retrenchment strategy

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Corporate Level Strategy (Retrenchment Strategy)By Omkar Yadav, Mayank Sah, Narender AMF(28), AMF (19), AMF(23)

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Corporate strategy Corporate level strategy are basically about decision related to 1. Allocating resources among the different business of a firm. 2. Transferring resources from one set of business to others 3. Managing and nurturing portfolio of business.

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Retrenchment strategy Retrenchment strategy is followed when an organization substantially reduces the scope of its activities. This is done through an attempt to find out the problem area and diagnose the causes of the problems.

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Retrenchment strategy adopted because of1. 2. 3. 4. 5. 6. 7. New organization reform New dominated technology Adverse government policy Demand saturation Changing customers need and want Emergence of substitute products Mismanagement

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Retrenchment strategy Retrenchment involve total or partial withdrawal from a customer group, customer function or use of an alternative technology. EX- A pharmaceutical firm pulls out from retail selling to concentrate on institutional selling in order to reduce the size of its sales force and increaser marketing efficiency.

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Types of retrenchment strategy1. Turnaround strategy2. Divestment strategy 3. Liquidation strategy

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1. Turnaround strategy Turnaround strategy derive their name from the action involved in reversing a negative trend. This is an internal method of retrenchment. Replacement of one CEO by another is a good example of turnaround strategy.

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For Example Metel box india limited, a reputed company in the packaging industry turned sick due to its wrong move of diversifying into bearing manufacture in early eighties. Eight of its nine units close down as a result of which the BIFR and the ICICI formulated a rehabilitation package for the turnaround of the company. Big example of turnaround strategy is manesar plant where company has decided to sack all its employee. HP hawlet packared has also changed its CEO because of poor Performance of company.

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BIFR-ICICI packages covers the following Closure of three unprofitable unit Retrenchment of 3000 workers A flat 20% cut in wages of remaining worker Concession of up to 50% in sales, octroi, and turnover taxes from state govt. Induction of a new promoters

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2. Divestment strategy Divestment strategy involves the sales or liquidation of portion of business, or a major division. Divestment is usually a part of a rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has prove to be unsuccessful. Persistent negative cash flow, severity of competition, and technology up gradation are common cause for adopting divestment strategy.

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For Example Tata group is a highly diversified entity with a range of business under its fold. They identified their non-core business for divestment. TOMCO was divested and sold to Hindustan Levers as soap and detergent was not considered a core business for the Tatas. Vodafone was acquired by hutch is a good example of divestment strategy. Split of Hero Honda.

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3. Liquidation strategy A retrenchment strategy which is considered the most extreme and unattractive is the liquidation strategy which involves closing down a firm and selling its assets. It is consider as a last resort because of its serious consequences. Stigma of failure.

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For Example Alpic finance a non banking finance corporation was ordered to be liquidated by bombay high court whet it defaulted on its outstanding payment to its investors. Punjab wireless system (punwire) was put under liquidation under the order of the Punjab and Haryana high court on a private petition owing to the companys inability to discharge its debt and liabilities.

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Thank you

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