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S9-Corporate-Strategy-Stability & Retrenchment

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69 views21 pages

S9-Corporate-Strategy-Stability & Retrenchment

vhgfj

Uploaded by

Ayrton Cubas Buleje
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Global Business Strategy

Corporate Strategy - Contraction


Contents

Concepts

Stability Strategies

Retrenchment Strategies

Advantages & Disadvantages


Directional Strategies
Stability Strategies
Stability Strategies
A corporation may choose Stability over Growth by continuing its current
activities without any significant change in direction.

Some of the most popular of these strategies are:

• Pause / proceed with caution Strategy.

• No Change Strategy.

• Profit strategy
Pause / Proceed with Caution Strategy
Pause / Proceed with Caution Strategy: is a timeout, an opportunity
to rest before continuing a growth or retrenchment strategy.
It is a very deliberate attempt to make only incremental improvements
until a particular environmental situation changes.

When Bata India attempted to expand


in different cities, they pursued this
type of strategy.
No Change Strategy
No Change Strategy: is a decision to do nothing new, a choice to
continue current operations and policies for the foreseeable future.

• There are no significant opportunities and threats.


• There are no new competitors.
• There is no threat of substitutes.
• Small businesses fall into this category.
No Change Strategy

Presidential Elections
Niño Effect
Profit Strategy
Profit Strategy: is a decision to do nothing new in a worsening
situation, but instead to act as though the company´s problems are only
temporary.
The profit strategy is an attempt to artificially support profits when a
company´s sales are declining by reducing investment and short-term
discretionary expenditures.
The profit strategy is useful to get over a temporary difficulty.
It is a typical strategy when dealing with technology. Companies do not
invest in new technology “until the end of the game”.
Profit Strategy
Directional Strategies
Retrenchment Strategies
Retrenchment Strategies
A corporation may pursue Retrenchment Strategies when it has a weak
competitive position in some or all of its product lines resulting in poor
performance (sales are down and profits are becoming losses).
In an attempt to eliminate the weaknessess that are dragging the company
down, management may follow one of several retrenchment strategies:

• Turnaround Strategy. • Bankruptcy Strategy.


• Captive Company Strategy. • Liquidation Strategy.
• Sell-Out Strategy.
• Divestment Strategy.
Turnaround Strategy
Turnaround Strategy: emphasizes the improvement of operational efficiency
and is probably most appropriate when a corporation´s problems are
pervasive, but not yet critical.
The two basic phases of a turnaround strategy are contraction and
consolidation.

Contraction: is the inital effort to quickly «stop the bleeding» with a general
across-the-board cutback in size and costs.

Consolidation: is the second phase. The company implements a program to


stabilize the now-learner organization.
Turnaround Strategy
Captive Company Strategy
Captive Company Strategy: is the giving up of independence in exchange for
security.

Management desperately searches for an «angel» by offering to be a captive


company to one of its largest customers in order to guarantee the company´s
continued existence with a long-term contract.
Captive Company Strategy
Sell-Out Strategy
Sell-Out Strategy: if a company is unable to follow the two previous strategies
it may have no choice but to sell out and leave the industry.
This strategy makes sense if management can still obtain a good price for its
shareholders by selling the entire company to another firm.
Divestment Strategy
Divestment Strategy: is a variant of Sell-Out Strategy, but in this case the
company which manages multiple business units, chooses to sell off a division
with low growth potential.
Again, this strategy makes sense if management can still obtain a good price
for its shareholders by selling a particular business unit or product line.
Bankruptcy Strategy
Bankruptcy: is the giving up of management of the firm to the courts in return
for some settlement of the corporation´s obligations.
Top management hopes that once the court decides the claims on the
company, it will be stronger and better able to compete in a more attractive
industry.
Liquidation Strategy
Liquidation: is the termination of the firm.

Because the industry is unattractive and the company too weak to be sold as a
going concern, management may choose to convert as many saleable assets
as possible to cash, which is then distributed to the shareholders after all
obligations are paid.

The benefit of liquidation over bankruptcy is that the board of directors, as


representatives of the shareholders, together with top management make the
decisions instead of turning them over to the court, which may choose to
ignore shareholders completely.
Liquidation Strategy

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