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Strategic Planning

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Strategic Planning and its applications

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Strategic Planning

  1. 1. Strategic Planning Prof. Prashant Mehta National Law University, Jodhpur
  2. 2. STRATEGIC PLANNING Introduction Corporate Strategy The Stages of Corporate Strategy Formulation The Stages of Corporate Strategy Implementation Strategic Alternatives
  3. 3. Strategic Planning • A strategy is an overall approach, based on an understanding of the broader context in which you function, your own strengths and weaknesses, and the problem you are attempting to address. A strategy gives you a framework within which to work, it clarifies what you are trying to achieve and the approach you intend to use. It does not spell out specific activities. • Thus formulation of Corporate Strategy forms the crux of the Strategic Planning Process
  4. 4. CorporateStrategy • It is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a "mission statement". • Corporate strategy spells out the growth objective of the firm, the direction, extent, pace, and timing of firms growth. • It is objective strategy of the firm.
  5. 5. Nature,Scope,andConcernofCorporateStrategy • Concerned with choice of businesses, products, and markets. • It is design of filling firms strategic planning gap. • Concerned by choice of firms product and markets. • To achieve right fit between firm and environment. • Build relative competitive advantage for the firm. • Corporate objectives and Corporate strategy together describes the firms concept of business. • It is objective strategy of firm.
  6. 6. WhatDoesCorporateStrategy Ensure • It ensures growth and alignment of firm with its environment. • Builds relevant competitive advantage. • It is design for filling the strategic planning gap. • Make use of SWOT analysis effectively. • Strategy is adhoc responses to change in environment-in competition, consumer tastes, technology, and other variables. • Prepares for long term, well thought out and prepared responses to various business forces in the business environment.
  7. 7. Strategy is Partly Proactiveand Partly Reactive • Company’s strategy is blend of two opposing actions: • Proactive action on part of managers to improve company’s market position and financial performance besides tackling the task of competing for buyers patronage. • Reactive action to unanticipated developments in dynamic market conditions like rivals firms, shifting consumer requirements, new technology, market opportunities, changing PEST elements. • Crafting a strategy thus involves stitching together a proactive / intended strategy and then adapting to changes as they emerge as reactive / adaptive strategy.
  8. 8. Strategy is Partly Proactiveand Partly Reactive
  9. 9. Dealingwith Strategic Uncertainty • Strategic uncertainty is key construct in strategy formulation. • Strategic alternatives are clustered in order to set priorities w.r.t. information gathering and analysis. • Unpredictable future event can lead to strategic uncertainty which can be handled by scenario (multiple scenario) analysis. • Strategic Uncertainty can impact present, proposed, and even potential SBU and its importance to firm. • The importance is established by associated sales, profit, and costs. Which may or may not reflect the true value of the firm.
  10. 10. StagesofCorporateStrategy Formulation–ImplementationProcess • Formulation of strategies is a creative and analytical process. It is a process because particular functions are performed in a sequence over the period of time. The process involves a number of activities and their analysis to arrive at a decision. • The process set out above includes strategy formulation and its implementation, what has been referred to as strategic management process.
  11. 11. StagesofCorporateStrategy Formulation–ImplementationProcess Stage 1 • Developing a Strategic Vision Stage 2 • Setting Objectives Stage 3 • Crafting a Strategy to achieve Objectives and Vision Stage 4 • Implementing and Executing the Strategy Stage 5 • Monitoring Developments, Evaluating Performance, and Making Corrective Action, Revise if needed
  12. 12. 1. Developinga Strategic Vision • What directional path a company should take based on current market position and its future prospects with respect to product, customer, market, and technology constitutes strategic vision of the company. • Strategic vision communicates management aspirations to stake holders and steers energy of employees in one direction. • Mission and Strategic intent overall strategic direction should be clear and precise that is what organization is seeking to achieve. This will help organization galvanize motivation and enthusiasm throughout the organization. • Questions like short term profits vs. long term growth, related business vs. diversified business, global coverage vs. regional coverage, internal innovation and new products vs. acquisition of other business etc., needs to be addressed for better strategic choice.
  13. 13. 2. Setting Objectives • Corporate objectives flow from the mission and growth ambition of the corporation. • The purpose of setting objectives is to convert the strategic vision into specific performance targets, results, and outcomes the management wants to achieve and then use this objectives as yardsticks to tackle companies progress and performance. • Managers use objective setting exercise as a tool for truly stretching an organization to reach an full potential. • It helps organization to be ore inventive, improves financial position and performance besides it business position.
  14. 14. 2.SettingObjectives:BalancedScoreCardApproach • BSC approach measures companies performance and requires the setting of both the financial and strategic objectives besides tracking their achievement. • A trade of between financial and strategic objectives has to be made depending on the situation. • Mainly strategic objectives will deliver sustained future profitability every quarter and strengthen company’s business position by its growing competitive advantage over rivals. • Thus financial objectives will be achieved by strategic objectives that improves company’s market strength.
  15. 15. 2. Setting Objectives:Short and Long Term • Financial and strategic objectives include both short term (yearly) objectives that delivers immediate performance improvements and long term (3-5 years) objectives that deliver Profitability, Productivity, Competitive Position, Employee Development, Employee Relations, Technological Leadership, and Public Responsibility. • Long term objectives represent results expected from pursuing certain strategies. Qualities of long term objectives are Acceptable, Flexible, Measurable, Motivating, Suitable, Understandable, and Achievable. • Objectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical, obta
  16. 16. 2. Setting Objectives:Short and Long Term • Objectives are commonly stated in term of: • Growth in Assets • Growth in Sales • Profitability • Market Share • Degree and Nature of Diversification • Degree and nature of Vertical Integration • Earnings Per Share • Social Responsibility • Such objectives provide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulate exertion, aid in allocation of resources and job design. • Short term obj. differ from long term obj. when elevating organizational performance but it cannot be done in one year time
  17. 17. Conceptof Strategic Intent • Strategic intent means company relentlessly pursues ambitious strategic objectives and concentrates its full resources and competitive action on achieving the objectives , targets, and become dominant company in the industry. • There is need for objectives at all organizational levels that are supportive rather than conflicting. The objectives need to be broken down in performance targets for each separate business, product line, functional department, individual work unit. • Such division will help the company move down the chosen strategic path and produce the desired results.
  18. 18. 3. Crafting a Strategy • Strategy crafted at Corporate, Business, Functional, and Operational level by top management needs to synchronized and united for good performance. • Good communication of strategic themes to greater number of companies personnel serves a greater purpose, guiding principle, and valuable insight into strategy decision making for consistent strategic action. • The goal is to develop a strategy that exploits business strength and competitors weakness, and neutralize business weakness and competitors strength. • In making strategic decisions , inputs from variety of assessments are relevant viz. Organizational Strength and Weakness, Competitor Strength and Weakness, Market Needs, Attractiveness, and Key Success Factors
  19. 19. 3. Crafting a Strategy Organizational Strength and Weakness Competitor Strength and Weakness Market Needs, Attractiveness, an d Key Success Factors Strategic Decisions: Strategic Investment, Function al Area Strategies, Sustainabl e Competitive Advantage
  20. 20. 4. Implementationand Executingthe Strategy • It is operation oriented activity which is most demanding, and time consuming part of strategy management process. It involves: • Staffing the organization with right mix of people (supportive competencies and competitive capabilities) by motivating them to pursue objective targets. • Developing budgets for activities critical to strategic success. • Installing Information system, Policies, Operating procedures, Systems should facilitate execution of work day in and day out. • Tying rewards and incentives to achievement of objectives and good execution strategy. • Creating conducive work culture / climate for successful strategy implementation. • Exert internal leadership to drive strategy implementation by creating strong fit between strategy and organizational capability, between strategy and reward structure, internal operating systems, and organizational work culture / climate.
  21. 21. 5.MonitoringDevelopments,Evaluating Performance,andMakingCorrectiveAdjustments • This stage is trigger point for deciding whether to continue or change companies vision, objectives, strategy, and strategy execution methods. • Whenever company encounter disruptive changes in the external environment, then strategy needs to be reevaluated (cause related to poor strategy or poor execution) and timely corrective action needs to be taken by modifying or redrafting its strategic vision, direction, objectives etc. • Proficient strategy execution is always the product of much organizational learning. It is achieved unevenly coming quickly in some areas and problematic in other areas. • Periodic assessment and quick adjustments helps in making corrective actions more meaningful and effective.
  22. 22. StrategicAlternatives:MichaelPorter’s GenericStr.
  23. 23. • This strategy involves the organisation aiming to be the lowest cost producer and/or distributor within their industry. The organisation aims to drive cost down for all production elements from the sourcing of materials, to labour costs. • To achieve cost leadership a business will usually need large scale production so that they can benefit from "economies of scale". • Large scale production means that the business will need to appeal to a broad part of the market. For this reason a cost leadership strategy is a broad scope strategy. A cost leadership business can create a competitive advantage: • By reducing production costs and therefore increasing the amount of profit made on each sale as the business believes that its brand can command a premium price. • By reducing production costs and passing on the cost saving to customers in the hope that it will increase sales and market share MichaelPorter’sGenericStrategies:CostLeadership
  24. 24. • To be different, is what organizations strive for; companies and product ranges that appeal to customers and "stand out from the crowd" and appeal to customers including functionality, customer support and product quality have a competitive advantage. • A differentiation strategy is known as a broad scope strategy because the business is hoping that their business differentiation strategy, will appeal to a broad section of the market. New concepts which allow for differentiation can be protected through patents and other intellectual property rights. • To make a success of a Differentiation strategy, organizations need: • Good research, development and innovation. • The ability to deliver high-quality products or services. • Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings. MichaelPorter’sGenericStrategies:Differentiation
  25. 25. • Under a focus strategy a business focuses its effort on one particular segment of the market and aims to become well known for providing products/services for that niche market segment. Examples include Roll Royce, Bentley etc. • Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs). • Once a firm has decided which market segment they will aim their products at, Porter said they have the option to pursue a cost leadership or a differentiation strategy to suit that segment. A focus strategy is known as a narrow scope strategy because the business is focusing on a narrow segment of MichaelPorter’sGenericStrategies:Focus
  26. 26. ResourcesRequirement Generic Strategy Commonly Required Skills and Resources Common Organizational Requirements Overall Cost Leadership Sustained Capital Investment Access to Capital Process Engineering Skills Intense Supervision of Labour Product Design for Ease in Manufacture Tight Cost Control Frequent, Detailed Control Reports Structured Org. and Responsibilities Incentives on Quantitative Targets Differentiation Low Cost Distribution System Strong marketing Abilities Product Engineering Creative Flair Strong capability in Basis Research Corporate Reputation Technological Leadership Strong Cooperation from Channels Strong Coordination among R&D, Product Development, and Marketing Subjective Measurement and Incentives instead of Quantitative Measures Amenities to Attract highly skilled labour, Scientists, and Creative People Focus Combination of the above Policies directed at the particular Strategic target Combination of the above Policies directed at the particular Strategic target
  27. 27. • To create a competitive advantage businesses should review their strengths and pick the most appropriate strategy cost leadership, differentiation or focus. So, when you come to choose which of the three generic strategies is for you, it's vital that you take your organization's competencies and strengths into account. • Step 1: For each generic strategy, carry out a SWOT Analysis • Step 2: Use Five Forces Analysis to understand the nature of the industry you are in. • Step 3: Compare the SWOT Analyses of the viable strategic options with the results of your Five Forces analysis. • Reduce or manage supplier power. • Reduce or manage buyer/customer power. • Come out on top of the competitive rivalry. • Reduce or eliminate the threat of substitution and new entry. • Select the generic strategy that gives you the strongest set of options. MichaelPorter’sGenericStrategies:Conclusion
  28. 28. MarketTarget Type of Advantage Sought Overall Low-Cost Provider Strategy Broad Differentiation Strategy Focused Low-Cost Strategy Focused Differentiation Strategy Best-Cost Provider Strategy Lower Cost Differentiation Broad Range of Buyers Narrow Buyer Segment or Niche Best – CostProviderStrategy
  29. 29. Various strategy alternatives are available to firm for achievement of growth objective. These grand strategies form the basis of coordinated and sustained efforts directed towards achieving long term business objectives. GrandStrategies / DirectionalStrategies Strategy Basic features Stability The firm stays in current business and product markets, maintains existing level of effort and is satisfied with incremental growth. Expansion Seeks significant growth within current business or entering new business that is related to existing business or unrelated to existing business. Retrenchment Retrenches some of its activities of the existing business – may sell out or liquidate. Combination The firm combines the above business alternatives in some permutation or combination to suit specific requirements as per market conditions.
  30. 30. GrandStrategies / DirectionalStrategies • Grand strategy is a general term for a broad statement of strategic actions coordinated to achieve a main objective with. It describe multi-tiered strategies in general. • In business, a Grand strategy is a general term for a broad statement of strategic actions, combined into one purpose. A grand strategy states the means that will be used to achieve short, medium, and long-term objectives with. • Most business decisions are focused on actions and results – very few are focused on capacity and capability – then on a very limited scale do you see sustainable results and actual growth. • Only if our paradigms are strategic, and we seek sustainable growth paths, that yield and build on capacity and capability, will business become holistically strategic.
  31. 31. GrandStrategies / DirectionalStrategies Strategy Alternatives Stability Expansion Intensification Market Penetration Market Development Product Development Diversification Vertically Integrated Concentric Diversification Forward Backward Conglomerate Diversification Retrenchment Combination
  32. 32. Stability Strategy • It is strategy by a company where the company stops the expenditure on expansion, do not venture into new markets or introduce new products. Stability strategy is adopted by company due to following reasons: • When the company plans to consolidate incrementally, its position in the industry in which company is operating. • When the economy is in recession companies want to have more cash in their balance sheet rather than investing that cash for expansion or other such expenses. • When company has too much debt in the balance sheet than also company stops or postpones their expansion plans because it would not able to pay interest rate on such debt and it may create liquidity crunch for the company. • When the company is operating in an industry which has reached maturity phase and there is no further scope for growth than also company adopts stability strategy. It is safe oriented less risky strategy. • When the gains from expansion plans are less than the costs involved for such expansion than company follows the stability strategy.
  33. 33. Stability Strategy is adoptedbecause • It is less risky, involves less change, and people feel comfortable with things as they are. • The environment faced is relatively stable. • Expansion may be perceived as being threatening. • Consolidation is sought through stabilizing after a period of rapid expansion.
  34. 34. ExpansionStrategy • It is opposite to stability strategy where rewards and risks are high. • It is true growth oriented strategy which redefines the business. • The process of renewal of firms through fresh investments in new products, markets etc. • It is highly versatile strategy which offers various permutations an combinations for growth. • Expansion strategy has two major strategic routes: Intensification and Diversification. Both of them are growth strategies and how you pursue them. • Intensification means pursuing growth in current business. • Diversification means expansion into new business that are outside current business and markets.
  35. 35. ExpansionStrategy is adoptedbecause • It is adopted when environment demands increase in pace of activity. • When organization strives for growth and growth forces expansion. • Increasing size may lead to more control over the market vis-à-vis competitors. • Advantage from experience curve and scale of operations may occur.
  36. 36. DivestmentStrategy • The process of selling an asset. Also known as divestiture, it is made for either financial or social goals. Divestment is the opposite of investment and involves retrenchment of some activities. The term divestment is more appropriate however in the following contexts: • A change in corporate strategy - a firm might say that they are divesting a particular subsidiary to focus on their core business. • Social goals - there are many political reasons why investors might reduce investments. A notable example was the withdrawal of American firms from South Africa during apartheid.
  37. 37. • Compulsions of Disinvestments may be varied, such as: • Business becoming Unprofitable, • High Competition, • Industry Overcapacity, • Failure of Strategy • Generate Resources DivestmentStrategy is AdoptedWhen
  38. 38. RetrenchmentStrategy • 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.
  39. 39. RetrenchmentStrategy is Adoptedbecause • The management no longer wishes to remain in business either partly or wholly due to continuous losses and unviability. • The environment faced is hostile and threatening • Stability can be ensured by reallocation of resources from unprofitable to profitable businesses. • Divest businesses • Too small to make sizable contribution to earnings . • Having little or no strategic fit with firm’s core businesses
  40. 40. CombinationStrategy • It is the combination of stability, growth &retrenchment strategies adopted by an organisation, either at the same time in its different businesses, or at different times in the same business with the aim of improving its performance. • Combination strategy is not an independent classification but it is a combination of different strategies
  41. 41. CombinationStrategy is adoptedwhen • The organization is large and faces complex environment • The organization is composed of different businesses, each of which lies in the different industry requiring a different response. • It is commonly followed by organizations with multiple unit diversified product & National or Global market in which a single strategy does not fit all businesses at a particular point of time.
  42. 42. ExpansionStrategy:ProductMarketExpansionGrid 1. Growth in Existing Product Markets Increased market Share Increased Product Usage Increase the Frequency Increase the Quantity Used Find New Applications for Current Users 2. Product Development Add Product features Product Refinement Develop a New Generation Product Develop New Product fro Same Market 3. Market Development Expand Geographically Target New Segments 4. Diversification Involving New Products Involving new Markets Related Unelated Product Market Expansion Grid
  43. 43. Intensification:Market Penetration • In marketing terms “penetration” means to acquire a portion of a market. • Sell more existing products or services to existing customers • Sell existing products or services more frequently to existing customers • Sell more existing products or services at higher prices to existing customers • Sell new products or services to existing customers • Sell new products or services often to existing customers • Sell new products or services at higher prices to existing customers • Sell existing products or services to new customers • Sell new products or services to new customers • The firm directs its resources to the profitable growth of single product, in a single market, and with a single technology. • Market penetration poses a reduced amount of risks, in part because it makes use of established products as opposed to new ones.
  44. 44. Intensification:Market Development • A company follows a market development strategy for a current brand when it expands the potential market through new users or new uses. New users can be found in new geographic segments, new demographic segments, new institutional segments or new psychographic segments. Another way is to expand sales through new uses for the product. • It can be achieved by adding different channels of distribution, by changing the content of advertising or the promotional media. • Marketing development is a market development strategy employed by a company to increase its market, broaden its customer base, and ultimately sell more products, all three key factors to succeed in market penetration. The two most used marketing development approaches are attracting customers of competing firms and branching out to a heretofore unserved market segment.
  45. 45. Intensification:ProductDevelopment • Developing new products or modifying existing products so they appear new, and offering those products to current or new markets is the definition of product development strategy. • There is nothing simple about the process. It requires keen attention to competitors and customer needs now and in the future, the ability to finance prototypes and manufacturing processes, and a creative marketing and communications plan. • There are several subset of product development strategy: • Product development and diversification • Product Modification Strategy • Revolutionary Product Development
  46. 46. DiversificationStrategy • Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations. • Firstly, companies might wish to create and exploit economies of scope, in which the company tries to utilize its exciting resources and capabilities in other markets. • Secondly, managerial skills found within the company may be successfully used in other markets. • Thirdly, companies pursuing a diversification strategy may be able to cross- subsidize one product with the surplus of another. • Fourthly, companies may also want to use a diversification strategy to spread financial risk over different markets and products,
  47. 47. Vertically IntegratedDiversificationStrategy • Vertical integration allows the firm to enlarge its scope of operations within the same overall industry. It takes place when one firm acquires another that is involved either in an earlier stage of the production process (backward or upstream) or a later stage of the production process (forward or downstream). • The organization can move backward to prior stages to guarantee sources of supply and secure bargaining leverage on vendors; or it can move forward to guarantee markets and volume for capital investments, and became its own customer to feed back data for new products. • The degree to which a firm owns product – process chain, both for its upstream suppliers and its downstream buyers determines how vertically integrated it is.
  48. 48. HorizontalIntegrated DiversificationStrategy • Horizontal integration is referred to acquisition of additional business activities at the same level of the value chain. • The growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products, with the sensible diversification synergies mount up. • Acquiring competitors help reduce the threat from competition. • A firm may diversify by growing horizontally into unrelated businesses. • It increases market power and fulfills customers expectations.
  49. 49. RelatedandUnrelatedDiversificationStrategy • Related Diversification occurs when the company adds to or expands its existing line of production or markets. In these cases, the company starts manufacturing a new product or penetrates a new market related to its business activity. For example, a shoe producer starts a line of purses and other leather accessories. • Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets. For example, if the shoe producer enters the business of clothing manufacturing. In this case there is no direct connection with the company´s existing business - this diversification is classified as unrelated. Related Diversification Unrelated Diversification
  50. 50. RelatedandUnrelatedDiversification: OptionsforManufacturer Related: • Exchange / Share Assets / competencies there by exploiting: • Brand Name • Marketing Skills • Sales and Distribution Capacity • Manufacturing Skills • R & D • New Product Capability • Economies of Scale Unrelated • Manage and Allocate Cash Flow • Obtain Higher ROI • Obtain a Bargain Price • Refocus a Firm • Reduce Risk by Operating the Multiple Product Markets • Tax Benefits • Obtain Liquid Assets • Vertical Integration • Defend Against Takeover
  51. 51. ConcentricDiversificationStrategy • Concentric diversification is a type of business strategy where a company acquires or creates new products or services to reach more consumers. These new products and services usually are closely related to the company's existing products and service through process, technology, or marketing. For example, an office supply company seeks to purchase paper manufacturers or ballpoint pen creators. • A company employing the concentric diversification strategy seeks to add complementary products and services across several market areas as a means of establishing a wide distribution network. This improves business synergy, improved product development, and increased market share. • Concentric diversification differs from vertically integrated diversification in nature of linkage the new product has with existing product.
  52. 52. ConglomerateDiversificationStrategy • Conglomerate diversification occurs when there is no common thread of strategic fit or relationship between the new and old lines of business; the new and old businesses are unrelated. These are the two philosophies guiding many conglomerates: • By participating in a number of unrelated businesses, the parent corporation is able to reduce costs by using fewer resources. • By diversifying business interests, the risks inherent in operating in a single market are mitigated. • History has shown that conglomerates can become so diversified and complicated that they are too difficult to manage efficiently.
  53. 53. Retrenchment,Divestment,and Liquidation • 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. • This is adopted to find the problem areas and diagnose the cause of problem and finding solutions to problems. • Retrenchment is often a strategy employed prior to or as part of a Turnaround strategy. It may be done internally or externally
  54. 54. CaptiveCompanyStrategy • The captive company strategy is the scenario in which a small firm sacrifices its freedom for the security of being part of a large conglomerate. The 3M company uses this strategy extensively. They lure in small start-up firms with state of the are technology with the opportunity for large R&D budgets. • 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.
  55. 55. BankruptcyStrategy • 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. • Bankruptcy is no longer primarily limited to small or start-up companies, but is increasingly used by large, powerful corporations as well. • Example: Other large corporations have taken advantage of bankruptcy protection on more than one occasion. Continental airlines, sought the protection of federal bankruptcy court to revoke its costly labor union contracts (Good Law, 1983). After filing, Continental declared its collective bargaining agreement void, and established new, competitive salary levels. While this decision was difficult and unpopular, it was necessary for survival.
  56. 56. TurnaroundStrategy • If your company is steadily losing profit or market share, a turnaround strategy may be needed. Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline. • There are two forms of turnarounds: First, one may choose contractions (cutting labor costs, PP&E and Marketing). Second, they may decide to consolidate. There are certain conditions or indicators which point out that a turnaround is needed if the organization has to survive. • Workable turnaround plan should include Analysis of Product Market, Production process, Competition, and Market Segment Positioning.
  57. 57. TurnaroundStrategy These danger signs are as follows: • Persistent negative cash flow • Continuous losses and negative profits • Declining market share • Deterioration in physical facilities • Over-manpower, high turnover of employees, and low morale • Uncompetitive products or services • Mismanagement Elements that Contribute to Turnaround • Changes in Top Management • Initial Creditability Building Actions • Neutralizing External Pressures • Initial Control • Identifying quick payoff activities • Quick Cost Reductions • Revenue Generation • Asset Liquidation for Generating Cash • Mobilizing of the Organization • Better Internal Coordination
  58. 58. DivestmentStrategy • This is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. • Divestment usually involves eliminating or liquidation of a portion of business, or a major division, profit centre or SBU. • 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. • Divestment is usually a restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful or it was ignored.
  59. 59. DisinvestmentStrategy • A divestment strategy may be adopted due to the following reasons: • A business acquired is mismatch and cannot be integrated within the company. • Persistent negative cash flows from a particular business create financial problems for the whole company. • Firm is unable to face competition • Technological up gradation is required if the business is to survive which company cannot afford. • A better alternative may be available for investment , causing a firm to divest a part of its unprofitable business.
  60. 60. LiquidationStrategy • Liquidation strategy means closing down the entire firm and selling its assets. It is considered the most extreme and the last resort because it leads to serious consequences such as loss of employment for employees, termination of future opportunities, and the stigma of failure. • Generally it is seen that small-scale units, proprietorship firms, and partnership, liquidate frequently but companies rarely liquidate. The company management, government, banks and financial institutions, trade unions, suppliers and creditors, and other agencies do not generally prefer liquidation. • Liquidation strategy may be unpleasant as a strategic alternative but when a "dead business is worth more than alive", it is a good proposition. For instance, the real estate owned by a firm may fetch it more money than the
  61. 61. LiquidationStrategy • 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. Moreover, the firm cannot expect adequate compensation as most assets, being unusable, are considered as scrap. • Liquidation strategy may be difficult as buyers for the business may be difficult to find. Under Companies Act 1956 liquidation may be either by Court, Voluntary, or Subject to Supervision by Court • Reasons for Liquidation include: • Business becoming unprofitable Obsolescence of product/process • High competition Industry overcapacity • Failure of strategy