After five years of heady growth in Peru, many experts say the country’s economy will slow down sharply in the future because of political uncertainty. The first round of presidential polls on April 10, 2011, set the stage for a June runoff between the leftist Ollanta Humala, a former military commander, and right-winger Keiko Fujimori, the daughter of a former Peruvian president who is in jail.
Strangely, three well-qualified centrists — Luis Castañeda Lossio, Lima’s former mayor; Pedro Pablo Kuczynski, an economist who studied at Oxford and Princeton; and former president Alejandro Toledo, who has a doctorate from Stanford — all lost. (For the record, Fujimori has an MBA from Columbia University.) There’s a lesson in that somewhere about how people in Latin America perceive growth and development, but I’m still optimistic about Peru’s future. Unlike other countries in Latin America, such as Mexico, Peruvians have learnt to innovate on shoestring budgets. The ability to do that, I believe is going to keep Peru’s economy on the path to development.
Take, for instance, healthcare, which was so bad in Peru that in the early 2000s, it had Latin America’s third-highest mortality rate (20 deaths per 1,000) after Haiti (60 deaths) and Bolivia (45 deaths). Only 7% of Peruvians could afford private medical facilities; 63% had access to state-owned ones; 30% of the people didn’t have access to any medical assistance.
To help tackle the problem in the crowded city of Lima, its then-mayor — a doctor who had been the head of the National Institute of Health — decided to orchestrate a solution. Working with several doctors, the city set up a hospital, Hospital de Solidaridad, in a very different fashion.
One, building a hospital is time consuming — it takes around four years in South America — and is capital-intensive. The HDS team decided to eliminate this step and set up the facility in the shells of 23 old buses that were waiting to be disposed off by the city administration. It took just four months to clean out the buses and equip them with water, electricity, drainage, air conditioning, and medical equipment. The hospital has operating rooms, clinical laboratories, a pharmacy, and provides an array of services, from diagnostics to surgery.
Two, instead of investing in equipment, the founding team invited doctors to buy equipment that they could own, use, and maintain. As many as 360 doctors agreed to do so in order to help the sick in their city, and became investors in the hospital.
Three, hospitals usually offer services from fixed locations. The HDS team came up with a modular design that make it easy to move parts of the facility to where the demand is. Medical teams drive to the poorest places in Lima, starting at 8 a.m., and finish after they have seen the last waiting patient.
Finally, most hospitals decide which doctors attend to which patient. The HDS team changed this, allowing patients to choose the physician, the day, and the treatment time so they could act on the recommendations of friends and relatives. The world’s longest hospital, as Peruvians fondly call HDS, tends to around 50,000 poor patients a day, and the wait is between 30 and 45 minutes.
HDS charges U.S. $2.80 a patient, which most Peruvians can muster. To fund surgeries, the hospital helps organize pools. A group of 10 families will contribute, say, $10 each a month to create a pot of $100; they will draw a number; and the family that draws 1 gets the money first; and so on for the next 10 months. HDS charges fairly low prices. For instance, laser surgery of the eye costs, on average, $100 as compared to between $1,000 and $1,500 in a private clinic in Peru. Interestingly, the hospital or doctors don’t subsidize prices; they feel that might lead to a fall in service quality.
HDS isn’t a stripped-down version of the traditional hospital. It consists of a network of investor-physicians, operating from buses that had fallen into disuse, and offering exactly what people need such that they value it. The doctors asked one simple question: What can we do to help the neediest in Peru in a quick, cost effective, and professional way? In the process of tackling that issue, they re-imagined the manner in which they can deliver healthcare services to Lima’s urban poor.
Re-imagining value doesn’t mean focusing on cost (the denominator). The process starts by acknowledging that perceptions of value differ according to the target market segment and geographical location. This allows managers and policy-makers to play with the attributes of the original offer, eliminating some, modifying others, or inventing new ones.
All of Latin America needs to learn from this kind of innovation, and figure out how to enhance the numerator either by enhancing value, like the Colombians did, or by re-imagining value, as the Peruvians have. Doing that will make all the difference.
Alejandro Ruelas-Gossi is a professor of strategy at the Santiago, Chile-based Universidad Adolfo Ibañez, and the director of its Miami campus, Adolfo Ibáñez School of Management.