Every time you can not go ahead as you desired. As we know that current objective of every business is to create value. Even in the current scenario where organisations are incurring huge loss but due to value creation and future prospective investors are still relying on them. One of best example can be given here is Flipkart. The company is in operating loss but the current market value of the company is $5 billion to 11 billion. From last year its valuation getting downward as the major investors are in a panic and downgrading its valuation.The main reason behind the downgrading is increasing market share of Amazon and E-bay in Indian Market. The second is the operating loss.The company has missed the golden chance for their IPO when the valuation was at the Top level.There are six companies are registered in the name of Flipkart and the three has large charges on their assets. Simply incurring huge interest cost as well.
We are not going much deeply in this project, we will simply talk about the phases of Retrenchment Strategy.(Because we don't have financial records available for better analyse but these pieces of information(finance) are taken from newspapers)
Retrenchment strategy is not so popular strategy because everyone is looking for expansion. But as we know that the current environment is so complex, dynamic and hostile sometimes it is better to pull off your legs. And this will stop you to fall in the pit.Retrenchment strategy is simply a diagnose tool.
Firstly if the followings things are happening in your company then you should think that, are we going in right direction?
1) High labour turnover Ratio
2) Incurring Operating Loss
3) Persistent negative cash flow
4) Declining Market Share
5) Deterioration in the physical facilities
6) Uncompetitive products and services
7) Mismanagement
It is wrong to say that retrenchment strategy means the liquidation of the entity. However, this also forms part of retrenchment strategy and is the last resort where other phases of retrenchment strategy not working out.
The first phase of retrenchment strategy is Turnaround Phase
In Turnaround phase, we look internally and find the cure.
In Turnaround strategy emphasis is laid on improving internal efficiency. For making turnaround strategy successful, it is imperative to focus on the short and long term financing needs as well as on strategic issues. A Turnaround plan include analysis of
1) Product - Flipkart is an e- commerce company. Currently working as an intermediate party for the seller and the buyer.
2) Market- In e- commerce, the world becomes a market. But specifically, the hold and priority define the market in e-commerce.The main future reason for declining in the revenue of Flipkart would be 'static' in nature. They don't review their product prices. If in local market consumer is getting the same product at lower price, then why he would choose e- commerce company.
3) Production Processes- If we see deeply then we realise that the Flipkart current focus is in improving its logistics. They want to reduce the supply cost and may be in future can utilise for servicing other company. Flipkart needs to think some innovative and creative ideas to enhance customer satisfaction. For example, they should place their review( Here is mean that Flipkart True Review) on the product so that customer will buy without fear of inferior product or shown product is different from receiving product. The other example can be taken that in Myntra add functions that suggest clothes as per your body.It's all about current need and tackling it with innovation with creativity.
4) Competition- The tough competition is from Amazon. A US-based giant who has forex support as well. Simply if they invest 1000 US dollar in India resulting approx. 67000 rupees in India.They have more Investment to stay in the market. Other competitors are e-bay and shop clues. But currently these e- commerce companies are incurring losses as well.
5) Market Segment Positioning- In e-commerce world market positioning can be changed rapidly. Flipkart is a well-known e-commerce site in India. The most awkward situation is when the product gets its popularity, they opt to launch their product on their own website reducing revenue for Flipkart.
6) Market Place- The current marketplace for Flipkart is India. This is a huge market and company is not in the position to expand its business outside India, but there is still a good opportunity for Flipkart to give tough competition in foreign as well.
7) Production Logic- Sometimes it's better to change yourself. Flipkart should change its intermediate position into the direct position where a new good product is launched. For example, if an unpopular brand releases a good product( A product which has good potential).Flipkart may purchase all stock at lower price stating their brand name. It would result in higher revenue for the Flipkart.
8) Implementation of Plan- The Flipkart should review its current plan and bifurcate into value added and non-value added plan.
9) Feedback-This is the most important pillar for any company. The company should have a separate eye for the feedback system.Feedback can give you new ideas for the business. Because Innovation is generated by need.
After analysing aforesaid issues the remedial action should be initiated.
A set of 10 elements that contribute to turnaround are:
1) Change in Top Management
2) Initial credibility building action
3) Neutralising external pressure
4) Initial control
5) Identifying quick payoff activities
6) Quick cost reduction
7) Revenue generation
8) Asset liquidation for generating cash
9) Mobilisation of the organisations
10) Better internal coordination
These 10 elements are so deep and need to analyse separately. Where is company lacking and needs improvement?
In currently Flipkart becomes a partially question mark or problem child having a good market share but need heavy continue investment with the low potential to generate cash. It may become a cash trap if necessary steps will not be taken.
To be continued......
