Defensive Strategies 2019

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24 Mar 202002:34

Summary

TLDRThis video explores three defensive strategies for companies to protect their competitive position: retrenchment, divestiture, and bankruptcy. Retrenchment involves asset reduction, exemplified by Walgreens' 2018 restructuring plan. Divestiture is the sale of company parts, as seen with Bayer's decision to sell off its animal health business and other brands. Bankruptcy has two forms: Chapter 11, which allows for reorganization, like Sears' 2018 filing, and Chapter 7, leading to total liquidation and the company's dissolution.

Takeaways

🔒 Defensive strategies are employed by companies to protect their current competitive position rather than to grow or enhance it.
📉 Retrenchment involves asset reduction, which can include layoffs, warehouse consolidations, and store closures, as seen with Walgreens in 2018.
💡 The goal of retrenchment is to create a leaner operating model, which can help companies counteract margin pressure and invest in future growth.
💸 Divestiture is the act of selling a part of a company or a division to regain investor trust, as demonstrated by Bayer's decision to sell off parts of its business in 2018.
📉 Bankruptcy is a defensive strategy used when a company is unable to pay off its debts, with Sears filing for Chapter 11 in late 2018 as an example.
🏬 Chapter 11 bankruptcy allows a company to reorganize under court protection, while Chapter 7 leads to total liquidation and the end of the company.
🛒 The rise of online retail was a significant factor in Sears' financial struggles, highlighting the impact of digital competition on traditional retail.
🏠 Asset reduction can also involve selling real estate, which Sears attempted as part of its efforts to stay afloat.
🏢 Companies may close unprofitable stores to maintain profitability, as Sears planned to close 188 more stores by the end of 2018.
🌐 The script illustrates how companies use defensive strategies to adapt to market changes and financial challenges.

Q & A

What is a defensive strategy in the context of business?
-A defensive strategy is a business approach where a company aims to protect its current competitive position rather than enhance or strengthen it. It is the opposite of a growth strategy.
What are the three types of defensive strategies mentioned in the video?
-The three types of defensive strategies mentioned are retrenchment, divestiture, and bankruptcy.
What is retrenchment and how did Walgreens implement it?
-Retrenchment is a defensive strategy that involves asset reduction or restructuring. Walgreens implemented it by announcing a $1 billion restructuring plan in December 2018, which included layoffs, warehouse consolidations, and store closures.
Why did Walgreens undertake the retrenchment strategy?
-Walgreens undertook the retrenchment strategy to counteract margin pressure and create a leaner operating model to facilitate future investments and move the company forward.
What is divestiture and how did Bayer demonstrate it?
-Divestiture is a defensive strategy where a company sells a part of its business or a division. Bayer demonstrated this by announcing the sale of its animal health business, Coppertone sunscreen, and doctor Scholl's footwear products in December 2018.
What was the reason behind Bayer's divestiture strategy?
-Bayer's divestiture strategy was an effort to win back investors' trust after a series of setbacks, including a significant drop in their share price.
What are the two forms of bankruptcy discussed in the video?
-The two forms of bankruptcy discussed are Chapter 11 bankruptcy, which involves court protection and a reorganization plan, and Chapter 7 bankruptcy, which involves total liquidation of the company's assets and cessation of its existence.
How did Sears Holdings respond to its financial challenges?
-Sears Holdings responded to its financial challenges by filing for Chapter 11 bankruptcy in late 2018, due to competition from online retail and their inability to pay off a significant amount of debt.
What is the difference between Chapter 11 and Chapter 7 bankruptcy?
-Chapter 11 bankruptcy allows a company to reorganize and create a plan to steer the company forward, while Chapter 7 bankruptcy involves the total liquidation of the company's assets and its eventual cessation of existence.
What steps did Sears Holdings take after filing for bankruptcy?
-After filing for bankruptcy, Sears Holdings planned to keep profitable stores running but announced the closure of at least 188 stores by the end of 2018, teetering on the edge of Chapter 7 bankruptcy.
Why are defensive strategies important for a company?
-Defensive strategies are important for a company as they help protect its current competitive position, especially during times of financial distress or when facing significant market challenges.

Outlines

00:00

🛡️ Defensive Strategies in Business

This video discusses three types of defensive strategies that companies may employ to protect their competitive position without aiming to enhance it. These strategies are in contrast to growth strategies like mergers, acquisitions, and strategic alliances. The video provides contemporary examples of each defensive strategy: retrenchment, which involves asset reduction and restructuring, as seen with Walgreens' 2018 announcement of a $1 billion restructuring plan; divestiture, the selling off of parts of a company, exemplified by Bayer's decision to sell its animal health business, Coppertone sunscreen, and Dr. Scholl's footwear products in 2018; and bankruptcy, which includes filing for court protection to reorganize, as Sears did in late 2018, and total liquidation, which could have been Sears' fate had they not managed to keep some profitable stores open.

Mindmap

Keywords

💡Defensive Strategy

A defensive strategy is a business approach where a company aims to protect its current market position rather than aggressively seeking to expand or grow. In the video, defensive strategies are contrasted with growth strategies, which include mergers, acquisitions, and strategic alliances. Defensive strategies are employed when a company is looking to consolidate its position or manage decline effectively.

💡Retrenchment

Retrenchment refers to the process of asset reduction, which can involve layoffs, restructuring, or other cost-cutting measures. The video uses Walgreens as an example, detailing their announcement of a $1 billion restructuring plan in December 2018, which included store closures and layoffs to counteract margin pressure and create a leaner operating model.

💡Divestiture

Divestiture is the act of selling a part of a company or one of its divisions. It is a strategic move to focus on core business areas or to raise capital. The script mentions Bayer's decision in December 2018 to sell its animal health business, Coppertone sunscreen, and Dr. Scholl's footwear products as a form of divestiture to regain investor trust after a period of setbacks.

💡Bankruptcy

Bankruptcy is a legal process through which a company is unable to repay its outstanding debts. The video discusses two forms of bankruptcy: Chapter 11, which involves reorganization under court protection, and Chapter 7, which involves total liquidation. Sears is cited as an example of a company filing for Chapter 11 bankruptcy due to competition from online retailers and an inability to pay off substantial debt.

💡Growth Strategy

A growth strategy is a business plan aimed at expanding a company's operations, market share, or product offerings. The video defines growth strategies as the opposite of defensive strategies, including activities like mergers, acquisitions, and strategic alliances, which are designed to enhance a company's competitive position.

💡Competitive Position

Competitive position refers to the standing of a company within its industry relative to its competitors. The video discusses how defensive strategies are used to protect a firm's current competitive position when it is not seeking to grow or enhance its market standing.

💡Margin Pressure

Margin pressure is the financial strain on a company's profit margins, often due to increased competition or cost inflation. In the context of the video, Walgreens faces margin pressure, which prompts the company to adopt a retrenchment strategy to streamline operations and reduce costs.

💡Restructuring

Restructuring is a broad term that encompasses various changes made within a company to improve its financial health or strategic direction. The video uses Walgreens' $1 billion restructuring plan as an example, which includes layoffs and store closures to create a more efficient business model.

💡Liquidation

Liquidation refers to the process of converting assets into cash, often as part of a bankruptcy proceeding. The video explains Chapter 7 bankruptcy as a form of total liquidation, where a company sells all its assets and inventory, leading to the cessation of its existence.

💡Strategic Alliances

Strategic alliances are partnerships between two or more companies to achieve common business objectives. The video mentions strategic alliances as part of growth strategies, which are different from the defensive strategies that focus on protecting the company's current position.

💡Joint Ventures

A joint venture is a business arrangement where two or more companies collaborate on a specific project. The video includes joint ventures as an example of a growth strategy, which is aimed at expanding a company's operations or market reach, in contrast to defensive strategies.

Highlights

Defensive strategies are defined as actions taken by a company not to enhance but to defend its current competitive position.

Growth strategies, which are the opposite of defensive strategies, include mergers, acquisitions, strategic alliances, and joint ventures.

Retrenchment is a defensive strategy involving asset reduction and restructuring.

Walgreens announced a $1 billion restructuring plan in December 2018 to counteract margin pressure and streamline operations.

Divestiture is a defensive strategy where a company sells a part of itself or a division.

Bayer exemplified divestiture by announcing the sale of its animal health business, Coppertone sunscreen, and Dr. Scholl's footwear products in December 2018.

Bankruptcy is another form of defensive strategy, with two forms: reorganization and total liquidation.

Sears filed for Chapter 11 bankruptcy in late 2018, seeking court protection and a reorganization plan.

Chapter 7 bankruptcy involves a firm filing for total liquidation, selling all assets, and ceasing to exist.

Sears Holdings, parent company of Sears and Kmart, planned to keep profitable stores open while closing 188 more by the end of 2018.

The video provides current examples of defensive strategies, emphasizing their importance in business today.

Retrenchment aims to create a leaner operating model, allowing for future investments and growth.

Divestiture is used by companies to regain investor trust after setbacks, such as a drop in share price.

The transcript highlights the difference between growth and defensive strategies in business.

Bankruptcy as a defensive strategy is a last resort for companies unable to pay off significant debt.

The video discusses the impact of online retail on traditional retailers like Sears, leading to bankruptcy.

The transcript provides a working definition of defensive strategies and their types in the context of business.

Walgreens' restructuring plan includes layoffs, warehouse consolidations, and store closures to streamline operations.

Bayer's divestiture decision was part of a broader effort to focus on core business areas and improve financial performance.

Sears' bankruptcy filing was a response to competition from online retailers and a significant debt burden.

The transcript outlines the steps companies take when considering bankruptcy, including reorganization and total liquidation.