This article identifies exit barriers as an important consideration in strategic planning and organizational design. Exit barriers are factors which inhibit companies from divesting unprofitable businesses; these barriers arise from the discernable economic characteristics of businesses, corporate strategy choices, information problems, and conflicting goals of managers in deciding to divest. The author describes the major sources of barriers to exit, identifies company situations where they are likely to be important, and verifies their importance in statistical tests with a large sample of divisional businesses from diversified companies. The author also provides managerial recommendations for coping with exit barriers in strategic planning and in designing organizational structure, incentives, and management systems.
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