## Strategic Exits / Retrenchment Strategies
Definition: Strategies followed when an organization substantially reduces the scope of its activity. Problem areas are identified and steps are taken to solve them.
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## A. Turnaround Strategy
Definition: Internal retrenchment strategy that emphasizes improving internal efficiency.
### Indicators That Turnaround Is Needed
1. Persistent negative cash flow from business(es)
2. Uncompetitive products or services
3. Declining market share
4. Deterioration in physical facilities
5. Mismanagement
6. Over-staffing, high employee turnover, and low morale
### Action Plan for Turnaround — 5 Stages
| Stage | Action |
|---|---|
| Stage 1 | Assessment of current problems — root cause analysis, extent of damage, correct immediate issues |
| Stage 2 | Analyze situation & develop strategic plan — competitive SWOT analysis, identify appropriate strategies |
| Stage 3 | Implement emergency action plan — establish positive operating cash flow as quickly as possible; restructure debts, improve working capital, reduce costs, improve budgeting, accelerate high-potential products |
| Stage 4 | Restructure the business — change product mix, focus core products, close facilities, withdraw from certain markets |
| Stage 5 | Return to normal — show signs of profitability, return on investment, and enhanced economic value-added |
### Key Elements of Turnaround Strategy
1. Changes in top management
2. Initial credibility-building actions
3. Neutralizing external pressures
4. Identifying quick payoff activities
5. Quick cost reductions
6. Revenue generation
7. Asset liquidation for generating cash
8. Better internal coordination
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## B. Divestment Strategy
Definition: Sale or liquidation of a portion of business — a major division, profit centre, or SBU.
### Characteristics
1. Usually part of a rehabilitation or restructuring plan
2. Adopted when a turnaround has been attempted but proved unsuccessful
3. Turnaround may be bypassed entirely if divestment is the obvious answer
4. Should be viewed as an integral part of corporate strategy — no stigma attached
### Reasons for Divestment
1. Acquired business proves to be a mismatch — cannot be integrated within the company
2. Persistent negative cash flows from a particular business create financial problems for the whole company
3. Severity of competition and inability to cope
4. Technological upgradation not feasible — divestment preferred
5. Better alternative investment available
> Sequence: Turnaround is attempted first → If turnaround fails or is clearly impossible → Divestment follows.