Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is also a reduction of expenditures in order to become financially stable.
Retrenchment occurs when an organization regroups through cost and asset reduction to reverse declining sales and profits. This strategy is design to fortify an organization's basic distinctive competence. In some case, bankruptcy can be an effective type of retrenchment strategy. Bankruptcy can allow a firm to avoid major debt obligations and to avoid union contracts.
CORPORATE RETRENCHMENT STRATEGIES:
Reduce scope of diversification to a smaller number of businesses
1. Certain businesses can’t be made profitable
2. Diversification efforts have become too broad & building strong positions in fewer businesses is key to improving long-term performance
When to Consider
CORPORATE RETRENCHMENT STRATEGIES
Too small to make sizable contribution to earnings
Having little or no strategic fit with firm’s core businesses
Retrenchment revolves around cutting sales. Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations. Retrenchment is also a reduction of expenditures in order to become financially stable. Retrenchment is a pullback or a withdrawal from offering some current products or serving some markets. In a military situation a retrenchment provides a second line of defense. Retrenchment is often a strategy employed prior to or as part of a Turnaround strategy.
There are five activities that characterize retrenchment:
Captive Company. Essentially, a captive company's destiny is tied to a larger company. For some companies, the only way to stay viable is to act as an exclusive supplier to a giant company. A company may also be taken captive if their competitive position is irreparably weak.
Turnaround. If your company is steadily losing profit or market share, a turnaround strategy may be needed. There are two forms of turnarounds: First, one may choose contractions (cutting labor costs, etc. Second, they may decide to consolidate
Bankruptcy. This may also be a viable legal protective strategy. Bankruptcy without a customer base is truly a bad place. However, if one declares bankruptcy with loyal customers, there is at least a possibility of a turnaround.
Divestment. This is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating division, or product line. This move often is the final decision to eliminate unrelated, unprofitable, or unmanageable operations.
Liquidation. This is very simple. Take the book value of assets, subtract depreciation and sell the business. This may be hard for some companies to do because there may be untapped potential in the assets.
Means that the firm give up the product manufacturing or its activities.
It is the q no 2 a) of ms-11 IGNOU MBA assignment