The document discusses various corporate restructuring strategies including stability, expansion, retrenchment, and combination strategies. It provides examples and explanations of each type of strategy. Stability strategies involve minor changes, expansion aims for high growth, and retrenchment reduces activities. Combination strategies mix elements of the other strategies. Mergers and acquisitions are also discussed as restructuring strategies. Success depends on achieving synergies and strategic fit between the combining organizations.

1. STABILITY, EXPANSION,
RETRENCHMENT &
COMBINATION STRATEGIES
CORPORATE RESTRUCTURING
Aijaz Ahmed Rather
I.K.G Punjab Technical
University

2. About decisions related to:
• Allocating resources among the different
businesses of a firm
• Transferring resources from one set of businesses
to others &
• Managing & nurturing a portfolio of businesses
Corporate strategies help to exercise the
choice of direction that an organisation
adopts.

3.  Adopted by an organisation when it attempts at
incremental improvement of its profitability by
marginally changing one or more of it businesses
in terms of their respective customer groups,
customer functions, and alternative technologies-
either singly or collectively.
 Organisations might aim at stability in each of the
three dimensions of customer groups, customer
functions and alternate technologies respectively.
For eg.
• A steel company modernizes its plant to improve efficiency
and productivity

4. No- Change Strategy: A decision to do
nothing new, to continue with the present
business definition. Predictable external
environment and stable organisational
environment leads to such a strategy.
Profit Strategy: the organisation sustain its
profitability by artificial measures, by
adopting a profit strategy.

5. It is less risky, involves less changes and
people feel comfortable with things as they
are.
The environment faced is relatively stable.
Expanding may be considered as being
threatening

6.  When an organisation aims at high growth by
substantially broadening the scope of one or more
of its businesses in terms of their respective
customer groups, customer functions and
alternative technologies- singly or jointly- in order
to improve its overall performance.
 Also known as intensification strategies.
 Expansion strategies are quite popular.
 For example:
• A chocolate manufacturer expands its customer group to
include middle- aged and old persons to its existing
customers who are children.

7. Environmental changes make it imperative
for the company to expand
Expansion is matter of pride for chief
executives and strategists
Increasing size may lead to more control
over the market and competitors
Advantages from economies of scale may
accrue

8.  When an organisation aims at contraction of its
activities through substantial reduction or
elimination of the scope of one or more of its
businesses in terms of their respective customer
groups, customer functions or alternative
technologies.
 It involves partial or total withdrawal from a
customer group, customer functions or alternative
technology in one or more of a firm’s businesses.
For eg:
• A pharmaceutical firm pulls out from retail selling to
concentrate on institutional selling in order to reduce the
size of its sales force and increase market efficiency.

9. The management no longer wishes to
remain in business either wholly or
partially, due to continuous losses.
The environment faced is threatening.
Stability can be ensured by reallocation of
resources from unprofitable to profitable
businsses.

10.  TURNAROUND STRATEGIES: reversing a
negative trend and turning around the
organisation to profitability.
 Conditions for turnaround:
• Persistent negative cash flow
• Negative profits
• Declining market share
• Deterioration in physical facilities
• High turnover of employees
• Uncompetitive products or services
• Mismanagement

11.  DIVESTMENT STRATEGIES: involves the sale or liquidation of a portion of a
business, or a major division, profit centre or SBU.
 Adopted when a turnaround has been attempted but has proven unsuccessful.
 Reasons for divestment:
• An unviable project
• Persistent negative cash flows
• Severity of competition
• Technological upgradation
• A better investment alternative may be available

12. LIQUIDATION STRATEGY: a most extreme
and unattractive strategy.
Closing down an organisation and selling its
assets.
Considered as last resort as it leads to loss of
employment, and stigma of failure on the
organisation.

13.  When an organization adopts a mixture of
stability, expansion and retrenchment
strategies.
 Complicated situations require complex
solutions.
 For example:
• Simultaneous combination: a paints company
augments its offering of decorative paints to provide a
wider variety to its customers (stability) and expands
its product range to include industrial and automotive
paints (expansion). Simultaneously, it decides to close
down the division which undertakes large- scale
painting contract jobs (retrenchment).

14.  The organisation is large and faces complex
environment
 The organisation is composed of different
businesses, each of which lies in a different
industry, requiring a different response.
 Some companies that adopted combination
strategies:
• ITC Ltd.
• Aditya Birla Group
• Pidilite Industries

16.  At macro level, economic restructuring
means the reform process used to make
structural adjustments in the economy o f a
country, such as reduction or phasing out of
subsidies etc.
 At micro level, restructuring has three
connotations:
• Corporate or business level restructuring
• Financial restructuring
• Organisational restructuring

17. • Corporate or business level restructuring: changes
in the composition of an organization's set of
businesses in order to create a more profitable
enterprise.
• Financial restructuring: deals with changes in the
equity pattern, equity holdings, etc.
• Organisational restructuring: involves managerial
actions such as changes in the organisation
structure, reducing hierarchies, downsizing,
altering reporting relationships etc.

18.  Portfolio restructuring: includes significant changes in the
mix of assets owned by a firm or the lines of business in
which a firm operates, including liquidation, divestitures,
asset sales and spin-offs.
 Financial restructuring: includes significant changes in the
capital structure of a firm, including leveraged buyouts,
leveraged recapitalizations and debt for equity swaps.
Financial structure refers to the allocation of the corporate
flow of funds-cash or credit and to the strategic or
contractual decision rules that direct the flow and
determine the value-added and its distribution among the
various corporate constituencies.

19. Organisational restructuring: includes
significant changes in the organisational
structure of the firm, including redrawing of
divisional boundaries, flattening of
hierarchic levels, spreading of the span of
control, reducing product diversification,
revising compensation, streamlining
processes, reforming governance and
downsizing employment.

20.  Synergistic Effect: Attributes do not add
mathematically, but combine to produce an
enhanced or a reduced impact.
 Synergy is an idea that the whole is greater than
the sum of its parts.
 In the marketing department, synergistic effect
may occur when the product, pricing, distribution
and promotion aspects support each other,
resulting in high level of marketing synergy.
 At higher levels marketing and production
support each other leading to operating synergy.

21.  A merger is a combination of two or more
organizations is which one acquires the assets and
liabilities of the other in exchange for shares or
cash, or both the organizations are dissolved and
assets and liabilities are combined and new stock
is issued.
 For the organisation which is acquired, it is a
merger.
 For the organisation which acquires another, it is
acquisition.
 If both the organizations merge their identities to
create a new organisation, it is consolidation.

22.  HORIZONTAL MERGERS: combination of two or more organisations in
the same business, or of organisations engaged in certain aspects of the
production or marketing processes. For example, a footwear
manufacturing company combines with another footwear company.
 VERTICAL MERGERS: combination of two or more organisations not
necessarily in the same business, which creates complementarities either
in terms of supply of inputs or marketing of outputs. For example, a
footwear company combines with a leather tannery.
 CONCENTRIC MERGERS: combination of two or more organisations
related to each other either in terms of customer functions, customer
groups or alternative technologies used. For example, a footwear
company combines with a hosiery firm making socks.
 CONGLOMERATE MERGERS: combination of totally unrelated
companies. For example, a footwear company combines with a
pharmaceutical company.

23. Why the buyer wishes to merge:
• Increase the value of organization's stock
• Increase the growth rate and make a good
investment
• Improve the stability of its earnings and sales
• To balance, complete and diversify the product
line
• Reduce competition
• Take advantages of synergy

24. Why the seller wishes to merge:
• Increase the growth rate
• Acquire resources to stabilize operations

25.  M &As are influenced, according to strategic
management researchers, by the fit between the
organizations, and therefore the main factor of
success/failure in the merger/acquisition is the degree
of strategic fit between the two companies.
 Strategic fit is expressed in the synergy potential (2 + 2
= 5) of the merger.
 there is synergy when it is possible to operate two
business units more profitably when they are under the
control of one factor than when each one operates
separately.
 Synergy is ability of merged company to generate
higher shareholders wealth than the standalone
entities.