SURVIVAL STRATEGY

When to adopt survival strategies? What are the routes of survival strategy? What is liquidation ?

 

SURVIVAL STRATEGY 

 

When the company is on the verge of extinction, it can follow several routes for renewing the fortunes of the company. These are discussed in the following sections. 

 

Divestment 

 

An organization divests when it sells a business unit to another firm that will continue to operate it. Threatened with bankruptcy between 1979 and 1982, Chrysler sold its U.S. Army tank division to General Dynamics, its Air Temp air conditioning unit to Fedders, and its European distribution units to Peugeot/Citroen. The purpose was to focus only on the U.S. auto market- its main market. In our country, the TATA group has, in some form or the other, been realigning its portfolio since the early 1990s. But in the past few years it had done this in a more structured manner. The divestment of Tomco and Tata Steel’s cement plant was a conscious decision. It was Tata Steel’s decision to concentrate on steel and get out of the cement business. As for Tomco, the company had reached a point where it required immediate attention, not only in financial terms but in terms of management as well. The group felt that it did not have the requisite managerial skills in the specific area where Tomco operated and hence decided to hive it off. 

 

Spin-Off

 

In a spin-off, a firm sets up a business unit as a separate business through a distribution of stock or a cash deal. This is one way to allow a new management team to try to do better with a business unit that is a poor or mediocre performer. For instance, Indian Rayon and Industries Ltd (IRIL), an Aditya Birla group enterprise, has decided to spin-off its insulators business under Jaya Shree Insulator Division, in favour of a new company - Vikram Insulators Private Ltd (VIPL). The net assets of Rs 92.98 crore of the insulators division were transferred in favour of VIPL and a 50:50 joint venture with the Japanese insulators giant - NGK Insulators Ltd - was forged. The joint venture with NGK Insulators Ltd was proposed in order to upgrade the quality of the existing insulators and to develop new and more technically advanced insulators. 

READ MORE >>

READ MORE...

TURNAROUND STRATEGY

TURNAROUND STRATEGY

 

Turnaround is a strategy adopted by firms to arrest the decline and revive their growth. A turnaround situation exists when a firm encounters multiple years of declining Financial performance subsequent to a period of prosperity (Bibeault, 1982; Hambrick & Schecter, 1983; Schendel et al., 1976; Zammuto & Cameron, 1985). Turnaround situations are caused by combinations of external and internal factors (Finkin, 1985; Heany, 1985; Schendel et al., 1976) and may be the result of years of gradual slowdown or months of precipitous financial decline. The strategic causes of performance downturns include increased competition, raw material shortages, and decreased profit margins, while operating problems include strikes and labour problems, excess plant capacity and depressed price levels. The immediacy of the resulting threat to company survival posed by the turnaround situation is known as situation severity (Altman, 1983; Bibeault, 1982; Hofer, 1980). Low levels of severity are indicated by declines in sales or income margins, while extremely high severity would be signaled by imminent bankruptcy. The recognition of a relationship between cause and response is imperative for a turnaround process and hence, the importance of properly assessing the cause of the turnaround situation so that it could be the focus of the recovery response is very important. 

 

Turnaround Process 

 

The Turnaround Process begins with a depiction of external and internal factors as causes of a firm’s performance downturn. If these factors continue to detrimentally impact the firm, its financial health is threatened. Unchecked financial decline places the firm in a turnaround situation. A turnaround situation represents absolute and relative-to-industry declining performance of a sufficient magnitude to warrant explicit turnaround actions. A turnaround is typically accomplished through a two stage process. The initial stage is focused on the primary objectives of survival and achievement of a positive cash flow. The means to achieve this objective involves an emergency plan to halt the firm’s financial haemorrhage and a stabilization plan to streamline and improve core operations. In other words, it involves the classic retrenchment activities: liquidation, divestment, product elimination, and downsizing the workforce. Retrenchment strategies are also characterized by the revenue generating, product/market refocusing or cost cutting and asset reduction activities. While cost cutting, asset reduction and product/market refocusing are easy to visualize, the idea of revenue-generating is best captured by a strategy that is characterized by increased capacity utilization, and increased employee productivity.

 

READ MORE >>

READ MORE...

CORPORATE STRATEGIES

CORPORATE STRATEGIES

 

Growth is essential for an organization. Organizations go through an inevitable progression from growth through maturity, revival, and eventually decline. The broad corporate strategy alternatives, sometimes referred to as grand strategies, are: stability/consolidation, expansion/growth, divestment/ retrenchment and combination strategies. During the organizational life cycle, managements choose between growth, stability, or retrenchment strategies to overcome deteriorating trends in performance.

 

Just as every product or business unit must follow a business strategy to improve its competitive position, every corporation must decide its orientation towards growth by asking the following three questions: 

v  Should we expand, cut back, or continue our operations unchanged?

v  Should we concentrate our activities within our current industry or should we diversify into other industries?

v  If we want to grow and expand nationally and/or globally, should we do so through internal development or through external acquisitions, mergers, or strategic alliances?

 

READ MORE >>

READ MORE...

PROCESS OF STRATEGY

THE PROCESS OF STRATEGY

 

The process of strategy is cyclical in nature. The elements within it interact among themselves. Figure-1 present the process for single SBU firm. The process has to be adjusted for multiple SBU firms because there it is conducted at corporate level as well as SBU levels as these firms insert SBU strategy between corporate strategy and functional strategy. Initially, the process of strategy was discussed in terms of four phases which are:

 

1.   Identification phase

2.   Development phase

3.   Implementation phase

4.   Monitoring phase 

The process of strategy does not have the same steps as stated by different authors. 

According to C.K. Prahalad, the process comprises of five steps. They are: 

1.   Strategic Intent

2.   Environmental Analysis

3.   Evaluation of strategic alternatives and choice

4.   Strategy Implementation

5.   Strategy Evaluation and Control 

For our understanding, the process has been divided into the following steps: 

1.   Strategic Intent

2.   Environmental and Organizational Analysis

3.   Identification of Strategic Alternatives

4.   Choice of Strategy

5.   Implementation of Strategy

6.   Evaluation and Control

 

FIG-1 : STRATEGIC PROCESS 

 

 

 FIG-1 : Strategic Process in a Single SBU Firm

 

READ MORE >>

READ MORE...