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Complete Guide to Retrenchment Strategy

A strategy used by corporations to reduce the diversity or the overall size of the operations of the company. Typically the strategy involves withdrawing from certain markets or the discontinuation of selling certain products or service in order to make a beneficial turnaround.

What is Retrenchment Strategy?

Retrenchment stands for withdrawal of strategies and application of opposite strategies for the sustenance of the organization. It comes up from considering the terms of strategy, which means planning, being attentive and counseling. The retracting concepts for the advancement of any organization include

a) Cost Actions

The appraisals of the performance of the organization and the actions which are intended to be followed provide a clear view of the possibilities of providing higher standards of efficiency in the organization. Constant evaluation of cost is the essential determinant of the success of any organization.

b) Merger and Acquisition

The continuous change of strategy in any organization is to ensure the reliability of the organization and to promote a peaceful atmosphere in the organization. The merger and acquisition are useful in determining the relative position of the organization in the competitive market.

c) Marketing Promotions

The marketing team of the organization is responsible for the sales and for marketing the products and for fulfilling the expectations of the consumers. It implies that all the process like public relations, advertising and promotion should be invested in a strategically sound manner.

d) Organizational Leadership

The power of the organization in the present competitive market depends on the capability and the generosity of the leadership who can efficiently organize the team to achieve the goals leading the organization to greater heights. here it is necessary for the high level management to lead the organization to the path of success and to attain the organizational goals through proper motivation, wise strategy formulation and substantial understanding of the needs and requirements.

e) Strategic Selling

Strategic selling is needed for gaining the market share, to increase the market share and to keep the market share. If the organization has a strong base and good business environment, if it can achieve a good recognition or brand identification and if the firm is well equipped with the management, financial resources, products, technology then it can attain the competitive status and get sustainable competitive advantage. The success of strategic selling will lead to the accomplishment of the organizational goals and the vision of the top management.

f) Technological Strategy

The strategies of research and development are the prerequisites of any organization for fulfilling any particular need of the industry on an ongoing basis. Here the technology will provide a clear perspective through the use of the information and the knowledge acquired from the research to improve and increase the efficiency of the products and service, to reduce the price of the product and to promote the transition to more advanced product.

g) Market Segmentation

The concepts and the strategy of market segmentation will provide a clear perspective of the needs of the consumers, their likes and dislikes and their expectations. The firm should decide its own distinct product –market- technology –market segmentation strategy. This will provide a clear view of the potential of the market for the future so that the firm can be prepared to seize the market opportunities.

h) Integration and Diversification

Integration and diversification are useful marketing strategies for the firms. Here the diversification in the business is a horizontal process of expanding the existing product line by means of entering in the related products to the original product and it is horizontal integration which is a process of expansion of the products to the existing product and the service lines which do not really fit into the main business of the enterprise.

i) Organization Structure

The suitable organization structure should be established by the management team to effectively manage, control, motivate and direct the team members, to attain success in the long run. It is the responsibility of the management team to provide the platform for the employees to work in the best interest of the organization.

j) Reducing Cost through Merger and Sharing of Services

The expenses of the organization should be reduced through the merger, through the acquisitions and through the sharing of services to make sure maximum savings and making the organization to perform efficiently.

k) Market Development and Product Development

It is essential for the organization to develop the new products and to develop new markets. It leads the organization to a secure and profitable position in the market.

l) Organizational Change

The changes in the strategic environment, the changes in the strategic behavior of the competitors, the changes in the organizational performance and the changes in the business environment require the organization to realize the basic changes and to expand the scope of strategic changes.

m) Human Resource Planning

An organization to be successful should allow the growth of its employees, should provide the training programs to help them to strengthen the organizational functioning, the organizational structure and the level of knowledge.

n) Performance Management

The strategy which a firm follows is essential for the organizational performance. It leads to the accomplishment of the organizational goals so that the management should be conscious in the formulation of strategies for increase in performance and in the dissemination of the strategies for increased performance to the team members of the organization.

o) Controls

The management team should formulate the strategies for controlling the policies and practices of the organization and for controlling the probable future outcomes of the operations of the organization. The control system can be developed within the strategies.

p) Marketing Mix Strategies

The strategic marketing mix includes the price, the product, the distribution channel and the communication strategy. The strategic marketing mix should be properly chosen by the management to make sure the flexibility of the organization to the changing market conditions and to make sure the organization to utilize the resources of the firm to achieve success. The success of the marketing mix will lead to the accomplishment of the organizational goals and achievements of the vision of the top management.

Some procedures in Retrenchment Strategy

The Retrenchment strategy is also known as the downsizing policy which is a corporate policy of reducing the size and the scope of operations for the betterment of the company. The technical term of retrenchment strategy is ‘Strategic withdrawal strategy’ and it is applied when the company has reached the maximum growth potential. The firms or the organization are found to be prospering in the market for a number of years and they have achieved the maximum profitability but the future is dismal.

The market is supposed to shrink, the prices of the company products may fall down and the competitors are stronger or there is instability in the product market. In such situations the company has to find out some alternatives and methodical strategies for restructuring the operations. These companies have to realize that they are not going to get success unless they do something. The companies have to find out some opportunities for reduction in cost and consider the various product life cycle stages and find out the suitable strategies for successful management. In the Retrenchment phase the firm should achieve certain objectives for making their firms successful. The objectives are explained below:

a) Stabilization Objectives:

The objective of the firm is to achieve the economic stabilization. In this time the firm is in the period of crisis. This period has to be carefully and professionally managed by the top management so that firm performance can be improved and the organization will turn around to become a successful one.

b) Pay Back Objectives:

The main objectives of the firm are to achieve favorable payback from the existing assets. The firm should calculate the costs and pay back from the assets so that firm profitability will be improved.

c) Capital Preservation Objectives:

The main objective of the firm will be to leave a meaningful asset for future generations.

d) Growth Objectives:

The firm decides on the growth strategy. The growth strategy is an essential element in a successful growth for the business.

e) Policy Formulation

The policy formulation is the process in which firm decides upon the downsizing strategy. It is a process in which firm develops a downsizing policy for their firm.

f) Down-Sizing Decision

The resources should be carefully managed while taking the down-sizing decision. The goal of management is that how to streamline the operations of the firm and to improve the profitability and return on the investment of the firm.

g) Communication Strategy

It is essential for the management team to support the communication strategy so that the employees understand the down-sizing policy and the employees will be encouraged to participate in the change process and to participate in the activities which will help them to achieve success.

h) Exit Strategy

The firm after completion of the implementation of the down-sizing policy should formulate a complete exit strategy. It is the responsibility of the management to make sure that the firm performance will improve and the services and products of the company to exhibit increased ability to succeed in the market. The exit strategy must be properly planned and should be executed under expert and professional leadership of the management.

i) Contingency Strategy

The firm has to formulate contingency strategy which will help the management to take a number of necessary actions for the betterment of the organization.

Influence on Environment

The Retrenchment policies are basically the under-performing strategies which are applied in long-term times, to streamline the operational cost and to improve the earnings and profitability of the organization and to make sure that the assets of the business will be used efficiently. In this time there is a great impact on the competitive environment of the organization.

The competitors find the weak points of the organization in this time and they are attracted towards those weak points (Bartlett). The managers should utilize these weaknesses and make sure that the strategies are properly implemented so that the performance of the organization will be improved. The strategies should be properly executed so that the performance of the organization will be increased.

The Competitive Strategy

The competitive strategy is the set of strategies which help the firm to respond to the needs of the competitive environment. The competitive strategies are basically the strategies executed to make sure that the business will be successful in the competitive environment.

The term competitive strategy means the combination of all the strategies of a firm or an organization. These strategies can be financial, the marketing mix strategies, investment strategy, internal analysis of the market and the functional areas within the organization. The competitive strategy is the strategy which helps the firm to execute their overall objectives. The competitive strategy helps the firm to achieve success and prosperity in the business operations. The main goal of the competitive strategy is to help the firms to understand the changes with in the competitive environment and to grasp the changes that have to be made in the strategies of the business organization. The competitive strategies are the strategies which pursue three main objectives which are:

1) To create a competitor’s business environment for the organization. The firm has to manage and exploit the environmental environment. The business environment changes with in the short term and this requires fast change in the strategies of the firm. The firm has to discover the sources of these changes so that they can be exploited and used by the firm.

2) To find out the sources of environmental opportunities and to find out with in the business environment. The business environment is not static, there will be changes in future. The firm has to take advantage of the changes in the business environment and to formulate their strategies for the sake of success.

3) To examine the rival’s business environment and to understand how the organization is competing with the rivals. The competitive strategies should be implemented after a thorough understanding of the strategies of the firm’s rivals. The firm has to make sure that the rivals are properly understood in the context of the firm’s overall objective and knowledge of the segments of the market where the firm is successful or where the firm is not successful.

The strategy needs to be implemented in the organization because of a large amount of information which is available in the market about the business environment. The firm should explore these opportunities.

The Retrenchment Policy

The retrenchment policy is a strategy implemented by a business organization for the sake of improving the overall performance of the business in the business environment. The retrenchment policy is basically a reduction of the workforce.

The retrenchment policy helps the firm to make sure that the firm has improved their performance and profitability and that the firm has taken certain actions for the sake of improvement of the performance of the viability of the business.

The organization may lay off a large amount of employees in a short period of time or they may lay off a certain amount of employees in a specific period of time. The firm has to implement retrenchment policy when other policies are not successful in improving the performance of the corporation. The retrenchment policies are adopted by a firm when the firm wants to streamline the operations and reduce the operational cost.

The retrenchment policies are extensively applied by the firms to cut down the labor cost and to handle the increasing number of non-performers. The retrenchment policies help the firm to improve the profitability of the business. The retrenchment policies help the firm to achieve successfulness and prosperity in the business.

The retrenchment policies are the strategies which are executed by the firm to improve the performance and profitability of the business. The firm has to streamline the operational cost by dismissing the unnecessary labor. The downsizing policies help the firm to handle excess employees. The firm should apply the downsizing policy as the last policy because it is not a good idea to lay off a large number of employees because of the fact that this will create several problems for the firm.

In this case, there could be a loss in labor, and the remaining employees of the firm will be overworked and there will be a great problem with achieving the firm’s objectives. The management of the firm would be impacted because of a large number of retrenched employees. The managers would be blamed for this lost. The managers would be blamed for the loss of the retrenched employees. The number of managers will be reduced, the remaining employees will not be able to handle the increased workload.

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