Introductory case
Mike Marshall founded the Sports Rehab Network (Long Island, New York) in 1991
and by 1997 the firm was a huge success due mainly to the lack of competition in the
area. At the urging of its president, Southampton Hospital decided to buy all of Sports
Rehab Network and made an offer to Marshall. The buyout terms included hiring
Marshall as the Director of the Sports Rehab Network, who would report directly to the
president. A new business plan and employment contract were developed providing
for expansion of the services to Coram, East Hampton, Riverhead, Mastic, and the
entire North Fork of Long Island. Marshall, seeing a chance to make a sizeable return
on his original investment, decided to stay in the business he created, and took the
offer.
In early 1998 Marshall began to implement the business plan for expanding new
facilities. At the same time, the president of Southampton Hospital resigned.
Southampton had overspent on the design and construction of several offsite medical
centers. By the end of the year, the hospital was having severe financial problems. Bob
Lynch, the Chief Financial Officer, took over as President and CEO.
Marshall had heard through his community and health provider contacts that
another company was seriously pursuing the establishment of facilities on the East
End of Long Island. This new competitor was Sports Medicine Resources, a major
physical therapy organization in the western part of Long Island. Another service
provider could draw patients away from their facilities, particularly the one in Mastic,
and hurt their operation’s profitability. Marshall met with Lynch to apprise him of the
situation and proposed that Southampton Hospital move quickly and open a facility
near Mastic in Coram. Lynch rejected the idea indicating that the Sports Rehab was
expanding too rapidly. He did not see the importance of Coram even with the threat of
Sports Medicine Resources. Marshall left and was visibly upset. He knew he had to act
and he had to act fast to beat out the competition.