A revision presentation for business & management students on the topic of retrenchment

1. Retrenchment

2. What is retrenchment?
“To cut down or reduce
something”
“Tighten one's belt”
“Use resources more
carefully “

3. What drives retrenchment?
• Uncompetitive cost structure
• Inadequate returns on
All of
investment which
• Poor competitive position indicate
• Financial distress (e.g. high the need
debt)
• Market decline for
• Failed takeovers strategic
• Economic downturn change
• Change of ownership

4. Methods of retrenchment
• Significant reductions in output &
capacity
• Significant job losses
• Product or market withdrawals
• Disposals of business units
• Outsourcing key business
functions
• De-mergers

5. Implications for change
• Much depends on the scale and scope
of the retrenchment
• Small-scale, incremental
retrenchment has only limited impact
• Significant retrenchment is often
associated with a fundamental
reappraisal of the business

6. Downsides of “downsizing”
• Little evidence that downsizing
actually improves profitability
• Motivation and morale for those left
behind usually worsens
• Potentially damaging knock-on
effects on productivity, innovation
and staff retention

7. Change implications of major business
rationalisation
Common Actions Possible Implications for Change
Changed organisation Changed management responsibilities
structures Greater workloads / higher stress (possibly)
New teams and colleagues
Different reporting structures
New leadership and/or Different leadership style
ownership Uncertainty (particularly amongst management)
New priorities, aims and objectives
A threat to the prevailing corporate culture
Previous projects often abandoned (e.g. investment)
A new / renewed sense of urgency
Fewer people Loss of morale and increased de-motivation
Bad news for some external stakeholders (e.g. local
community, local suppliers)

8. Examples of
Retrenchment

9. Nokia changes direction
Nokia’s new CEO Stephen
Elop issued his
famous “burning platform” email
in Feb 2010 highlighting the
need for significant strategic
change at Nokia
Since then, there have been
over 30,000 job losses at
Nokia as the firm has
refocused its strategy on
partnership with Microsoft
http://www.bbc.co.uk/news/business-16953411

10. Yell moves to digital
Yell, the business directories
business, has struggled as
demand for paper-based
products has declined and it is
left with a huge $3bn debt to
finance.
The new strategy includes a
rationalisation of the business,
further cost-cutting and heftier
investment in digital platforms.
http://www.ft.com/cms/s/0/ce6a4f7e-3087-11e0-9de3-00144feabdc0.html#axz

11. Starbucks Exits Australia
Starbucks rationalises its
store portfolio in Australia –
2008
Poor competitive position
there – hard to compete
with existing coffee shop
operators
Strategic decision to focus
investment on the US
market
http://news.bbc.co.uk/1/hi/business/7530570.stm

12. ITV exists social networking
ITV plc disposes of website
Friends Reunited (2009) for
£25, some £150m less than
it paid for the business
Friends Reunited had a poor
competitive position (v
Facebook)
Considered non-core by new
ITV management
http://www.guardian.co.uk/media/2009/aug/06/itv-sells-friends-reunited

13. Burberry rationalises UK capacity
Burberry plc announces
plans to cut operating costs
by £50m p.a.
Sewing factory in
Rotherham closed –
production transferred to
another group factory
Example of capacity
rationalisation
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article

14. Fujitsu downsizes in response to recession
Economic downturn hits
the IT services market
Fujitsu makes 10% of its
workforce redundant due
to substantial declines in
demand
http://news.bbc.co.uk/1/hi/business/8222387.stm

15. Thomas Cook retrenches to survive
A collapse in demand and
three profits warnings
take Thomas Cook to the
brink of collapse
Significant rationalisation
announced to gain
support of banks
http://www.bbc.co.uk/news/business-16173578

16. Tesco exits from Japan
Tesco decides to sell its
portfolio of 129 stores in
Japan after failing to build a
successful presence in a
highly competitive market
““Having made
considerable efforts in
Japan, we have concluded
that we cannot build a
sufficiently scalable
business“ – Phil Clarke:
http://www.guardian.co.uk/business/2011/aug/31/tesco-japan-pull-out-philip-cl
Tesco CEO

17. Thorntons’ strategic review
New CEO conducts a detailed
review of Thornton’s strategic
direction after several profits
warnings. Decisions include;
•At least 120 stores to be closed
over three years (as existing
leases expire) + potentially 60
other stores
•Grow the Thorntons franchise
portfolio
•Aim to cut operating costs of
around £2m per year from the
http://tutor2u.net/blog/index.php/business-studies/comments/retrenchment-for-thornton
supply chain

18. Corus sells mothballed steel plant
Corus mothballed its Teeside
steel plant in 2010 after the
loss of a major contract.
The plant was sold to a
competitor steel producer
some months later as Corus
made permanent the
reduction in its UK steel-
making capacity
http://www.guardian.co.uk/business/2010/aug/27/ssi-corus-teesside-sale

19. Keep up-to-date with business
stories, resources, quizzes and
worksheets for your business
course. Click the logo!