alevel business unit 9

What is retrenchment?

Retrenchment is a strategic decision where a business reduces its scale of operations, often by selling assets, closing stores, cutting staff, or withdrawing from markets. It focuses on survival, efficiency, and core business rather than growth.

What are the main reasons a business might implement retrenchment?

Poor financial performance, overexpansion, focus on core competencies, external pressures, poor strategic fit.

How does poor financial performance lead to retrenchment?

Falling revenue, rising costs, or losses force the business to cut costs and reduce operations to survive.

What is the analysis of overexpansion as a reason for retrenchment?

Expanding too quickly dilutes resources and efficiency; retrenchment allows focus on profitable areas.

How does retrenchment affect employees?

Redundancies and job insecurity reduce employee morale and motivation, which can lower productivity and service quality. This may harm customer satisfaction and damage the firm’s long-term performance despite short-term cost savings.

Why might a business adopt a retrenchment strategy?

Businesses retrench due to falling sales, rising costs or economic downturns, often caused by poor strategy or external pressures, to protect cash flow and avoid insolvency.

What is downsizing?

Downsizing reduces workforce to cut labour costs and improve cash flow, but redundancy costs, loss of skills and lower morale may reduce long-term productivity.

What is delayering?

Delayering removes levels of management, cutting salary costs and speeding up decision-making. However, wider spans of control may reduce supervision and increase pressure on remaining managers.

How does retrenchment affect shareholders?

Retrenchment can improve profits and cash flow, increasing share value, but if it damages brand or long-term growth, investor confidence and shareholder value may fall.

What are the risks of retrenchment?

Loss of skills, reduced capacity and low morale can weaken long-term competitiveness. Over-cutting costs may reduce quality, meaning survival is short-term without a recovery plan.

How did Marks & Spencer use retrenchment?

M&S closed unprofitable stores to cut fixed costs and improve cash flow, allowing focus on food and online sales. However, closures reduced physical presence and caused job losses.

How has BT used retrenchment?

BT used retrenchment through large-scale job cuts and cost reduction programmes to respond to falling revenues and increased competition. Reducing labour costs improved short-term profitability and cash flow. However, job losses risked lowering service quality and losing skilled workers, which could harm long-term competitiveness in a technology-driven industry.

What is Vertical Integration?

Vertical integration occurs when a firm merges with or acquires a business at a different stage of the production process.

It allows firms to control more of the supply chain, reducing dependency on external suppliers or distributors.

It can be forward or backward.