DEFENSIVE STRATEGIES AND FIRM'S DEMISE … STRATEGIES AND FIRM'S DEMISE AVOIDANCE: EVIDENCE FROM SELECTED OIL AND ... Liquidation and Captive Company Strategy. ... form of turnaround,

DEFENSIVE STRATEGIES AND FIRM'S DEMISE AVOIDANCE: EVIDENCE FROM SELECTED OIL AND GAS COMPANIES IN

NIGERIA

JOHN E. CHIKWE, PH.DAND

ISAAC ZEB-OBIPI, PH.D

AbstractDefensive strategies aim at protecting a business strategies' competitive advantage. Defensive strategies strive at holding unto what the manager has, in addition to using competitive advantage to keep or sustain potential customers. The study attempted to empirically establish a relationship and extent of agreement between Defensive Strategies and Firm's Demise Avoidance in selected oil and gas companies in Nigeria. The study adopted a cross-sectional design and copies of Likert 5-type scaled measure questionnaire were administered to statistically selected 20 companies quoted in Nigerian Stock Exchange (NSE), operating in South-South and South-East geopolitical zones of Nigeria. The unit of analysis was at the organizational level, making use of 110 statistically selected top and middle-level managers occupying strategic positions in strategic departments or units. Descriptive and inferential statistical techniques were employed for the analysis of the generated data. The Pearson's Product Moment Correlation technique was employed and the Coefficient Statistic (r) was obtained with the aid of Statistical Package for Social Science (SPSS) Software, Version 20.0. There was a positive correlation and strong statistically significant relationship between dimensions of Defensive strategies (Retrenchment strategies and Divestment Strategies) and Firm's Demise Avoidance measure (Products and Services Value Enhancement). The paper therefore, arrived at the proven fact that the effective adoption of defensive strategies are strategic attempts to regain control of weakening business or preventing it from faltering in the first place, or temporarily restraining or stopping its operations. The paper recommends amongst others that, firms should strictly adopt feasible defensive strategies that will enhance the avoidance of organizational strategic demise.

Key words: Defensive Strategies; Oil and Gas Companies; Retrenchment Strategy; Divestment (Divestiture) Strategy; Products/Services Value Enhancement; Firm's Demise Avoidance; Competitive Advantage

INTRODUCTIONAs organizations battle to grow, they often adopt offensive strategies and moves to guide against prospective or potential competitors. While the growth strategies moves are on, the need arises for the adoption of strategies that will deter or defend against moves that would be made by potential competitors and related business drawbacks as envisaged in oil and gas companies. As applicable to offensive strategies, defensive strategies can help to force competitors back down after a strategic battle.

Defensive strategies are strategic thrusts which aim at holding onto what the manager or strategist has, as well as using competitive advantage to keep competitors and some

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stakeholders at bay. Defensive strategies strive to protect firm's position in the operating environment and marketplace. Such efforts usually take the form of making strategic moves that will put obstacles in the part of potential or expected challengers; in addition to the fortification of the firm's present position, while undertaking relative actions that will dissuade rivals from trying to pose an attack. For instance, such could be in the form of signaling that the resulting battle will be more costly to the challenge than the expected worth of the decision (Thompson, Strickland and Gamble, 2007).

We are aware in this business world or global economy that competition is inevitable, and the threat of competitors and strategic resources are swooping in to steal our customers or our share of the market and profitability. Defensive strategies help to fortify a firm's competitive position, protect its most valuable resources and capabilities from imitation, and sustain whatever competitive advantage it may seem to have. Except for the rare attempt by firm's owners to simplify their lives by shrinking their business size, contraction is usually a defensive responses to adversity (Chikwe, 2016a).

Objectives of the Study

To examine the extent of influence of defensive strategies on avoidance of firm's demise.

To investigate into the relationship between retrenchment strategies and firm's demise avoidance

To assess the extent of influence of divestment (divestiture) strategies on firm's demise avoidance.

Research Questions

To what extent do retrenchment strategies relate to firm's demise avoidance?

To what extent do divestment (divestiture) strategies relate to firm's demise avoidance?

To what extent do defensive strategies relate to firm's demise avoidance

Fig. 1: Conceptual and Operational Framework of Defensive Strategies and Firm's Demise Avoidance in selected Oil and Gas Companies in Nigeria.

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Nigerian Journal Of Oil And Gas Technology - Vol 3 No. 1

HypothesesThe following hypotheses were posited to guide our study and empirical test of the generated data:Ho : There is no significant relationship between retrenchment strategies and 1

products/service value enhancement Ho : There is no significant relationship between divestment (divestiture) strategies and 2

products/service value enhancement.

Theoretical Framework and Review of Relevant Literature The theoretical framework for this study of defensive strategies and firm's demise avoidance from selected oil and gas companies in Nigeria, is anchored on both conceptual and empirical constructs. The conceptual view is based on the examination of the key constructs and frameworks, which have made available a resounding theoretical backdrop. The empirical approach reviews the specific findings from the generated data, which can be used by oil and gas companies and related managers in decision making, solving of the problems and achieving specific objectives of the study.

In order to fend off relevant attacks from potential business operations drawbacks and competitors, most firms strategically tend to adopt defensive strategies in order to avoid firm's demise (Chikwe, 2016a). Most firms accordingly adopt defensive strategies for the purposes of protecting possible challenges or risk of being attacked. Defensive strategies have focus on holding unto what the strategist or manager has, in addition to using the strategic competitive advantage to keep off the competitors. In line with this role, defensive strategies therefore, are strategic directions designed to recoup strength or correct a deficiency in the way the firm is operating (Chikwe, 2016a).

Approaches to Defensive StrategiesChikwe (2016a) suggests that there are two key approaches to defensive strategy in strategic management architecture, and these accordingly are:·Blocking competitors who are aiming or attempting to compete or take over business

market share. In order to prevent this move, the strategist is strictly advised to reasonably cut the products or services price. In addition, he should create values or discounts (for instance, incentives) for the purposes of encouraging customers to buy, or increasing advertising and marketing campaigns.

·The adoption of a more passive approach such as announcing of new products innovations, planning of firm's expansion by opening of new chain or reconnecting with old customers and encouraging them to rescue cordial business relationship.

In fact, this second option or strand is still a way to discourage competition, though, a less-

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Defensive Strategies And Firm's Demise Avoidance: Evidence From Selected Oil And Gas Companies In Nigeria

aggressive, indirect and more relaxed approach as compared to the first approach herein that is active, direct and more aggressive. Nevertheless, there are four basic types of defensive strategies and these include: Retrenchment, Divestiture (Divestment), Liquidation and Captive Company Strategy. There are also other defensive substrategies that are associated with the aforementioned basic defensive strategies.

Retrenchment Strategies Retrenchment strategies are among the grand strategies and can be adopted to impose a great deal of pressure in order to enhance operational performance and organizational effectiveness. The use of retrenchment strategy comes to fore when an organization plans to regroup its operations through costs and profits. Retrenchment can take place in a firm internally or externally. The adoption of internal retrenchment could lead to the adoption of divestment or divestiture strategy. The adoption of retrenchment strategies makes managers to work with limited resources and close marginal businesses to achieve operational efficiency. Wholistically, retrenchment substrategies can take the form of turnaround, divestment, captive company and liquidation (Chikwe, 2016b). In addition, retrenchment strategies as opined by Weston and Brigham (1978) can also be in form of shallow retrenchment or cutback, deep retrenchment and reorganization.

·Shallow Retrenchment: This form signals a response to adverse business conditions and involves cutbacks in company's expenditures in area like, asset investment, and is appropriate and applicable to firms facing cash flow shortage.

·Deep Retrenchment: This involves severe curtailing of operations which invariably serves as a defensive mechanism to avoid firm's demise. Deep retrenchment is also associated with deliberate intention to change part of firm's operational strategy, specifically by surgery in the product, market, or business definition areas.

·Reorganization; This relates to when a firm is getting financially handicapped, and as such the assets tend to be restated in order to reflect the current market value, as well as the financial structure (Weston and Brigham, 1978).

Divestment (Divestiture) StrategiesDivestiture or divestment strategies involve the selling off of division or strategic business unit (SBU) or any major part of an organization in order avoid firm's demise. Divestment also relates to the abandonment of misfit company. Divestment tends to be a popular defensive strategy and it enables the firm to focus on their core businesses, in addition to becoming less diversified. Divestiture can in effect be part of an overall retrenchment strategy in order to rid an organization of businesses that are tending toward an unprofitable venture and nearing demise (David, 2009; Chikwe, 2016b).The three basic types of divestment according to Glueck (1980) are:

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- Sell –Off- Spin-Off- Split – Off

The following guidelines are suggested to be the reasons for adoption of divestment or divestiture strategy (Glueck, 1980; David, 2009; Chikwe, 2016b):- When a division strategically needs more resources in order to be competitive in the

marketplace than the firm can provide.- When a unit of the firm is a strategic misfit.- When changes in technology require or necessitate the investment of more resources in

highly profitable sectors of the organization.

Turnaround Strategies These also are defensive strategies, as well as grand strategies that are necessitated when a business worths rescuing plunges itself into crises, in the area of declining profits, production inefficiencies and innovative breakthroughs by strategic competitors (Grinyer, Mayes, and McKrenan, 1990; Fubara, 2000; Wheleen and Hunger, 2014). Argenti (1976) and Fubara (2000) relatedly opined that, turnaround strategy is needed when a firm is passing through crises periods such as: sluggish sales, shrinking market share, falling profit/earning ratios, product qualifying for divestment, inability to meet financial obligations (insolvent), debts becoming higher than assets, long outstanding debts, inability to buy raw materials, payment of wages and salaries, and so on. Turnaround strategy is adopted in order to achieve cost reduction and drastic asset reduction (Pearce and Robinson, 2005; Pujanen, 2006).Table 1: Turnaround: Revenue generation and cost reduction steps

Increasing Revenue and Values Reducing costs ? Ensure marketing mix tailored in

key market segment ? Review pricing strategy to maximize

revenue. ?

Focus organizational activities on needs of target market sector customers.

?

Exploit additional opportunities for revenue creation related to target market.

?

Invest funds from reduction of costs in new growth areas.

? Reduce labour costs and costs of senior management.

? Focus on productivity ? Reduce marketing costs not focused on

target market

?

Tighten financial controls

?

Establish competitive bidding for suppliers; defer creditor payments; speed up debtor payments.

?

Reduce inventory ?

Eliminate non-profitable products and services.

Source: Adapted from Johnson, G., Scholes, K., and Whittington, R. (2008). Exploring

Corporate Strategy; Text and Cases, Edinburg: Pearson Education Ltd.

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Methodology

The primary data for this study were generated from the responses derived from the Likert 5-type measuring scale and copies of structured research questionnaire. The scale ranged from Very High Extent to Very Low Extent. The copies of the questionnaire were validated and consistency assured and administered to 120 purposively selected top-and middle-level strategic managers from 20 randomly selected oil and gas related companies, quoted on the Nigerian Stock Exchange (NSE), and based in South-South and South-East geopolitical zones in Nigeria. The companies are specifically located in Rivers, Bayelsa, Akwa Ibom, Abia and Imo States of Nigeria, and their top and middle-level managers constituted the population. Six top and middle-level managers in each company's strategic departments/units were purposively selected. In support of the use of purposive sampling method, Haslam and McGarty (1998, in Chikwe, 2012) assert that, such sampling technique enables the researcher to select appropriately, those members of a population who have a definable characteristic and indepth knowledge of the situation. As Baridam (1990) succinctly argued, the nature and purpose of the study should dictate the sampling method to be adopted in any study. In specific, the managers are from Human Resources, Research and Development, Production Engineering, Marketing/ Procurement, and Finance, and Accounts. These made up to 120 respondents and they constituted the study sample size. After data sorting and cleaning, 110 copies of the administered questionnaire were found fit for use in the analysis. The generated data were analyzed using descriptive and inferential statistics. The Pearson's Product Moment Correlation Statistical technique was used in the analyses of the posited hypotheses, with the aid of Statistical Package for Social Science (SPSS), Version 20.0, with a view of achieving the research objectives.

Results of Data Analysis, Findings, and Discussions

·Univariate Analysis

The univariate analysis involves the statistical examination across cases of one variable at a time (Chikwe, 2012). The univariate statistics are used in describing the key features of the generated data, as well as providing simple summaries with respect to the components of the predictor and criterion variables. Sounders, Lewis, and ThomHill (2007) and Troclum (2006), relatedly posit that, it is best to begin exploration or initial inferential analysis of the research data through individual variable and their components. Consequent upon this, we present the results using the respective variable instruments responses, frequencies, arithmetical percentages, weight of scores evaluation and associated mean, standard deviation and variances, using SPSS, Version 20.0.

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Table 2: Respondents' Level of Education

The mean score evaluation dimensions of defensive strategies show that retrenchment strategy has 4.21; standard deviation, .682 and variance, .465. Similarly, divestment (divestiture) strategy has 4.45, .593, and .351 as the mean, standard deviation and variance respectively. On the weighted scores evaluation, retrenchment strategy has 177 points and divestment strategy has 188 points. This implies that, the dominant strategies of implementing defensive strategies in order to avoid firm's demise in the study areas are through retrenchment and divestment strategies. It also signals that more oil and gas companies in the study area use retrenchment and divestment strategies to revamp their organizations in the face of harsh economic conditions being experienced in the business environment.

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Descriptors Products/Services Value Enhancement

N 110

Sum 189

Mean

4.50

Standard Deviation

.595

Variance

.354

Source: Research Data, and SPSS Output, Version 20.0

Table 5 shows that the mean score evaluation on the measure of firm's demise avoidance shows that products and services value enhancement has a mean of 4.50, standard deviation, .595, and variance, .354. The weighted scores sum is 189 points. On this, we may arrive at a strategic decision that products and services value enhancement is the most and appropriate measure of level of operation that will ensure avoidance of oil and gas firm's demise and sustainability in the study area business environment

Results of the test of hypotheses using Pearson's Product Moment Correlation on Defensive Strategies dimensions and measure of Firm's Demise Avoidance (PSVE).

Statistic Retrenchment Strategy

Divestment Strategy

Products / Services Value Enhancement (PSVE)

Retrenchment Strategy (RS) Sig. (2 -tailed) N

Pearson’s (r)

110

110

0.891** 0.000 110

Divestment Strategy Sig. (2 -tailed) N

Pearson’s (r)

110

110

0.765** 0.005 110

Products/Service Value Enhancement (RSVE) Sig. (2 -tailed) N

Pearson’s (r)

0.891**

0.000 110

0.765**

0.005

110

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Conclusion

The study attempted to determine the extent of influence of defensive strategies on continuous profitable existence of oil and gas corporate organizations in Nigeria. This is the major objective of the study. Significantly, the results and findings of our study have strategically demonstrated that defensive strategies statistically correlate with firm's demise avoidance. The study has also provided a clear and strategic understanding on our specific objectives of examining the extent of how defensive strategies can prevent ailing and collapsing oil and gas firms from strategic demise in the study area. The findings are in line with what Chikwe (2016a) argued that, the adoption of retrenchment and divestment (divestiture) strategies are attempts to regain control of weakening business; or prevent it from flattering in the first place, by temporarily restraining or stopping its operations. Based on our data and findings from the results of posited hypotheses analysis, we conclude that there is a positive, significant and strong association or correlation between defensive strategies dimensions (retrenchment strategies and divestment strategies) and firm's demise avoidance measure (Products and Service Value Enhancement) in the study area.

Recommendations

The recommendations of the study were drawn from our study findings and conclusions, which have given a clear indication and understanding of the extent on how defensive strategies

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correlate with firm's demise avoidance. These findings and conclusions also reflect our study specific objectives and filling of knowledge gap. Based on these, the study therefore, recommends among others that, oil and gas firms should strategically adopt defensive strategies that will guide them to focus attention on their core competencies and profitable ventures, in order to enhance corporate existence sustainability and avoid firm's demise.

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Pearce, J.A. and Robinson R.B. (2003). Strategic Management: Formulation, Implementation, and Control. New York: McGraw-Hill Higher Education Companies.

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DEFENSIVE STRATEGIES AND FIRM'S DEMISE … STRATEGIES AND FIRM'S DEMISE AVOIDANCE: EVIDENCE FROM SELECTED OIL AND ... Liquidation and Captive Company Strategy. ... form of turnaround,