Compass Group

Michael Beach, Zenique Browne, Mrawan Mosbah, Anqi Ni, Thalia Santana, and Joey Tang.

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The Ascension Health Decision

This presentation will address Compass Group’s need to meet the requirements of a growing, consolidating hospital and healthcare market.

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Overview

• The Case for Consolidating Morrison and Crothall
• Reasons for Caution
• Implementation

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Should Compass realign its organizational structure to win a major contract?

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• Morrison Healthcare and Crothall Healthcare are about to close a $400 mil/yr contract with Ascension Health.
• Ascension Health wants a “single point of contact” in order to finalize the contract.
• If this cannot be provided to Ascension’s satisfaction, our competitor Sodexo wins the contract.

There are compelling reasons for Compass Group to consolidate Morrison and Crothall in the current healthcare climate.

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1)

​

Reasons why Morrison and Crothall should consolidate.

• Healthcare is steady and growing.
• Compass Group is underinvested in healthcare.
• There are unique opportunities to enter the market.

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The US hospital and senior care market is steady and growing.

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Source: Tables 8-13, CMS National Health Expenditure Data on Age and Gender.

CAGR, Hospitals and Seniorcare:

6.28%

CAGR, US Economy:

3.86%

Retiring “baby boomers” are on track to spend significantly more on health in the next 20 years.

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Source: Tables 8-13, CMS National Health Expenditure Data on Age and Gender, 2002.

$1,324

$7,281

Spending per US citizen per year on hospitals and seniorcare.

Spending per 65+ citizen per year on hospitals and seniorcare.

Retiring “baby boomers” are on track to spend significantly more on health in the next 20 years.

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Source: Tables 8-13, CMS National Health Expenditure Data on Age and Gender.

Medicare spending is projected to increase exponentially over the next 20 years.

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Source: CMS 2011 Medicare Trustees Report, Tables III.A1 and III.A2.

Spending, % of GDP:

3.65%

3.99%

5.16%

, 2011

, 2020

, 2030

Compass is a major competitor in the contracted services industry, but underperforms in healthcare.

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Source: Compass Group and Sodexo annual reports, IBISWorld industry data.

$23.4 Bil.

$11.0 Bil.

$8.3 Bil.

$7.80 Bil.

$1.97 Bil.

$2.15 Bil.

Compass can outperform current growth if it captures parity in the healthcare market in 10 years.

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Source: Compass Group and Sodexo annual reports, IBISWorld industry data.

$5.11 Bil.

$4.89 Bil.

Projected CAGR, Parity Plan:

9.98%

Projected CAGR, Compass Today:

9.50%

Hospital networks are consolidating and renegotiating their service contracts.

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• Smooths risk, profitability across an entire network of hospitals.
• Networks seek to cut costs after the 2007 recession.
• Networks seek to reduce uncertainty after the passage of the 2010 Affordable Care Act.

61% of US hospital capacity is in a network of 2 or more hospitals.

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Source: AHRQ Compendium of U.S. Health Systems, 2018.

Hospital mergers are increasing.

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There are significant risks involved with merging Morrison and Crothall, potentially hurting growth significantly.

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2)

​

Reasons why Morrison and Crothall should not merge.

• Compass sectors grow faster than consolidated services.
• Hospitals love sectored services, but dislike implementation.
• Growth opportunities are temporary.

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If Compass Healthcare grew at the rate of its competitor Sodexo, growth would stall completely.

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Source: Compass Group and Sodexo annual reports, IBISWorld industry data.

$5.11 Bil.

$4.89 Bil.

$3.80 Bil.

Projected CAGR:

​

Parity Plan:

9.98%

Compass Today:

9.50%

Consolidation:

6.76%

Hospitals’ Major Fears with Sectorization:

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• Dividing of tasks between Morrison and the various Crothall service arms.
• Delays and confusion.
• Simultaneous implementation of multiple sectors across a network.

Hospital departments need reliability, competence in support services.

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• Many hospitals have over 50 departments.
• Hospital departments are run independently by medical professionals.
• Antiquated IT systems, not linked to network.
• Orders, requests placed sporadically, last-minute.
• Groups of ~10 departments are run by network-level VPs.

Hospitals appreciate the superior service offered by keeping Morrison and Crothall sectorized.

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Source: HBR case document.

1)

2)

Compass Healthcare Growth Rate 2007-2011:

9.50%

Sodexo Healthcare Growth Rate 2007-2011:

4.44%

Ascension Health chose 17% market share Compass Group over 18% market share Sodexo.

Healthcare market growth opportunities are temporary.

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Source: U.S. Census Bureau 2017 National Population Projections.

• Increase in the growth rate of 65+ population reverts to historical levels after 20 years.
• Hospital networks are renegotiating contracts in response to 2010’s PPACA, to be completed in a matter of years, not decades.

Morrison and Crothall must scalably meet the demands of their network customers, but without compromising their competitive edge.

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3)

​

How to consolidate Morrison and Crothall.

• Create a scalable liaison structure to align hospital network hierarchies.
• Structure sales and contract management at a regional level.
• Develop core competencies to serve hospital needs.

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How A Hospital Network Contract Works:

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• Contracts are negotiated at the network level.
• Negotiated with executives.
• Implementation is done hospital by hospital.
• Hospital networks are usually grouped geographically.

Source: Kaufman Hall Transactions Data.

The Hospital Network Future:

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• Constantly looking to expand programs and offerings, for revenue growth.
• Hospital networks are consolidating and growing.
• Increasing demand for senior care.

Source: Kaufman Hall Transactions Data.

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Hospital #3

Hospital #2

​

Hospital Network

(Northeast Region)

Executive Sales

Clinical Engineering

Facilities Management

Dietary and Nutrition

Transportation

Environmental Services

Laundry

Hospital #1

Crothall Healthcare

Morrison Healthcare

Program Development

Compass Health

Northeast Region

Central Region

Southern Region

Western Region

Nat’l

Region

Align the Organizations to Hospital Networks to achieve growth & maximize efficiency.

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Implementation:

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• Hire/promote a Healthcare VP.
• Move executive sales from North America to Healthcare.
• Regionalize sales.
• Synchronize Morrison and Crothall regions to sales regions.
• Devolve contract-making powers to regional Morrison and Crothall leadership.

Implementation:

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• Use implementation managers to oversee new contract implementation.
• Nationwide series of program development teams.
• Research future program growth demand.
• Partner with networks to aid program adoption.

Future Strategies: Consider creating new sectors as hospital needs grow.

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• Compass Healthcare should look for opportunities to specialize services in a rapidly consolidating industry.
• Don’t divide by service, but by customer base.

Morrison and Crothall should consolidate sales and implementation, while maintaining separate operations.

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