Team: Michelle Fertig '06 and Herc Tzaras '06
Areas: micro-franchising, international development - success factors assessment
Supervisor: World Resources Initiative
World Resources Institute (WRI) is an environmental think tank that goes beyond research to find practical ways to protect the earth and improve people's lives. WRI works with MBA students to identify innovative private sector approaches to business development that are replicable, scalable and sustainable in emerging markets. WRI wanted to identify the key elements that make the HealthStore Foundation (HS), formerly called the Sustainable Healthcare Enterprise Foundation, a successful nonprofit franchisor of for-profit clinics and shops that dispense medicine to treat easily curable diseases such as malaria. Herc Tzaras '06 and Michelle Fertig '06 traveled to Kenya to evaluate HS's business model and its network of 68 franchisees.
Student team with group at Maasai village, near Embu (outside of Nairobi)
HS was founded in 1997 by Scott Hillstrom, a managing partner of a commercial law firm. HS is a nonprofit franchisor that licenses for-profit pharmacy franchises, called HealthStores (formerly called Child and Family Wellness Shops) which operate in three regions in Kenya. HealthStores aim to "prevent needless deaths by improving access to essential drugs and basic health services." HS is able to combine the advantages of a nonprofit organization (fundraising, access to medicine at discounted prices) with those of a business by having the individual franchise locations operate on a for-profit basis.
Improving the franchise model
HS's new acting President, Charles Slaughter, has extensive experience in the franchise business model and has greatly improved the strategy and operations of the individual HealthStore outlets by slowing overall growth while increasing the performance of existing outlets. Through a series of highly successful promotions, the HealthStore outlets increased service dramatically: the number of patients served in May 2004 was quadruple that of May 2003, and sales per outlet have increased 55% year to date over 2004.
HS operates as a typical franchisor, licensing pharmacy franchises under the HealthStore brand name and controlling the opening of new locations by screening potential franchise owners and locations. HS also provides financial support when opening shops and clinics by funding up to 80% of the capital required. Apart from marketing, logistics and distribution, and product selection and training support, HS also performs a monitoring function by ensuring franchises maintain standards with regards to pricing, reporting, inventory levels, procurement and other areas. HS collects its franchise fee by including it in the price of drugs charged to the shop or clinic owner.
A HealthStore (formerly CFW Shops) shop in a village near Nairobi, called Kitune
Positive Direct and External Impacts
HealthStore shops and its clinics are able to impact society in a significant manner by providing accessible healthcare, health education, charitable medication (in limited cases), and a sustainable income for its franchise owners. In addition, HS creates other positive external impacts on the healthcare market and on their communities served. Often when a HealthStore clinic/shop is opened, competitive drug prices converge and overall quality of service improves. HealthStore locations also play an important role even where there are government dispensaries providing medication targeting the same illnesses for free, since these dispensaries are often out of stock. HS's impact on society will continue to grow as more clinics are opened in increasingly remote rural areas.
The student team identified key success factors of HS in Kenya, which are relevant to other organizations interested in replicating this model, such as developing a mentorship program, regional promotional campaigns, detailed action plans for each location, and simplified reporting (including incentives to owners to complete reports). Its in-depth case study, which highlights HS business model best practices and lessons learned, is available from WRI and IFC online.