4.

Five guidelines identify when retrenchment may be an especially effective strategy to pursue:

When an organization has a clearly distinctive conpetence but has failed to meet objectives consistently.

b. When an organization is one of the weaker corrpetitors in a given industry.

c. When an organization is plagued by inefficiency. low profitability. poor employee morale. and pressure
from stockholders to inprovc pertbrmanoe.

d. When an organization has failed to mpitalize on external opportunities. minimize external threats.
take advantage of intemal strengths, and overcome intenml weaknesses over time.

c. When an organization has grown so large so quickly that major internal reorganization is needed.

B. Divestiture

l. Selling a division or part of an organization is called divestiture. Divestiture oiten is used to raise capital
Ibr timber strategic acquisitions or investments.

2. Divestiture has become a very popular strategy as firms try to focus on their core strengths, lessening
their level of diversification. A few divestitures consummated recently are given in Table 5-4.

3. Six guidelines for when to use divestiture:

b.

C.
d.

e f.

When an organization has pursued a retrenchment strategy and it failed to accomplish needed
improvement.

When a division needs more resources to be competitive than the company can provide.

When a division is responsible for an organization’s overall poor performance.

When a division is a misht with the rest of an organization.

When a large amount of cash is needed quickly and cannot be obtained.

When government antitrust action threatens an organization.

C. Liquidation

1. Selling all of a mmany‘s assets. in parts. tbr their tangible worth is called liquidation Liquidation is
recognition of defeat and consequently can be an emotionally didicult strategy.

‘C

4. Five guidelines identify when retrenchment may be an especially effective strategy to pursue:
When an organization has a clearly distinctive conpetence but has failed to meet objectives consistently.

b. When an organization is one of the weaker corrpetitors in a given industry.

c. When an organization is plagued by inefficiency. low profitability. poor employee morale. and pressure
from stockholders to inprovc pertbrmanoe.

d. When an organization has failed to mpitalize on external opportunities. minimize external threats.
take advantage of intemal strengths, and overcome intenml weaknesses over time.

c. When an organization has grown so large so quickly that major internal reorganization is needed.

B. Divestiture

l. Selling a division or part of an organization is called divestiture. Divestiture oiten is used to raise capital
Ibr timber strategic acquisitions or investments.

2. Divestiture has become a very popular strategy as firms try to focus on their core strengths, lessening
their level of diversification. A few divestitures consummated recently are given in Table 5-4.

3. Six guidelines for when to use divestiture:

b.

C.

d.
e f.

When an organization has pursued a retrenchment strategy and it failed to accomplish needed
improvement.

When a division needs more resources to be competitive than the company can provide.

When a division is responsible for an organization’s overall poor performance.

When a division is a misht with the rest of an organization.

When a large amount of cash is needed quickly and cannot be obtained.

When government antitrust action threatens an organization.

C. Liquidation

1. Selling all of a mmany‘s assets. in parts. tbr their tangible worth is called liquidation Liquidation is
recognition of defeat and consequently can be an emotionally didicult strategy.

‘C

d. To gain economies of scale.

e. To smooth out seasonal trends in sales.

f. To gain access to new suppliers. distributors. customers. products. and creditors. g. To gain new
technology.

h. To reduce tax obligations.

4. Mergers and aequ'siiors may fail due to the following reasons:

8. Integration difficulties

b. Inadequate evaluation of target

c. large debt

d. Inability to achieve synergy

e. Too much diversification

f. Managers overly focused on aequ'sitions

g. Too large ofan acquisition

h. Diflieulty integrating different cultures

i. Reduced employee morale due to hyoffs and relocations

C. Leveraged Buyouts (LBOs)

I. An LED occurs when a corporation‘s slmeholders are bought out (hence buyout) by the comany‘s
nanagement and other private investors using borrowed funds (hence

lewraged).

2. Besides trying to avoid a hostile takeover. other reasons lbr the initiation of an LED by senior
management are that particular divisions do not fit into an overall corporate strategy. must be sold to
raise cash. or receive an attractive offering price. A LBO takes a corporation private.

D. Fist Mover Advantages

I. First mova’ advantages refers to the benefits a firm may achieve by entering a new market or
developing a new product or savice prior to rival firms.

2. The advantages of being a first mover include securing aeces to rare resources. gaining new
knowledge of key factors and issues. and earving out rmrkct share and a position that is easy to defend
and costly for rival firms overtake.

E. Outsow'cing

l. Business-Process Outsourcing (BPO): Companies take over functional operations such as human
resources, infomIat ion systems, and marketing for other frms.

2. Outsourcing can be has expensive. can allow frms to focus on core businesses. and enables firms to
provide better services.

Global Perspective: Joht Ventures Mandatory br All Foreign Firms in India. lnd'n requires pin ventures for
any foreign conpanies that Wish to do business there. Mos fail. however.
X. STRATEGIC MANAGEMENT IN NONPROFIT AN D GOVERNMENTAL ORGANIZATIONS

A Educational lnstttutiors

l. Educational instiutions are using stmtegic-rmnagcment tecl'niques and concepts more

frequently.

2. For a list of college strategic plans. click on strategic-plaming links bond at the lhttp: www.mategyclub
com} website and scroll down though the academic sits.

B. Medical Organizations

1. Hospnals-originally intended to be warehouses for people dy'ng of tuberculosis. smallpox. cancer.

pneumonia. and infectious diseases-are creating new strategies

today as adVances in the diagnosis and treatment of chronic diseases are undercutting that earlier
mission.

2. A successful hospital strategy for the future will require renewed and deepened

collaboration with physicians, who are central to hospnals‘ well being. and a reallocation of resources
ti'om acute to chronic care in home and comnun'ly settings

3. Current strategies being pursued by many hospitals iiclude creating home health services. enablishing
musing homes. and forming rehabilitation centers.
C. Governmental AgenCies and Departmerxs

I. Fethi'al. state. county. and municipal agenctes aid departments such as police departments. chambers
of commerce, forestry associations. and health depanments are responsible for formulating.
implementing, and evaluating strategies that use taxpayers‘ dollars in the most costcffective way to
provide semees and programs.

2. Strategic-mamgement concepts are increasingly being used to enable governmental organizations to

be more effective and efficwnt.

Xl. STRATEGIC MANAGEMENT IN SMALL FIRMS

A major conclusion of the literature '5 that the lack of strategic mamgemcnt knowledge is a saious
obstacle Br mmy small business owners. Other problems otten encountered when applying strategic-
management concepts to small businesses are a lack of both sufficient