developing Countries.

{ 5 comments… read them below or add one }

Ron Gelberg November 30, 2008 at 5:09 pm

When it comes to delivering a viable healthcare delivery model, I believe the key is a sustainable model. I personally do not believe that there is a difference whether it be a model for health delivery or for any other product. In addition, what I have read and understood, I think it also makes little difference whether it is for developing or developed world. True, there are different challenges encountered in different regions, services and products, however, the models do not differ.
The Aravind way, reminds me a lot of the “Toyota Way”. This methodology is where quality is king. The principles of implementing a management system that ensures continuous improvement, is a quality measure that has and will benefit any business. The ability to attract and train a specialized workforce, again is no new theory. Generation of patient volume is no different to increasing the market size. As you do so, your overall costs tend to decrease. While many readings and the video provided by PBS show that the franchising model is the answer, I believe that that it is one of many; however, I believe that whatever model is considered, it must ensure that quality is king. In addition, it must ensure that the market size increases so the overall costs of diminish.
The CFWshops use the franchising model, and while they do charge money (at least for 30% of its patient) it has a large advantage over the free government service. Again, it knows that the quality of drugs is high, it trains staff ensuring a sound profession and it avoids the long lines of HIV patients. Moreover, as it has many patients, it is able to improve its capabilities and be experienced in its field. In addition, being a franchise, it can really open anywhere. The challenges are that locals must purchase this franchise, and due to global economic challenges, this area probably suffers the most, and hence, franchises may not be able to be opened. In that situation, it may be worth to open a chain rather than a franchise, similar to what Toyota has done in the US.
I personally believe that unlike the belief of LAICO, or CFW shops or other franchises, I do not believe that this model is necessarily important for specializations. The advantage of specializations is that you are able to provide the same service and learn from it, and hence, improve the quality of service. However, the problem with specializations is that in developing countries, people need to go to one place where they can be provided healthcare, and not be sent elsewhere if they cannot be given any care. As my project looks at CIDRZ and HIV, it is interesting that this organization does not want to take the franchise model, but still provides the Hub and Spoke methods, the quality method, access to low cost technologies and generation of patient volume.
So, I believe that whatever model is chosen, one must ensure that it is sustainable, it has high quality, it provides proper service and has a local hand. If Africa continues to rely on grants and on doctors from overseas, its people may not cope. However, If Africa develops its own franchises, chains, healthcare system and educates their own people to treat each other (as CFW does), the likelihood of continuation and success will be much higher.

Anonymous December 1, 2008 at 3:23 pm

This week we studied CFW shops in Kenya order to understand the role of franchises in global health delivery in Africa. Through watching the video and participating in class discussions, a number of aspects about CFW shops caught my attention:

• Business Model: It was interesting to learn that while each CFW shop operates as a for-profit business, the overall parent organization operates and receives funding as a not-for-profit organization. I think it’s tremendous that today there are so many not-for-profit organizations providing services in African nations to communities in need. However, I have concerns about the long-term viability of these models, and thus see CFW’s integrated approach of for-profit and not-for-profit services as a viable transition model for organizations working in global health delivery in Africa. I recognize that this is a very broad generalization considering that each country and community in Africa has unique need and challenges, but from the perspective of a non-African interested in participating in these services, it is a reasonable option to consider.

• Role of Nurses: CFW shops utilize nurses as both the clinical providers and business people to run each franchise. While in class we heard many pros and cons for this model, I am a proponent for a number of reasons. First, because CFW is a franchise nurse shop-owners have the parent organization as a resource to provide best practices for store operations and to manage supply chain logistics. Additionally, to keep costs low each shop operates with only one employee – the owner. If I had to pick between a nurse and a business person, I would pick a nurse because of the high volume of patients coming in who are seeking not only medicines, but health counseling.

• Providing Services Regardless of Ability to Pay: Many franchisees shared that up to 70% of their patients aren’t able to pay for services. Given the environment that they are operating in, I see that requiring payment from all patients is not an option. The challenge is to make sure that the payments received from 30% of patients are sufficient to cover costs for all patients. Hopefully one day the health and economic independence of the population will allow for a great percentage of patients to pay, making CFW shops or similar businesses profitable.

Anonymous December 1, 2008 at 3:44 pm

Models for Healthcare Delivery

The delivery of healthcare in a resource-constrained setting has to take into account the unique needs at that location, capabilities that are available for leverage and also the constraints at that particular setting. The healthcare delivery model should also create income that will allow the program to become independent of donors and become self-sustaining. Cross-payment (Aravind Eye Clinic) and/or a pseudo-franchise models (CFW Shops) discussed in class, offer valuable insights into such efforts.

In the Aravind Eye Clinic case; the endearing vision of the founder, an extensive network of relatives/contacts that he could bring to bear, the strong ability to leverage other sources of funding for technology transfer and manufacturing, a strong focus on only a single solution for the non-paying population (cataract surgery for which a very large customer base exists), and the use of systems and batch-processing approaches to reduce cost for that solution, was the basis for its sustained success. Challenges with extrapolating this approach (portability) to another solution; include the ability of founders to find a connected network of skilled individuals who can drive such an effort for that indication, an indication where there is a high-density of people seeking the solution (economy of scale), and the contacts to be able to find indirect sources of funds for technology/solution development. A distinct lack of similar success stories is an indication of the influence of these limitations on the portability of the model.

In the CFW Shops case; the ability of the founders to leverage a strong and established business concept (franchising) to a healthcare delivery setting is the basis for its success, thus-far. The founders use a non-profit approach to create the infrastructure and training-program needed for the scale-up, deployment and operation of such an effort; but rely on potential for profit at the client-level to drive commitment from the entrepreneurs (who also have a social conscience/mission). The problem with this approach lies in the financial details that are becoming apparent with how this model works; almost 70% of the customers are unable to pay for service at time of delivery (value system inculcated by the model does not encourage non-delivery of service when it is not paid-for). Such a financial outcome will not be sustainable in the long-run in the context of this model, unless the paying population is able to subsidize the services for the non-paying population. However, the paying populations is not significantly better-off than the non-paying population (economically) and a growing knowledge or awareness of the cross-subsidy may discourage them from paying, as well.

Both these models have resulted in significant success at the specific locations/conditions in which they were developed/deployed. However, one should be careful in trying to extrapolate these outcomes to addressing problems in other locations. Every attempt should be made to defining the needs, capabilities, and constraints in each setting and only aspects/components of these models that can add-value in the specific setting should be applied. Identifying what the customer “needs” and not what he/she “wants” is critical for success. In addition, “one size never fits all” in the context of healthcare delivery, particularly in a resource-constrained setting.

Joaquin Mendoza December 4, 2008 at 8:35 pm

Our team attended the “Business Development for Global Health Technology” sesión las Friday on Harvard “Innovation for Global Health” conference.
The session was ran by James Barber and Bill Rodriguez. I decided to first give a little summary on each presenter and the key points they talked about during the session. Then, I will add my main takeaways from the session and how we can apply it to our project with AAR.
Bill Rodriguez is an MD from Harvard and from 2001 – 2005 initiative a research program at Partners AIDS Research center. Afterwards he worked in both the Gates and the Clinton Foundation´s HIV/AIDS initiatives. During the session Bill talked about the product he is hopefully launching next year via his company Daktari Diagnostics: a $1 liver diagnostic for HIV patients. Bill mentioned that approximately $1M/year die in developing countries due to excessive liver toxicity caused by AIDS treatments.
James Barber is an MIT Organic Chemistry PhD. In contrast with Bill, James has been working in the for profit sector his entire career, most recently as CEO of Metabolix, Inc. He is currently the Executive Director of Diagnostics for All (DFA); a for-profit organization looking to make cheap diagnostic tools for developing countries.
The session focused mainly on two things 1) Bill´s take on how the resources and constraints of ´Research, Development and Delivery´ steps of a product are often misunderstood and 2) How to reconcile a business with a socially conscious mission but with a for-profit business model.
Bill mentioned that the majority of resources are spent in a product´s ´Development´ stage. The research aspect, making the 1st product is cheaper, that being able to make that same product 1 million times at a low cost. The Delivery aspect is also important and usually the source of constraints. The product can be manufactured efficiently, he gave the example of Novartis´ malaria drug, but the Delivery might not be in place, he mentioned how in Kenya the private sector has the delivery mechanism but not the public sector, making the drug more expensive than it should. This dynamic causes a “chicken-and-egg” problem since governments will not spend the resources to set the delivery without the drug/product existing but most companies will not even develop the drug/product without the delivery mechanism in place.
The other topic talked extensively in the session was the for-profit / non-profit dilemma companies like these face early on. Both lecturers, in my opinion, gave great answers to this issue. First, the company has to be set as a for-profit because the operating costs of the product must be covered on its own. Second, sustainability is the “holy grail” and companies can not afford relying on philanthropic resources always. Third, the for-profit/non-profit for both of them is seen as an accounting instrument. Fourth, as of today there are no non-profit manufacturing business models that work.
The session was very informative for me and my team. Our project changed from creating an insurance product for low income population to a process mapping and re-design of their existing high-end insurance. My team agreed that this talk was beneficial for the original project since it talks on issues we could have struggled with such as 1) health care delivery mechanisms in place (i.e. clinics) and 2) how to merge a for-profit company, AAR, with a socially conscious mission of providing health insurance to low income population.

Anusuya Das December 8, 2008 at 1:31 pm

After surveying all the different health care models that have been successful, I have come to realize that its not the basis of the model but the matching of the model-product pair that determines ‘success’ or sustainability. I really like the Aravind Eye model primaily because of its dedication to quality. But, I think the one aspect is the underlying basis for this model is the fact that IOLs can be produced in a cheap manner in India. This brings to light the fact that not all surgery is as simple as that. Training surgeons in more complicated surgery requires mor etime and resources. And the operations itself require more expensive equipment. So..another question we fly surgeons from the west to the developing countries or is it worth the time and effort to train native surgeons? I for one am all bout self sustainability and teaching people to help themselves. But how does one deal with the time scales involved (training obviously measn no immediate access) and how does one provide incentives to prevent brain drain? PIH tried to provide financial incentives to individuals in Rawanda to prevent them from leaving and drawing them to their hospitals…but that skewed up the public health system there. So, if financial incentive the only way to prevent brain drain? Probably not…

So..I truly believe that each healthcare problem has its own tailor made solution. One needs to learn from other models, but the best fit for each question is different. Its always a unique concotion of technology, healthcare delivery, training at the ground and funding style. This means health care delivery in the developing world is even more challenging than it appears to be…and so its even more exciting!! The propects are limitless!

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