Every business strives to make money. But what happens when a product or a service is no longer profitable?
That’s when retrenchment strategy often comes into play. Want to know what it is? You’re on the right page! Read on for a concise explanation of retrenchment strategies with easy-to-understand examples.
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💡 Retrenchment Strategy: Definition
Retrenchment is the reduction of costs in response to financial difficulty. This can include closing parts of a business and abandoning a product or service that is no longer cost-effective. It can also include reducing the staff, selling parts of the company, or restructuring debt.
What Kind of Strategy Is Retrenchment?
Retrenchment as a corporate-level strategy helps improve companies’ financial stability by reducing them in size or making their products and services less diverse. A good retrenchment strategy example in action is Tata Communications selling off its data center to ease debts.
How to Implement Retrenchment Strategy?
There are six steps to implementing a retrenchment strategy:
- Select your best team members to work with.
- Tell them your plans early in the process.
- Provide information on a face-to-face basis.
- Accept the reactions from your professionals.
- Explain the situation with facts and evidence.
- Use career coaching to help your team.
When Is a Retrenchment Strategy Necessary?
A retrenchment strategy becomes necessary when a business is struggling financially and needs to cut or recoup costs. Before formulating a plan, companies do a SWOT analysis to assess their current advantages and disadvantages and define their needs.
📊 Types of Retrenchment Strategy
There are many types of retrenchment strategy, but the most popular ones are turnaround, divestment, and liquidation.
|↪️ Turnaround||If a decision that was made earlier is costly rather than profitable, a company may use the turnaround strategy. It is a U-turn on an unprofitable decision resulting in the removal or repurposing of departments, products, staff, or services associated with it.|
|💸 Divestment||This option is the opposite of investment. Instead of adding portions to the company to increase profits, you sell them off and then use the profits to pay off debts.|
|🏢 Liquidation||Closing an unprofitable business can be preferable to keeping it open and risk losing more money. In this case, companies turn to the liquidation strategy. They sell off all aspects of the business to pay the debts.|
💸 Retrenchment Strategy Example Companies
Retrenchment Strategy of Apple
Apple once fired Steve Jobs. This led to the company’s decline. As a result of a U-turn, Jobs was brought back on board. Thanks to that decision, Apple is still going strong today.
Dell Retrenchment Strategy
Dell also used a turnaround retrenchment strategy. In 2006, Dell decided to sell products directly. They made huge losses, causing a U-turn in 2007 when they began selling computers through retail, eventually leading to profits.
Ford Retrenchment Strategy
The Ford retrenchment strategy was a combination of two different kinds of strategies: liquidation and divestment. They ended independent operations in India and transferred assets to Mahindra. They continue to make profits today.
Debenhams Retrenchment Strategy
Debenhams closed their stores and restructured their market to sell more products online. Eventually, it led to them implementing a liquidation strategy. As a result, many of their assets were sold to Boohoo.
CSX Corporation Retrenchment Strategy
CSX Corporation used the Divestment strategy to sell off its Real estate side of the business and place more focus on its rail transportation, increasing their annual revenue.
Other examples of companies with great business strategies include:
We hope these retrenchment strategy examples will inspire an A+ business essay!