Strategic Use of Diversification and Centralization in High and Low Performance Healthcare Firms

Abstract

To what extent does related diversification and extent of centralization explain financial performance? And are there strategic differences in related diversification and extent of centralization that distinguish high performing firms from low performing firms? These questions are addressed through the development of two structural equation models (SEM) representing two different loci of hierarchical authority and strategic decision making – centralized and decentralized. A sample of nonprofit health care provider firms is used to test hypotheses distinguishing high performing firms from low performing firms. Results suggest that related diversification explains 9 percent of the variance in financial performance for centralized firms and 13 percent of the variance in financial performance for decentralized firms. Strategic use of related diversification by high performing firms include: exhibiting consistency among business units, extent of centralization and revenue sources; determining when to own and w...