Retrenchment Strategies Type

Topics: Investment, Divestment, Core business Pages: 4 (955 words) Published: February 28, 2013
A retrenchment grand strategy is followed when an organization aims at a contraction of its activities through substantial reduction or the elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions, or alternative technologies either singly or jointly in order to improve its overall performance. E.g: A corporate hospital decides to focus only on special treatment and realize higher revenues by reducing its commitment to general case which is less profitable.

The growth of industries and markets are threatened by various external and internal developments (External developments – government policies, demand saturation, emergence of substitute products, or changing customer needs. Internal Developments – poor management, wrong strategies, poor quality of functional management and so on.) In these situations the industries and markets and consequently the companies face the danger of decline and will go for adopting retrenchment strategies. E.g: fountain pens, manual type writers, tele printers, steam engines, jute and jute products, slide rules, calculators and wooden toys are some products that have either disappeared or face decline.

There are three types of retrenchment strategies – Turnaround Strategies, Divestment Strategies and Liquidation strategies.

1. Turnaround Strategies

Turn around strategies derives their name from the action involved that is reversing a negative trend. There are certain conditions or indicators which point out that a turnaround is needed for an organization to survive. They are:

Persistent Negative cash flows
Negative Profits
Declining market share
Deterioration in Physical facilities
Over manning, high turnover of employees, and low morale
Uncompetitive products or services
Mis management
An organization which faces one or more of these issues is referred to as a ‘sick’ company.

There are three ways in which turnarounds can be managed

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