Strategic Retrenchment Aspect of Sara Lee: A Critical Evaluation

Introduction
Strategic management is the process in which an organization develops and implements
plans for achieving the organizational goals and objectives. A successful strategic management
process must involve managers and employees. The context of strategic management is
concerned with the character and direction of the enterprise. This case study discusses Sara Lee’s
retrenchment strategy concept. This strategy is adopted when an organization aims to minimize
its cost by reducing one or a few business operations for achieving a stable financial position. In
the given case study, Sara Lee started a small company of wholesale distribution that became
larger with time, geographically and operationally. However, it was analysed that the shareholder
value did not increase. Therefore, Sara Lee decided to divest eight business units for increasing
operating profit and sales. It divested the less profitable industries and shifted its focus on food
and beverage. This report shall critically evaluate the strategic retrenchment aspects of the
company. Moreover, an analysis about the implications of Sara Lee’s macro-environment using
PESTEL framework shall be made. At the end of the section, a set of recommendations of the
strategic planning cycle regarding the organization’s market and financial performance in Oman
shall be determined.
Critical Evaluation of Strategic Retrenchment Aspect
Retrenchment Strategy is required by a company to reduce their expenditure in order to
be more profitably stable. The financial stability is always the goal of a company and
retrenchment strategy helps in achieving the same. This involves withdrawal of certain products
or pulling out from a precise market and also sometimes discontinuing from the whole market.

This is done to make a financial turnaround. Sara Lee Corporation also used these retrenchment
strategies for stabilising their financial issues (Gamble and Thompson 2014).
Sara Lee developed these strategies to make sure that the companies focus is primarily on
the optimum utilization of its resources to make it more profitably stable. They wanted to focus
on the products which have been more profitable and would provide strength to the company’s
financial status. Few years ago, the operating quality of the company was not as progressive as it
was supposed to be. Sara Lee’s management then came up with the policy to support Sara Lee’s
overall performance financially. Sara Lee divested some of their units from the market which
included direct sales, meats in Europe and The United States, US retail coffee, Nuts and snacks
(European) and other European products. The expected revenue to be obtained from the divested
business was around $3 Bn. The net profit margins and operating margins from five out of eight
businesses were negative. Four out of these five businesses had margin greater than negative
10%. Rest of the businesses also kept on declining and that is why the divestment strategy was
developed. Sara Lee’s goal was to increase the profit margin, so they had to prioritise the sale of
their beverages and goods used in households which were the areas where profit was marginally
more.
They also did something very innovative and it was really influential in 2008. They
launched “Project Accelerate”, a program framed for reduction of cost and increase their
productivity. Sara Lee started focussing on their overhead cost, reframing their supply chain and
outsourcing. This program was planned to save approximately $400 million by the end of 2012
and in 2010 only, this project saved approximately $180 million. Then the management decided
to buy back shares worth $3 billion within a three year period. Sara Lee’s revenue at the end of

year 2010 was around $10.8 billion and then they decided to disassociate their international body
care and household business (Tangpong, Abebe, and Li 2015).
Their spinoff with Hanes brand Inc. was also a very bold move but eventually it was not
as successful as it was projected by Sara Lee. The operating profit was still the support system of
the company. This step could not strategically be called a deal breaker. The retrenchment plans
was also a major part of their financial decisions. The company still lacked a lot of cash flow for
their expansion programs and other projects. Other companies are also trying to compete with
Sara Lee Corporation because they have been renewing the trends as far as the beverages and
food products are concerned and Sara Lee has been struggling with the cash flow issues.
Implications of Macro-Environment
Sara Lee’s business units are affected by the external factors that can be analysed using
the PESTEL framework:
Political Forces- Political forces can be defined as the regulatory forces and legislations
that affect the company. Sara Lee has a vast portfolio of companies from different industries.
They deal in food and beverage, food processing, household products and multiple other
categories that are governed by different regulatory bodies. Moreover, Sara Lee has business in
over 40 countries such as Europe, America, Oman and others. Due to increased globalization, the
business pattern and revenue is dependent on the taxation system of different countries.
Economic Forces- The economic forces include the factors such as recession,
unemployment, exchange rate fluctuations and other economic factors. It is analysed that the
world is affected by global recession. The disposable income of the consumers has declined due