Beyond revenue diversification: Service diversification and service costs in nonprofit acute care hospitals

Abstract

Many nonprofits are multi-service organizations that provide a range of services. However, how nonprofits manage their service portfolios has not received much scholarly attention in nonprofit management research. In this research note, informed by studies on product diversification in strategic management research in the business management literature, we explore the effect of a nonprofit's service diversification on its service costs, using nonprofit hospitals as an empirical context. Through a longitudinal study of U.S. nonprofit acute care hospitals, we find that a nonprofit hospital's level of service diversification is associated with a decrease in its average service costs. Further, both related diversification and unrelated diversification are associated with a decrease in average service costs, but the association of related diversification is greater. This research note informs an understudied line of inquiry in nonprofit management research and calls for more research attention to nonprofits' service portfolios.