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CS Professional · Strategic Management and Corporate Finance · Strategic Analysis and Planning

A listed Indian company's loss-making division has weak prospects. Management first plans a turnaround through cost cutting and asset reduction, but if that fails within a set period it will sell the division, and if no buyer comes it will wind it up. Which statement best describes this approach?

It is a retrenchment strategy. Turnaround, divestment and liquidation are its recognised forms, and the firm applies them in sequence as fall-backs, with liquidation only as the last resort. It is neither stability nor expansion, since the scope is being reduced.

  1. AIt is a retrenchment strategy that sequences turnaround, divestment and liquidationCorrect
  2. BIt is a stability strategy because scope is unchanged
  3. CIt is an expansion strategy through related diversification
  4. DIt is a pure liquidation strategy from the outset

Explanation

Turnaround, divestment and liquidation are the three forms of retrenchment, and here they are used in a planned sequence as fall-backs. Stability would keep scope unchanged, which is not the case. Expansion is absent, and liquidation is only the last resort, not the starting point.

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