Retrenchment strategy is a strategy that is geared towards reducing expenditures; withdraw products or services from the market and to reduce the size of diversity. Retrenching strategy is also known as downsizing and cutback initiatives. The many challenges that are associated with retrenching are as follows:
Growth decline.
Smaller workforce.
Inability to meet consumer demands with smaller workforce.
Lack of diversity.
Decrease in profitability.
Retrenching consequences are "commonly divided into financial, organizational, and human effects (Gandolfi, 2006). Sadly, the picture of reported financial effects following downsizing is a bleak one (Gandolfi & Neck, 2008). A multitude of studies has demonstrated that while some firms have reported financial improvements from downsizing, the vast majority of downsized organizations have failed to reap the anticipated improved levels of efficiency, productivity, profitability, and competitiveness" (Cascio, 1993; Sahdev, 2003; Macky, 2004). The adoption of downsizing is not only expected to generate financial benefits through a direct increase in shareholder value, but to produce organizational benefits, including lower overheads, less bureaucracy, smoother communications, faster decision-making, and increased levels of employee productivity (Burke & Cooper, 2000). While there is some evidence of firms reaping positive outcomes (Macky, 2004), the majority of findings suggests that the adoption of downsizing often falls short of the objectives (Cascio, 1998; Gandolfi & Neck, 2008).