The first and foremost objective of any business is to grow and earn profit. When they start making a profit, their next goal is to stabilize their earnings. That’s what stabilizing strategy is all about. Today, we’re going to discuss stabilizing strategy, its types, and examples.
What is Stability Strategy?
The stability strategy is the business strategy of any corporation that focuses on maintaining the growth, earning, and current market position of the company. When a company follows such a stability strategy, its focus is on the existing market and the product.
A very good example of stability strategy is when a company offers the same product/service to the customers without introducing any new product; it’s to maintain the current market share of the company.
Companies and businesses follow stability when they’re satisfied with the current market position and market share. When a business follows this strategy, then it doesn’t have to spend any more resources by using the workforce and expertise. It’s a very useful strategy when the market environment is simple and stable.
Reason for Adopting Stability Strategy
- Businesses and companies follow the stability strategy for the following reasons;
- When a company plans to strengthen its market position where it’s operating its business
- If a country’s economy is going through an economic downturn or recession period, then the business prefers to save its resources instead of spending it on expansion.
- If a business has debt and other financial obligations, then it should follow this strategy rather than expanding it. It’s because following this strategy would make sure that the company has sufficient capital to pay for the principal amount and interest on it.
- The product line or category in which the company is operating its business reached the maturity stage, and it doesn’t have any chance of further growth.
- The benefits of expansion are less than the cost of running the business
- The management is satisfied with the profit and market position they have acquired
- Risk probability analysis tells you to pursue this strategy
- A business could follow this strategy after the merger because it would help the company to smooth the transition phase of the new company before it starts making any changes.
- It allows a company to have a rest after finishing the fast growth in the previous years. It gives the company time to strengthen its current position and plan ahead.
- Family businesses would prefer to slow down in the recession period in order to avoid the financial crisis.
Types of Stability Strategies with Examples
Some of the main types of stability strategies are as follows;
No Change Strategy
Stability strategy means that you decide that you aren’t going to do anything new and you keep continuing the work as it is. It doesn’t imply the absence of any strategy. It means what you choose not to decide is a strategy.
It usually happens when you can predict the external environment and the business is running smoothly, and then the management would like to continue its present state.
The external environment doesn’t have any threat and the competitors aren’t going to launch new products anytime soon. Therefore, it’s a wise strategy to follow under such circumstances.
However, small and medium-sized companies usually function in a small market, and the product they supply is time-tested technology. That’s why they prefer to continue their presently tested business. Unless a potential threat is in the environment that would upset the present market situation.
Sometimes businesses and companies accept the changes in their operation. It’s because the external environment is unfavorable to the company and has an unpredictable element in it. Like declining industry, government regulations, economic recession, market competition, etc. That’s why it becomes difficult for businesses to maintain their profitability.
It follows the assumption that the change is temporary and the old phase would come back again. The company would try to maintain its profitability by increasing productivity, cutting costs, increasing prices, decreasing investment, controlling investment, etc. Such measures would help the company to maintain profitability in short term.
It’s important to keep in mind that a profit strategy could only be successful in a short time. If things don’t get better, then the benefits would start deteriorating. It could only work to resolve temporary problems.
Pause strategy is when a company has had rapid growth, and now it wants to have some rest before implementing the growth strategy again. In other words, a business takes cautious steps before pursuing growth. It’s also a temporary or short-term strategy. A company takes some time for the efficiency of the production processes and then exploits the upcoming opportunities.
For instance, Dell follows the stability strategy after having strong growth in E-Retailing. The company is operating its business in more than 95 countries and approximately 6000 employees are working for the company with a total sale of 2 billion dollars. Therefore, the company has slowed down its operation in order to restructure and be ready for growth.
Sustainable Growth Strategy
A business uses this strategy when the external environment is unpredictable and unfavorable. For instance, the company has limited financial resources or the country’s economy is going through a recession.
Modest Growth Strategy
A modest growth strategy is when a business wants to achieve the same target that it had last year. For instance, a company had a sales growth of 5% last year, and now the company wants to achieve it again by making some adjustments relevant to inflation. However, it’s a relaxed approach with a lower risk level, and the company doesn’t have to invest any additional resources.
Advantages of Stability Strategy
- Regular Work. The goals and objectives of the market are for the stable market condition, and the employees have to perform their routine tasks. However, the focus of the management is to improve the overall performance of the company.
- No External Analysis. Management in the stability strategy doesn’t put much focus on the external environmental analysis of market factors. The company focuses on the market growth of the current product.
- Low Risk. The stability strategy doesn’t involve much risk. It’s because the company focuses on performing daily tasks and achieving annual goals. The company doesn’t plan to expand its risky operations.
- Satisfaction. Most importantly, the reason companies choose stability strategy is because it gives them the satisfaction of their performance. They just perform daily regular tasks and are satisfied with their work, and they don’t have to worry about growth.
Disadvantages of Stability Strategy
- No Increase in output. Since the company performs regular tasks with putting much emphasis on growth. The business maintains the same process and it’s good, but it doesn’t change the outcome.
- No Innovation. As we know that stability strategy means performing the same tasks without making any change. Innovation, on the other hand, brings changes that would require investment which isn’t the focus of the strategy.
- Not for Long Term. Businesses and companies follow a stability strategy to take a break in the short term so that they could plan for the future. It could work in the short term, but the companies would run into losses if applied in the long term.
- Not for Big companies. A stability strategy is only suitable for SMEs. Big companies deal with a lot of products and services, and product innovation is necessary for them.