When times get tough, businesses and individuals alike often respond in one of two ways. They either lay people off or increase production to make up for the lack of demand. The result is the same though: Both a poor reputation and decreased revenue occur. No matter what your business or industry, retrenchment can have serious consequences. If you operate in manufacturing, food services, retail, or any other industry that requires constant expansion and contraction—you might want to look out for retrenchment signs. Retrenchment may mean laying people off or increasing production to keep up with demand — but it has different meanings for every company and industry. Here are some important tips on dealing with retrenchment:
Be transparent about the reasons why you’re retrenching
Transparency is essential to any business that wants to avoid retrenchment. Retrenchment is not an option — it’s the result of hard decisions. Business executives must be transparent about the reasons why they make decisions that affect the market performance of their company. When a company makes changes to its operations or staffing levels, it should be upfront about why those decisions were made. This helps employees and customers understand the business and gets rid of the guesswork that is often involved with market expansion.
Stand firm on your production and demand targets
No matter what your industry, business, or company size, it’s essential to set and maintain production and demand targets. Doing so will help you stay focused and avoid making costly mistakes. When customers start to demand something you don’t have in stock—or when demand starts to outstrip supply—you have three options: increase production, increase customer demand, or reduce costs. However, none of these is a sure-fire way to deal with retrenchment. You have to choose carefully because any of them could hurt the business.
Know when to retrench and when to continue investing in growth
As you start to experience cash flow shortfalls or revenue losses, it’s natural to wonder what you can cut back on. This is a critical decision point for managers. It’s their duty to make difficult but necessary choices that will help the business succeed. Among the most difficult decisions a business executive can make is when and how to cut back on operations. Keeping production and demand targets will help you make informed decisions. You’ll know exactly how much to reduce production and how much to expand demand. This is crucial because it will allow you to make smart, profitable decisions without being coerced into making rash and unprofitable choices.
Look for other opportunities to reduce cost, increase efficiency, or abandon market expansion
As tempting as it is to keep expanding your business, sometimes it’s best to look for other opportunities to reduce cost, increase efficiency, or abandon market expansion. Retrenchment may feel bad now, but in the long run, your business will be all the better for it. You’ll have focused and more profitable units to operate since you’ll have less money to spend on unproductive or unnecessary expenses. You could also find that other industries are looking for suppliers or manufacturers. Since you’re already in that industry, you could benefit from a reduced retrenchment rate.
Ultimately, retrenchment is a choice that a business makes when it runs out of other options. Whether it’s cutting back on marketing or laying people off, you have to ask yourself: Is this fair to my customers, employees, and investors? Yes, retrenchment is a decision made by management, not shareholders, and it’s generally bad. If you operate in manufacturing, food services, retail, or any other industry that requires constant expansion and contraction—you might want to look out for retrenchment signs.