Retrenchment, divestiture, and liquidation. These free alternatives constitute forms of “turnaround” strategies – corrective actions taken to move the firm nporarily or permanently from one product or ticket segment into another. These are now called in structuring:. The principal advantages of retrenchment, divesture, and liquidation strategies that enable the company to
•Phase out product in the decline stage of the product life cycle.
•Eliminate mismatches with the firm’s main strategy or sub strategies or mismatches or organizations fit.
•Improve profitability by channeling resources into other areas.
Firms of turnaround strategies include
•Retrenchment: limited withdrawal from one or more product or market segments.
•Divestiture: sale of one or more viable businesses to another firm
•Liquidation: sale of assets or a portion of the firm that does not, by it self, constitute a viable operation.
Cautions that apply to these strategic alternatives include the need to (1) carefully analyze the extent retrenchment and (2) establish equitable prices or divestiture and liquidations.
In 1980, Polaroid might have decided to reference in its Polavision operation and sell its Andover, Massachusetts, production plant because of miscalculations about the instant-movie-camera-system. Some example of attempted turnarounds sallow.
•Chrysler Corporation divested several of its domestic operations and its European operations to gain the liquidity it needed to turn its U.S. car business around.
•B. F. Goodrich switched its main line of business from tires to chemicals.
•Braniff airlines, suffering from route overexpansion after airline deregulation took effect in 1978, was forced to retrench and contact its rout system in order to avoid financial disaster.
Innovation, Innovation is the development of new product or product feature that has a significant impact on the competitive environment. Product improvement or creation of new sizes and models do not constitute innovation, rather, these changes are all forms of the concentrations strategy. The principal advantage of innovation is that it enables the company to archive leadership in a major new product or market. Some possible features of innovation are.
The cautions to be borne in mind about innovation are that (1) only about 1 out of 60 ideas becomes a commercially successful product and (2) innovation is a high-risk, high-cost process.
In 1980, polaroid counted on innovations from its project sesame to help the company over its predicament. Instans cameras with reusable video tape, instant slides, or nonphotographic applications of sonar devices were potential innovations at the time. Examples of innovation follow.
•Intel developed the microprocessor chip, thereby giving birth to a multibillion-dollar industry.
•RCA developed and mass-marketed its Selecta-Vision video-disc system.
•GE accomplished a “technical renaissance” inits old operations, which allowed it to anticipate breakthroughs in electronics, genetics, and industrial engineering.
•Several drug manufacturers have become in volved in gene-splicing research because of the potential for growth through new, purer, and cheaper substances.
A resent trend in diversification has been restrukturing the organization to concetrate on products and divisions with high growth potential and to divest those with limited potential. Along with restructuring is the leverage buyout, where companies or divisions are bought with funds that are typically borrowed from banks. Thus yhe purchaser is highly leveraged and assumes that selling off assets or augmenting sales can be used to pay down the indebtedness. Both restructuring and the leverage buyout are forms of divestiture.
Pareto Law
The pareto law can facilitate choices among strategic alternatives because it helps to define relationships among operational variables, such as number of costumers, and their impact on profit. The pareto law states that a small percentage of an operational variable (e.g., 20%), will effect up to 80% can be handled on an exception basis. In effect, the pareto law separates the products into twocategories of profitability, the relatively important and the unimportant.
Although the pareto law has been used most often in applications, such as product valuation and inventory control, it can also be used to rank strategic alternatives according to their potential pay-off. This application of the pareto law is illustratedin exhibit 9.5. in most cases, a few strategies have the greatest pay-off. If manager rank each strategy from best to worst pay-off and plot a curve, as shown in exhibit 9.5, the curve will show which strategik are the most desirable.
This 80/20 principle also can be used to select strategies that can improve performance, product acceptance, and customer sales (Dubinsky and Hansen, 1982) can be improved by.
1.Substitution strategy: replace people, product, or customers.
2.Revitalization strategy: Change or modify the approaches being taken.
3.Incremental strategy: Add people, products, or customers.
If, for example, some salespeople fall in the 80% category (the less productive), the previous tree strategies might be applied as follows.
1.Substation: replace unproductive salespeople.
2.Revitalization: train the salespeople or change their territories.
3.Incremental: change the recruitment process or add new salespeople.
If products are not as profitable as desired, the three strategies might be
1.Substations: replace them with more promising products.
2.Revitalization: increase advertising or alter pricing
3.Incremental: add new product lines.
The objective of this approach is to transform some of the less productive 80% into the more productive 20%. Ideally, these strategies could shift the lower percentages to the higher 20% category.
Using another approach called multiattribute decision making, described later in this chapter, a manager identifies key objectives based on their relative importance. The score for each alternative determines whether the solution is consistent with the objective. The manager then uses a weighted score to determine which alternative will be chosen first, while the other are considered at a letter time, or simply ignored, this approach is analogous go the 80/20 principle in that 20% of the solutions are the most important ones to consider.
VELUATING STRATEGIC ALTERNATIVES
Cost/Benefit Analysis
A company that plans to invest large sums of money in a strategy cannot ignore the costs and benefits associated with each strategic alternative. An alternative can be considered efficient when it meets objective at the lowest possible cost, and yet it can still be a poor choice. Efficiency alone is not a sufficient measure. The desirability of any given strategic alternative depends on both cost and value. Factors that need to be considered include efficiency, ability to implement, urgency of the strategy, and politics that often play a major role in strategic decision making.
A cost/benefit analysis help to determine whether the benefits of strategic alternative example.
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