Turn around or pull the plug? Lessons in hospital diversification

Diversification has reached a crossroad. Ventures that are profitable or break even are likely to continue as such. For those which are not, management can divest through sale or liquidation or choose the "turnaround" route, which entails carefully and objectively appraising each diversification activity or entity. The initial step in a turnaround is to review the original strategic diversification objectives to determine if they remain valid. Next is a strategic overview and appraisal of the system's diversification activities. Specific, measurable objectives and action plans are necessary to guide the turnaround process. But even with the best turnaround plan, managers must anticipate the possibility of failure by establishing a "pull-the-plug" threshold. This is the point at which a venture's operating losses exceed the value of profits. Experience with successful turnarounds shows that corporate managers must consider the following steps: (1) the specialized skills and experience of the diversification activities' managers, (2) market-based volume and revenue projections, (3) downsizing space allocations, sharing space, or adding new services, (4) ways to keep from drowning in overhead, (5) appropriate organizational controls, (6) ways to improve patient access, (7) employee incentives, (8) use of equity capital, (9) effective management information systems, and (10) "sticking to the knitting."