Managerial emphasis on Divestment Strategy

Divestment Strategy
Divestment involves a strategy of selling off or shedding business operations to divert the resources, so released, for other purposes. Selling off a business segment or product division is one of the frequent forms of divestment strategy. It may also include selling off or giving up the control over a subsidiary where by the wholly owned subsidiaries may be floated as independently quoted companies .

Reason for Divestment Strategy
1. In case of a firm having an opportunity to get more profitable product or segment but have resource constrain, it may selling off it’s unprofitable or less profitable division and utilised the recourse so released. Cost Benefit Analysis & Capita Budgeting Method are the useful tool for analysing this type of situation.

2. In case of purchase of new business, it may be found that some of the part of the acquired business is not upto the mark. In such type of situation disposal of the unwanted part of the business is more desirable than hold it.

3. In case where any business segment or product or subsidiary is pull down the profit of the whole organisation, it is better to cut down of that operation of the product or business segment or subsidiary.

4. If managing of the organisation is very constrained, it is good to dispose off the unwanted and undesirable activity of the organisation, which involve large management skill. So that it can concentrated on the core activities of the organisation.

5. In the situation where the firm suffering from loss, selling off or divestment policy is one suitable option to exit in the current position and to go for turn around strategy.
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