RETRENCHMENT STRATEGY

A retrenchment grand strategy is followed when an organization aims at a contraction of its activities through substantial reduction or the elimination of the scope of one or more of its businesses in terms of their respective customer groups, customer functions, or alternative technologies either singly or jointly in order to improve its overall performance. E.g: A corporate hospital decides to focus only on special treatment and realize higher revenues by reducing its commitment to general case which is less profitable. The growth of industries and markets are threatened by various external and internal developments (External developments government policies, demand saturation, emergence of substitute products, or changing customer needs. Internal Developments poor management, wrong strategies, poor quality of functional management and so on.) In these situations the industries and markets and consequently the companies face the danger of decline and will go for adopting retrenchment strategies. E.g: fountain pens, manual type writers, tele printers, steam engines, jute and jute products, slide rules, calculators and wooden toys are some products that have either disappeared or face decline. There are three types of retrenchment strategies Turnaround Strategies, Divestment Strategies and Liquidation strategies.

1. Turnaround Strategies Turn around strategies derives their name from the action involved that is reversing a negative trend. There are certain conditions or indicators which point out that a turnaround is needed for an organization to survive. They are: Persistent Negative cash flows Negative Profits Declining market share Deterioration in Physical facilities Over manning, high turnover of employees, and low morale Uncompetitive products or services Mis management An organization which faces one or more of these issues is referred to as a sick company. There are three ways in which turnarounds can be managed The existing chief executive and management team handles the entire turnaround strategy with the advisory support of a external consultant. In another case the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the job. The last method involves the replacement of the existing team specially the chief executive, or merging the sick

organization with a healthy one. 2. Divestment Strategies A divestment strategy involves the sale or liquidation of a portion of business, or a major division. Profit centre or SBU. Divestment is usually a part of rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful. Harvesting strategies a variant of the divestment strategies, involve a process of gradually letting a company business wither away in a carefully controlled manner E.g: TATA group is a highly diversified entity with a range of businesses under its fold. They identified their non core businesses for divestment. TOMCO was divested and sold to Hindustan Levers as soaps and a detergent was not considered a core business for the Tatas. Similarly, the pharmaceuticals companies of the Tatas- Merind and Tata pharma were divested to Wockhardt. The cosmetics company Lakme was divested and sold to Hindustan Levers, as besides being a non core business, it was found to be a non- competitive and would have required substantial investment to be sustained.

3. Liquidation Strategies A retrenchment strategy which is considered the most extreme and unattractive is the liquidation strategy, which involves closing down a firm and selling its assets. It is considered as the last resort because it leads to serious consequences such as loss of employment for workers and other employees, termination of opportunities where a firm could pursue any future activities and the stigma of failure The psychological implications

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COCO-COLA , INDIA
Coca-cola Company, nourishing the global community with the worlds largest selling soft drink since 1886, returned to India in 1993 after a gap of 16 years.HCCB serves in India some of the most recalled brands across the world including names such as coca-cola, sprite, fanta, thums up, limca, maaza and kinley (packaged drinking water), minute maid pulpy orange. The business system of the company in India directly employs approximately 6,000 people, and indirectly creates employment for many more. Coca-Cola India has increased its market share from 57 percent in the carbonated soft drink (CDs) category in 2005 to 61 percent at the end of December 2006. Coca Cola was the first in the country to launch cans, plastic cap leak proof bottles and full length delivery crates. Ranking: We own 4 of the worlds top 5 nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Sprite and Fanta. Company Associates: 90,500 worldwide (as of December 31, 2007) Operational Reach: 200+ countries Consumer Servings (per day): 1.5 billion.

THE BCG MATRIX INTRODUCTION

BOSTON

CONSULTING GROUP (BCG) MATRIX IS DEVELOPED BY BRUCE HENDERSON OF THE BOSTON CONSULTING GROUP IN THE EARLY 1970S.
According

to this technique, businesses or products are classified as low

or high performers depending upon their market growth rate and relative market share. MARKET SHARE Is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms? The higher your market share, the higher proportion of the market you control. MARKET GROWTH RATE Market growth is used as a measure of a markets attractiveness. Markets experiencing high growth are ones where the total market share available is expanding, and theres plenty of opportunity for everyone to make money.

BENEFITS OF BCG-MATRIX
1. BCG MATRIX is simple and easy to understand. 2. It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them. 3. It is used to identify how corporate cash resources can best be used to maximize a companys future growth and profitability.

LIMITATIONS
1. BCG MATRIX uses only two dimensions, Relative market share and market growth rate. 2. Problems of getting data on market share and market growth. 3. High market share does not mean profits all the time. 4. Business with low market share can be profitable too.

THE BCG MATRIX COMPONENTS

STARS :High growth business competing in market where they are relatively strong compared with the competition. they have a high point shares and are the ideal businesses.

$ CASH COW: The low-growth business with a relatively high point market shares. These businesses were stars but now have lost their attractiveness.
QUESTION

MARK: Businesses with low point share but which may have a high growth rate. This suggests that they have potential but may require huge ever, a competing force extraordinary effort in order to grow point share.

 DOGS :Businesses that have low relative share and low expected growth rate. Dogs may generate enough points to sustain but they are rarely, if ever, a competing force.

STARS HIGH GROWTH, HIGH MARKET SHARE

1. Stars are leaders in business. 2. They also require heavy investment, to maintain its large market share. 3. It leads to large amount of cash consumption and cash generation. 4. Attempts should be made to hold the market share otherwise the star will become a cash cow.

$ CASH COWS LOW GROWTH, HIGH MARKET SHARE

1. They are foundation of the company and often the stars of yesterday. 2. They generate more cash than required. 3. They extract the profits by investing as little cash as possible 4.They are located in an industry that is mature, not growing or declining.

DOGS LOW GROWTH, LOW MARKET SHARE

1. Dogs are the cash traps. 2. Dogs do not have potential to bring in much cash. 3. Number of dogs in the company should be minimized. 4.Business is situated at a declining stage. QUESTIONMARKS HIGH GROWTH , LOW MARKET SHARE 1. Most businesses start of as question marks. 2. They will absorb great amounts of cash if the market share remains unchanged, (low) 3. Question marks have potential to become star and eventually cash cow but can also become a dog. 4.Investments should be high for question marks.

CONCLUSION
TO CONCLUDE WE CAN SAY THAT: Dog Strategy: Either invest to earn market share or consider disinvesting. For the products like diet coke ,pulpy orange and kinlely soda it better to stop manufacturing these products and to should try to come up with some new innovative and better beverages. Star Strategy: Invest profits for future growth and for earning more of market share and profits , thums up and mazza will be a lot profitable for Coco-Cola India Question Mark Strategy: Either invest heavily in order to push the products to star status, or divest in order to avoid it becoming a Dog. Cash Cow Strategy: Use profits to finance new products and growth elsewhere.