Strategic management is the art of formulating, implementing and evaluating better functional decision that enables the organization to accomplish its goals. This is an ongoing practice that tries to evaluate and control the business and the industry in which the organization is involved; it also involves it-self in assessing their competitors and setting goals and strategies to meet all existing and potential competitors. Down-scoping, is one of the management strategies where by the organization decides to reduce their diversifically and later strategically concentrate on the core business of the organization (Hoskisson 1994).
For an organization to practice this effectively, it has to analyze on the mode of practices and when they are appropriate to be used in the situation at hand. Basically, there are two main modes of down-scoping, these are; sell-off and spin-offs (Hoskisson 1994).
Sell-off is the most common method of diverstitute used in our organizations today. This is the sale of one or more units of the organization to another organization with no hope to be attached itself to them in any way (Johnson 1996). Where as spin-off, is the involvement of number of transaction through which an organization spins some of its units to another organization with the hope of being linked to the new organization in one way or another?
Previous researches have proven that, it is of more sense to spin-off a business after experiencing a long period of generally positive abnormal returns (Lajoux 2005, Pg 29). This is because, spin off generally earn positive abnormal returns, of which, the returns appear to be moderated by some factors. This is usually practices so as the organization may facilitate it merger adequately, increase its managerial abilities and even to facilitate the growth of the organization.
In this particular situation, sell-off won’t be appropriate for the organization to undertake as it will cause the organization to loose its benefits to another organization forever. This mode will be appropriate to be practiced after a period of poor performance of the organization. This enables the organization to earn a positive returns compared to if and when they could hold on and inquire more and more losses in the organization.
With the idea of sell-off, the organization uses the functional type of strategy. This is where by the organization is broken down into number of units in which every unit has to strive hard in see to it that it accomplishes its goal in the organization. Therefore, whenever a particular unit identifies that it is not as productive as expected in the organization, it can later decide to sell-off that particular unit to another organization. With the mode of spin-off, the organization uses the corporate strategy, in this particular strategy, the organization tries to see in which organization they can do better compared to the way they are doing in present.
In general, we can say that spin-offs performs better than the sell-offs, and the larger the spin-offs the larger the organization’ return (Lajoux 2005, Pg 31). Consequently, sell-offs follows many of the patterns identified with spin-offs and thus earning it a positive abnormal returns in the organization. Therefore, we can say that, for a more effective organization, it should have at least two or more forms of strategies. This will enable it to solve any sort of problem in the organization without much difficulty.
Hoskisson, R. E & Hitt, M.A (1994), Down-scoping: How to Tame the Diversified Firm. Oxford University Press US. Amazon.com
Johnson, R.A (1996), Antecedents & Outcomes of Corporate Re-forcing. Retrieved from http://findarticles.com/p/article/mi_m4256/is_n3_v22/ai_18764056/pg_15 on 5th November 2008
Lajoux, A.R (2005). The Art of M&A Integrating: 2nd Ed. Pg. 22-32.McGraw-hill Professional. Amazon.com