Different Defensive Strategies in Strategic Management

Organizations pursue defensive strategies when the circumstances require some sort of adjustments in the structure or functioning of the organization. Three types of strategic Marketing Strategies are regarded as defensive strategies.

Different Defensive Strategies

• Retrenchment
• Divestiture
• Liquidation

1. Retrenchment:

When the organization faces declining sales & profits then it considers the retrenchment strategy in which it reorganizes its activities by reducing its assets & costs. By doing so the organization actually reverses the affects of declining profit & sales. It is also called as reorganization or turnaround strategy. The basic distinctive competence of an organization is fortified through effectively designed retrenchment strategy. When an organization applies retrenchment strategy, pressure is exerted from shareholders, media & employees on the strategists who perform their functions with limited resources. Following are some of the activities that come under the retrenchment category.

Diversification Strategy Definition | Types of Diversification Strategies

• Selling of building & lands for raising certain cash for the business
• The product lines are pruned
• The marginal businesses that are not profitable are closed down
• The obsolete factories are closed down
• The production & other processes of the business organization are automated
• The number of employees are reduced
• The expenses of the business are controlled in an effective manner

Guidelines for Retrenchment:

There are certain conditions that are favorable for the application of the retrenchment strategy. For this purpose following are some of the guidelines in this regard.

• The organization although has distinctive competencies but it is failed to accomplish its objectives & goals consistently over a specified period of time
• The business organization is regarded as one of the weaker competitors in the market
• Situation in which there is low profitability, poor employee morale, inefficiency & pressure from the shareholders to make improvement in the performance of the business organization.
• When the strategic managers of the business organization have failed in achieving their objectives
• Quite rapid growth to large sized organization where there is need for major internal reorganization

2. Divestiture:

Divestiture is one of defensive strategies in which part or division of an organization is sold. For further strategic investments or acquisitions, certain capital is raised trough divestiture. It is considered to be component of retrenchment strategy in which those projects of the Business Organization are closed that need heavy capital, are unprofitable & that are not suitable with the other activities of the business organization.

Strategic Management Process

Guidelines for Divestiture:

There are certain guidelines that reflect the effectiveness of the divestiture strategy which are as follow.

• When retrenchment is applied by the organization but it does not succeed in accomplishing the desired results
• When the requirement of resources exceeds its available capacity
• In the case where the poor performance of the business organization is based on the inefficient working or certain division of the business organization
• When there is misfit between the certain division & the main organization
• In certain situation where there is requirement of large amount of cash which cannot be acquired from other sources

Divestiture is regarded as very potential strategy because the organization concentrates on the basic strengths while reducing the level of diversification.

3. Liquidation:

Liquidation is the selling of all the assets of the organization in parts in order to cash their tangible worth. It is quite difficult emotional strategy as the element of defeat is recognized in it. Therefore in the condition when the organization is bearing loss completely then it is wise act that all the operations of the filed business should be closed down so that there should not be any further loss of money.

Guidelines for liquidation:

There are certain situations in which Liquidation is regarded as an effective strategy to be pursued by the organization. Following are some of the guidelines in this regard.

• When the organization already pursued retrenchment & divestiture strategies and these are failed to deliver the desired results
• When there are clear chances of becoming bankrupt then better option is to pursue the liquidation strategy
• When the losses of the shareholders can be minimized by selling of the assets of the business organization.