5 key lessons to prevent your hospital from going the way of RadioShack

After 94 years of business, RadioShack has pulled the plug. The electronics chain filed for Chapter 11 bankruptcy after signing a deal to sell up to 2,400 of its 4,000 U.S. stores to Sprint and the hedge fund Standard General, its biggest shareholder, according to the New York Times.

In its prime, the retailer was a top provider of radios, CD players and walkmen, beepers and cellphones. Unlike some of its competitors, the company stayed afloat even after Apple and the smartphone made these products obsolete by selling cords, chargers, tech accessories and battery packs, according to Forbes. Unfortunately, this survival was not for the long-term.

According to NYT, Fort Worth, Texas-based RadioShack had not made a profit since 2011. The company listed $1.2 billion in assets and $1.38 billion in debt in a federal Delaware court Feb. 5.

RadioShack, like all businesses, is not immune to the impacts of changing technology and evolving consumer forces. Adaptability, business savvy, connectivity with consumers and strong leadership are critical for sustaining in a fast-paced market. Consider these key takeaways for hospitals from RadioShack's bankruptcy.

1. Don't assume today's business model will last forever. According to Forbes, RadioShack failed to devise a "comprehensive and definite strategy to deal with market challenges." It's outdated, static business model rendered it inept at keeping pace with its bigger technology rivals, and importantly, failed to encourage investors.

RadioShack's inability to evolve its business model to meet the market's demands most significantly contributed to its collapse, while in healthcare, changing federal policies play a more forceful hand in influencing the way business is done. In late January, HHS announced a historic overhaul to shift reimbursement from fee-for-service models to value-based purchasing. Specifically, starting in 2016, 30 percent of Medicare payments will be based on how well patients are cared for, with this number increasing to 50 percent by 2018.

Those ready to evolve have the best chances not only to survive, but to excel. Following HHS' announcement, a group of top U.S. health systems, payers and stakeholders announced the formation of the Healthcare Transformation Task Force, a 28-member group aimed at accelerating the healthcare industry's transformation to value-based care. These organizations have pledged to shift 75 percent of their businesses into value-based payment arrangements by 2020. Some members of the task force are on track to beat that deadline. Downers Grove, Ill.-based Advocate Health Care, for instance, is poised to have 75 percent of its business in value-based deals by the end of 2015.

2. Continue to innovate. RadioShack was once major force in the tech industry. In the 1970s, it pioneered the sales of many new technologies, including the all-electronic calculator, computers, early mobile phones and laptops. However, since the digital revolution gained velocity, the company has struggled with finding its place with the consumer, according to NYT. The rise of online purchasing and the availability of smartphones from Apple and other wireless providers have steered shoppers in other directions. In time, RadioShack's biggest issue became its irrelevance.

Hospitals face a similar challenge. While people will always depend on them for medical care, the age of consumerism in healthcare is here. Patients-as-consumers are becoming informed on their options. They shop for the best, most affordable care available to them, forcing hospitals and health systems to prioritize gaining a competitive edge and even branding their services. The rise of retail-based clinics or urgent care centers also gives patients ample opportunity to exercise their preference for convenience. Hospitals that fail to innovate will lose "customers."

3. Be cautious with debt. RadioShack reported losses for the last 11 quarters, according to NYT. Mounting debt coupled with the depletion of the retailer's competitive edge disabled it from reaching the black, even with Standard General's $120 refinancing loan this past fall.

Healthcare organizations face an array of financial challenges that, if not planned carefully, can lead to immense debt. For example, when faced with opportunity to acquire another organization, the system doing the acquiring must ensure they can afford to take on extra debt, among other costs. Construction projects, investments in HIT and quality improvement initiatives, though all important, must be analyzed to determine if they fit the budgets of the organization.

4. Be careful with how many sites you operate. According to NYT, in March 2014, RadioShack planned to close up to 1,100 stores — just over one-fourth of its U.S. locations — but ended up closing about 175 instead after its lenders overrode those plans. Now, it is evident reducing its scale might have been a better move.

Michael Pachter, an analyst at Wedbush Securities, told NYT RadioShack might still survive in smaller scale, citing its stores located in strip malls and lower income areas as well suited to serve customers with limited or poor credit.

The current healthcare climate is steering many independent providers, hospitals and systems toward consolidation. But is bigger always better? This is a question organizations must determine on a case-by-case basis.

Minoo Javanmardian, vice president of Booz & Company's global health practice in Chicago, says consolidation is not a strategy. Instead, "mergers are the result of a strategy that [organizations] define and are meant to leverage the differentiating capability systems of the partners." If merging helps organizations expand their capabilities by complementing one another in ways that will improve patient care, expansion could be a great idea. However, mergers justified primarily for their economies of scale are riskier.

5. Look for leaders who are willing to make tough decisions. Joseph Magnacca filled RadioShack's vacant CEO seat in 2013. According to NYT, he was hired with the hope he would be a "catalyst for change," as he was credited with reinventing Duane Reade's brand prior to its acquisition by Walgreen. This didn't happen.

Strong leadership is perhaps one of the most essential aspects of success in any business. Leaders need to be prepared to align the organization's goals with market trends, aggressively look for and identify future problems and opportunities, encourage innovation, stay competitive and make tough decisions. In healthcare in particular, aligning each of these with the goal of providing high-quality patient care will help guide leaders facing tough choices.


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