## Retrenchment Strategy
Retrenchment is adopted when an organisation substantially reduces the scope of its activity to cope with hostile environments or continuous losses. It is necessary when any other strategy is likely to be suicidal.
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### When is Retrenchment Adopted?
Situations that trigger retrenchment:
- Persistent negative cash flow
- Uncompetitive products or services
- Declining market share
- Deterioration in physical facilities
- Overstaffing, high employee turnover, low morale
- Mismanagement
- Accumulated losses eroding net worth
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### Process
1. Diagnose — identify problem areas and their root causes.
2. Decide — choose the appropriate sub-strategy.
3. Execute — implement cost cuts, divestitures, or closure.
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### Three Sub-strategies (in order of severity)
#### 1. Turnaround Strategy (least severe)
- Organisation chooses to reverse the decline rather than exit.
- Actions: reduce costs, eliminate unprofitable outputs, generate revenue, improve coordination and control.
- Transforms into a leaner structure.
#### 2. Divestment Strategy (moderate severity)
- Sale or liquidation of a portion of the business — a division, profit centre, or SBU.
- Usually part of a rehabilitation or restructuring plan.
- Adopted when a turnaround has been attempted but failed.
#### 3. Liquidation Strategy (most severe — last resort)
- Closing down the entire firm and selling its assets.
- Consequences:
- Loss of employment for workers and employees.
- Termination of all future business opportunities.
- Stigma of failure.
- Considered only when turnaround and divestment have both failed.
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### Decision Logic
```
Continuous losses / adverse situation
↓
Attempt Turnaround (lean down, cut costs)
↓ (if fails)
Divest loss-making units / SBUs
↓ (if fails)
Liquidate (close and sell assets)
```