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Prof. Prashant Mehta
National Law University, Jodhpur
The Stages of Corporate Strategy Formulation
The Stages of Corporate Strategy Implementation
• A strategy is an overall approach, based
on an understanding of the broader
context in which you function, your
own strengths and weaknesses, and
the problem you are attempting to
address. A strategy gives you a
framework within which to work, it
clarifies what you are trying to achieve
and the approach you intend to use. It
does not spell out specific activities.
• Thus formulation of Corporate Strategy
forms the crux of the Strategic Planning
• It is concerned with the overall purpose and scope of the business to meet
stakeholder expectations. This is a crucial level since it is heavily influenced
by investors in the business and acts to guide strategic decision-making
throughout the business. Corporate strategy is often stated explicitly in a
• Corporate strategy spells out the growth objective of the firm, the
direction, extent, pace, and timing of firms growth.
• It is objective strategy of the firm.
• Concerned with choice of businesses, products, and markets.
• It is design of filling firms strategic planning gap.
• Concerned by choice of firms product and markets.
• To achieve right fit between firm and environment.
• Build relative competitive advantage for the firm.
• Corporate objectives and Corporate strategy
together describes the firms concept of business.
• It is objective strategy of firm.
• It ensures growth and alignment of firm with its environment.
• Builds relevant competitive advantage.
• It is design for filling the strategic planning gap.
• Make use of SWOT analysis effectively.
• Strategy is adhoc responses to change in environment-in competition,
consumer tastes, technology, and other variables.
• Prepares for long term, well thought out and prepared responses to various
business forces in the business environment.
Strategy is Partly Proactiveand Partly Reactive
• Company’s strategy is blend of two opposing actions:
• Proactive action on part of managers to improve
company’s market position and financial
performance besides tackling the task of competing
for buyers patronage.
• Reactive action to unanticipated developments in
dynamic market conditions like rivals firms, shifting
consumer requirements, new technology, market
opportunities, changing PEST elements.
• Crafting a strategy thus involves stitching together a
proactive / intended strategy and then adapting to
changes as they emerge as reactive / adaptive strategy.
Strategy is Partly Proactiveand Partly Reactive
Dealingwith Strategic Uncertainty
• Strategic uncertainty is key construct in strategy
• Strategic alternatives are clustered in order to set
priorities w.r.t. information gathering and analysis.
• Unpredictable future event can lead to strategic
uncertainty which can be handled by scenario
(multiple scenario) analysis.
• Strategic Uncertainty can impact
present, proposed, and even potential SBU and its
importance to firm.
• The importance is established by associated
sales, profit, and costs. Which may or may not reflect
the true value of the firm.
• Formulation of strategies is a creative and analytical process. It is a process
because particular functions are performed in a sequence over the period
of time. The process involves a number of activities and their analysis to
arrive at a decision.
• The process set out above includes strategy formulation and its
implementation, what has been referred to as strategic management
• Developing a Strategic
• Setting Objectives
• Crafting a Strategy to
achieve Objectives and
• Implementing and Executing
Performance, and Making
Corrective Action, Revise if
1. Developinga Strategic Vision
• What directional path a company should take based on current market position
and its future prospects with respect to product, customer, market, and
technology constitutes strategic vision of the company.
• Strategic vision communicates management aspirations to stake holders and
steers energy of employees in one direction.
• Mission and Strategic intent overall strategic direction should be clear and
precise that is what organization is seeking to achieve. This will help organization
galvanize motivation and enthusiasm throughout the organization.
• Questions like short term profits vs. long term growth, related business vs.
diversified business, global coverage vs. regional coverage, internal innovation
and new products vs. acquisition of other business etc., needs to be addressed
for better strategic choice.
2. Setting Objectives
• Corporate objectives flow from the mission and growth ambition of the
• The purpose of setting objectives is to convert the strategic vision into
specific performance targets, results, and outcomes the management wants
to achieve and then use this objectives as yardsticks to tackle companies
progress and performance.
• Managers use objective setting exercise as a tool for truly stretching an
organization to reach an full potential.
• It helps organization to be ore inventive, improves financial position and
performance besides it business position.
• BSC approach measures companies performance and requires the setting
of both the financial and strategic objectives besides tracking their
• A trade of between financial and strategic objectives has to be made
depending on the situation.
• Mainly strategic objectives will deliver sustained future profitability every
quarter and strengthen company’s business position by its growing
competitive advantage over rivals.
• Thus financial objectives will be achieved by strategic objectives that
improves company’s market strength.
2. Setting Objectives:Short and Long Term
• Financial and strategic objectives include both short term (yearly) objectives that
delivers immediate performance improvements and long term (3-5 years)
objectives that deliver Profitability, Productivity, Competitive Position, Employee
Development, Employee Relations, Technological Leadership, and Public
• Long term objectives represent results expected from pursuing certain strategies.
Qualities of long term objectives are
Acceptable, Flexible, Measurable, Motivating, Suitable, Understandable, and
• Objectives should be
quantitative, measurable, realistic, understandable, challenging, hierarchical, obta
2. Setting Objectives:Short and Long Term
• Objectives are commonly stated in term of:
• Growth in Assets
• Growth in Sales
• Market Share
• Degree and Nature of Diversification
• Degree and nature of Vertical Integration
• Earnings Per Share
• Social Responsibility
• Such objectives provide direction, allow synergy, aid in evaluation, establish
priorities, reduce uncertainty, minimize conflicts, stimulate exertion, aid in
allocation of resources and job design.
• Short term obj. differ from long term obj. when elevating organizational
performance but it cannot be done in one year time
Conceptof Strategic Intent
• Strategic intent means company relentlessly pursues ambitious strategic
objectives and concentrates its full resources and competitive action on
achieving the objectives , targets, and become dominant company in the
• There is need for objectives at all organizational levels that are supportive
rather than conflicting. The objectives need to be broken down in
performance targets for each separate business, product line, functional
department, individual work unit.
• Such division will help the company move down the chosen strategic path
and produce the desired results.
3. Crafting a Strategy
• Strategy crafted at Corporate, Business, Functional, and Operational level by top
management needs to synchronized and united for good performance.
• Good communication of strategic themes to greater number of companies
personnel serves a greater purpose, guiding principle, and valuable insight into
strategy decision making for consistent strategic action.
• The goal is to develop a strategy that exploits business strength and competitors
weakness, and neutralize business weakness and competitors strength.
• In making strategic decisions , inputs from variety of assessments are relevant viz.
Organizational Strength and Weakness, Competitor Strength and
Weakness, Market Needs, Attractiveness, and Key Success Factors
3. Crafting a Strategy
Competitor Strength and
Needs, Attractiveness, an
d Key Success Factors
4. Implementationand Executingthe Strategy
• It is operation oriented activity which is most demanding, and time consuming
part of strategy management process. It involves:
• Staffing the organization with right mix of people (supportive competencies and
competitive capabilities) by motivating them to pursue objective targets.
• Developing budgets for activities critical to strategic success.
• Installing Information system, Policies, Operating procedures, Systems should facilitate
execution of work day in and day out.
• Tying rewards and incentives to achievement of objectives and good execution strategy.
• Creating conducive work culture / climate for successful strategy implementation.
• Exert internal leadership to drive strategy implementation by creating strong fit
between strategy and organizational capability, between strategy and reward structure,
internal operating systems, and organizational work culture / climate.
• This stage is trigger point for deciding whether to continue or change
companies vision, objectives, strategy, and strategy execution methods.
• Whenever company encounter disruptive changes in the external
environment, then strategy needs to be reevaluated (cause related to poor
strategy or poor execution) and timely corrective action needs to be taken by
modifying or redrafting its strategic vision, direction, objectives etc.
• Proficient strategy execution is always the product of much organizational
learning. It is achieved unevenly coming quickly in some areas and problematic
in other areas.
• Periodic assessment and quick adjustments helps in making corrective actions
more meaningful and effective.
• This strategy involves the organisation aiming to be the lowest cost producer
and/or distributor within their industry. The organisation aims to drive cost down
for all production elements from the sourcing of materials, to labour costs.
• To achieve cost leadership a business will usually need large scale production so
that they can benefit from "economies of scale".
• Large scale production means that the business will need to appeal to a broad part
of the market. For this reason a cost leadership strategy is a broad scope strategy.
A cost leadership business can create a competitive advantage:
• By reducing production costs and therefore increasing the amount of profit made on
each sale as the business believes that its brand can command a premium price.
• By reducing production costs and passing on the cost saving to customers in the hope
that it will increase sales and market share
• To be different, is what organizations strive for; companies and product ranges that appeal
to customers and "stand out from the crowd" and appeal to customers including
functionality, customer support and product quality have a competitive advantage.
• A differentiation strategy is known as a broad scope strategy because the business is
hoping that their business differentiation strategy, will appeal to a broad section of the
market. New concepts which allow for differentiation can be protected through patents
and other intellectual property rights.
• To make a success of a Differentiation strategy, organizations need:
• Good research, development and innovation.
• The ability to deliver high-quality products or services.
• Effective sales and marketing, so that the market understands the benefits offered by
the differentiated offerings.
• Under a focus strategy a business focuses its effort on one particular segment of
the market and aims to become well known for providing products/services for
that niche market segment. Examples include Roll Royce, Bentley etc.
• Focus strategy is to ensure that you are adding something extra as a result of
serving only that market niche. The "something extra" that you add can
contribute to reducing costs (perhaps through your knowledge of specialist
suppliers) or to increasing differentiation (though your deep understanding of
• Once a firm has decided which market segment they will aim their products
at, Porter said they have the option to pursue a cost leadership or a
differentiation strategy to suit that segment. A focus strategy is known as a
narrow scope strategy because the business is focusing on a narrow segment of
Generic Strategy Commonly Required Skills and
Sustained Capital Investment
Access to Capital
Process Engineering Skills
Intense Supervision of Labour
Product Design for Ease in
Tight Cost Control
Frequent, Detailed Control Reports
Structured Org. and Responsibilities
Incentives on Quantitative Targets
Differentiation Low Cost Distribution System
Strong marketing Abilities
Strong capability in Basis Research
Strong Cooperation from Channels
Strong Coordination among R&D,
Product Development, and
Subjective Measurement and
Incentives instead of Quantitative
Amenities to Attract highly skilled
labour, Scientists, and Creative
Focus Combination of the above Policies
directed at the particular Strategic
Combination of the above Policies
directed at the particular Strategic
• To create a competitive advantage businesses should review their strengths and pick
the most appropriate strategy cost leadership, differentiation or focus. So, when you
come to choose which of the three generic strategies is for you, it's vital that you take
your organization's competencies and strengths into account.
• Step 1: For each generic strategy, carry out a SWOT Analysis
• Step 2: Use Five Forces Analysis to understand the nature of the industry you are in.
• Step 3: Compare the SWOT Analyses of the viable strategic options with the results of
your Five Forces analysis.
• Reduce or manage supplier power.
• Reduce or manage buyer/customer power.
• Come out on top of the competitive rivalry.
• Reduce or eliminate the threat of substitution and new entry.
• Select the generic strategy that gives you the strongest set of options.
Type of Advantage Sought
Lower Cost Differentiation
Best – CostProviderStrategy
Various strategy alternatives are available to firm for achievement of growth
objective. These grand strategies form the basis of coordinated and sustained
efforts directed towards achieving long term business objectives.
GrandStrategies / DirectionalStrategies
Strategy Basic features
Stability The firm stays in current business and product markets, maintains
existing level of effort and is satisfied with incremental growth.
Expansion Seeks significant growth within current business or entering new
business that is related to existing business or unrelated to
Retrenchment Retrenches some of its activities of the existing business – may
sell out or liquidate.
Combination The firm combines the above business alternatives in some
permutation or combination to suit specific requirements as per
GrandStrategies / DirectionalStrategies
• Grand strategy is a general term for a broad statement of strategic actions
coordinated to achieve a main objective with. It describe multi-tiered strategies
• In business, a Grand strategy is a general term for a broad statement of strategic
actions, combined into one purpose. A grand strategy states the means that will
be used to achieve short, medium, and long-term objectives with.
• Most business decisions are focused on actions and results – very few are
focused on capacity and capability – then on a very limited scale do you see
sustainable results and actual growth.
• Only if our paradigms are strategic, and we seek sustainable growth paths, that
yield and build on capacity and capability, will business become holistically
• It is strategy by a company where the company stops the expenditure on expansion, do not
venture into new markets or introduce new products.
Stability strategy is adopted by company due to following reasons:
• When the company plans to consolidate incrementally, its position in the industry in
which company is operating.
• When the economy is in recession companies want to have more cash in their balance
sheet rather than investing that cash for expansion or other such expenses.
• When company has too much debt in the balance sheet than also company stops or
postpones their expansion plans because it would not able to pay interest rate on such
debt and it may create liquidity crunch for the company.
• When the company is operating in an industry which has reached maturity phase and
there is no further scope for growth than also company adopts stability strategy. It is
safe oriented less risky strategy.
• When the gains from expansion plans are less than the costs involved for such
expansion than company follows the stability strategy.
Stability Strategy is adoptedbecause
• It is less risky, involves less change, and people feel comfortable with things
as they are.
• The environment faced is relatively stable.
• Expansion may be perceived as being threatening.
• Consolidation is sought through stabilizing after a period of rapid expansion.
• It is opposite to stability strategy where rewards and risks are high.
• It is true growth oriented strategy which redefines the business.
• The process of renewal of firms through fresh investments in new
products, markets etc.
• It is highly versatile strategy which offers various permutations an
combinations for growth.
• Expansion strategy has two major strategic routes: Intensification and
Diversification. Both of them are growth strategies and how you pursue
• Intensification means pursuing growth in current business.
• Diversification means expansion into new business that are outside current
business and markets.
ExpansionStrategy is adoptedbecause
• It is adopted when environment demands increase in pace of activity.
• When organization strives for growth and growth forces expansion.
• Increasing size may lead to more control over the market vis-à-vis
• Advantage from experience curve and scale of operations may occur.
• The process of selling an asset. Also known as divestiture, it is made for either
financial or social goals. Divestment is the opposite of investment and involves
retrenchment of some activities. The term divestment is more appropriate
however in the following contexts:
• A change in corporate strategy - a firm might say that they are divesting a
particular subsidiary to focus on their core business.
• Social goals - there are many political reasons why investors might reduce
investments. A notable example was the withdrawal of American firms from
South Africa during apartheid.
• Compulsions of Disinvestments may be varied, such as:
• Business becoming Unprofitable,
• High Competition,
• Industry Overcapacity,
• Failure of Strategy
• Generate Resources
DivestmentStrategy is AdoptedWhen
• Retrenchment is a corporate-level strategy that seeks to reduce the size or
diversity of an organization's operations.
• Retrenchment is also a reduction of expenditures in order to become financially
• Retrenchment occurs when an organization regroups through cost and asset
reduction to reverse declining sales and profits.
• This strategy is design to fortify an organization's basic distinctive competence.
• In some case, bankruptcy can be an effective type of retrenchment strategy.
Bankruptcy can allow a firm to avoid major debt obligations and to avoid
RetrenchmentStrategy is Adoptedbecause
• The management no longer wishes to remain in business either partly or
wholly due to continuous losses and unviability.
• The environment faced is hostile and threatening
• Stability can be ensured by reallocation of resources from unprofitable to
• Divest businesses
• Too small to make sizable contribution to earnings .
• Having little or no strategic fit with firm’s core businesses
• It is the combination of stability, growth &retrenchment strategies adopted
by an organisation, either at the same time in its different businesses, or at
different times in the same business with the aim of improving its
• Combination strategy is not an independent classification but it is a
combination of different strategies
CombinationStrategy is adoptedwhen
• The organization is large and faces complex environment
• The organization is composed of different businesses, each of which lies in
the different industry requiring a different response.
• It is commonly followed by organizations with multiple unit diversified
product & National or Global market in which a single strategy does not fit
all businesses at a particular point of time.
1. Growth in Existing Product Markets
Increased market Share
Increased Product Usage
Increase the Frequency
Increase the Quantity Used
Find New Applications for Current Users
2. Product Development
Add Product features
Develop a New Generation Product
Develop New Product fro Same Market
3. Market Development
Target New Segments
Involving New Products
Involving new Markets
• In marketing terms “penetration” means to acquire a portion of a market.
• Sell more existing products or services to existing customers
• Sell existing products or services more frequently to existing customers
• Sell more existing products or services at higher prices to existing customers
• Sell new products or services to existing customers
• Sell new products or services often to existing customers
• Sell new products or services at higher prices to existing customers
• Sell existing products or services to new customers
• Sell new products or services to new customers
• The firm directs its resources to the profitable growth of single product, in a
single market, and with a single technology.
• Market penetration poses a reduced amount of risks, in part because it
makes use of established products as opposed to new ones.
• A company follows a market development strategy for a current brand when it
expands the potential market through new users or new uses. New users can
be found in new geographic segments, new demographic segments, new
institutional segments or new psychographic segments. Another way is to
expand sales through new uses for the product.
• It can be achieved by adding different channels of distribution, by changing
the content of advertising or the promotional media.
• Marketing development is a market development strategy employed by a
company to increase its market, broaden its customer base, and ultimately
sell more products, all three key factors to succeed in market penetration. The
two most used marketing development approaches are attracting customers
of competing firms and branching out to a heretofore unserved market
• Developing new products or modifying existing products so they appear
new, and offering those products to current or new markets is the definition
of product development strategy.
• There is nothing simple about the process. It requires keen attention to
competitors and customer needs now and in the future, the ability to
finance prototypes and manufacturing processes, and a creative marketing
and communications plan.
• There are several subset of product development strategy:
• Product development and diversification
• Product Modification Strategy
• Revolutionary Product Development
• Diversification strategies are used to expand firms' operations by adding
markets, products, services, or stages of production to the existing business. The
purpose of diversification is to allow the company to enter lines of business that
are different from current operations.
• Firstly, companies might wish to create and exploit economies of scope, in which
the company tries to utilize its exciting resources and capabilities in other
• Secondly, managerial skills found within the company may be successfully used in
• Thirdly, companies pursuing a diversification strategy may be able to cross-
subsidize one product with the surplus of another.
• Fourthly, companies may also want to use a diversification strategy to spread
financial risk over different markets and products,
• Vertical integration allows the firm to enlarge its scope of operations within
the same overall industry. It takes place when one firm acquires another that
is involved either in an earlier stage of the production process (backward or
upstream) or a later stage of the production process (forward or
• The organization can move backward to prior stages to guarantee sources of
supply and secure bargaining leverage on vendors; or it can move forward to
guarantee markets and volume for capital investments, and became its own
customer to feed back data for new products.
• The degree to which a firm owns product – process chain, both for its
upstream suppliers and its downstream buyers determines how vertically
integrated it is.
• Horizontal integration is referred to acquisition of additional business
activities at the same level of the value chain.
• The growth can be achieved by internal expansion or by external expansion
through mergers and acquisitions of firms offering similar products, with the
sensible diversification synergies mount up.
• Acquiring competitors help reduce the threat from competition.
• A firm may diversify by growing horizontally into unrelated businesses.
• It increases market power and fulfills customers expectations.
• Related Diversification occurs when the company adds to or expands its
existing line of production or markets. In these cases, the company starts
manufacturing a new product or penetrates a new market related to its
business activity. For example, a shoe producer starts a line of purses and other
• Unrelated Diversification is a form of diversification when the business adds
new or unrelated product lines and penetrates new markets. For example, if
the shoe producer enters the business of clothing manufacturing. In this case
there is no direct connection with the company´s existing business - this
diversification is classified as unrelated.
• Exchange / Share Assets /
competencies there by
• Brand Name
• Marketing Skills
• Sales and Distribution
• Manufacturing Skills
• R & D
• New Product Capability
• Economies of Scale
• Manage and Allocate Cash Flow
• Obtain Higher ROI
• Obtain a Bargain Price
• Refocus a Firm
• Reduce Risk by Operating the
Multiple Product Markets
• Tax Benefits
• Obtain Liquid Assets
• Vertical Integration
• Defend Against Takeover
• Concentric diversification is a type of business strategy where a company
acquires or creates new products or services to reach more consumers. These
new products and services usually are closely related to the company's existing
products and service through process, technology, or marketing. For example, an
office supply company seeks to purchase paper manufacturers or ballpoint pen
• A company employing the concentric diversification strategy seeks to add
complementary products and services across several market areas as a means of
establishing a wide distribution network. This improves business
synergy, improved product development, and increased market share.
• Concentric diversification differs from vertically integrated diversification in
nature of linkage the new product has with existing product.
• Conglomerate diversification occurs when there is no common thread of
strategic fit or relationship between the new and old lines of business; the
new and old businesses are unrelated. These are the two philosophies
guiding many conglomerates:
• By participating in a number of unrelated businesses, the parent
corporation is able to reduce costs by using fewer resources.
• By diversifying business interests, the risks inherent in operating in a single
market are mitigated.
• History has shown that conglomerates can become so diversified and
complicated that they are too difficult to manage efficiently.
• Retrenchment is a corporate-level strategy that seeks to reduce the
size or diversity of an organization's operations. Retrenchment is
also a reduction of expenditures in order to become financially
• Retrenchment is a pullback or a withdrawal from offering some
current products or serving some markets.
• This is adopted to find the problem areas and diagnose the cause of
problem and finding solutions to problems.
• Retrenchment is often a strategy employed prior to or as part of a
Turnaround strategy. It may be done internally or externally
• The captive company strategy is the scenario in which a small firm sacrifices its
freedom for the security of being part of a large conglomerate. The 3M
company uses this strategy extensively. They lure in small start-up firms with
state of the are technology with the opportunity for large R&D budgets.
• Essentially, a captive company's destiny is tied to a larger company. For some
companies, the only way to stay viable is to act as an exclusive supplier to a
giant company. A company may also be taken captive if their competitive
position is irreparably weak.
• This may also be a viable legal protective strategy. Bankruptcy without a
customer base is truly a bad place. However, if one declares bankruptcy with
loyal customers, there is at least a possibility of a turnaround.
• Bankruptcy is no longer primarily limited to small or start-up companies, but is
increasingly used by large, powerful corporations as well.
• Example: Other large corporations have taken advantage of bankruptcy
protection on more than one occasion. Continental airlines, sought the
protection of federal bankruptcy court to revoke its costly labor union contracts
(Good Law, 1983). After filing, Continental declared its collective bargaining
agreement void, and established new, competitive salary levels. While this
decision was difficult and unpopular, it was necessary for survival.
• If your company is steadily losing profit or market share, a turnaround
strategy may be needed. Turnaround strategy means backing
out, withdrawing or retreating from a decision wrongly taken earlier in
order to reverse the process of decline.
• There are two forms of turnarounds: First, one may choose contractions
(cutting labor costs, PP&E and Marketing). Second, they may decide to
consolidate. There are certain conditions or indicators which point out that
a turnaround is needed if the organization has to survive.
• Workable turnaround plan should include Analysis of Product
Market, Production process, Competition, and Market Segment Positioning.
These danger signs are as follows:
• Persistent negative cash flow
• Continuous losses and negative
• Declining market share
• Deterioration in physical facilities
• Over-manpower, high turnover of
employees, and low morale
• Uncompetitive products or
Elements that Contribute to Turnaround
• Changes in Top Management
• Initial Creditability Building Actions
• Neutralizing External Pressures
• Initial Control
• Identifying quick payoff activities
• Quick Cost Reductions
• Revenue Generation
• Asset Liquidation for Generating Cash
• Mobilizing of the Organization
• Better Internal Coordination
• This is a form of retrenchment strategy used by businesses when they
downsize the scope of their business activities.
• Divestment usually involves eliminating or liquidation of a portion of
business, or a major division, profit centre or SBU.
• Firms may elect to sell, close, or spin-off a strategic business unit, major
operating division, or product line. This move often is the final decision to
eliminate unrelated, unprofitable, or unmanageable operations.
• Divestment is usually a restructuring plan and is adopted when a
turnaround has been attempted but has proved to be unsuccessful or it was
• A divestment strategy may be adopted due to the following reasons:
• A business acquired is mismatch and cannot be integrated within the
• Persistent negative cash flows from a particular business create financial
problems for the whole company.
• Firm is unable to face competition
• Technological up gradation is required if the business is to survive which
company cannot afford.
• A better alternative may be available for investment , causing a firm to
divest a part of its unprofitable business.
• Liquidation strategy means closing down the entire firm and selling its assets. It is
considered the most extreme and the last resort because it leads to serious
consequences such as loss of employment for employees, termination of future
opportunities, and the stigma of failure.
• Generally it is seen that small-scale units, proprietorship firms, and
partnership, liquidate frequently but companies rarely liquidate. The company
management, government, banks and financial institutions, trade
unions, suppliers and creditors, and other agencies do not generally prefer
• Liquidation strategy may be unpleasant as a strategic alternative but when a
"dead business is worth more than alive", it is a good proposition. For
instance, the real estate owned by a firm may fetch it more money than the
• This is very simple. Take the book value of assets, subtract depreciation and sell
the business. This may be hard for some companies to do because there may be
untapped potential in the assets. Moreover, the firm cannot expect adequate
compensation as most assets, being unusable, are considered as scrap.
• Liquidation strategy may be difficult as buyers for the business may be difficult
to find. Under Companies Act 1956 liquidation may be either by
Court, Voluntary, or Subject to Supervision by Court
• Reasons for Liquidation include:
• Business becoming unprofitable Obsolescence of product/process
• High competition Industry overcapacity
• Failure of strategy