t

os
W15338

AYURVAID: GRANDMA’S REMEDIES OR BLUE OCEAN STRATEGY 1

rP
Professors Samta Jain, Sunanda Easwaran and Murray Bryant wrote this case solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights

yo
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2015, Richard Ivey School of Business Foundation Version: 2015-08-05

Rajiv Vasudevan, founder and chief executive officer (CEO) of AyurVAID, a chain of Ayurveda
hospitals in Southern India, took a break from analyzing the reams of data on his desktop screen to stretch
op
his legs and rub his tired eyes. The year was 2014 and, over the course of the past year, AyurVAID had
registered consistent growth in revenue and in the number of patients seeking consultation, strengthening
its position as a multi-specialty hospital chain. Its entry into the field of diabetes had also been quite
successful.

Vasudevan believed the business was reaching an inflexion point; what concerned him now was
tC

identifying the most appropriate strategic direction for AyurVAID: should it further strengthen its
established position as a multi-specialty hospital by entering some of the other fast-growing areas of non-
communicable and chronic diseases 2 in which AyurVAID had demonstrable expertise, or should it instead
explore the large and growing market for diabetes and position itself as the “diabetes specialist”?

Vasudevan had been examining this issue for quite some time. He had studied the markets for non-
communicable diseases (NCDs), their structure, size and growth and had consulted senior colleagues and
the hospital’s medical fraternity. He considered some of the key data3 he had gathered:
No

• India had a large and growing market for diabetes. According to the International Diabetes Federation
(IDF), in 2013, 65.1 million people in India were diabetic, up from 50.8 million in 2010.4

1
W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the
Competition Irrelevant, Harvard Business School Press, Boston, 2005.
Do

2
The World Health Organization (WHO) defines non-communicable diseases (NCDs) as those that are not passed from
person to person. They are of long duration and generally progress slowly. The four main types of NCDs are cardiovascular
diseases, cancers, chronic respiratory diseases (such as chronic obstructive pulmonary disease and asthma) and diabetes.
Source: WHO website, “Noncommunicable Diseases Fact Sheet,” March 2013,
www.who.int/mediacentre/factsheets/fs355/en/, accessed December 14, 2014.
3
Joe C. Mathew, “The Diabetes Dividend,” Business World, December 8, 2012,
www.businessworld.in/news/business/pharma/the-diabetes-dividend/669085/page-1.html, accessed December 14, 2014.].
4
International Diabetes Foundation (IDF), “Diabetes Atlas,” www.idf.org/sites/default/files/EN_6E_Atlas_Full_O.pdf,
accessed December 14, 2014.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 2 9B15M058

t
•

os
The rate of growth of NCDs continued to be very high. Diabetes was second, only to cardiovascular
disease (CVD), which was estimated to grow at 47.58 per cent from 2005 to 2015; diabetes also
contributed to CVD. 5
• There waDiabetes treatment had relatively less hospital-based competition than other treatments.
Most diabetes treatment in allopathy was ambulatory, unless the patient needed to be admitted to a
hospital to receive treatment for complications.

rP
• Diabetes was already the fastest-growing disease in India, which was strongly indicated by the growth
in diabetes drugs. A Business World article quoted a 2012 study that found, “the diabetes medicine
market alone is worth INR450 billion today and is expected to double by 2016.” The same report also
stated that, “clubbed with the cardiac medicine market (80 per cent of diabetic patients die of heart
disease), the [diabetes medicine market] will be about one-fifth (INR130 billion) of the domestic
pharmaceutical market (INR690 billion).”6

yo
In addition, AyurVAID already employed qualified physicians with expertise in diabetes. Although there
appeared to be a good business case for a diabetes focus, it was not as clear-cut as Vasudevan preferred.
There were other important considerations.

For one, Vasudevan had defined the core purpose of the AyurVAID chain as “Care that enables whole
person health and well-being, by empowering our community of patients and their families, doctors and
caregivers, and through relationships that uphold trust.” Given this approach, a broad-based offer of
healthcare appeared to be in line with AyurVAID’s avowed purpose of existence.
op
undecided about the option that would best fit with the vision of the hospital chain. The negatives that
AyurVAID would need to contend with included the following: (i) the patient’s lack of knowledge about
Ayurveda in general, which could lead to a reluctance to accept it and AyurVAID, as the first treatment
option, and (ii) the presence of major, well-established allopathic players in all the four NCD segments.
Given AyurVAID’s limited resources and late entry in the market, gaining acceptance for Ayurveda and
tC

the organization’s expertise in all these areas would not be an easy task. Positioning itself as a diabetes
specialist would, by comparison, be a relatively easier proposition.

Vasudevan would need more information on the markets, the competition, consumers’ (i.e., patients’)
attitudes and the medical expertise possessed by various players in this arena.
No

THE GENESIS OF AYURVAID

The move to Ayurveda and Ayurveda-based hospitals had been a serendipitous though meandering
journey for Vasudevan, rooted in his deep-seated desire to make a social impact through his work. Having
attained his credentials as a mechanical engineer from the National Institute of Technology, Kozhikode,
Vasudevan had started by following the usual route — a short stint with the Indian Space Research
Organisation, crowned by a post-graduate degree from the Indian Institute of Management, Calcutta
(IIMC). In 1986, while at IIMC, he chose to do his mandatory summer internship with the non-
governmental organization Pradaan. He was assigned to a project developing a small-scale industry in the
Do

small tribal block of Kesla in Madhya Pradesh.

5
D. Wayne Taylor, “The Burden of Non-Communicable Diseases in India,” Cameron Institute, Hamilton, ON, October 2010,
www.cameroninstitute.org/2010/10/19/the-burden-of-non-communicable-diseases-in-india/, accessed December 14, 2014.
6
Mathew, op cit.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 3 9B15M058

t
The post-IIMC period saw him spending a few years in the private sector, first with Godrej & Boyce and

os
then with Motorola. Between the two jobs, from 1992 to 1994, he took a sabbatical to work on the Small
Farmers Agribusiness Consortium, a project that was a precursor to the famed e-Choupal, a sustainable
agribusiness initiative of ITC Limited. Looking back, Vasudevan admitted with a rueful smile that the
project idea was perhaps too far ahead of its time; then, the government was still focused on providing
subsidies to farmers rather than building capacities.

rP
When Vasudevan joined Motorola India in 1994 as the regional sales manager for its pagers business in
the Western region, his path to professional progress appeared clear and well defined. This period
represented the build-up phase for this industry, and he found himself immersed once again in the process
of what he described as “building up and turning around.” In 1996, he was handpicked for Motorola’s
Global Organization Leadership Development program, one of the youngest to have been selected. He
then served as country head for two lines of businesses at Motorola India from 1996 to 2000.

yo
However, Vasudevan was consumed by the need to work on something that would have a social impact.
In 2001, he went to work for the Kerala government and was put in charge of its Technopark and the
Kerala State Information Technology Mission. He drafted the policies and incentive framework for the IT
industry in the state, hailed by India’s National Association of Software and Services Companies as
among the most progressive IT policies in the country. He was subsequently entrusted with the task of
establishing a roadmap for the development of the biotechnology sector in the state. It was while
researching this area that this “techie” steeped in modern management stumbled upon the ancient science
op
of Ayurveda and began to realize the scope for this system of medicine in modern healthcare. As a 2011
Forbes India magazine article put it, “He began to delve more into Ayurveda and saw a process hidden
behind years of tradition.” 7

As he studied the traditional science of Ayurveda, Vasudevan made some important discoveries:
tC

1. NCDs and chronic diseases, where Ayurveda was particularly effective, constituted two-thirds of the
healthcare market in the country; in other words, it was a very sizeable market. Moreover, according
to the World Health Organization (WHO), four NCDs accounted for 48 per cent of the deaths due to
diseases in 2012: CVD (26 per cent), chronic respiratory disease (CRD) (13 per cent), cancer (7 per
cent) and diabetes (2 per cent, up from 1.3 per cent in 2010). The WHO projected that, by 2030,
NCDs would account for 67 per cent of all fatalities.8
2. Ayurveda had effective systems of root-cause diagnosis and management of such diseases; it was
No

both a complete knowledge management system and a comprehensive medical science. The entire
process of diagnosis, treatment and cure could be planned in a systematic, process-driven manner,
thus providing: a) the foundation for building scientific evidence acceptable to the modern world, and
b) replicability and scalability for rapid growth and mainstreaming of the Ayurveda sector.

There was also the fact that while prevention and cure formed two parallel streams of healthcare, the
current systems of medicine and hospitals/clinics concentrated more on treating symptoms in acute
medical conditions than on secondary prevention (preventing early stage diseases from becoming
acute-emergency conditions) or tertiary prevention (rehabilitation and health promotion). Demand
Do

existed for secondary and tertiary preventive care, but was met by a huge gap on the supply side. Not
only did “modern medicine” not put much focus on prevention but even where treatment was

7
Nilofer D’Souza, “Ayurveda: Nothing Divine, Just Science,” Forbes India, August 1, 2011,
http://forbesindia.com/article/work-in-progress/ayurveda-nothing-divine-just-science/27242/1, accessed February 18, 2014.
8
WHO website, op. cit.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 4 9B15M058

t
concerned, it relied on drugs to treat specific symptoms rather than identifying and treating the

os
underlying basic cause.

3. It was possible to improve efficiencies and emphasize the modern approach in Ayurveda through the
extensive use of IT. India’s increasing focus on IT and its use by AyurVAID would also help
differentiate the company from its competitors. Vasudevan’s own knowledge of and experience in the

rP
IT field would be useful in organizing, maintaining and utilizing the entire system of diagnosis,
treatment and cure through Ayurveda; providing data-based evidence of its efficacy; and thus,
facilitating patient acceptance and the speedy and effective delivery of healthcare.

As he learned more about Ayurveda, Vasudevan’s transition from skepticism to conviction to passion was
smooth, linear and rapid; his search had ended. Ayurveda was the “perfect place” to marry social impact
with business. Once converted, he did not mind admitting, “[Earlier], my impression of Ayurveda was

yo
that it was full of grandma’s remedies and not scientific.”

In 2005, Vasudevan finally took the plunge and decided to set up AyurVAID, his first Ayurveda hospital,
in Ernakulam, a commercial district in Kerala, under the banner of Kerala First Health Services Pvt. Ltd.
Its vision was “to pioneer and lead the transformation of Ayurveda into a mainstream system of
medicine.” The funding for the 15-bed facility came from Vasudevan’s own savings and that of his family
and friends. A second hospital soon followed at Aluva, 20 kilometres from Ernakulam. The total
investment in the two hospitals was INR5 million.
op
In an article in MoneyControl.com, Radhika Saxena wrote of Vasudevan, “His sole objective was to
modernise and popularise this ancient system of medicine.”9 In 2008, with venture capital funding of
INR45 million from Acumen Fund, Vasudevan set up a 30-bed hospital in Domlur, Bangalore. The
following year, AyurVAID was listed among the “Ten Hottest Startups” by BusinessToday magazine. 10
tC

During its early days, the company experimented with various growth models. In 2009, it expanded to
different cities and tried different formats: a daycare hospital in Chennai, a hospital in the low-income
community of Dharavi, Mumbai and a facility in Hubli, a Tier-2 city. 11 The experience was varied, and
these experiments convinced Vasudevan that, at least to begin with, it made more sense from the point of
view of growth and revenues to concentrate on metros and to deploy a hub-and-spoke model at a single
city level before expanding regionally. With this learning and as AyurVAID’s business model became
more well defined, the company closed down its facilities in Chennai, Dharavi, Hubli and Aluva.
No

In 2009, AyurVAID was selected both for the prestigious Antares program at Harvard Business School
(HBS) and by Harvard School of Public Health as one of three companies globally with the highest
potential to impact public health. In February 2009, Vasudevan spoke at HBS about AyurVAID and its
innovative approach to public health.
Do

9
Radhika Saxena, “An Accidental Vaid Gives Ancient Medicine a Modern Twist,” SME Mentor, moneycontrol.com, June 24,
2013, www.moneycontrol.com/smementor/mentorade/starting-up/an-accidental-vaid-gives-ancient-medicinemodern-twist-
904338.html, accessed February 18, 2014.
10
Shalini S. Dagar, “India’s Hottest Startups,” Business Today, March 22, 2009, http://businesstoday.intoday.in/story/indias-
hottest-startups/1/2034.html, accessed February 18, 2014.
11
Cities in India are categorized on the basis of a grading structure devised by the Government of India based on
population. Under this system, the cities are categorized into three tiers: Tier 1: six cities (Bangalore, Chennai, Hyderabad,
Kolkata, Mumbai and New Delhi); Tier 2: 67 cities, and Tier 3: the remainder, including towns. Source: Maps of India.com;
www.mapsofindia.com/maps/india/tier-1-and-2-cities.html, July 11, 2014, accessed December 12, 2014.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 5 9B15M058

t
In 2011, the Acumen Fund gave the business an infusion of INR15 million, facilitating the establishment

os
of a 15-bed facility in Ramamurthy Nagar, Bangalore. By 2014, AyurVAID had grown into a chain, with
a 30-bed hospital in Domlur, Bangalore, a second 15-bed facility in the middle-income locality of
Ramamurthy Nagar in Bangalore, and its original facility in Ernakulam. Added to this were two clinics at
Infopark, Kochi, and Jayanagar, Bangalore.

rP
Asked why he chose the business of hospitals and not medicines or “wellness centres,” Vasudevan
replied, “The service is the product,” paraphrasing Sun Microsystems co-founder Bill Joy’s famous
slogan, “The network is the computer.” Expanding on the theme, he explained that when he started out,
his first objective was to take advantage of the systemic approach innate to Ayurveda — the system of
ahara-vihara-aushadh-kriya (diet, lifestyle, medicine and therapy) — and its comprehensive, holistic
pattern of treatment. Moreover, hospitals provided an opportunity for personalized treatment and follow-
up, which was absent in the mere delivery of medicines. This personalization was particularly true of

yo
Ayurveda’s deep cleansing and detoxifying panchakarma treatments that were mandatory for root cause
cures and the management of complex chronic diseases.

Most Indians were familiar with various over-the-counter (OTC) Ayurvedic formulations such as
chyavanprash, medicines for digestion and others. Ayurveda was also associated in the public mind with
a host of wellness programs encompassing massages, slimming therapies and skin treatments offered by
spas, weight-loss centres and neighbourhood Ayurveda centres. However, Vasudevan was convinced that
the Ayurveda system of medicine was far too customized for the OTC approach or “wellness therapies” to
op
provide adequate and satisfactory answers to many chronic ailments, especially in the long term.

As a system of medicine, Ayurveda offered long-term solutions to many serious chronic diseases that
were being inadequately treated by other systems of medicine. However, without inpatient care that could
be provided at a hospital, patients would not be eligible for medical insurance, destroying the most
significant, value-added opportunity to have Ayurveda become accepted as a mainstream medical system.
tC

The Ayurveda industry thus remained focused on grabbing the easier to achieve route represented by
OTC medicines and wellness programs.

To make matters worse, the market was not growing. The large segment of chronic diseases, where
Ayurveda provided special benefits, lacked sufficient players with adequate facilities. At the same time,
even in terms of infrastructure and facilities such as hospital beds, India fell woefully short and ranked far
below many other developing countries, with only nine beds and 6.5 doctors per 10,000 population, as
No

recently as 2013. By comparison, during the same period, Brazil, another developing country, had 23 beds
and 17.6 doctors per 10,000 population. 12

In a bid to close these gaps, Vasudevan decided to pursue the systemic, service route of hospitals, which
would provide root cause treatment to patients and also help AyurVAID stand out as a contemporary,
complete health solutions provider. The company’s mission was “to lead the growth of the total market
for Ayurveda healthcare services by making applied Ayurveda the preventive or curative treatment of
choice for select medical conditions, and by increasing its reach globally.” The idea was to grow the
entire market for the Ayurveda system of medicine, and thereby expand AyurVAID’s growth
Do

opportunities.

12
www.tradingeconomics.com, accessed April 25, 2014.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 6 9B15M058

t
COMPETITIVE ENVIRONMENT AND STRATEGIC CONSIDERATIONS FOR GROWTH

os
The AyurVAID chain adopted an approach that was consistently, refreshingly different. Unlike most of
India’s other 2,400-odd Ayurveda hospitals and clinics, AyurVAID was not content to be merely a part of
the Ayurveda medical system. Rather, according to Vasudevan, the organization’s vision was to be a
“healthcare company that leverages the science of Ayurveda,” thereby bringing Ayurveda into the

rP
mainstream.

Vasudevan was adamant that AyurVAID should not be pegged in the public’s mind as “just another
Ayurveda hospital.” Apart from restricting AyurVAID’s market share, it would also mean being hemmed
in by the environmental constraints that Ayurvedic medicine faced at the time — specifically, low public
awareness and lack of knowledge about Ayurveda as a complete healthcare system. In a study conducted
in Bangalore in 2013 by AyurVAID, only 27 per cent of the respondents had heard of Ayurveda hospitals

yo
in the city. The hospital, Arya Vaidya Shala Kottakkal, headed the patient awareness chart with 14 per
cent of patients claiming to know of it, followed by AyurVAID Hospitals (5 per cent), Patanjali
Aushadhalaya (4 per cent) and others (4 per cent). 13

Apart from most people being unclear about the difference between Ayurveda hospitals, wellness centres
and spas, another issue was that Ayurveda was not widely known as a comprehensive medical system, but
rather as “the second option” for patients who had failed to benefit from allopathic treatment. Added to
this lack of clarity regarding Ayurveda was the government’s ambivalence toward this sector, which
op
contributed further to the industry’s woes; for example, Ayurveda, like many other systems of medicine
available in the country, officially fell in the category of complementary and alternative medicine. Until
recently, the lack of insurance coverage for treatment in non-allopathic hospitals was a major deterrent to
the growth of the Ayurveda, Unani, Siddhi and Homeopathy sector, as the costs of Ayurveda-based
treatment were not eligible for reimbursement by medical insurance companies.
tC

The competitive options in terms of patient preference, therefore, were the allopathic market — hospitals
as well as drugs — and private Ayurveda physicians and pharmacies.

Instead of being discouraged by the constraints that seemed to limit Ayurveda’s widespread adoption,
Vasudevan saw in this chasm as a huge opportunity to grow AyurVAID, and, simultaneously, to provide
good quality healthcare to the largely underserved Indian market at an affordable cost, especially in the
large NCD space. He therefore decided that AyurVAID needed to adopt the “Blue Ocean Strategy,”
No

beginning with expanding the acceptability of Ayurveda as a contemporary system of medicine. This the
company did by extending the reach of Ayurveda to areas where it had earlier not found a place. For
example, Vasudevan personally, and AyurVAID as a company, continued to lobby for the extension of
medical insurance to Ayurveda-based hospitals, with the result that Ayurveda treatment at government
hospitals under the Rashtriya Swasthya Bima Yojana (a national health insurance program) became
eligible for insurance coverage. This eligibility removed one of the many roadblocks to the acceptance of
Ayurveda-based medical care and benefited 38 million below-poverty-line (BPL) households. 14

In 2012, in another pioneering step aimed at simultaneously expanding the market for Ayurveda-based
Do

systems and providing affordable medical care to greater numbers of people, AyurVAID successfully

13
AyurVAID Proprietary Study, “Consumer Health Seeking Behaviour and Ayurveda Specialty,” conducted by Indian
Institute of Management, Lucknow, 2013.
14
Omar Rashid, “Pharma Fault Lines,” The Hindu, June 23, 2013, www.thehindu.com/todays-paper/tp-miscellaneous/tp-
others/pharma-fault-lines/article4842047.ece, accessed May 6, 2015.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 7 9B15M058

t
petitioned the Indian Defence Minister to include Ayurveda under the Indian Armed Forces Medical

os
Reimbursement Rules.

The second aspect of Vasudevan’s approach was to differentiate AyurVAID from the run-of-the-mill
Ayurveda hospitals in terms of markets, processes and strategies by:

rP
1. Concentrating on the large segment of chronic, non-communicable diseases;
2. Combining Ayurveda’s integrated ahara-vihara-aushadha-kriya therapeutic system that was
customized to each patient with modern facilities, such as modern methods of testing and diagnosis,
para-surgical services, well-ventilated and hygienic patient rooms, and health insurance, which was
unavailable in most Ayurveda hospitals (the company began offering cashless insurance coverage to
its patients in 2006); and
3. Continuously maintaining data and building research-based scientific evidence on the efficacy of

yo
Ayurveda.

This three-pronged strategy took AyurVAID into uncharted waters.

The integration of Ayurveda therapy with modern medicine was a feature that differentiated AyurVAID
from other Ayurveda and allopathic hospitals. Although AyurVAID used classical methods of Ayurveda
(“life knowledge”) to treat patients at its three hospitals in South India, these hospitals also used modern
tools such as laboratory tests and scans to rule out risk factors and confirm diagnoses. The emphasis on
op
scientific studies and detailed documentation represented another factor that distinguished the AyurVAID
chain from other hospitals; they not only aimed to build evidence of Ayurveda’s efficacy and value but
also made it possible to customize treatment to the requirements of the individual patient. Research and
documentation at AyurVAID ranged from testimonials from satisfied patients to detailed case reports, and
from formal customer satisfaction data to scientific medical studies and market surveys. These resources
were used to assess the impact of Ayurveda versus other methods of treatment.
tC

The company made a consistent effort to maintain up-to-date patient data relating to demographics,
diseases treated and treatment patterns. This information was communicated to patients via AyurMAIL,
the company’s monthly newsletter. The value of such communications could be gauged from the 35 to 40
per cent of the patients who came to AyurVAID as a result of patient referrals or word-of-mouth
communication.
No

AyurVAID wanted to be seen as a modern, professional hospital. Its centre in Domlur, Bangalore, was the
first Ayurveda hospital in the country to be certified by the National Accreditation Board for Hospitals
and Healthcare Providers (NABH) in 2010, an accreditation typically given to allopathic hospitals that
met the prescribed standards in hygiene and operations. Vasudevan himself had qualified to be a NABH
assessor in 2007, gaining a solid understanding of the requirements for hospital accreditation. By 2013,
both of AyurVAID’s hospitals in Bangalore had been accredited. In terms of manpower and skills, by
2013, the company’s 75 employees included 15 highly committed and qualified Ayurveda doctors,
including several MDs and PhDs. They, as well as all other functional departments, routinely used
cutting-edge information technology to manage patient cycles in the young organization.
Do

Competition

Who were AyurVAID’s competitors? Were there other allopathic or Ayurveda hospitals, companies
dealing in Ayurveda products and services, or private Ayurveda physicians?

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 8 9B15M058

t
While India had an estimated 2,400 Ayurveda hospitals and clinics, the market was too diffuse to clearly

os
identify the various treatment options between which a patient would alternate. Ayurveda hospitals, in
particular, did not appear to make any efforts at differentiation beyond their location. Similar issues
applied to the Ayurveda products market; well-known names such as Dabur and Himalaya operated
almost exclusively in the product space, restricting their efforts to OTC products in the well-established
therapeutic groups. Broad healthcare was not their direct area of operation. Vasudevan was emphatic in

rP
his view that these companies did not pose a competitive threat to AyurVAID, which had all along aimed
at offering a complete healthcare service.

The year 2013/14 saw AyurVAID’s revenues rise to INR33 million, with consultations accounting for 10
per cent and pharmacy sales for 20 to 25 per cent of total revenues. Treatment services contributed the
remainder. The company had achieved break-even in three years, compared with the industry norm of six
to seven years. This shorter break-even period was due in part to low comparative costs, in terms of both

yo
significantly lower operational costs and capital costs that averaged INR300,000 to INR800,000 per bed,
compared with an average cost of INR7.5 million to INR15 million per bed in allopathic hospitals.

AyurVAID catered to an average of 10,000 to 12,000 patients every year and charged a premium of
approximately 20 per cent over other Ayurveda players. Its business model targeted two distinct market
segments through two groups of offerings:

• AyurVAID: Catered to the middle class and upper middle class. Treatment costs typically ranged
op
from INR2,250 to INR6,400 per day, with an initial consultation charge of INR300 that was valid for
two weeks of follow-up consultation.
• AyurSEVA: Catered to the BPL segment. Treatment costs ranged from INR1,000 to INR1,500 per
day, a 50 per cent discount for holders of BPL cards.

All AyurVAID hospitals and clinics catered to both customer segments.

tC

Vasudevan’s experiences in Dharavi (Mumbai) and Hubli had taught him to keep the social and revenue
aspects of the business distinct. Although Ayurveda offered multiple health benefits to patients, such as
no side effects, no surgery, cheaper and quicker recovery time and superior medium- to long-term
outcomes, he realized that it made better business sense to restrict most of his operations to metros, at
least in the initial stages. The company’s financial approach was both modern and scientific; expenses and
revenues were carefully and regularly monitored. Each hospital was required to be independently
No

profitable.

In his revolutionary book on the lean start-up method, Ries observed, “If startups invest their time in
iteratively building products or services to meet the needs of early customers, they can reduce the market
risks and sidestep the need for large amounts of initial project funding and expensive product launches
and failures.” 15

Following this principle, AyurVAID had, from the start, maintained rigorous customer feedback data.
These data helped it to better understand customer requirements in the early stages of product/service
Do

development, thereby reducing the market risk of expensive failures on the one hand, and, on the other
hand, enabling it to tailor its offerings to customer needs without large amounts of initial project funding.
These customer requirements spanned all aspects of medical care operations. The 2013 study by
AyurVAID referred to earlier had concluded that the perceived competence of physicians and their ability
to inspire trust were major factors contributing to the reputation of the hospital. This conclusion had
15
Eric Ries, The Lean Startup, Crown Publishing Group, New York, 2011.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 9 9B15M058

t
encouraged AyurVAID to project the image of the physicians and consultants at the hospital as experts

os
and professionals, helping increase footfalls and patient loyalty. Vasudevan subscribed wholeheartedly to
the idea of seeking continuous customer feedback to minimize a costly service design that included
features that the customer clearly did not want and to help identify the absence of features/benefits they
did want so as to avoid product/service failures.

rP
AyurVAID’s business model had proved viable, generating consistent profits from 2012 to 2014. In 2013,
the company received the VCCircle Award for the “Most Promising HealthCare Startup in
India.” 16 However, the more urgent needs, according to Vasudevan, were to substantially increase market
awareness of the AyurVAID brand and to scale up by taking advantage of (i) the widely held perception
of Ayurveda as a safe, natural system with no side effects, and (ii) AyurVAID’s image as a modern
hospital chain with competent doctors treating a variety of diseases and effectively delivering health
services. AyurVAID was counting on the contemporary, health-conscious consumer who undertook

yo
extensive research before deciding on a health option to respond positively to AyurVAID’s positioning as
a modern, well-equipped and research-based hospital chain, resulting in increased footfalls.

One approach for improving awareness and credibility that AyurVAID adopted from 2013 onwards was
to increase its visibility in Bangalore, its headquarters, through frequent medical camps and by
establishing clinics in different parts of the city. The hospitals were also actively engaged in reaching out
to the community through a variety of off-campus services, such as “swarna prashana,” an immunity-
boosting system administered to children younger than 15 years of age. Apart from increasing awareness
op
and accessibility, the camps and clinics served as feeders to AyurVAID’s inpatient hospitals at Domlur
and Ramamurthy Nagar. An increase in inpatient numbers was necessary not only to improve hospital
revenues but also, and equally importantly, to build credibility and customer loyalty through patients’
relationships with their doctors.

In terms of geographical expansion, the company’s plan was to adopt a tiered model, following the hub-
tC

and-spoke pattern of four daycare facilities for every one inpatient hospital in a city, as shown below:

Clinics Clinic-cum-Pharmacies  Daycare hospitals  Inpatient hospitals

While the company initially wanted to focus on expanding its presence within Bangalore, in its next phase
of growth, it planned to replicate this model in the major cities of Chennai, Delhi and Mumbai.
No

AyurVAID also tried to differentiate itself from other Ayurveda hospitals by identifying and
concentrating on specific economically viable disease segments where it had proven expertise. Extensive,
continuous tracking of data on the disease environment in the country through primary and secondary
sources was a regular activity at AyurVAID hospitals and helped them to stay ahead of trends in
treatment patterns.

According to data published by the WHO Data Bank in 2012, fatalities due to CVDs, including diabetes,
were expected to rise to 36 per cent by 2025. Non-communicable diseases were expected to account for
two-thirds of all deaths by 2030, indicating the growing significance of this segment. 17 More than 20 per
Do

16
The VCCircle Awards were awarded annually to recognize excellence in private equity–funded Indian companies. The
awards were instituted by The VCCircle Network, an Indian online financial media and information services group. The
awards were conferred in various product/service categories, including healthcare.
17
Taylor, op. cit.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 10 9B15M058

t
cent of the population in India had at least one chronic disease and more than 10 per cent had more than

os
one. 18

It was also clear to Vasudevan that India was fast becoming “the diabetes capital of the world,” with more
than 62 million cases of diabetes reported in 2011. The diabetes epidemic was gathering momentum in
India, growing at a rate of 22 per cent or more each year, and its patient profile was also changing. Long

rP
considered the rich, older man’s disease, diabetes had become prevalent among individuals of all socio-
economic classes and was affecting people in their 20s and 30s (see Exhibits 1 and 2).

In a 2013 Business Today article, Dr. V. Mohan, a leading endocrinologist and the founder and CEO of
Mohan’s Diabetes Specialties Centre, Chennai, pointed out that the country was adding a million new
diabetics every year. 19 The risk for coronary artery disease, already high among Indians, was two to four
times higher in diabetic subjects. Competition in the vast diabetes care market in India was growing

yo
rapidly, and in 2012, 126 large and small companies were participating in the anti-diabetes market. The
major players in the allopathic drug segment were Novo Nordisk, USV Ltd., Sanofi, Sun Pharma, Abbott
and Eli Lilly. 20

Vasudevan was convinced that Ayurveda offered clear benefits that were not available through allopathy
in terms of controlling diabetes and reversing diabetes-related complications, for three major reasons:

1. Ayurveda was a safer system of treatment, with few or no side effects.

op
2. Ayurveda aimed at root cause management of the disease, i.e., at identifying the basic underlying
cause of the problem and treating that cause along with the symptoms.
3. Treatment was personalized and customized to the individual patient’s requirements.

A greater awareness of these benefits would extend Ayurveda’s footprint over a much larger area of
treatment and disease control. For AyurVAID, diabetes treatment was a long-awaited and singular
tC

opportunity for differentiation through better disease control and better quality of life than offered by
allopathy, and also removed the need to fight for market share with other Ayurveda companies operating
in the undifferentiated market for generalized disease treatment. Accordingly, AyurVAID opted for the
strategy of making a grand foray into the field of diabetes, positioning itself as “the diabetes specialist”
and putting itself in competition with major allopathic players in the field. An internal study of patients
who had turned to AyurVAID for diabetes treatment after many years of less than satisfactory allopathic
treatment showed significantly higher customer satisfaction with Ayurveda over allopathy on 11 out of 15
No

major parameters, including control of blood glucose levels (see Exhibit 3).

The relative cost of diabetes treatment through AyurvAID was considerably lower than through allopathy.
Devarajan 21 estimated the total annualized direct cost of treating diabetes through allopathy in 2011 at
US$38 billion, which translated to US$620 or INR37,194 per diabetic patient, whereas the mean direct
cost of treating diabetes at AyurVAID was INR21,300 per diabetic patient, approximately 57 per cent of
the cost of allopathic treatment.

The results, though based on limited data, appeared to indicate that the treatment of diabetes at
Do

AyurVAID was more likely both to yield positive results and to be relatively more economical than
allopathy.
18
Vikram Patel et al., “Chronic Diseases and Injuries in India,” The Lancet, January 2011, 377(9763), pp. 413–428,
www.thelancet.com/journals/lancet/article/PIIS0140-6736(10)61188-9/abstract, accessed September 6, 2013.
19
E. Kumar Sharma, “Rise in Sale of Anti-diabetic Drugs a Concern in India,” Business Today, November 14, 2013.
20
C. H. Unnikrishnan, “Sanofi Shakes Up Diabetes Market in India,” Live Mint, December 3, 2012.
21
Karthik Devarajan, “India Healthcare: Diabetes and Chronic Diseases,” Unitus Seed Fund Report, December 18, 2013.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 11 9B15M058

t
WHICH WAY FORWARD?

os
Following their initial success in the area of diabetes, Vasudevan and his team had begun examining the
crucial question of whether to continue to concentrate on this segment or turn their focus to strengthening
AyurVAID’s image as a multi-specialty hospital. The question of which route would be a more
significant driver of growth was difficult; on the one hand, the Ayurveda system (and AyurVAID) had

rP
been effective in many disease areas, including CVD, CRD and other chronic conditions, such as GI tract
disease, while on the other hand, AyurVAID had been a pioneer in diabetes treatment and had been
successful in this area (see Exhibit 4).

Also of concern was the issue of revenue growth: would AyurVAID be likely to lose out on business by
restricting its image to that of a diabetes expert, particularly in light of increasing competition from other
Ayurveda hospitals and with Ayurveda acquiring greater visibility and acceptance as a system of

yo
medicine? According to a March 2013 industry report, “the traditional (Ayurvedic) medical care market
in India was valued at about US$1.4 billion in 2010 and is expected to rise at a CAGR [compound annual
growth rate] of 20 per cent over 2011–15.” 22

Countering the argument for a single-specialty focus was the example of hospitals such as Narayana
Hrudayalaya (renamed Narayana Health), which had successfully expanded from a cardiology focus to
include multiple specialties.
op
Vasudevan and his team would need to decide which strategy to pursue before the next annual planning
cycle began. They had a considerable amount of information to guide them: AyurVAID’s success rate in
treating various diseases, insights into patient preferences (for AyurVAID as a “diabetes hospital” or as a
multi-specialty hospital), potential revenue figures of the two options and the costs of each option for the
patient and the hospital. What would make prospective patients consider AyurVAID as their first option?
tC
No
Do

22
“Re-emergence of Traditional Medical Care,” India Brand Equity Foundation Healthcare Industry Report, March 2013,
www.ibef.org, accessed December 14, 2014.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 12 9B15M058

t
EXHIBIT 1: EPIDEMIOLOGY OF DIABETES IN INDIA: KEY FACTS

os
Total Number of Diabetics In India (2010) 62 million (20–79 years)
Total Number of Diabetics In India (2013) 65.1 million (20–79 years)
Growth 2013/2010 +4.96% over 2010
Pre-diabetics 39.5 million

rP
Diabetics as % of Adult Population > 7.1%
Location-wise Distribution
− Urban 8.7%
− Rural 7.9%
Gender-wise Distribution
− Diabetic Men 33 million
− Diabetic Women 29 million
Average Age of Onset 42.5 years

yo
Estimated Number of Deaths Due to Diabetes (2010) 1 million per annum
Estimated Number of Deaths Due to Diabetes (2013) 1.065 million per annum
Growth 2013/ 2010 + 6.5% over 2010
Estimated Number of Diabetics by 2030 101.2 million
Annual Cost of Diabetes in India (2011) US$38 billion

Sources: IDF Diabetes Atlas, 6th edition, International Diabetes Federation, 2013, www.idf.org/diabetesatlas; J. E. Shaw, R.
A. Sicree and P. Z. Zimmet, “Global Estimates of the Prevalence of Diabetes for 2010 and 2030,” Diabetes Research and
Clinical Practice, 2010, 87(1), pp. 4-14; and S. Wild et al., “Global Prevalence of Diabetes: Estimates for the Year 2000 and
op
Projections for 2030, Diabetes Care, 2004, 27(5), pp. 1047–1053, diabcare0504.pdf, www.who.int.diabetes/facts/en/diab.

EXHIBIT 2: GROWTH OF DIABETES IN INDIA

tC

Data on diabetes prevalence varies, depending on how some of the parameters are defined. The
International Diabetes Federation (IDF) projects that, by 2025 to 2038, India will have 70 million cases of
diabetes, and WHO estimates that India will have 80 million cases of diabetes by 2030 to 2039.

Prevalence of Diabetes (2000 to 2035)

Year Number of Diabetics (in millions)

2000* 31.7
No

2006** 40.9
2010*** 50.8
2011**** 61.3
2013***** 65.1
**
2025 69.9
2030**** 101.3
2035***** 109.0
Do

Sources:
*WHO Estimates, citing S. Wild et al., “Global Prevalence of Diabetes: Estimates for the Year 2000 and Projections for
2030, Diabetes Care, 2004, 27(5), pp. 1047–1053.
** V. Mohan et al., “Epidemiology of Type 2 Diabetes: Indian Scenario,” Indian Journal of Medical Research 125, March
2007, pp. 217–230; based on IDF Atlas 2006.
*** J. E. Shaw, R. A. Sicree and P. Z. Zimmet, “Global Estimates of the Prevalence of Diabetes for 2010 and
2030,” Diabetes Research and Clinical Practice, 2010, 87(1), pp. 4-14; IDF Diabetes Atlas, 6th edition, 2013.
**** Whiting, et al. in IDF Diabetes Atlas, 2011.
***** IDF Diabetes Atlas 2013

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
 Page 13 9B15M058

t
EXHIBIT 3: CUSTOMER SATISFACTION WITH DIFFERENT TYPES OF DIABETES TREATMENT*

os
Parameters Allopathic Treatment Treatment at AyurVAID

● Control of blood sugar level 2.56 3.81

●

rP
Control of other chronic diseases
present along with diabetes 2.90 4.08
● Improvement in digestive system 3.35 4.21
● Control of appetite 3.53 4.15
● Reduced frequency of urination 3.56 4.38
● Improvement in quality of sleep 3.61 4.66
● Ability to control urination 3.63 4.27
●

yo
Regularity of stools 3.64 4.52
● Completeness of stools evacuation 3.64 4.52
● Control of weight 3.65 4.00
● Improvement in the feeling of freshness
over the day 3.71 4.44
● Reduced sense of urgency for urination 3.78 4.45
● Reduced burning sensation
while passing urine 4.33 4.56
op
● Effect on incomplete evacuation/ dribbling 4.37 4.61
● Urine colour back to normal 4.41 4.59

OVERALL 3.16 4.16

* Customer satisfaction is measured on a 5-point Likert-type SCALE; 1 = very dissatisfied and 5 = very satisfied.
tC

Note: This study may appear methodologically limited, in the sense that it compares the satisfaction with Ayurveda among
those patients who first tried allopathy and were dissatisfied; it does not study patients whose first treatment option was
Ayurveda and who may have not tried allopathy or may have later switched to allopathy. The reason for this is that Ayurveda
is still widely regarded by most people as a “second option.” Allopathy usually forms the first line of treatment.

Source: “A Retrospective Study on Diabetes and Comparison of Allopathic and Ayurveda Treatment,” AyurVAID Proprietary
Survey, 2013.
No

EXHIBIT 4: MAJOR NON-COMMUNICABLE DISEASE GROUPS IN WHICH AYURVAID

PARTICIPATES

Major Disease Groups % Of All Deaths in 2005 Sub-segment in which

AyurVAID Participates
Cardiovascular Diseases 29% Diabetes
Injuries 11% Orthopaedics and Neurology
Do

Chronic Respiratory Diseases 7% Asthma

Other Chronic Diseases 8% Gastrointestinal Tract,
Gynaecology and Infertility, Eye
care, Anorectal, Skin
Cancer 8% Cancer

Source: WHO Data Bank; AyurVAID Database.

This document is authorized for educator review use only by Meenakshi Nagarajan, Goa Institute of Management until May 2015. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860