Stability Strategy

What is Stability Strategy ?

The stability strategy is most often used by companies but it presents a very confused picture. Most companies strive for growth and do not look for stability in their strategy formulation. A stability strategy implies that the company looks for stability in its strategy and does not affect too many changes. The basic philosophy of a stability strategy is "maintain the present course of action and be steady". 

It is a strategy which looks for status quo. In the stability strategy, the company maintains status quo and continues with channelizing resources to where it has been doing in the past. It thus limits its competitive advantage in the narrowest product market configuration given the resources and capabilities of the company. The good thing about a stability strategy is that it is safe. The majority of new products or new initiatives of a company fail. The company can only go in for additional ventures if its existing businesses are faltering or if the opportunities outside are very good. The risk increases with the size of the company. A stability strategy can also evolve from lethargy on the part of management to explore new avenues or opportunities. This was a problem with many public sector undertakings in India in the past. Such companies only react to happenings in their external environment and are not proactive.

Reasons to Adopt Stability Strategy

Sometimes a stability strategy is preferred by management for various reasons. These are:

1) Satisfactory Performance : 
Management often do not want to change when the performance of the business is satisfactory. This familiarity often leads to a state where additional risk is not taken. Management is also not aware how the success is being achieved or what combination of the resources of the company have led to its success. In this situation, they would not want to change. The way things are being done and instead continue with the past.

2) Minor Environmental Change : 
There is no major threat in the company's external environment. Also there is no big opportunity beckons. In this situation, the company has no incentive to change.

3) Low risk : 
There are often situations in which maintaining status quo is less risky than changing the product specifications and market positions. Change is often a very risky and uncertain proposition. The threats in the company's external environment may also not be that damaging and the opportunities not that attractive to warrant change.

4) Strategic Advantage : 
The company's strategic position may be more suited to the present situation. In other words, its competences and capabilities may be more suited to the present situation. In this position, it does not make sense to change.

Types of Stability Strategy

There are following three Types of stability strategy with example: 
1) Paused/Proceed with Caution Strategy
2) No-Change Strategy
3) Profit Strategies

1) Paused/Proceed with Caution Strategy :
Strategy Stability as a pause strategy is often used by firms having a complete growth history of past performance. Such companies tend to maintain their stability for a limited period of time in order to take benefits of future growth opportunities. The strategy is also used as a sort of break from the routine to make resources of the firm more productive and functional, thereby increase cost efficiency. The strategy is also adopted by large corporations who after a spree of profit years want to consolidate their position. As such, it is also referred to as "breathing spell" strategy. An organisation adopts the stability grand strategy when it make efforts to enhance its functional performance by marginally altering one or more business units in terms of their technologies, customer functions and customer groups.

The purpose of caution strategy is to carefully analyse the situation so as to act accordingly. Many a time market situation is not what it is perceived. Such situations increase the risks and losses emanating from bad decisions. Hence, management must tread with caution. 

For example, Hindustan Unilevers. popularly known for its FMCG products, started producing considerable quantities of shoes and shoe uppers for overseas markets in the late 2000 as an act to compete with rising businesses of Bata, Liberty, Nike, Adidas etc. The adopted strategy was a proceed-with-caution strategy before the company again decided to focus on Ponds Exports as it realized that shoe-manufacturing was not its area of business. Following factors play a decisive role in selecting caution strategy : 
  • When the market situation is still developing. 
  • When the market situation is ambiguous or incapable of precise definition. 
  • When the firm wants to consolidate its past performances. 
  • When the firm needs some time to improve upon its internal functioning and performance.
  • When actions of competitors have larger ramifications.

2) No-Change Strategy :
As the name itself suggests, no change strategy is a conscious decision by the management to continue with the existing business operations and perform nothing new. One can characterize this strategy as a non-existence of any strategy since it does not let company to do anything new, but taking no decision at all is also a decision.

As such, so as not to disturb the status-quo, the firm decides not to try anything new which may affect its present position. The success of this strategy depends upon the absence of significant change in the situation of the enterprise. The company gets motivated to stay on its current position by the relative strategy developed by the company's uncertain competitive position under an industry experiencing no growth. The success of this strategy depends upon number of factors. They are :
  • The firm has a relative good market base. 
  • The firm faces minimal competition from its competitors.
  • The firm has a well-established loyal and stable target group. 
  • The firm targets a niche segment with little or no competition.

3) Profit Strategy :
There is always a situation in which company has to make new decision. No company can always depend upon no-change strategy. Profit strategy (also called harvesting strategy, or profit-oriented stability strategy) aims at generating cash flows while at the same time maintaining status-quo that is perceived as beneficial for the organisation. This strategy focuses on meeting new challenges through accumulation of significant reserves and using these reserves when required. Such a strategy is generally adopted by large corporations where continuous generation of profits is necessary for continuous survival of the business. Generally, profit strategy is adopted under following circumstances : 
  • When significant threats are posed by the competitors.
  • When diversification is too costly affair for the company.
  • When liquidity of the company is threatened. 
  • When company wants to portray itself as a cash generating or profit making entity.
The firm adopting profit strategy may go in for investment within the company itself. The purpose of such an investment is not to diversify or expand, but to increase the profits to the firm. Like for instance, the firm may go for purchase of new machinery to reduce costs due to use of obsolete machinery.