Stability strategy implies continuing the current activities of the firm without any significant change in direction. If the environment is unstable and the firm is doing well, then it may believe that it is better to make no changes. A firm is said to be following a stability strategy if it is satisfied with the same consumer groups and maintaining the same market share, satisfied with incremental improvements of functional performance and the management does not want to take any risks that might be associated with expansion or growth.
Stability strategy is most likely to be pursued by small businesses or firms in a mature stage of development.
Stability strategies are implemented by ‘steady as it goes’ approaches to decisions. No major functional changes are made in the product line, markets or functions.
However, stability strategy is not a ‘do nothing’ approach nor does it mean that goals such as profit growth are abandoned. The stability strategy can be designed to increase profits through such approaches as improving efficiency in current operations.
Why do companies pursue a stability strategy?
1) the firm is doing well or perceives itself as successful
2) it is less risky
3) it is easier and more comfortable
4) the environment is relatively unstable
5) too much expansion can lead to inefficiencies
Situations where a stability strategy is more advisable than the growth strategy:
a) if the external environment is highly dynamic and unpredictable
b) strategic managers may feel that the cost of growth may be higher than the potential benefits
c) excessive expansion may result in violation of anti trust laws
Types of stability strategies;
1) Pause/Process with caution strategy – some organizations pursue stability strategy for a temporary period of time until the particular environmental situation changes, especially if they have been growing too fast in the previous period. Stability strategies enable a company to consolidate its resources after prolonged rapid growth. Sometimes, firms that wish to test the ground before moving ahead with a full-fledged grand strategy employ stability strategy first.
2) No change strategy – a no change strategy is a decision to do nothing new i.e continue current operations and policies for the foreseeable future. If there are no significant opportunities or threats operating in the environment, or if there are no major new strengths and weaknesses within the organization or if there are no new competitors or threat of substitutes, the firm may decide not to do anything new.
3) Profit strategy – the profit strategy is an attempt to artificially maintain profits by reducing investments and short-term expenditures. Rather than announcing the company’s poor position to shareholders and other investors at large, top management may be tempted to follow this strategy. Obviously, the profit strategy is useful to get over a temporary difficulty, but if continued for long, it will lead to a serious deterioration in the company’s position. The profit strategy is thus usually the top management’s short term and often self serving response to the situation.
In general, stability strategies can be very useful in the short run, but they can be dangerous if followed for too long.