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CMA Intermediate · Operations Management and Strategic Management · Strategic Analysis and Strategic Planning

A company that is making losses due to high costs and weak operations launches a plan to cut expenses, reduce staff in non-critical areas and improve efficiency, aiming to restore profitability while staying in the same business. Which strategy is this?

This is a turnaround strategy. It is a retrenchment approach in which a loss-making firm cuts costs, trims non-critical staff and improves efficiency to restore profitability while staying in the same business, rather than selling or closing it.

  1. ATurnaround strategyCorrect
  2. BExpansion through merger
  3. CPause or proceed with caution strategy
  4. DProfit strategy

Explanation

A turnaround is a retrenchment strategy that tackles operating inefficiency through cost reduction and restructuring so the firm recovers while remaining in the business. A profit strategy is a stability approach for temporary downturns, whereas this firm faces serious operational problems needing a recovery plan.

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