As Sara Lee Corporation’s CEO announced a multiyear strategic plan to transform the company into a leaner and more tightly focused food & beverage company, the central component of the company’s corporate restructuring plan was the divestiture of weak-performing business units and product categories accounting for $7.2 billion in sales (37% of Sara Lee’s sales).
By divesting the company of poorly performing business units, and retrenching to a narrower diversification, Barnes envisioned that concentrating financial & managerial resources on a smaller number of financially promising business segments, in which Sara Lee’s brand was well positioned, would increase the company’s competitive advantage over the long term.
Following retrenchment, the second phase of Barnes’s plan was to drive the company’s growth through programs aimed at reducing overhead, increasing value chain activities; and boosting the company’s sales, market shares, and profitability of core businesses & key brands.
While it was believed that the retrenchment & post-retrenchment strategies would enable revenues to $14 billion by FY 2010, and operating profit margins to increase by 12%, the problem that Sara Lee encountered was that it missed both its revenue and operating profit margin projections for FY 2010, as revenue’s increased only to $10.8 billion, while profit margin’s only had improved to only 8.5%.
Considering the company’s failure to meet its 2010 profitability projections, it remained unclear whether or not the retrenchment strategy had worked. Therefore, management should assume a worst-case scenario, and devise a plan to implement a second retrenchment strategy, and further restructure the company in order to realize its profitability goals.
At the outset, Sara Lee’s corporate strategy was to divest itself of non-key businesses, and focus on core business markets where growth was steady or strong. Sara Lee would focus its business on the key brands of Sara Lee breads and bakery products, Ball Park meats, Douwe Eggberts Coffees, Hillshire Farm meats, Jimmy Dean Sausage, and Senseo single serve coffee products. It was believed that this strategy would enable revenues to increase to $14 Billion, and profit margin increase by 12%. Appendix 1 (see bottom of paper) shows what Sara Lee had anticipated in revenue, and what it divested. Another aim of Sara Lee’s corporate strategy was to implement a program, called, Project Accelerate. The purpose of the program was to reduce overhead expenses and attempt to save the company $350-400 million in overhead & operating expenses by the end of FY 2012. By 2010 the company had achieved $180 Million in cost savings, with still two more years left to finish executing Project Accelerate. In its totality, Sara Lee’s strategy encapsulates of a Retrenchment focus. Retrenchment strategies are designed to trim the business to a narrower diversification base, focusing on the core business, and increasing profit, by avoiding weaker markets and focusing its management team (Peteraf, Gamble, & Strickland 2012).
A historical analysis of Sara Lee Corporation shows that from 1962 to 2001 the company made nearly fifty acquisitions, ranging from small appliance manufacturers to international producers of women’s undergarments. As unrelated businesses have dissimilar value chains & resource requirements, Sara Lee’s purpose for pursuing an unrelated diversification strategy was to grow its business in industries that allowed the company, as a whole, to increase its earnings across a diversity of industry segments. However; as the advent of the technology revolution, as well as continued advancements in globalization, caused the conditions of the strategic business environment to evolve, Sara Lee’s unrelated diversification strategy created a portfolio of businesses that eventually became liabilities to the company’s profitability (this was due to...