Retrenchment Strategies

What do you understand by
retrenchment strategies?
 A strategy used by corporations to reduce the diversity or the
overall size of the operations of the company. This strategy is often
used in order to cut expenses with the goal of becoming a
more financial stable business. Typically the strategy involves
withdrawing from certain markets or the discontinuation
of selling certain products or service in order to make a
beneficial turnaround.
 In other words, the strategy followed, when a firm decides to
eliminate its activities through a considerable reduction in its
business operations, in the perspective of customer groups,
customer functions and technology alternatives, either individually
or collectively is called as Retrenchment Strategy.

Types of Retrenchment
Strategies

1. Turnaround Strategies
 Turnaround strategy means backing out, withdrawing or
retreating from a decision wrongly taken earlier in order to
reverse the process of decline.
 There are certain conditions or indicators which point out
that a turnaround is needed if the organization has to survive.
These danger signs are as follows:
 a) Persistent negative cash flow
 b) Continuous losses
 c) Declining market share
 d) Deterioration in physical facilities
 e) Over-manpower, high turnover of employees, and low morale
 f) Uncompetitive products or services
 g) Mismanagement

2. Divestment Strategies
 Divestment strategy involves the sale or liquidation of a
portion of business, or a major division, profit centre or
SBU. Divestment is usually a restructuring plan and is
adopted when a turnaround has been attempted but has
proved to be unsuccessful or it was ignored. A divestment
strategy may be adopted due to the following reasons:
 a) A business cannot be integrated within the company.
 b) Persistent negative cash flows from a particular business
create financial problems for the whole company.
 c) Firm is unable to face competition
 d) Technological up gradation is required if the business is to
survive which company cannot afford.
 e) A better alternative may be available for investment

 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 opportunities where a
firm could pursue any future activities, and the stigma of failure.
 Liquidation strategy may be difficult as buyers for the business
may be difficult to find. Moreover, the firm cannot expect adequate
compensation as most assets, being unusable, are considered as
scrap.

Reasons for Liquidation
include:
 (i) Business becoming unprofitable
 (ii) Obsolescence of product/process
 (iii) High competition
 (iv) Industry overcapacity
 (v) Failure of strategy

i. DOWNSIZING
ii. VOLUNTARY RETIREMENT
SCHEMES
iii. HR OUTSOURCING
iv. EARLY RETIREMENT PLANS
v. PROJECT BASED EMPLOYMENT

 When the management of an organization determines that their
organization is not operating at peak efficiency, they typically look for
ways to make the organization more productive. This is frequently
accomplished via organizational downsizing, which is a reduction in
organizational size and operating costs implemented by management in
order to improve organizational efficiency, productivity and/or the
competitiveness of the organization.
 Organizational downsizing affects the work processes of an organization
since the end result of the downsizing is typically fewer people performing
the same workload that existed before the downsizing took place. The act
of downsizing results in two categories of people:
1. Victims, the people who involuntarily lose their jobs due to
organizational downsizing,
2. Survivors, the employees who remain after organizational downsizing
takes place.

What causes downsizing?
 There are many reasons why a company may need to reduce the
number of people it employs. The introduction of new technology
may result in a reduced workload for employees. External financial
pressures or increased competition in the marketplace may force a
company to reduce its labor costs. Mergers and acquisitions may
leave a company with more employees than it requires.

VOULANTARY RETIREMENT
SCHEMES
 What Is the Meaning of "Voluntary Retirement
Scheme"?
 A voluntary retirement scheme (VRS) package is
offered to employees as an incentive to retire
earlier than their normal retirement age. The VRS
package usually contains generous retirement
benefits for certain employees.
 Purpose
 The purpose of a VRS is to downsize the number of
employees on payroll to adapt to a changing
business environment. VRS plans cut costs and
reduce layoffs .

 Targeted Employees
 Employees of middle age or those closer to actual retirement
age and who have been employed with a company for at least
10 years are usually the first to be offered a VRS package.
 Considerations
 VRS may not be right for every individual because the retiree
will have to live on a fixed income. Circumstances to consider
are household dependent needs (e.g. college education
expenses) and mortgage payments and other household
expenses. If the VRS package isn't accepted, on the other hand,
the employee might be laid off and receive few or no benefits.

What is Human Resource
Outsourcing (HRO)?
 Human resource outsourcing (HRO) occurs when a business instructs an
external supplier to take responsibility (and risk) for HR functions and perform
these tasks for the business. Payroll outsourcing is commonly outsourced for
two reasons: it’s a time-consuming administrative task for employers, and there
are many specialist companies with the technology and knowledge to run it
efficiently and compliantly.
 HR Outsourcing is a process in which the human resource activities of an
organization are outsourced so as to focus on the organization`s core competencies.
Often HR functions are complex and time consuming that it will create difficulty in
managing other important thrust areas. By HR outsourcing, this problem can be
avoided which will enhance effectiveness by focusing on what the organization is
best at. It will also improve the flexibility of the organization to the rapidly
changing business needs.
 Some businesses will outsource their entire HR department while others will
just outsource time-consuming administrative tasks, which allow their internal
resource to focus on the strategic level.

What HR Functions can be
Outsourced?
 If a company choses to partially outsource HR, the company shares
responsibilities with the vendor, sharing information and control over the
functions. If the company decides to completely outsource, the vendor
takes on all HR responsibilities. The owner or HR manager in the original
company takes on a new role, liaison with the vendor, focusing only on
HR in order to manage the vendor-company relationship. Whether
partially or completely outsourcing, companies frequently outsource the
following HR functions:
 Background Screening
 Payroll Services
 Risk Management
 Temporary Staffing
 Employee Assistance/Counseling
 Health Care Benefits
 Retirement Planning
 Performance Management

To Whom Can You Outsource
HR?
 The three types of HR outsourcing companies are Human Resources Organizations,
Professional Employer Organizations, and Administrative Services Organizations. –
 1. Human Resources Organization (HRO)
 The majority of Human Resources Organizations (HROs) allow large
businesses (1000+ employees) to choose which HR services they would like
outsourced. When only some functions are dealt with by the HRO, a co-
management relationship or shared HR relationship is made between the HRO
and the business (this is typically the conservative approach to those first
outsourcing HR).
 When all functions of HR are outsourced, the HRO takes full responsibility. In
large organizations, the strategic HR role remains an internal position;
however, most administrative and tactical roles are outsourced. This can also
be achieved in smaller organizations (typically under 200 employees) using a
Professional Employer Organization.

HR?
 2. Professional Employer Organization (PEO)
 A Professional Employer Organization, or PEO, handles all HR
tasks and is usually more beneficial for small and mid-sized
businesses (under 200 employees).
 As the employer-of-record, the PEO will be responsible for taxes
and worker’s compensation.
 Financial liability for the small business decreases due to the
shared burden. Additionally, the PEO can obtain reduced rates on
retirement packages and health benefits by combining employees
from all of their customers.

HR?
 3. Administrative Services Organization (ASO)
 The third HR outsourcing scenario is hiring an ASO, or Administrative
Services Organization. As the name aptly implies, an ASO provides
administrative services for your company.
 These include processing payroll, performing direct deposits, and filing
payroll taxes. Like outsourced payroll, the filing is under your federal
employer ID number (FEIN).
 The various functions that ASO’s provide include:
 Safety Management
 Compliance
 Payroll Services
Pension Administration
 Worker’s Compensation

Retrenchment Strategies

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Retrenchment Strategies