business ethics

W14439

KWIKAXESS: A NEW BUSINESS MODEL1 Professor Niraj Dawar wrote case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author 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 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) [email protected]; www.iveycases.com. Copyright © 2014, Richard Ivey School of Business Foundation Version: 2015-09-23

In the United States, more than 84,000 men, women and children are waiting for organ transplants. Their struggle to live depends on a complex and technologically-advanced organ allocation system that links patients with organs donated by strangers.2

Monica Modi, an ambitious executive in the health care sector, had just taken the helm at KwikAxess, which was promoting a new business model for organ transplantation. She had graduated eight years earlier from a leading MBA program on the east coast. She was also a graduate of a bioscience undergraduate program from a leading west coast university. Modi commented:

We recognized there was an unmet need in this market. There won’t be 84,000 people on a waiting list once our system is adopted. Our goal is to streamline and rationalize the organ supply chain to meet this need. We believe we can eliminate waiting lists altogether. This is a $10 billion opportunity, and we are targeting upwards of a 70 per cent share within five years, once we have rolled out the unique sourcing systems we are putting into place.”

KwikAxess was defining a new business model in this space, and Modi was clearly eager to talk about it. As noted by The Gift of a Lifetime website, “Organ transplantation is built upon altruism and public trust. If anything shakes that trust, then everyone loses.”3 Modi continued:

We believe the current organ transplant system has failed because it is based on fuzzy notions of altruism and public trust. As a result, thousands of people die needlessly every year. There’s a real gap in the market for a much more robust framework in which donors and recipients can be relied upon to fulfill contractual obligations.

1 No entities in this exercise are intended to bear resemblance to or make reference to real-world entities. With a hat-tip to Jonathan Swift, H. G. Wells, and Kazuo Ishiguro. 2 Fusionspark Media Inc., “Understanding Donation: The Organ Transplant Waiting List,” organtransplants.org /understanding/unos/, accessed July 2013. 3 Ibid.

For the exclusive use of Y. Liu, 2019.

This document is authorized for use only by Yiran Liu in Fall 2019 - Business Ethics taught by CHRISTOPHER YOUNG, Rutgers University from Sep 2019 to Dec 2019.

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In other words, what has been missing in the organ transplant arena is a well-functioning marketplace. And that is where we come in. Over the past 10 years we have built deep expertise in patient needs, and harnessed sources of supply that will ensure timely delivery of organs and body parts to needy patients. We have already reduced wait times for most organs by 30 per cent. With our new farming systems, we hope to eliminate wait lists altogether.

As noted by The Gift of a Lifetime website, “Contrary to the image of organs always crisscrossing the country, 80 per cent of all organs are donated and used in the same geographic area.4 Modi commented on KwikAxess’s response to the shortage of organ donations:

Local sourcing severely constrains supply. Think about it, the toys, strawberries and patio furniture you buy are globally sourced; why not organs? We can solve most of the deep-rooted bottlenecks by building a streamlined global supply network. Ten years ago, we began small, by sourcing organs through classified ads on websites in Bangladesh and Sierra Leone. In line with our corporate social responsibility mandate, we offered several times the going rate for kidneys and livers. Within six months, at the prices we offered, we risked creating a glut of donors in those two countries. But we quickly realized that the quality of the organs harvested was highly variable. Donors were generally poor, and had poor diets, so our quality controls would reject several organs even after they had been harvested. This inflated our sourcing costs. That is when we hit upon the idea of farming. So, five years ago, we began setting up a 100-acre farm north of Dhaka, where we ensure donors get a well-balanced and well-regulated diet and plenty of exercise. Today, thanks to our clean and efficient processes, each donor’s organs are guaranteed free of disease, and are of the highest quality. We retain our donors’ anonymity according to their wishes, but in general terms, I can tell you that they are former street kids or kids whose parents drop them off at our gates, no questions asked. We raise these donors to make sure their organs are healthy. Supply-wise, we are well placed. Visit the streets of Dhaka and you will see there’s an inexhaustible supply. Typically, we are interested in children under the age of 10. These donors sign a contract on entering our farm to stay for up to 30 years. The contract is renewed when they turn 18, so we have their informed consent as adults. We harvest hair and teeth as and when they become available. At age 20, we take out a kidney. Once the donor reaches age 30, all their organs are harvested. This gives our donors a healthy and productive life expectancy of about 30 years. Our calculations show we are offering them at least five extra years of life, and a much higher quality of life than they could expect on the street. The win-win-win here is clear: organ recipients in the United States and Canada prolong their lives and don’t have to live with the stress of waiting lists; the organ donors on our farms have a much higher quality of life and a definite horizon of up to 30 healthy years; and our shareholders make a small profit by facilitating this trade.

4 Ibid.

For the exclusive use of Y. Liu, 2019.

This document is authorized for use only by Yiran Liu in Fall 2019 - Business Ethics taught by CHRISTOPHER YOUNG, Rutgers University from Sep 2019 to Dec 2019.

Page 3 9B14M071

As you know, we are now gearing up for an IPO [initial public offering]. Wall Street has been very supportive. Our advisors helped us design a roadshow that enthused investors. That’s not surprising, as we are not just selling organs, we are pioneering a new business model, opening up a new market and supply route for organs, and demonstrating to the world that we can address some of the world’s thorniest problems using market mechanisms. Our products are indispensable to our customers, they have low price elasticity, we have no competitors on the horizon, and the gap between our costs and the prices we can charge are very comfortable. Judging by the positive buzz, we expect to have a very successful IPO. What’s not to like?

For the exclusive use of Y. Liu, 2019.

This document is authorized for use only by Yiran Liu in Fall 2019 - Business Ethics taught by CHRISTOPHER YOUNG, Rutgers University from Sep 2019 to Dec 2019.