Diagnosis: Turnaround Featured

7:00pm EDT November 24, 2006

When Paul Viviano was named chairman and CEO at Alliance Imaging Inc. in 2003, he faced the challenge of reversing a slide resulting from a reliance on a single service — providing mobile magnetic resonance imaging units, mainly to hospitals.

In the 1980s, mobile MRI units allowed even small hospitals to offer the advanced diagnostic imaging service. But as hospitals built their volumes of MRI tests, they found it more profitable to acquire their own units. Fixed-site clinics also started popping up, further softening the demand for Alliance’s mobile unit services.

If Alliance was going to survive, Viviano had to make it into a company that provided a wider range of emerging health care services. “When I arrived at the company, we had a single product that we were offering to our customers, and it was a product, unfortunately, that was in decline after 15 to 20 years of growth,” says Viviano.

In 2002, the company posted net income of $35.9 million. The next year, it posted a net loss of $31.6 million.

Something had to change.

Viviano didn’t take the approach of simply slashing costs to revive the ailing company. Instead, he took a multipronged approach to put it on a new strategic path.

He put together a new management team, evaluated existing and potential lines of business, and realigned how the company operates across its geographic footprint. “While you have to be efficient — that much is clearly true — it’s the investment of your capital into product lines and new businesses that will lead you to success,” says Viviano. “So for us, it was all those things — new investments, new management teams — and we’re going to invest our capital differently.”

Building a new team
Alliance Imaging would have to enter new lines of business and re-evaluate the way it did everything, so Viviano went about building a management team that could carry out the plan. A new COO was recruited along with three of four regional executives, and a new CFO was identified from within the company’s ranks.

Viviano says a turnaround requires a different type of person than would be needed at a company at another stage in its development, say in a rapid-growth period. “It was looking for the right person who wanted to work in a turnaround set of circumstances,” says Viviano. “A lot of executives love turnaround circumstances, a lot love a growing business in a different cycle. You really have to be especially focused on these turnaround efforts, and it requires the right kind of team member.”

Viviano says identifying those team members was mostly a matter of looking at track records. “The best predictor of how people will perform tomorrow is how they’ve performed historically, so it’s looking at footprints, looking at the performance results of a candidate,” he says. “Most of it’s evaluating and really drilling down on results and performance. Equally as important, the next step down the path is the behavior of how they’ve done it, outcomes that they contributed to, not just they worked at a good place or for a good company, but that they contributed, they headed up teams, they were responsible for projects, they got things done.”

Viviano says even with a strong team, the leader must set the tone to get its members to perform at their optimal level by setting clear expectations and delegating authority. “There’s only so much you can do as an individual,” he says. “You have to empower a team and you have to delegate and you have to hold people accountable, and they, in turn, need to do the same thing. That’s the only way to turn around a national company with businesses in 45 states. I could work 24 hours a day, and it wouldn’t make a difference. “But if you have a team that holds their team members accountable and they have the resources to get things done, then you can leverage that.”

Finding new business
Viviano’s new team set about determining what specific new business lines the company should enter, based on its core competencies and experience.

Alliance Imaging opted to offer the new positron emission tomography, or PET scan technology, in mobile units, to open fixed-site MRI centers and to invest in radiation therapy facilities, all businesses related to its core competencies. “From a strategic perspective, we developed a mini business plan for each new possible discipline, so for fixed sites, we developed a strategic plan, we looked at the market, we looked at the return, the growth possibilities,” says Viviano. “We looked at our strategy, how we would do it, the team it would require, the capital it would require, and built a business plan around it. Then we’d discuss the implications of going into the business. “We’ve done that for all the new businesses we’ve entered, and we’ve done it for a lot of businesses we decided not to enter but still went through the process of planning. That was driven by the executive team and just a lot of input from our regional executives.”

When it comes to decisions about which businesses to pursue or other major choices, Viviano and his team make them only after a broad discussion that includes the entire management team. “We make decisions by including the entire team in the discussion and the decision-making process about what it is we do,” says Viviano. “My sense is that our team works well because their opinions are valued, and there’s an opportunity for everyone at the table at the same time to weigh in on whether we should offer this benefit plan, should we sell that enterprise, should we go into this business, whatever the big question of the day is. And there is no right or wrong, or, ‘I’m going to defer to the old man because he’s the CEO, or to the finance guy because he knows all the answers.’ “We’re not deferring to anybody. We’re all at the table, we all have something to learn, say, contribute, and we’re going to shape the answer that’s best for our organization, that’s best for us. That’s motivating.”

Viviano says a good example of that is when his company decided to enter the cancer therapy business. “We did a lot of work and analysis of our public competitors, analysis of our site visits, talking to the manufacturers, talking to doctors, talking to hospitals, a whole collection of information, and then everybody brings what they have to the table. We lay out the implications, the pros and cons, here’s what it means if we go into the business, here’s the upside, here’s the downside, here’s the capital, here’s our management bandwidth,” says Viviano. “At the end of a long, well-orchestrated session, the answer came in thumbs up. It could have come in thumbs down, and that would have been the end of the discussion. “It wasn’t me saying, ‘Hey, I’ve got a great idea, we’re going to go into the cancer therapy business, you guys go figure out how to do it, and I’m not going to take “no” for an answer.’”

Realigned geography
As if a single-product approach was not enough of a challenge for Alliance Imaging, Viviano found that it had acquired more than a dozen companies but had never fully integrated them into a single, cohesive, efficient corporate structure. “Our company was a roll-up,” says Viviano. “We had done about 13 acquisitions from the mid-’90s to 2000, so a lot of those companies were never fully integrated. A lot of them were still independent and autonomous in a lot of ways. They just became regions of our company. So we focused on a single strategy, but with a lot of autonomy in each, so the strategy became unified, not 10 strategies.”

Viviano saw an opportunity to not only reduce costs but to restructure the company into a more efficient management structure by reducing the number of territories from 10 to four, three of them with new vice presidents heading them. “We wanted teams with broader responsibility, with a span of control we thought was reasonable,” says Viviano. “Each region has roughly $125 million in revenue and enough size to have a strong team to feel like it has a significant amount of responsibility.

So we save some money. Think of a regional team with 10 guys sitting around the table. Think of a team with four people. It’s much more efficient in terms of dialogue and decision-making capabilities.”

Viviano says Alliance Imaging is still in a turnaround phase, but there are some key indicators that suggest that its strategy is working. “The results aren’t just in the financials,” says Viviano. “The results are customers calling us, our sales are improving. We’re recognized by customers, patient satisfaction, customer satisfaction surveys, we’re certified by a number of accrediting bodies, and the feedback from them is really positive.”

And on the financial front, the measures that shareholders watch the closest, the curve is on the upswing. Revenue for 2004 and 2005 was more than $430 million, and net income in 2005 was nearly $20 million after two years of losses. And the performance of its new businesses is already rivaling that of its MRI business on a revenue basis.

Says Viviano: “After about three-and-a-half years of this, our revenue from our two new businesses, fixed site MRI and PET ... the revenue for these two businesses will be greater than it was for our exclusive business four years ago.”

HOW TO REACH: Alliance Imaging Inc., www.allianceimaging.com