Ingredients of the Grand Retrenchment Strategy

Following are the important ingredients of the Grand Retrenchment Strategy:

a.         Turnaround Strategy:

This strategy aims at improving the efficiency of the firm by turning around its resources. This can be brought about by reducing assets, achieving cost reduction and increasing revenues.

Focus in Turnaround strategy:

Restore money-losing businesses to profitability rather than divest them.

Objective of Turnaround strategy:

Get whole firm back in the black by curing problems of those businesses in portfolio responsible for pulling down overall performance.

E.g. of Turnaround Strategy:

1.         Cost Management: In order to reduce the vulnerability of the company to the operational factors like drop in volumes, the company proposes to go for a major cost reduction drive so that the breakeven point is achieved at a much lower rate. To this effect the company has set a very aggressive cost reduction target covering three main areas: direct material cost, conversion cost and fixed cost. A cut down in the conversion cost will entail productivity improvement as well as waste reduction whereas a slash in the fixed cost will include mainly manpower cost reduction and financial cost reduction in terms of reducing the cost of capital borrowed.
2.         Quality Management: It is also attempting to make long-term impact through manufacturing and management initiatives. For example, in order to improve quality, Telco has adopted the Six Sigma quality enhancement standards aiming at improving the reliability, durability and quality of the product. Further, it has embarked on implementing kaizen initiatives across the company, which also aims at cost-effectiveness.
3.         Financial Restructuring: The initiatives for financial restructuring can be clubbed mainly under keeping borrowings under control, making strategic disinvestments and improvement in the risk profile, under which it proposes to reduce the cost of funds by retiring high cost debt, reducing the working capital days and putting efficient credit control systems. The company achieved cost reduction of Rs 300 crore last year, which it expects to continue this fiscal also.
Infact, this focus on the financial management has been a continuous exercise for the last two years. So, the company could bring down the capital employed from Rs 7206 crore in the financial year 1999 to Rs 6253 crore in the financial year 2001.
4.         Organisational Renovation: Telco has started efforts towards right sizing by bringing down manpower by 11,500 over the last three years. The company will be concentrating both on asset and business restructuring besides cost cutting. While, marketing activity will be pepped up in the commercial vehicle line of business, non-vehicular businesses like reconditioning, providing transport solution and spares will be focused upon to reduce the cyclically of the business.
5.         Product Realignment: The company plans to achieve increase the volume by targeting both new product development and aggressive marketing. Says Mr. Ravi Kant, ” We will place more emphasis on new product development as it is expected to make a major difference to ward off competition.”
In the commercial vehicle segment, the company had already adopted the strategy of new product development by launching two new variants. In the current fiscal, the company has already lined up a whole range of products to roll out in the market in the next five months. This will be across all product segments ranging from two tonne to 40 tonne trucks.