Retrenchment is a strategy that seeks to reduce business productivity in order to maintain fiscal solvency. Sometimes, especially during challenging economic times, businesses that proceed full throttle with production might not last very long. In order to endure the valleys in the economic system, retrenchment initiatives might be needed in order to sustain the difficult periods into a brighter economic moment. Some of these initiatives involve scaling down production, cutting back on workforce numbers, or work out bridge financing details with a larger company. The reality is that retrenchment has to be examined as a potential course of action for challenged businesses during even more challenging economic times. Retrenchment takes a pragmatic look at a difficult situation and seeks to make the best of it.
Retrenchment is one potential strategy that firms can use to try to turn themselves around when they are losing profitability. Retrenchment involves cutting back on a firm's activity -- it can mean reducing the level of staffing in the company by laying people off or it can mean getting the firm out of some particular markets in order to concentrate on the firm's core competencies.
One example of this would be when General Motors of the United States stopped producing a number of "makes" of automobile. GM decided that it needed to retrench by concentrating on just a few "makes." It hoped this would help it return to profitability.
Retrenchment is the practice of terminating the employment of a large number of employees in a company or other organization, generally done with the specific objective of reducing total number of employees in a company. It is not quite right to describe retrenchment as a corporate strategy. It is more of one of the means of achieving specific corporate objectives such as cost cutting, out sourcing of some of the operations, or major automation, reduction in total business activities or any other objectives which require substantial reduction in manpower requirements.
Retrenchment can benefit company only when the company is overstaffed, or when it is implementing any other program, which involves substantial reduction in manpower requirement. Of course it is assumed the the basic strategy or objective that give rise to need of retrenchment must also be right for the retrenchment to benefit the company.
About a decade back, the practice of retrenchment, also described as "downsizing" had become kind of fashionable in business and industry across the world. However indiscriminate retrenchment led to problems for many companies. As a result the slick salesmen of "easy to use", "ready-made" management practiced developed the term downsizing with a new one - right sizing. But the fact remains that downsizing or rightsizing, these are only means to an end and not worthwhile objective in themselves.