Portfolio Restructuring


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The second part of the turnaround strategy is the shedding of unrelated assets, identifying slow and non moving stocks shifting emphasis within the current assets portfolio and maybe even outsourcing production if it results in reduction of costs.

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The restructuring need not be one way. If it makes sense to acquire businesses, say, raw material production companies for efficient process, such acquisition should be considered.

 

Is the era of diversification as a strategy as a strategy over? Diversification as a growth strategy was relevant in the permit raj. The diversified conglomerate is seen as a relic of the licence raj when strict MRTP controls forced corporates to venture into new areas in order to grow. The first four decades saw the rise of conglomerates like Century Textiles, JK Corp, Indian Rayon. But what was a panacea for growth became brimstone in the neck under the liberalized regime of the nineties. Lacking in focus and saddled with un-remunerative assets, the erstwhile giants were not equipped to combat the emergence of global sized competitors. Many a blue chip fell by the wayside in this decade. Recessionary pressures forced restructuring processes very often cutting down and hiving out businesses which were not relevant to  the corporate growth strategy.

 

The classic case of a diversified company unable to respond to the liberalization processes will be Voltas. The company was the manufacturer of Air Conditioners, refrigerators, Turnkey projects engineering services, washing machine, fruits drinks the list goes on. The strategy of diversification worked till the advent of liberalization. The lack of focus, limited accountability across dispersed facilities, high employee cost and high degree of inoperative assets required a surgical response.

 

The core of the strategy of turnaround in Voltas seems to be:

 

  • To identify the businesses in which the company has in built strengths
  • To hive off non core businesses
  • To relocate excess labour due to the downsizing of operations.
  • To fund voluntary retirement schemes (VRS) to shift the excess labour

 

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We, at BMS.co.in, believe in sharing knowledge and giving quality information to our BMS students. We are here to provide and update you with every details required by you BMSites! If you want to join us, please mail to contact@bms.co.in.

49 Comments

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