Defensive strategies (1)

Strategics management topic defensive strategy definition and explanation
Types of defensive strategies
1. Retrenchment strategy ( turnaround strategy)
2. Divestment strategy
3. Liquidation Strategy
Advantages and Disadvantages of Defensive Strategies

1. Defensive strategies
Retrenchment Strategy



Rebekah Samuel
BBA 7th A
Date 9 Jan, 2020

2. Defensive strategies
Defensive strategies are management tools that can be used to fend off an attack from a potential
competitor. we have to protect our share of the market in order to keep our customers happy and
our profits stable.
Approaches to Defensive Strategy
There are two approaches to defensive strategy in strategic management.
The first approach is aimed at blocking competitors who are attempting to take over part of your
business's market share. Cutting the price of your products, adding incentives or discounts to
encourage customers to buy from you or increasing your advertising and marketing campaigns
are the best common ways of going about this.
the second approach is more passive here we announce new product innovations, plan a
company expansion by opening a new chain or reconnect with old customers to encourage them
to buy from us.
Different Defensive Strategies
 Retrenchment
 Divestiture
 Liquidation
Retrenchment Strategy
Retrenchment mean reducing the scope of activity substantially. When the organization faces
declining sales & profits then it considers the retrenchment strategy in which it reorganizes its
activities by reducing its assets & costs. By doing so the organization actually reverses the
affects of declining profit & sales. It is also called as reorganization or turnaround strategy. The
basic distinctive competence of an organization is fortified through effectively designed
retrenchment strategy. When an organization applies retrenchment strategy, pressure is exerted
from shareholders, media & employees on the strategists who perform their functions with
limited resources. Following are some of the activities that come under the retrenchment
category.
 Selling of building & lands for raising certain cash for the business
 The marginal businesses that are not profitable are closed down
 The obsolete factories are closed down
 The production & other processes of the business organization are automated
 The number of employees are reduced
 The expenses of the business are controlled in an effective manner
 Situation in which there is low profitability, poor employee morale, inefficiency
&pressure from the shareholders to make improvement in the performance of the
business organization.

3.  When the strategic managers of the business organization have failed in achieving their
objectives
Three types of Retrenchment Strategy

1. Turnaround Strategies

Turnaround strategy means backing out, if the organization chooses to focus on the ways and
means to "reverse the process of decline". There are certain conditions or indicators which point
out that a turnaround is needed if the organization has to survive. Persistent negative cash flow,
Continuous losses, Declining market share, High turnover of employees, Uncompetitive product
and services and Mismanagement are danger signs of TS.
EXAMPLE HP has also changed its CEO because of poor performance of company.
2. Divestment Strategy
It involves the sales or liquidation of portion of business or major division. It is usually a part of
rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has
prove to be unsuccessful. Persistent negative cash flow, severity of competition and
technological up graduation are common cause for adopting divestment strategy. E.g. Split of
Hero Honda.
3. Liquidation Strategy
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 consider as a last resort
because of its serious consequences, loss of employment, termination of opportunities and stigma
of failure.
Disadvantages Of Retrenchment Strategy
Disadvantages of retrenchment include reduced costs, improved efficiency, improved
competitiveness and reduced confidence on the markets, growth decline, reduced profits, smaller
workforce, reduced productivity and inability to meet consumer demand.