A stability strategy, also known as an ongoing growth strategy, is commonly used by most businesses and frequently provides confusing terminology. Most of these companies seek expansion and are not steady over a lengthy period. However, when they implement various changes to their strategies and practices, they attempt to stay in one sector that aligns with their strengths. Therefore, the fundamental approach to stability is to continue in the current direction: as stable as you go.
For a successful stability strategy, businesses will target their resources on areas where they currently have or can create a competitive advantage in the smallest possible market-product scope that is compatible with the company’s resources and market needs,
The most distinctive components of a stabilization strategy are:
- There isn’t a significant alteration in the service, product line, or markets.
- The emphasis is on keeping and developing competitive advantages in line with current market and resource requirements.
- The policy is not just aimed at maintaining the current performance standard but also at ensuring that the pace of improvement that has been in place for a while can sustain.
Reasons to Pursue Stability Strategy
Alongside the fact that stability strategies can change without executives being aware of it, it could be a good choice for different reasons. Therefore, management can justify an approach for stability based on the following reasons:
- The perception of the management regarding the company’s performance could motivate them to implement an approach to stability if managers are happy with the current implementation. They’d want to keep making the same approach. Management might need to determine which mix of decisions is the reason for this. Therefore it could choose to continue in the manner the results achieve.
- The management sees no significant change in the world, nor do any severe dangers appear. There are no chances to explore.
- The risks are less severe, and the opportunities need to be more appealing to justify the trouble required to alter the product’s market positioning. Management might prefer a stable approach as it’s more secure.
- If the business has seen a lot of shifts, it is likely to establish stability to be more efficient and manageable. It will also be able to profit from the past’s changes. In reality, management should consistently implement the stability plan after the growth strategy to benefit fully from the circumstances.
- If the advantages of the business depend on the present market and the industry, the company should pursue an approach to stability. For instance, if an organization has high sales, it could keep the same business and focus on its operations’ internal efficiency.
- The environment’s character influences the degree to which the company can adopt alternative strategies. For instance, if an organization seeks to grow by expanding or diversifying, it can evaluate the environment without assessing it. However, it must obtain permission from the government to accomplish the reason. If a license for this is not readily available, there is no alternative for the company, and the company must develop a stability strategy.
Types of Stability Strategy
1. No-change Strategy
As the name implies, the no-change strategy is a conscious choice by the company’s management to keep with existing business processes and do nothing else. One could “characterize this approach as an absence of strategy as it does not allow the business to try something new. However, taking no action at all is also a choice. The company chooses not to explore anything that could alter its current situation. Its success with this plan is contingent on the absence of any significant changes in the circumstances of the business. So, to maintain the status quo.
2. Profit Strategy
A company can’t continue using a no-change policy. Sometimes, things change, and the company confronts a situation in which it must take action. Also known as “harvesting strategy,” profit-oriented stability strategies are employed in large organizations for specific business divisions (product and market divisions) when the ability to generate cash flow is the primary importance to ensure the stability of the business. The reasons for adopting this strategy could be any of these:
i) A declining market for the unit.
ii) The expansion’s nature cost too much.
iii) A small percentage contribution from the unit’s sales to the total.
iv) Funds available for higher utilization,
v) Maximizing the return on investment when it is feasible to do this and
vi) To leave the market before it’s too far.
3. Stop/Proceed to Caution Strategy
Organizations with a long growth history use stability as a strategy for pause. In this case, it is beneficial to ensure stability to benefit from future growth opportunities. Thus, this approach is sometimes called the ‘breathing spell strategy. The organization’s primary goal is to make the present production elements more efficient; in the absence of this, future growth may need to be revised.
The stability strategy is followed by an organization whenever it seeks to make incremental improvement in its functional performance through a slight change to the course of its core business functions in terms of the customer group they serve, its operations, or alternative technologies, either individually or in combination.