Strategic

Planning
Prof. Prashant Mehta
National Law University, Jodhpur

STRATEGIC PLANNING

Introduction
Corporate Strategy
The Stages of Corporate Strategy Formulation
The Stages of Corporate Strategy Implementation
Strategic Alternatives

Strategic Planning
A

strategy

is

approach,

an

based

overall
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

framework

gives
within

you

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

Corporate Strategy
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.

Nature, Scope, and Concern of Corporate

Strategy
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.

What Does Corporate Strategy 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.

Strategy is Partly Proactive and Partly

Reactive
Companys strategy is blend of two opposing

actions:

Proactive action on part of managers to improve

companys
performance

market
besides

position

and

tackling

the

financial
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.

Strategy is Partly Proactive and Partly

Reactive

Dealing with 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

Stages of Corporate Strategy

Formulation Implementation Process
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 asstrategic
management process.

Stages of Corporate Strategy

Formulation Implementation Process
Stage 1

1. Developing a 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

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.

2. Setting Objectives: Balanced Score Card

Approach
BSC

approach

requires

measures

companies

performance

and

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

companys

business position by its growing competitive advantage over

rivals.
Thus financial objectives will be achieved by strategic
objectives that improves companys market strength.

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, obtainable, and congruent

among organizational units.

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

Concept of Strategic
Intent
Strategic

ambitious

intent

means

strategic

company

objectives

and

relentlessly
concentrates

pursues
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.

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

3. Crafting a Strategy
Organizational Strength and Weakness

4. Implementation and Executing the

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.

5. Monitoring Developments, Evaluating

Performance, and Making Corrective
Adjustments
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.

Strategic Alternatives: Michael Porters

Generic Str.

Michael Porters Generic Strategies: Cost

Leadership

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

Michael Porters Generic Strategies:

Differentiation
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.

Michael Porters Generic Strategies:

Focus
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 thatniche 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

Resources Requirement
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

Michael Porters Generic Strategies:

Conclusion
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:UseFive Forces Analysisto 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.

Best Cost Provider Strategy

Type of Advantage
Sought
Lower
Cost
Differentiation

Market
Target

Broad Overall Low-Cost

Provider
Range of
Buyers
Strategy

Narrow
Buyer
Segment
or Niche

Broad
Differentiation
Strategy
Best-Cost
Provider
Strategy
Focused
Focused
Low-Cost
Differentiation
Strategy
Strategy

Grand Strategies / Directional

Strategies
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.

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.

Retrenchme
nt

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.

Grand Strategies / Directional

Strategies
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.

Grand Strategies / Directional

Strategies
Concentric
Diversification
Strategy Alternatives
Market Development
Product
Vertically
Conglomerate
Penetration
Development
Integrated
Diversification

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.

Stability Strategy is adopted because

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.

Expansion Strategy
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.

Expansion Strategy is adopted

because
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-vis competitors.
Advantage from experience curve and scale of operations
may occur.

Divestment Strategy
The process of selling an asset.Also known asdivestiture,
itismade for either financial or social goals. Divestment is the
opposite of investment and involves retrenchment of some
activities. The term divestment ismore 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 examplewas the

withdrawal of American firms from South Africa during

apartheid.

Divestment Strategy is Adopted When

Compulsions of Disinvestments may be
varied, such as:
Business becoming Unprofitable,
High Competition,
Industry Overcapacity,
Failure of Strategy
Generate Resources

Retrenchment Strategy

Retrenchment is acorporate-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 anorganizationregroups through cost

and asset reduction to reverse declining sales and profits.

This strategy isdesignto fortify anorganization'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 unioncontracts.

Retrenchment Strategy is Adopted

because
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.
Divestbusinesses
Too small to make sizablecontributiontoearnings.
Having little or no strategic fit with firms corebusinesses

Combination Strategy
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

Combination Strategy is adopted

when
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.

Expansion Strategy: Product Market

Expansion Grid
1. Growth in Existing Product Markets

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.

Intensification: Market Development

A company follows amarket developmentstrategy for a current brand
when it expands the potential market through new users or new uses.
New

users

demographic

can

be

found

segments,

in

new

new

geographic

institutional

segments,

segments

or

new
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

branching out to a heretofore unserved market segment.

firms

and

Intensification: Product Development

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

Diversification
Strategy
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,

Vertically Integrated Diversification

Strategy
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

Horizontal Integrated Diversification

Strategy
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.

Related and Unrelated Diversification

Strategy
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.
Related Diversification

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 companys existing business - this diversification is
classified as unrelated.

Related and Unrelated Diversification:

Options for Manufacturer
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

Concentric Diversification
Strategy
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.

Conglomerate Diversification Strategy

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 thetwophilosophies 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 marketare mitigated.
History has shown that conglomeratescan become so diversified
and complicated that they are too difficult to manage efficiently.

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

Captive Company Strategy

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.

Bankruptcy Strategy
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

Turnaround Strategy
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

Elements that Contribute to

Turnaround Strategy
Turnaround
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

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

Divestment Strategy
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.

Disinvestment
Strategy
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.

Liquidation Strategy
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

Liquidation Strategy
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