Sara Lee’s Retrenchment Strategy – Detail solution of case

Sara Lee’s Retrenchment Strategy

Introduction:

Sara Lee is a more than 40 years old company. It has its presence in 40 countries. It was started as a small wholesale distribution company but it grew naturally in last 40 years. Currently it is present in food processing, retail food & household products. It is considered as a value conscious company in retail industry.

Due to its presence in various non-related business & its presence in various countries, company is struggling to achieve profits. Revenue was on decline from the year 2005 to 2010. Gross profit was started to decline from 2010.

To get rid of decline in revenue & profit, the company has decided to use retrenchment strategy. It has decided to focus on only high profit making business & sell the loss-making business. They have already sold Hanes brand.

Following are the objectives of these portfolio:

  1. To evaluate retrenchment strategy of Sara Lee.

  2. To study effects of various elements on Sara Lee’s environment.

  3. To provide recommendation for company’s future performance in Oman.

Content & Analysis:

  1. Critical evaluation of the strategic retrenchment aspect of Sara Lee.

Sara Lee is a more than 40 years old company. It has expanded over last 40 years in related & non-related business. But due to its presence in various industries, it is not able to maintain its profits. Profits are reducing day by day & hence the company has decided to use retrenchment strategy.

Retrenchment is a strategy under which organization sell off their low profit or loss making businesses.

Sara Lee has decided to get rid of its low profit making businesses. It has also decided to get rid of its non-related businesses. It has sold Hanes brand even when it was making profit because it was not related to their main core business.

If Sara Lee get rid of its non-related businesses then it can focus on one or few businesses. It will be easy for them to use most of the resource in one direction. Keeping focus on one business can guarantee growth.

By selling non-related businesses, money will flow into the system. This can be invested in technology, used for development of human resources etc. High investment in technology will keep the organization ahead of its competitors. This technology can be useful for its related businesses. Trained human resources will act as assets for any business. They will help the company to improve its product, quality, service etc. This will ensure overall growth of the organization.

The company has declining revenue from 2005 to 2010, after 2010 it started showing upside in revenue. But from June 2010 its started showing downturn in gross profit. This was a result of not focusing on a particular business. The resources of company were involved in many low profit & loss making business. Because of this company was not able to improve its revenue & started losing on gross profits. Retrenchment will ensure all the resources must be provided to highly profitable businesses. This will ensure growth of highly profitable businesses & profits will increase.

Retrenchment ensures few related businesses. This is very favorable in terms of human resources. Trained human resources can be used for other related businesses under requirement. They can be transferred from one business to another whenever required. This will be useful for reducing the attrition in company.

One strong brand can be developed because of similar product lines. Relatively low amount can be spent for brand building activities. It will be easy for customer to recognize the brand easily.

Because of easy skill transfer & common brand building retrenchment will be helpful for cost reduction.

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