Harvest Strategy
Optimize cash flow from a declining business
The harvest strategy involves optimizing cash flow from a declining business by eliminating or severely curtailing new investment, cutting maintenance of facilities, and taking advantage of residual strengths.
- A firm must have a clear understanding of its cash flow and residual strengths to implement a harvest strategy successfully.
- The harvest strategy requires a focus on optimizing cash flow and minimizing investment.
- A harvest strategy can provide a firm with a superior position to divest its business.
- Eliminate or curtail new investmentEliminate or severely curtail new investment in the declining business to optimize cash flow.Pro tipFocus on reducing costs and minimizing investment.WarningThis strategy may not be suitable for firms with high exit barriers or a strong competitive advantage.
- Cut maintenance of facilitiesCut maintenance of facilities to reduce costs and optimize cash flow.Pro tipFocus on reducing costs and minimizing investment.WarningThis strategy may not be suitable for firms with high exit barriers or a strong competitive advantage.
- Take advantage of residual strengthsTake advantage of residual strengths, such as past goodwill, to optimize cash flow.Pro tipFocus on reducing costs and minimizing investment.WarningThis strategy may not be suitable for firms with high exit barriers or a strong competitive advantage.
General Electric
General Electric successfully implemented a harvest strategy in a declining industry by eliminating new investment and cutting maintenance of facilities.
OutcomeGeneral Electric was able to optimize cash flow and divest its business profitably.
Mead Corporation
Mead Corporation also successfully implemented a harvest strategy in a declining industry by taking advantage of residual strengths.
OutcomeMead Corporation was able to optimize cash flow and divest its business profitably.
Failure to recognize decline
Firms that fail to recognize decline may not take timely action to adapt their strategy, leading to a loss of competitive advantage.
Engaging in a war of attrition
Firms that engage in a war of attrition with competitors having high exit barriers may lead to disaster, as these competitors will not yield position without a significant investment.
Harvesting without clear strengths
Firms that harvest without clear strengths may collapse, as customers quickly take their business elsewhere once marketing or service deteriorates or prices are raised.
The harvest strategy is based on the idea that a firm can maximize its net investment recovery from a declining business by selling it early in decline or by harvesting and selling it later.
Source · BOOK
Competitive Strategy