Written by: Mr Nalaka Godahewa [source]. (Mr. Nalaka Godahewa is a former Chairman of the Securities Exchange Commission of Sri Lanka and was former Chairman of Sri Lanka Tourism )

IF A JOB IS WORTH DOING IT IS WORTH DOING WELL !

I haven’t written anything on my FB page for almost 10 months. But yesterday when I went to Lanka Hospitals for a dental appointment many old memories returned which prompted me to write this…..

Sri Lanka Insurance Corporation (SLIC) owned majority share of Apollo Hospitals since 2006 after SLIC bought over 54% of its shares. Distilleries Corporation of Sri Lanka (DCSL) owned 28% of Apollo shares at that time. Through these two companies, Mr. Harry Jayawardene was in control of more than 80% of Apollo Hospitals until SLIC ownership returned to government mid 2009 due to a supreme court decision.

As in the case of SLIC, the Apollo board comprised of close associates of Mr Jayawardene and the key decision maker was the SLIC Director Mr Damien Fernando. Several members of the SLIC management team were also on the Apollo board. By 2009 Apollo Hospital was in bad shape and losing money. The hospital had a poor reputation for the quality of medical services. Apart from some Indian doctors who had established reasonably good medical practices the hospital did not attract reputed local doctors. There was some kind of unspoken agreement amongst reputed local doctors to boycott consultancy assignments at Apollo. The other private hospitals such as Nawaloka and Asiri were way ahead of Apollo in terms of public acceptance, turnover and profitability when SLIC management changed hands in 2009 from private sector to public sector.

Immediately after I assumed duties as Managing Director of SLIC in July 2009, I was visited by the CEO of Apollo, Mr Lakith Peiris. He introduced himself and briefed me about the hospital. The main purpose of his visit was actually to convince me that he was a new recruit who had joined Mr. Jayawardene’s team only a few years ago. Indirectly, he was seeking an assurance from me about his job security.

As Lakith had anticipated correctly , the pressure started building up soon that we should remove the CEO who was considered a Jayawardene loyalist. Also various people started showing interest in becoming the chairman of Apollo or joining the board as directors. Mr Pradeep Kariyawasam who was the Chairman of SLIC at that time was very keen to change the board and the CEO at the earliest possible. Obviously he was eyeing the chairmanship of Apollo Hospital too.

But my mind had already started working after Lakith’s visit. As Managing Director of SLIC I was keen to see that the largest subsidiary of SLIC performs well. Hospital was already struggling financially and I realized that hospital would be in further trouble if the wrong person becomes the Chairman. Pradeep was all out to get the job and having observed him for couple of weeks I already knew that he was not capable of handling this tough assignment.

I was not politically connected and had no access to government decision makers other than through the Secretary to the Treasury Mr Sumith Abeysinghe. But before I discussed anything with Mr. Abeysinghe I had to share my views with the rest of the SLIC board. I was in a dilemma as to how I could explain that we needed a better Chairperson for Apollo than the Chairman of SLIC who was already eying the job.

The opportunity came in an unexpected way. I was approached by Mr Dilith Jayaweera, the Managing Director of Triad and a close associate of Defense Secretary Mr Gotabhaya Rajapaksa. Dilith said that Defense Secretary was very keen to build a hospital of very high standards for the military personnel. Since Apollo is now in government control through SLIC, he suggested that we hand over the management of Apollo to the Defense Ministry for it to be converted into a military hospital.

I explained to Dilith that his suggestion is not practical as Apollo was a public listed company. SLIC was only the majority shareholder. As majority shareholder we have obligations towards the minority shareholders and the general public. The shareholders expect a return for their investments. Even SLIC has bought the hospital through the insurance funds and the policy holders had to be given a good return. A military hospital on the other hand would not be profit oriented. Therefore unless the government’s was willing to buy back each and every share listed in the market it was not possible to convert Apollo into a military hospital. Therefore, Apollo had to continue as a commercial entity.

I also explained to Dilith that the hospital has great potential and I already knew how to turn it around and make it a profitable venture. All I wanted was the support of a capable chairperson and a professional board. Since I would anyway be on the board in my capacity as the Managing Director of SLIC, I knew I could guide the business in the right direction.

In that case Nalaka why don’t you invite Gota to be the Chairman?” asked Dilith.

I was surprised at this suggestion and at the same time got quite excited.

Do you think he will agree?” what I meant was that Gotabhaya Rajapaksa being the secretary of defense would be too big to be the chairman of a subsidiary company of SLIC.

I will talk to him. He will surely be interested once I explain your vision for the hospital said Dilith.

Good. Please try to convince him” I said. I also told Dilith that I have one more request. Please tell the decision makers not to push me to remove the current CEO of Apollo Mr. Lakith Peiris”. I do not know him from Adam. But I like to give him a chance. I have not removed any of Harry Jayawardene’s senior managers from SLIC too. I like to do a professional job here and deliver results. So I would be grateful if I am allowed to do my job without any political interference”

I will make sure of that if Gota comes on board. I will convince him to accept the invitation was the response of Dilith.

Dilith delivered the promise. Within a week a new board of Apollo was appointed based on the recommendations from the Treasury. Gotabhaya Rajapaksa was appointed as Chairman of the hospital. Both myself and Pradeep Kariyawasam were appointed as directors. Dilith phoned me to inform that Gotabhaya had agreed not to change the CEO but he had wanted me to be actively involved in the operation and guide the board.

It was through the board meeting of Apollo hospitals that I got to know Gotabhaya Rajapaksa for the first time. I have had no prior interactions with him. But once we started working together it didn’t take much time for me to get his attention and win respect for my work.

Gotabhaya never had any personal agendas. His only interest was to see that the hospital performs well under his chairmanship. Having understood my background and capabilities he relied on my ability to guide the business strategy. Though there were several other high caliber professionals on the board there was an unspoken understanding that as Managing Director of SLIC which was the majority shareholder of the hospital, my views should be respected when it came to critical decisions. Once the board agreed on something Chairman Gotabhaya Rajapakse ensured the decisions were implemented fast. I was amazed at the speed at which he grasped various issues and found solutions for them.

Being a professional marketer, I realized that the immediate problem that we had to handle was the negative public perception. Apollo was seen inferior in quality than the other established private sector hospitals. I explained to the board that whatever we do to improve the product it would take a very long period to change the poor brand image in the market. Hence as a marketer my suggestion was to change the name of the hospital and re-launch it with a fresh identity. I also pointed out to the board that there was no need to look for a new name as the company already had the name Lanka Hospitals Private Limited”. Apollo was only the brand name. So we all agreed that the hospital would be re-launched under the original company name ‘Lanka Hospitals’.

The decision to re-launch the hospital as Lanka Hospitals also had another immediate benefit. Until then company was paying thirty million rupees annually, to the Apollo Group for the use of Apollo brand name. We no longer had to pay that.

Triad Advertising Company designed a beautiful logo for Lanka Hospitals and handled the advertising campaign of the re-launch.

The other biggest issue the hospital had faced during the previous management was not being able to attract reputed local medical consultants to the hospital. Chairman asked Lakith and other staff to provide us with a list of senior consultants that they would like to have with us. Once the list was prepared Chairman personally spoke to most of them and invited them to join us. Gotabhaya had a huge following in the country after the war and a personal invitation from him to join the hospital staff was unlikely to be refused. We also used the contacts of some of the senior medical professionals on our board to convince the new doctors. These strategies delivered results and soon we were able to have several reputed local medical practitioners on board.

Due to financial difficulties the hospital had been delaying investments on some expensive medical equipment and new operations theaters. Lakith was asked to come up with plans to upgrade the hospital with latest technology within the next 3 years. We could complete the plans much earlier as our cash flows improved much faster than we anticipated.

Having worked at MAS Holdings where we maintained our factories above world standards, I told the CEO that the patients and visitors must not feel that they have entered a hospital when they come to Lanka Hospitals. They should be treated as if they have walked into a hotel reception. Lakith Peiris took this advice literally. He did a very good job in improving customer care at the hospital. We focused our attention to reduce the time taken to admit and discharge the patients. The staff was given special training on customer care aspects. A lot of attention was paid to improving the quality of nursing. The value chain was analyzed and resources were provided where it matters most. Several structured in-house training programs were introduced.

Essentially we focused on the following model.

– Formulating a clear business strategy
– Ensuring right people are holding the key management positions
– Building a strong customer care culture within the hospital
– Improving the product in terms of medical and nursing care
– Improving the business processes and the delivery efficiency
– Upgrading technology and improving infrastructure

Retaining Lokith Peris as CEO turned out to be a good decision. He was truly passionate of the hospital and understood our expectations well. We gave him enough operational freedom and restricted the involvement of the board mainly to providing the strategic direction. However, I personally got involved in senior management recruitments, as I always believed that we should never compromise on quality of human resources. Because of Gotabhaya Rajapakse, no out sider dared interfering with recruitment at the hospital.

As the chairman of the hospital Gotabaya was quite resourceful. He worked hard to ensure that Lanka Hospital evolves to be one of the best-managed institutes in the country. He identified the strengths and weaknesses of each board member and managed them to get the best results. I had won his full confidence and therefore I had a lot of freedom to make decisions on his behalf. But I was very careful to use that freedom with responsibility. Gotabaya was absolutely honest when it comes to financial matters. He didn’t even accept the allowance allocated to the chairman of the board. If I remember correct even his fees for attending board meetings was sent to a fund that defense ministry was maintaining to support the disabled soldiers

Lanka Hospital became a real success story since the board changed in 2009. I served on the board from 2009 to 2013. A loss making company, which we took over in 2009, doubled its revenue and made a profit of Rs 688 Mn by 2013. An important point to note here is that the company could have made far more profits if not for our insistence that the prices we charged the patients should not be increased except for exceptional circumstances. My view was that that we had a responsibility to keep the industry price structure low for the sake of the general public. When Lanka Hospitals kept its prices low the other private hospitals couldn’t increase prices unreasonably. We encouraged the company to make profits by improving operational efficiencies and growing the business volumes. We were proud of that policy as we showed care for the ordinary people who struggled to meet their medical costs. But since we left the board I can see from annual reports that this low price policy has not been sustained. In 2015 there had been a significant price increases, which resulted in over 2% increase in gross margins. Downside is that increased margin has come from the pockets of the patients not from cost reductions or operational improvements.

Even now when we go to the hospital old staff come running to talk to us. They share nice memories with us. Turning Lanka Hospitals around was another chapter in our story. But all good things come to an end and the life has to go on.