Stability strategy is a strategy in which the organization retains its present strategy at the corporate level and continues focusing on its present products and markets. The firm stays with its current business and product markets; maintains the existing level of effort; and is satisfied with incremental growth. It does not seek to invest in new factories and capital assets, gain market share, or invade new geographical territories. Organizations choose this strategy when the industry in which it operates or the state of the economy is in turmoil or when the industry faces slow or no growth prospects. They also choose this strategy when they go through a period of rapid expansion and need to consolidate their operations before going for another bout of expansion.
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It’s not easy to identify organizations that are pursuing a stability strategy, if for no other reason than that few top executives are willing to admit it. In US, growth tends to have universal appeal, and retrenchment is often accepted as a necessary evil. Moreover, the active pursuit of stability can result in management is being considered complacent or even smug.
A stability strategy involves maintaining the status quo or growing in a methodical, but slow, manner. Organizations might choose a stability strategy for a number of reasons. For instance, if a company is doing reasonably well, managers may not want the risks or hassles associated with more aggressive growth. This is often the case in small, privately owned businesses, which constitute the largest group likely to adopt strategies for stability.
For example, Bob Sidell started California Cosmetics after formulating special cosmetics to cope with the skin problems of teenage actors appearing in the TV show The Waltons. Within 3 years, Sidell and his partner, Paula Levey, had developed their mail order operation into a company with annual sales of $10 million. Such fast growth, though, brought botched orders, rising complaints, and returns and non deliveries in the 17 percent range. After some initial cutbacks to gain stability, the company plans to grow much more slowly. “We’ll probably never be the richest folks on the block,” says Levey. “But we’re going to be around years from now.” Another major reason for choosing stability is that it provides a chance to recover. An organization that stretched its resources during a period of accelerated growth’ may need to attain stability before it attempts further accelerated growth. On the other hand, if managers believe that growth prospects are low, they may choose a stability strategy in an attempt to hold on to current market share. (Worsening situations, however, may call for defensive strategies.) Finally, a stability strategy may even occur through default if managers are unconcerned with their strategic direction.
Approaches to Stability Strategy
There are various approaches to developing strategies for stability. The Management has to select the one that best suits the corporate objective. Some of these approaches are discussed below. In all these approaches, the fundamental course of action remains the same, but the circumstances in which the firms choose various options differ.
- Holding Strategy: This alternative may be appropriate in two situations: (a) the need for an opportunity to rest, digest, and consolidate after growth or some turbulent events – before continuing a growth strategy, or (b) an uncertain or hostile environment in which it is prudent to stay in a “holding pattern” until there is change in or more clarity about the future in the environment. With a holding strategy the company continues at its present rate of development. The aim is to retain current market share. Although growth is not pursued as such, this will occur if the size of the market grows. The current level of resource input and managerial effort will not be increased, which means that the functional strategies will continue at previous levels. This approach suits a firm, which does not have requisite resources to pursue increased growth for a longer period of time. At times, environmental changes prohibit a continuation in growth.
- Stable Growth: This alternative essentially involves avoiding change, representing indecision or timidity in making a choice for change. Alternatively, it may be a comfortable, even long-term strategy in a mature, rather stable environment, e.g., a small business in a small town with few competitors. It simply means that the firm’s strategy does not include any bold initiatives. It will just seek to do what it already does, but a little better. In this approach, the firm concentrates on one product or service line. It grows slowly but surely, increasingly its market penetration by steadily adding new products or services and carefully expanding its market.
- Harvesting Strategy: Where a firm has the dominant market share it, may seek to take advantage of this position and generate cash for future business expansion. This is termed a harvesting strategy and is usually associated, with cost cutting and price increases to generate extra profits. This approach is most suitable to a firm whose main objective is to generate cash. Even market share may be sacrificed to earn profits and generate funds. A number of ways can be used to accomplish the objective of making profits and generating funds. Some of these are selective price increases and reducing costs without reducing price. In this approach, selected products are milked rather than nourished and defended. It yielded large profits under careful management
- Profit or Endgame Strategy: A profit strategy is one that capitalizes on a situation in which old and obsolete product or technology is being replaced by a new one. This type of strategy does not require new investment, so it is not a growth strategy. Firms adopting this strategy decide to follow the same technology, at least partially, while transiting into new technological domains. Strategists in these firms reason that the huge number of product based on older technologies on the market would create an aftermarket for spare parts that would last for years. As with most business decisions, timing is critical. All competitors eventually must shelve the old assets at some point of time and move to the new product or technology. The critical question is, “Can we make more money by using these assets or by selling them?” The answer to that question changes as time passes.