What is Stability Strategy?
The stability strategy of an organization is an attempt to continue its business activities without bringing any significant changes in its operation and direction. Through this strategy, firms try to maintain their current market position, and if they change only incremental changes are made.
A stability strategy is one of the corporate-level strategies. Under this strategy, as firms seek to maintain their current position in the marketplace, they do not bring any significant changes in their product, market, plans, policies, and activities.
Sometimes this strategy is also called lack of strategy. It can be suitable for successful big organizations and it also is for small-scale firms that are happy with their current sales and profit and when the market environment seems stable.
This strategy may be very suitable for the short term as well as can be dangerous if followed for too long.
Types of Stability Strategy
An organization can follow one of these strategies under the stability strategy.
No Change Strategy
As the no-change name implies, this is the decision to do nothing new. It refers to the continuing current operations and policies for the predictable future.
Sometimes it seems to as no strategy but actually, it is, because the current strategy is doing well as it has been doing. Usually, this strategy is pursued when there are no obvious opportunities or threats, nor significant strengths or weaknesses.
This is also a suitable strategy if there is no possibility of entry of new competitors. It is also followed by the organization that has found a reasonably profitable and stable niche for its products.
Usually, companies accept a profit strategy when they want to make money from their current operations. A profit strategy is an attempt to artificially support profits when a company’s sales are declining by reducing investment and short-term discretionary expenditures.
Under this strategy, management defers investments and/or cuts expenses to stabilize profits during the adverse time. It may even sell one of its product lines for the cash flow benefits.
It is only useful only to help a company get through a temporary difficulty. If it goes for a long time, it will lead to a serious deterioration in the competitive position of the organization.
A pause strategy is a temporary strategy where a firm takes a rest for some time. This strategy is only useful for a very short time.
A firm may assume this strategy when it waits for some favorable events to happen. Usually, this is a deliberate attempt of an organization to make only incremental improvements until a particular environmental situation changes.
Sometimes pause strategy is also referred to as the proceeding with caution strategy. It provides an opportunity to rest before continuing growth or retrenchment strategy. As such during this strategy, firms cautiously move whether for growth or retrenchment.
Reasons for Adopting Stability Strategy
Usually talking about why most organizations adopt a stability strategy, we can certainly say that organizations that want stable profit and position from the current market adopt this strategy.
In addition to this, we can point out various reasons for adopting this strategy.
- When a firm wants to maintain its market position as it is.
- When a firm does not have any strategies to adopt.
- When a firm predicts a stable future environment.
- When a firm is happy with market share, sales, and profit.
- When a firm does not see any opportunity to grow, or when there is no threat also.
- When there is a high risk for a business to grow.
- Where there is intense competition.
- Sometimes when a firm does not have the required strength to take further actions or has no weakness.
- It is when the product is in the maturity stage of the product life cycle and there seems no further growth.
- When the firm has no capital to capitalize on new markets, products, or opportunities.
- It may also happen when the management is risk aversive.
- It may be when a firm wants to remain stable because it waits for something favorable to happen in the environment (market).
Advantages and Disadvantages of Stability Strategy
Some pros and cons of this strategy can also be pointed out below.
- Since this strategy does not change organizational direction, it is less risky.
- The implementation of a stability strategy is relatively simple as it does not demand fundamental changes.
- This strategy is suitable if the growth of the business is risky.
- It aims at bringing efficiency by maintaining the current profit and growth.
- This strategy may be suitable if the competitive rivalry among competitors is very high.
- Adopting this strategy does not require external analysis to be done as such it becomes cheap to adopt and implement.
- If a firm follows this strategy, it may lose opportunities created by the external environment.
- The market share and competitive position may decline due to expansion by competitors.
- It is not suitable for the long term.
- It may not be able to address the expectation of the stakeholders.
- Not suitable for firms that want growth over time.