Is another form of retrenchment that includes the downsizing of the scope of the business.

6. Directional strategies of growth, stability and retrenchmentGrowthA directional strategy aimed at growth is used when you want to move beyond currentachievements associated with your product, performance, profit or other business measure.Healthcare organizations following a growth strategy may simply step up existing operationsthrough increased investment or efficiencies to create business expansion. Other approachesinclude taking on additional activities previously handled by an external provider, such aspharmacy services or medical equipment maintenance, and diversifying your services into newsectors, such as consumer health publishing or nutritional supplements.StabilityA directional strategy focused on stability strives to maintain the status quo in your businessoperations and outcomes. The low-risk, moderate-reward strategy requires no alterations to yourexisting practices. It is most appropriate for organizations that operate within a reliable marketand bring in consistent returns on investment, such as an established medical imaging center orpathology laboratory. The approach also may be useful as an interim strategy for businessesseeking to control growth or wait out a temporary change in the market.Retrenchment

Poor quality of functional managementDeclining market shareUncompetitive products and servicesAlso, the need for a turnaround strategy arises because of the changes in the externalenvironment Viz change in the government policies, saturated demand for the product, a threatfrom the substitute products, changes in the tastes and preferences of the customers, etc.Example:Dell is the best example of a turnaround strategy. In 2006 Dell announced the cost-cutting measures and to do so; it started selling its products directly, but unfortunately, it sufferedhuge losses. Then in 2007, Dell withdrew its direct selling strategy and started selling itscomputers through the retail outlets and today it is the second largest computer retailer in theworld.2.Divestment:TheDivestment Strategyis another form of retrenchment that includes the downsizing of thescope of the business. The firm is said to have followed the divestment strategy, when it sells orliquidates a portion of a business or one or more of its strategic business units or a majordivision, with the objective to revive its financial position.The divestment is the opposite of investment; wherein the firm sells the portion of the business torealize cash and pay off its debt. Also, the firms follow the divestment strategy to shut down itsless profitable division and allocate its resources to a more profitable one.An organization adopts the divestment strategy only when the turnaround strategy proved to beunsatisfactory or was ignored by the firm. Following are the indicators that mandate the firm toadopt this strategy:Continuous negative cash flows from a particular divisionUnable to meet the competitionHuge divisional lossesDifficulty in integrating the business within the companyBetter alternatives of investmentLack of integration between the divisionsLack of technological up gradations due to non-affordabilityMarket share is too smallLegal pressuresExample:Tata Communications is the best example of divestment strategy. It has started theprocess of selling its data center business to reduce its debt burden.

• Retrenchment Strategy
  • • 1. General strategy:
    • 2. Formidable diversity:
    • 3. Financial security:
    • 4. Forming Goals:
  • When is Retrenchment Strategies Appropriate?
  • Effects of Retrenchment on Employees:
    • 1. Prospect of career correction:
    • 2. Work Experience:
    • 3. The rise in entrepreneurship:
    • 4. Grievance:
  • Effects of Retrenchment on Organizational Performance:
    • 1. Eliminating redundancy:
    • 2. Improves service:
    • 3. Keeping everybody on their toes:
  • Different Types of Retrenchment Strategy:
    • 1. Turnaround strategy:
    • 2. Divestment strategy:
    • 3. Liquidation:
  • Advantages and Disadvantages of Retrenchment Strategy:
    • 1. Cost-effective strategy:
    • 2. Improves performance:
    • 3. Loss of good employees:
    • 4. Critical response:

Retrenchment Strategy

Retrenchment strategy is a practice done by organizations to gain a better financial position by lowering or reducing the costs of any of its business operations.

1. General strategy:

Nowadays, retrenchment is the easiest way to see through the damages and revoke policies that did not farewell. This dire step comes to pass when a company has suffered a heavy loss at the hands of their own foolish investment.

Evidently, this is a huge blow to the company’s fund despite the murderous competition that goes on constantly.

Retrenchment in business, therefore, seems to be the immediate and most effective measure at times like this. The process on a whole focuses on rightsizing the excess involvements of the company in order to catch an instant breath.

2. Formidable diversity:

Eliminate all funding that seems most unlikely to fetch a reason for sustaining them. Cancel all impending projects or transactions that are underway to prevent further monetary loss.

Nevertheless, it is crucial to foster a few areas of work regardless of what it costs the company. These few unique areas of work that have seen through the company’s success earlier on are to be given special importance.

Whereas, an excess branch of work reaping no big fortune and showing no sign of further improvement are to be done away immediately.

It is important to maintain a formidable diversity in branches of work at a company rather than giving rise to a large number to unnecessary work plans.

3. Financial security:

Companies to try retrenchment in strategic management entirely to put a hold to the different losses.

Retrenchment aims at cutting down on all expensive fields. This gives way to maintaining a low budget plan to make sure there is not any financial drop. Nevertheless, retrenchment mainly involves curtailing of different excess positions that are not of much use to the company’s well-being.

However, downsizing or laying off employees definitely runs the risk of losing devoted employees while eliminating redundant avenues.

4. Forming Goals:

Definitely having goals that will lead to success is the primary interest of any enterprise. The first and foremost target of the retrenchment strategies is giving life to the goals.

There are times when investments take a downward turn and the best business strategy goes awry and the only sensible solution to this is to be calm and brave.

Retrenchment, however, manages to ease the impact of such a blow by saving funds that were not being put to good use. More often, companies suffer in amateur hands since many times company managers make bad decisions and are too late to realize it. It is in such times that retrenchment comes to their tremendous help in giving them enough time to fix the problems without much harassment.

When is Retrenchment Strategies Appropriate?

As per the definition, the main aim of the retrenchment strategy is to make the organization financially stable.

Retrenchment strategies are also used to cut down operating expenses and reduce the size of the company for the betterment of the organization. This strategy can also be used to get a good stand in this competitive market.

The retrenchment strategies mainly act on two factors, they are

1. Cost-cutting
2. Restructuring.

With the help of the 3 different types of strategies, an organization can use any of them as per their requirements to conduct a successful retrenchment strategy.

Effects of Retrenchment on Employees:

1. Prospect of career correction:

Despite the fact that it seems unjust to sack employees on the pretext of futile investments there is a silver lining to it.

It is likely that companies are going to keep the most hardworking employees but in no face should it mean an end of a career for those being intercepted. First of all, a notice will be given before a retrenchment process is in order.

Secondly, every employee will be given a fair chance to prove one’s worth through the screening. Nevertheless, it is advisable that everyone must take the notice period seriously to consider the prospect of career correction where the risk of facing a retrenchment policy will be less.

2. Work Experience:

Regardless of everything, there is a brighter side to retrenchment which is the job experience certificate. Obviously, being subjected to retrenchment does not mean the end of everything for good. Sometimes companies have to resort to drastic measures which involve making decisions that would not normally cross their mind.

Nonetheless, the good news is you can still apply to different companies for the job of your choice. In addition to your renewed chances, you are bound to be given preference if your company is kind enough to give you a recommendation.

3. The rise in entrepreneurship:

No matter how badly it ends for an employee, new opportunities are always going to present itself. One such opportunity is the prospect of entrepreneurship. One may use whatsoever knowledge he/she had gained while working at the previous company prior to the retrenchment to start a new enterprise from scratch.

With the rise in professional individualism in terms of trade and commerce, one can easily opt for starting one’s own business-level strategy with a little investment. In light of recent days, the boom in entrepreneurship has almost taken the shape of a trend that is taking the globe by storm.

4. Grievance:

Then there is, of course, the grieving factor. Some people no matter what, are never going to come to terms with being entitled to retrenchment. These immovable kind of people are eventually going to take to desperate measures to heckle the company in every way possible.

However, this is not entirely their fault given the fact that they have contributed a considerable amount of their time and effort over the years in the making of the company. They are sure as anything not going to let go of what they think is rightfully theirs, in this case, the position that has been eliminated. This is not completely unbecoming of them since they have served the company once but completely justified as they would think themselves to be equally deserving of being retained.

Effects of Retrenchment on Organizational Performance:

1. Eliminating redundancy:

Retrenchment has its primary use in freeing the company of commercial attachments that are not yielding as heavily as expected. Trying to be in vogue for the consumers, companies sometimes introduce posts or offer perks that are utterly meaningless and as a matter of fact very costly. Later these risky investments give them a run for their money.

To avoid having to close down the company, employers start reducing the number of employees starting with downsizing the number of positions they had introduced which lead to disappointment.

Anyhow, eliminating redundant involvements is one possible way to impose a cost-effective relationship between the company and its employees.

2. Improves service:

The performance automatically improves after the retrenchment since that is what it apparently aims to do. On removing the redundancies the problems become much easier to handle due to the reduction in monetary losses.

Often it happens that salaries are reduced to a meager amount in light of desperate times. So the employees rush from pillar to post to revive the company’s lost health in order to restore the pay scale.

It is ultimately the workers’ prerogative to look after the company. So the service from their end undoubtedly improves lest the next brunt of retrenchment should be on their neck.

3. Keeping everybody on their toes:

It is given that a fresh retrenchment is going to keep each and every employee on their toes. It is normal for the employees to be afraid of a future reduction in the number of workers.

This keeps the employees on high alert since they are going to be afraid of being removed if they do not work properly. They cannot afford to be liberal in their ways of working when there has been a retrenchment earlier on.

So these are definitely some of the positive ways in which retrenchment can improve the performance of the organization or the company with nothing more than a word or two of motivation from the employers.

Different Types of Retrenchment Strategy:

1. Turnaround strategy:

The process of retrenchment strategies in strategic management can be broken into 3 levels of strategy or 3 divisible components. These are the turnaround strategy, divestment strategy and last but not the least, liquidation. The first-ever elementary step taken in terms of retrenchment is the turnaround.

This looks into the problems from a lens favorable to both the company and its employees. This process primarily involves dissolving of redundant branches of the organization. This strategy is in part to check the fiscal backdrops without harming the interest of the employees to a great degree.

2. Divestment strategy:

When the business turnaround plan does not take expected turns employers have to vouch for a higher level of treatment.This fresh level of retrenchment is called the divestment strategy. The divestment policy focuses on restructuring and rightsizing rather than just eliminating posts.

Divestment entails re-engineering of every possible nook and cranny of the work culture at the company.

However, this strategy runs the risk of eliminating posts including permanent suspension of a large number of employees.

3. Liquidation:

The worst side of the retrenchment strategy is liquidation. Playing this card means collateral damage to both parties. In no uncertain terms, it means the end of an organization or the closing down of a company. This is the last step of this whole process and only comes to play when everything else fails.

A company would never decide to deliver on this under normal and reparable circumstances. This is for when the damage has gone beyond repair and nothing can be done to restore the old face of the company.

Advantages and Disadvantages of Retrenchment Strategy:

1. Cost-effective strategy:

Despite many things that can be said against retrenchment, it does handle the immediate problems very effectively.

A retrenchment procedure is carried out when the company has squandered a vast amount of money into something irretrievable.

Nevertheless, retrenchment is the first aid to the damages sustained before thinking of better ways to recover from the trauma.

This is why the retrenchment strategy in business is so positively cost-effective without taking a larger toll on the organization or the company. This is one of the best retrenchment benefits.

2. Improves performance:

Evidently, the employees are going to be on their best behavior once the retrenchment has been placed. Nobody can be too safe from the clutches of retrenchment regardless of how devoted an employee is.

Any lack in performance can be used against them. The employees, therefore, are on their toes at all times lest they should be targeted for their lack of trying.

Automatically this calls upon their best performance the company must have seen in ages.

3. Loss of good employees:

Despite being strict and fair, screening is not always up to the mark. In spite of all the efforts made to save the best of employees, it is impossible to see through person to person after all.

And in all the riffraff the company loses one or two of its most hardworking employees. Once the list is made there is not much the company heads can do to keep the employees they favor on the team.

Doing that will appear unjust to all those who have cleared the screening.

4. Critical response:

On top of everything, the company will have to withstand the wave of hatred and criticism coming from all those who were told off so unceremoniously.

This is one sphere of public reaction that every field of work has. But honestly one cannot blame the other since it is just as imperative to impose retrenchment when necessary, as finding a better solution to pan out to your employees rather than extricate them so irreverently.

Is a retrenchment strategy which includes downsizing of the scope of business?

What is downsizing in retrenchment strategy?

What is retrenchment in business?

What is a type of retrenchment strategy?