PROJECT REPORT ON

TYPES AND FORMS OF STRATEGIES

MASTERS OF COMMERCE IN BUSINESS MANAGEMENT

PART-1
2016-2017

SUBMITTED
IN PARTIAL FULLFILLMENT OF REQUIREMENT FOR THE AWARD OF DEGREE
OF MASTERS OF COMMERCE IN BUSINESS MANAGEMENT
BY:

DIVIJ FARSWANI
SEAT NO -

K.J.SOMAIYA COLLEGE OF SCIENCE & COMMERCE

VIDYANAGARI, VIDYAVIHAR (E).
AUTONOMOUS
UNIVERSITY OF MUMBAI
2016 2017

INDEX
TOPIC

PAGE NO.

WHAT IS STRATEGIC MANAGEMENT

WHAT IS A STRATEGY

TYPES OF STRATEGIES
(CORPORATE, STABILITY & RETRENCHMENT)

FORMS OF STRATEGY

9-19

1. MERGER

2. TAKEOVER AND ACQUISITION

11

3. JOINT VENTURE

13

4. DIVERSIFICATION

15

5. TURNAROUND

16

6. DISINVESTMENT AND LIQUIDATION

18

What is Strategic Management?

Strategic management involves the formulation and implementation of the major goals and
initiatives taken by a company's top management on behalf of owners, based on consideration
of resources and an assessment of the internal and external environments in which the
organization competes.
Strategic management involves the related concepts of strategic planning and strategic thinking.
Strategic planning is analytical in nature and refers to formalized procedures to produce the
data and analyses used as inputs for strategic thinking, which synthesizes the data resulting in
the strategy. Strategic planning may also refer to control mechanisms used to implement the
strategy once it is determined. In other words, strategic planning happens around the strategic
thinking or strategy making activity.
Strategic management provides overall direction to the enterprise and involves specifying the
organization's objectives, developing policies and plans designed to achieve these objectives,
and then allocating resources to implement the plans. Academics and practicing managers have
developed numerous models and frameworks to assist in strategic decision making in the
context of complex environments and competitive dynamics. Strategic management is not static
in nature; the models often include a feedback loop to monitor execution and inform the next
round of planning.
Formulation of strategy involves analyzing the environment in which the organization operates,
then making a series of strategic decisions about how the organization will compete.
Formulation ends with a series of goals or objectives and measures for the organization to
pursue.
The second major process of strategic management is implementation, which involves
decisions regarding how the organization's resources (i.e., people, process and IT systems) will
be aligned and mobilized towards the objectives. Implementation results in how the
organization's resources are structured (such as by product or service or geography),
leadership arrangements, communication, incentives, and monitoring mechanisms to track
progress towards objectives, among others.

What is a Strategy?
Strategy is a high level plan to achieve one or more goals under conditions of uncertainty. It is a
method or plan chosen to bring about a desired future, such as achievement of a goal or
solution to a problem.
A business strategy is a set of guiding principles that, when communicated and adopted in the
organization, generates a desired pattern of decision making. A strategy is therefore about how
people throughout the organization should make decisions and allocate resources in order
accomplish key objectives. A good strategy provides a clear roadmap, consisting of a set of
guiding principles or rules, that defines the actions people in the business should take (and not
take) and the things they should prioritize (and not prioritize) to achieve desired goals.
As such, a strategy is just one element of the overall strategic direction that leaders must define
for their organizations. A strategy is not a mission, which is what the organizations leaders want
it to accomplish; missions get elaborated into specific goals and performance metrics. A strategy
also is not the value network the web of relationships with suppliers, customers, employees,
and investors within which the business co-creates and captures economic value. Finally, a
strategy is not a vision, which is an inspiring portrait of what it will look and feel like to pursue
and achieve the organizations mission and goals.
Strategy is important because the resources available to achieve these goals are usually limited.
Strategy generally involves setting goals, determining actions to achieve the goals, and mobilizing
resources to execute the actions. A strategy describes how the ends (goals) will be achieved by the
means (resources). This is generally tasked with determining strategy. Strategy can be intended or
can emerge as a pattern of activity as the organization adapts to its environment or competes. It
involves activities such as strategic planning and strategic thinking.

Types of Strategies
Organizations are complex entities. Every organization must address several levels, types, or
areas of strategic management. Moreover, for firm competing in more than one business area or
market, a strategy of integration and interrelationships between these areas must be developed.
The strategies can be described in three levels namely corporate-level strategy, a business-unit
strategy, and functional/operational strategies.
Corporate strategy
Corporate strategy defines what business or businesses the firm is in or should be in, how each
business should be conducted, and how it relates to society. This strategy is for the company
and all of its business as a whole. Corporate strategies are established at the highest levels in
the organization; they generally involve a long-range time horizon and focus on the entire
organization. At the corporate level the concern revolves around the definition of business in
which the corporation wishes to participate and the acquisition and allocation of resources to
these business units.
Corporate strategy has three levels: Growth strategy, stability strategy and retrenchment
strategy.
1. Growth strategy is a strategy aimed at winning larger market share, even at the
expense of short-term earnings. Four broad growth strategies are diversification, product
development, market penetration, and market development.
Strategy that is intended to win a larger market share is termed as business growth
strategy. These growth strategies usually answer three questions that are as follows:
What is the target market of the business? Target market is determined
according to psychographic and demographics of customer segments.
Which product will you deliver to your segment of the
market? Detailed set of activities to design, create and deliver the products
to the market segment.
What development channels will be adopted in order to find, acquire
and grow the customers? Customer development is all about
development, creation and delivery of the products to each and every touch
point where your target market may reach, perceive and try your products
and services.
These are the core questions, answering which businesses end up in successful
Business growth strategies. In case the business has multiple growth strategies, each
strategy must respond to all of the above mentioned dimensions.

2. Stability strategy implies continuing the current activities of the firm without any
significant change in direction. If the environment is unstable and the firm is doing well,
then it may believe that it is better to make no changes. A firm is said to be following a
stability strategy if it is satisfied with the same consumer groups and maintaining the
same market share, satisfied with incremental improvements of functional performance
and the management does not want to take any risks that might be associated with
expansion or growth.
Stability strategy is most likely to be pursued by small businesses or firms in a mature
stage of development.
Stability strategies are implemented by steady as it goes approaches to decisions. No
major functional changes are made in the product line, markets or functions.
However, stability strategy is not a do nothing approach nor does it mean that goals
such as profit growth are abandoned. The stability strategy can be designed to increase
profits through such approaches as improving efficiency in current operations.
Adopting a stability strategy does not mean that a firm lacks concern for business
growth. It only means that their growth targets are modest and that they wish to maintain
a status quo. Since products, markets and functions remain unchanged, stability strategy
is basically a defensive strategy. A stability strategy is ideal in stable business
environments where an organization can devote its efforts to improving its efficiency
while not being threatened with external change. In some cases, organizations are
constrained by regulations or the expectations of key stakeholders and hence they have
no option except to follow stability strategy.
Generally large firms with a sizeable portfolio of businesses do not usually depend on
the stability strategy as a main route, though they may use it under certain special
circumstances. They normally use it in combination with the other generic strategies,
adopting stability for some businesses while pursuing expansion for the others.
However, small firms find this a very useful approach since they can reduce their risk
and defend their positions by adopting this strategy. Niche players also prefer this
strategy for the same reasons.

3. Retrenchment is the practice of terminating the employment of a large number of

employees in a company or other organization, generally done with the specific objective
of reducing total number of employees in a company. It is not quite right to describe
retrenchment as a corporate strategy. It is more of one of the means of achieving
specific corporate objectives such as cost cutting, out sourcing of some of the
operations, or major automation, reduction in total business activities or any other
objectives which require substantial reduction in manpower requirements.

Retrenchment can benefit company only when the company is overstaffed, or when it is
implementing any other program, which involves substantial reduction in manpower
requirement. Of course it is assumed the basic strategy or objective that gives rise to
need of retrenchment must also be right for the retrenchment to benefit the company.
About a decade back, the practice of retrenchment, also described as "downsizing" had
become kind of fashionable in business and industry across the world. However
indiscriminate retrenchment led to problems for many companies. As a result the slick
salesmen of "easy to use", "ready-made" management practiced developed the term
downsizing with a new one - right sizing. But the fact remains that downsizing or
rightsizing; these are only means to an end and not worthwhile objective in them.

Business unit strategy

Business strategy defines how each individual business will attempt to achieve its mission within
its chosen field of endeavor. This strategy referred to each separate business unit (SBU) or
strategic planning unit (SPU). At this level strategy two critical issues are specified: (1) the
scope or boundaries of each business and the operational links with corporate strategy, and (2)
the basis on which the business unit will achieve and maintain a competitive advantage within
its industry.
Business unit strategy involves four major levels. They are:
A competitive advantage is one gained over competitors by offering consumers better value.
You increase value by lowering prices or increasing benefits and services to justify the higher
price. Differentiation and cost leadership strategies search for competitive advantage on a broad
scale, while focus strategies work in a narrow market. Sometimes, businesses look for a
combination strategy to please customers looking for multiple factors such as quality, style,
convenience and price.
To practice cost leadership, organizations compete for the largest number of customers through
price. Cost leadership works well when the goods or services are standardized. That way, the
company can sell generic acceptable goods at the lowest prices. They can minimize costs to the
company in order to minimize costs to the customer without decreasing profits. A company
either sells its goods at average industry prices to earn higher profits than its competitors or it
sells at below-industry prices, trying to profit by gaining the market share. Wal-Mart is an
example of a company with a cost leadership strategy.
Differentiation strategy calls for a company to provide a product or service with distinctive
qualities valued by customers. You draw customers because you set yourself apart from the
competition. To succeed at this strategy, your business should have access to leading scientific
research (or perform this research); a highly skilled and creative product development team; a
strong sales and marketing team; and a corporate reputation for quality and innovation. Apple,
for example, uses differentiation strategy.

Focus strategy is just what it sounds like: concentrate on a particular customer, product line,
geographical area, market niche, etc. The idea is to serve a limited group of customers better
than your competitors who serve a broader range of customers. A focus strategy works well for
small but aggressive businesses. Specifically, companies that do not have the ability or
resources to engage in a nationwide marketing effort will benefit from a focus strategy. Focus
can be based on cost or differentiation strategy. It involves focusing the cost leadership or
differentiation on a small scale. The idea is to make your company stand out within a specific
market sector.
Companies that integrate strategies rather than relying on a single generic strategy are able to
adapt quickly and learn new technologies. The products produced under the integrated cost
leadership-differentiation strategy are less distinctive than differentiators and costs are not as
low as the cost-leader, but they combine the advantages of both approaches. A somewhat
distinctive product that is mid-range-priced can be a bigger draw to customers than a cheap
generic product or an expensive special one.

Functional strategy
Functional strategy focuses on supporting the corporate and business strategies. This strategy
is the strategy for each specific functional unit within a business. Functional strategies primarily
are concerned with the activities of the functional areas of a business (i.e., operations, finance,
marketing, personnel, etc.) will seaport the desired competitive business level strategy and
complement each other.

Forms of Strategies
1. Mergers
A merger is a corporate strategy of combining different companies into a single company in
order to enhance the financial and operational strengths of both organizations.
A merger usually involves combining two companies into a single larger company. The
combination of the two companies involves a transfer of ownership, either through
a stock swap or a cash payment between the two companies. In practice, both companies
surrender their stock and issue new stock as a new company.
There are several types of mergers. For example, horizontal mergers may happen between two
companies in the same industry, such as banks or steel companies. Vertical mergers occur
between two companies in the same industry value chain, such as a supplier or distributor or
manufacturer. Mergers between two companies in related, but not the same industry are called
concentric mergers. These mergers can use the same technologies or skilled workforce to work
in both industry segments, such as banking and leasing. Finally, conglomerate mergers occur
between two diversified companies that may share management to improve economies of
scale for both companies.
A merger sometimes involves new branding or identity of the merged companies. Otherwise, a
merger may lead to a combination of the names of the two companies, capitalizing on the brand
identity of both companies.
Mergers may result in a stronger company with combined assets, competencies, and markets.
At the same time, mergers may result in a dilution of the financial strengths of one of the
companies, particularly if the new company results in the issuance of more stock across the
same asset base of the two merged companies. Finally, mergers often fail because of the clash
of corporate cultures between the two companies, a reluctance to restructure redundant
management and operations, incompatibilities of the technologies used by the companies, and
disruptions in the workforce.
Because mergers are difficult to implement, most ultimately take the form of an acquisition, that
is, the purchase of a weaker company by a stronger company.
A merger occurs when two firms join together to form one. The new firm will have an increased
market share, which reduces competition. This reduction in competition can be damaging to the
public interest, but help the firm gain more profits.
However, mergers can give benefits to the public.

1. Economies of scale: This occurs when a larger firm with increased output can reduce
average costs. Lower average costs enable lower prices for consumers.
Different economies of scale include:
Technical economies; if the firm has significant fixed costs then the new larger firm would have
lower average costs,
Bulk buying A bigger firm can get a discount for buying large quantities of raw materials
Financial better rate of interest for large company
Organisational one head office rather than two is more efficient
Note a vertical merger would have less potential economies of scale than a horizontal merger
e.g. a vertical merger could not benefit from technical economies of scale. However in a vertical
merger there could still be financial and risk-bearing economies.
Some industries will have more economies of scale than others. For example, car manufacture
has high fixed costs and so gives more economies of scale than two clothing retailers.
2. International Competition: Mergers can help firms deal with the threat of multinationals and
compete on an international scale.
3. Mergers may allow greater investment in R&D: This is because the new firm will have
more profit which can be used to finance risky investment. This can lead to a better quality of
goods for consumers. This is important for industries such as pharmaceuticals which require a
lot of investment.
4. Greater Efficiency: Redundancies can be merited if they can be employed more efficiently.
5. Protect an industry from closing: Mergers may be beneficial in a declining industry where
firms are struggling to stay afloat. For example, the UK government allowed a merger between
Lloyds TSB and HBOS when the banking industry was in crisis.
6. Diversification: In a conglomerate merger two firms in different industries merge. Here the
benefit could be sharing knowledge which might be applicable to the different industry. For
example, AOL and Time-Warner merger hoped to gain benefit from both new internet industry
and old media firm

2. Takeover and Acquisition

Takeovers and acquisitions are common occurrences in the business world. In some cases, the
terms takeover and acquisition are used interchangeably, but each has a slightly different
connotation. A takeover is a special form of acquisition that occurs when a company takes
control of another company without the acquired firms agreement. Takeovers that occur without
permission are commonly called hostile takeovers. Acquisitions, also referred to as friendly
takeovers, occur when the acquiring company has the permission of the target companys board
of directors to purchase and take over the company.
Hostile Takeovers
Hostile takeovers occur without the consent of the acquired firm's board of directors. The first
step of a hostile takeover includes the acquiring firm taking over the company through a tender
offer or proxy fight. Hostile takeovers through tender offers involve the acquiring company
purchasing the shares of the target firm directly from shareholders, or on the secondary
markets. Shares of a stock represent ownership of a company. Therefore, buying all or a
majority of the companys shares allows the acquiring company to possess ownership of the
target company. To purchase shares, the acquiring corporation offers a higher price to
shareholders than the market value of the stock. A proxy fight involves the acquiring company
seeking the voting rights of the target firm's shareholders to win control of the target's firms
board of directors. The last step involves filing a 30-day acquisition notice with the Securities
and Exchange Commission and the target firm's board of directors. After receiving the notice,
the target company must formulate defensive tactics, or risk a hostile takeover.
Defending Against a Takeover
Some target companies implement defensive tactics to prevent a hostile takeover. Undervalued
public companies are more vulnerable to hostile takeovers, because the public owns the
majority of the companys shares. A preventive measure includes a company buying a sizable
portion of its own shares, which prevents the acquiring company from purchasing the shares
and becoming the majority owner. A company may file an anti-trust lawsuit against the acquiring
firm in an attempt to defend itself from takeover, or restructure its assets and liabilities to prevent
another company from financially benefiting from a takeover.
Acquisitions
Companies acquire other firms to increase their market share, obtain new facilities and acquire
advanced technology. In an acquisition, the board of directors of an acquired firm agrees to
allow another company to control the firm for a certain price. The firm making the acquisition
usually agrees to purchase the acquired companys assets or stock. Purchasing the assets
allows the acquiring company to avoid needing shareholders' approval. The company desiring
to make the acquisition must perform due diligence before the acquisition process begins.

Acquisition Process
The first step of a friendly acquisition includes developing a strategy and researching the
financial benefit of acquiring the target company. Acquiring companies must know the resources
needed to purchase another company. The next step in the acquisition process includes
identifying and performing a valuation of the target firm. Companies perform valuations by
examining financial statements, identifying market positions, researching legal obligations and
performing a SWOT analysis on the target firm. After the valuation process, a company must
determine how much the target company is worth, and the best way to raise the resources
needed for the acquisition. The last step includes both companies agreeing to the terms of the
acquisition and meeting all legal requirements.
There are numerous advantages to this. They are:
1. International Growth: Businesses can make their services or products available globally by
acquiring businesses in various locations internationally. For instance, Belgium brewing
company, InBev took over Budweiser for $52 billion in 2008 in order to expand its presence
in the U.S. market and create one of the largest consumer beverage companies in the
world, according to The Times. Due to the acquisition, profits of the company rose by 11
percent in 2011, according to France 24.
2. Diversifying Products: Another reason companies take over other companies is to
diversify products and expand new revenue streams. One example is Kraft's 2010 takeover
of Cadbury for $19.5 billion. The acquisition diversified Kraft's candy line with more than 40
brands, increased revenue and sales as well as the company's international presence,
especially in emerging markets, according to articles by Bloomberg Businessweek and The
Wall Street Journal. Even though integration costs of the acquisition were more than
expected due to commodity prices, dipping into Kraft's overall profit, the company's sales of
Cadbury items were up 30 percent and its sales in emerging market increased by 74
percent.
3. Restructuring Companies: Sometimes a company or a private equity firm will take over an
under-performing company or a company that has the potential to grow in order to
restructure the business and make it profitable. For instance, BJ's Wholesale Club was
taken over by Leonard Green & Partners and CVC Capital Partners for $2.8 billion in July
2011. The private equity firms intend to take the retail chain to the next level by investing
money to expand it both nationally and internationally, according The Associated Press.
4. Expansion: Sometimes companies will take over other companies that are in trouble, such
as Wells Fargo's 2008 takeover of Wachovia for $15 billion. Wells Fargo took over the bank,
which was facing massive losses from mortgage loans. However, Wachovia had the most
branches of any bank in the U.S., and a takeover has expanded Wells Fargo significantly
and quickly throughout the nation, according the AP. By taking over the troubled company,
Wells Fargo was able to increase its revenue and expand its business significantly.

3. Joint Ventures
A joint venture is a business enterprise undertaken by two or more persons or organizations to
share the expense and (hopefully) profit of a particular business project. A joint venture is not a
business organization in the sense of a proprietorship, partnership, or corporation. It is an
agreement between parties for a particular purpose and usually a defined timeframe. Joint
ventures may be very informal, such as a handshake and an agreement for two firms to share a
booth at a trade show. Other arrangements may be extremely complex, such as a consortium of
major electronics firms joining to develop new microchips. The key factor in a joint venture
partnership is its single, definable objective. Joint ventures have grown in popularity in recent
years, despite the relatively high failure rate of such efforts for one reason or another. Creative
small business owners have been able to use this business strategy to good advantage over the
years, although the practice remains one primarily associated with larger corporations.
Most joint ventures are formed for the ultimate purpose of saving money. This is as true of small
neighborhood stores that agree to advertise jointly in the weekly paper as it is of international oil
companies that agree to work together for purposes of oil and gas exploration or extraction.
Joint ventures are attractive because they enable companies to share both risks and costs.
A joint venture is a strategic alliance where two or more parties, usually businesses, form a
partnership to share markets, intellectual property, assets, knowledge, and, of course, profits.
A joint venture differs from a merger in the sense that there is no transfer of ownership in the
deal.
This partnership can happen between goliaths in an industry. Cingular, for instance, is a
strategic alliance between SBS and Bellsouth. It can also occur between two small businesses
that believe partnering will help them successfully fight their bigger competitors.
Companies with identical products and services can also join forces to penetrate markets they
wouldn't or couldn't consider without investing tremendous resources. Furthermore, due to local
regulations, some markets can only be penetrated via joint venturing with a local business.
In some cases, a large company can decide to form a joint venture with a smaller business in
order to quickly acquire critical intellectual property, technology, or resources otherwise hard to
obtain, even with plenty of cash at their disposal.

Forming a joint venture has unique benefits that make it an attractive option for some
businesses. They are:

1. Shared Resources and Responsibilities: More often than not, a company enters into a joint
venture because it lacks the required knowledge, human capital, technology or access to a
specific market that is necessary to be successful in pursuing the project on its own. Coming
together with another business affords each party access to available resources of the other
participating company without having to spend excessive amounts of capital to obtain it.
For example, Company A may own the facilities and manufacturing production technology that
Company B needs to create and ultimately distribute a new product. A joint venture between the
two companies gives Company B access to the equipment without the need to purchase, while
Company A is able to participate in production of a product it did not develop or has no rights to.
Each company benefits when the joint venture is successful, and neither is left to complete the
project alone.
2. Flexibility for Participating Companies: Unlike a merger or acquisition, a joint venture is a
temporary contract between participating companies that dissolves at a specific future date or
when the project is completed. The companies entering into a joint venture are not required
to create a new business entity under which the project is then completed, providing a degree of
flexibility not found in more permanent business strategies. Also, participating companies do not
need to give up control of their businesses to another entity, nor do they have to cease ongoing
business operations while the joint venture is underway. Each company is able to maintain its
own identity and can easily return to normal business operations once the joint venture is
complete.
3. Shared Business Risk: Joint ventures also provide the benefit of shared risk spread among
participating companies. The creation of a new product or delivery of a new service carries a
great deal of risk for a business, and many companies are not able to manage that risk alone.
Under a joint venture, each company contributes a portion of the resources needed to bring the
product or service to market, making the heavy financial burden of research and
development less of a challenge. The risk of the project failing and having a negative impact on
profitability is lower because the costs associated with the project are distributed among each of
the participating companies.

4. Diversification
Diversification occurs when a business develops a new product or expands into a new market.
Often, businesses diversify to manage risk by minimizing potential harm to the business during
economic downturns. The basic idea is to expand into a business activity that doesn't negatively
react to the same economic downturns as your current business activity. If one of your business
enterprises is taking a hit in the market, one of your other business enterprises will help offset
the losses and keep the company viable. A business may also use diversification as a growth
strategy.
It is a risk-reduction strategy that involves adding product, services, location, customers and
markets to your company's portfolio.
Many small companies are one-trick ponies, betting their entire futures on a single product, a
single service, a single location or even a single customer. And there's nothing wrong with that
in the beginning: A narrow focus helps startups concentrate energy on doing one thing
extremely well.
Diversification means branching out into new business opportunities, not just expanding your
existing business. For example, if you have a dine-in restaurant in one town, opening a second
restaurant in the next town is expansion, not diversification. Adding corporate catering is an
example of diversification. Offering cooking classes during the mornings, when you are not open
for breakfast, would be another example of diversification.
Diversification has its advantages. They are:
1. Control of inputs, leading to continuity and improved quality. For instance 1984and 1985
NewsCorp acquired Twentieth Century Fox and six television stations of the Metromedia
Broadcasting Group in the US. This acquisition provided the company with a wider platform for
consolidation of its related activities through access to studios for making films and television
Programmers.
2. Control markets by guaranteeing sales and distribution. This can arise through combination
of linkages in the value chain. For example where production and distribution channels are
combined, or where a company uses its well-established brand names or corporate identity to
gain benefits in new markets
3. Take advantage of existing expertise, knowledge and resources in the company when
expanding into new activities. This may result in transfer of skills, such as research and
development knowledge and sharing of resources.
4. Provide better risk control through no longer being reliant on a single market
5. Provide movement away from declining activities
6. Spread risk by avoiding having all eggs in one basket

5. Turnaround
The Turnaround Strategy is a retrenchment strategy followed by an organization when it feels
that the decision made earlier is wrong and needs to be undone before it damages the
profitability of the company.
Simply, turnaround strategy is backing out or retreating from the decision wrongly made earlier
and transforming from a loss making company to a profit making company
Also, the need for a turnaround strategy arises because of the changes in the external
environment viz. change in the government policies, saturated demand for the product, a threat
from the substitute products, changes in the tastes and preferences of the customers, etc.
Example: Dell is the best example of a turnaround strategy. In 2006, Dell announced the costcutting measures and to do so; it started selling its products directly, but unfortunately, it suffered
huge losses. Then in 2007, Dell withdrew its direct selling strategy and started selling its
computers through the retail outlets and today it is the second largest computer retailer in the
world.
The overall goal of turnaround strategy is to return an underperforming or distressed company
to normal in terms of acceptable levels of profitability, solvency, liquidity and cash flow.
Turnaround strategy is described in terms of how the turnaround strategy components of
managing, stabilizing, funding and fixing an underperforming or distressed company are applied
over the natural stages of a turnaround.
To achieve its objectives, turnaround strategy must reverse causes of distress, resolve the
financial crisis, achieve a rapid improvement in financial performance, regain stakeholder
support, and overcome internal constraints and unfavorable industry characteristics.

The following are the essentials of successful turnaround strategy:

1. Diagnosing the problem: This is the first step in the restructuring implementation process.
To implement turnaround strategy requires diagnosis of the sickness problem. Exact cause of
the business failure is to be identified to frame plans for the revival process. Proper screening
helps to trap the root cause of the industrial problem.
2. Proper planning and execution: Once the evaluation has been completed, the next critical
step in a turnaround in turnaround planning. Proper planning is too made regarding resources,
time frame and policies to be executed. The sick company needs to hire a Corporate
Turnaround Expert with many years of turnaround experience
3. Communication: Communication is a key factor for success in a business. Turnaround
requires rapid response from the shareholders, financial institutions, employees and the
company management. Complete, clear and prompt communication is necessary to implement
turnaround strategy.
4. Availability of funds: The key elements of any turnaround are financial restructuring. Lack of
investment leads to low crop yield and huge wastages. Availability of adequate funds brings the
sick unit back to good health, by implementing sound financial management and control.
5. Co-operation: Turnaround requires co-operation from various groups of the business such
as employees, shareholders, management, investors, suppliers, creditors etc. It mainly requires
the support of the employees as their workload increases.
6. Viability of business: Turnaround should be applicable only if there are chances of revival of
business firm. Sometimes business may not have bright future, but the survival of such unit may
be difficult in the long run.
In such cases, implementation of turnaround strategy is not viable. In short viability of business
is an essential requirement of a good turnaround strategy.

6. Disinvestment and Liquidation

The Divestment Strategy is another form of retrenchment that includes the downsizing of the
scope of the business. The firm is said to have followed the divestment strategy, when it sells or
liquidates a portion of a business or one or more of its strategic business units or a major
division, with the objective to revive its financial position.
Companies may pursue a divestment strategy to refocus on their core business, in response to
the operating environment in their industry or to release underperforming assets. Companies
typically pursue a liquidation strategy when their core business, business line or subsidiary has
failed or no longer serves the owners' purpose. Divestitures involve a sale, spinoff or liquidation
of a business unit, line or subsidiary. Liquidation involves shutting down a business and selling
off or distributing its assets. Here are a few types of disinvestment:
Sale
One divestiture strategy involves the sale of the subsidiary or business line to another company.
The parent company decides that it no longer serves as the best owner of that portion of the
business. By selling the business or its assets, the parent can obtain capital to use to acquire
another company or assets that better fit with its current strategy. Sometimes unsolicited buyers
will approach to buy the subsidiary. More often, the parent must seek out buyers.
Spinoff
Another divestiture strategy involves the spinoff. A spinoff occurs when the parent company of a
subsidiary, business unit or business line establishes the unit as a standalone separate
company and distributes ownership in that newly-formed separate company to the parent
companys owners. The parent distributes ownership in its former subsidiary in proportion to the
ownership stake held in the parent company. For example, if three shareholders each own onethird of the parent, they will each receive stock equal to one-third of the spinoff. When a
company spins off a subsidiary in this way, the entire transaction is tax free, creating no tax
liability for the parent or former subsidiary.
Liquidation
A liquidation strategy involves selling a company, in its entirety or in parts, for the value of its
assets. Many small business owners exit their businesses through liquidation. For example, a
retailer that suffered a loss on its business may find no one interested in buying the company as
a going concern. To extract as much value out of the business as possible, the owner has a
liquidation sale and sells all the inventory, fixtures and equipment before permanently closing
the stores doors.

The advantages can be classified as follows:

1. Company debt written off: If a company is no longer able to operate because of increased
competition or a significant change in the market it is unlikely to be able to repay its outstanding
creditors. The closure of a company through Liquidation will result in any outstanding debts
being written off. This leaves the directors to focus on new opportunities.
2. Relatively low one-off cost: The cost of liquidation is relatively low. There will be an initial
cost for preparing the companys Statement of Affairs and calling the creditors meeting.
However any further liquidation costs are then paid for from the sale of the companys assets.
3. Investment funds can be focused on new business opportunities: Once a company is
liquidated there is no ongoing burden of debt repayments. Available investment funds can then
be used for other business opportunities rather than used to repay debt.
4. No redundancy or restructuring costs: After a company is liquidated it is the job of the
Liquidator to make any employees redundant. Redundancy payments must be made from the
assets of the company. Any long term liabilities such as leases are cancelled by the liquidator.
These costs do not have to be paid by the directors or shareholders unless personal guarantees
have been given.