This study aims to depict a failed strategic change initiative in a Turkish public hospital by means of an action research and it strives to explain critical factors underpinning the failure, thereby proposing how such factors should be tackled with for similar initiatives elsewhere. The study calls attention to the recent challenges ongoing in the environment of hospitals, which urge them to take on a more strategic focus. In this vein, we discredit accreditation based systems, which emphasize monitoring resources and propose a capability-focused strategic management model for hospitals. A hybrid action research protocol, which combines both traditional and participatory action research methodologies in its design, is employed to formulate and implement the model in a public hospital. The phases of the project and obstacles faced during these phases are discussed. The findings suggest that although the model offers significant potential for competitive success and better resource efficiency, path-dependent characteristics of the public sector governance in Turkey have impeded the adoption of the model in our case. Both macro-systemic characteristics related mainly to the Turkish national culture and management of public institutions and situation-specific characteristics, such as top management's decision making orientation, professional norms and patronage relationships have blocked the way for the aspired transformation despite positive attitudes of and support from higher order public authorities and internal professional groups.