Strategic management is developing, implementing and controlling the strategy, which defines an organization intends to exist and why it will continue to exist. Still, the organization will maintain its competitive advantage.
Strategic intent defines the organization’s actions towards achieving its vision. It motivates people.
It clarifies the vision of the company. Strategy in the company is divided into:
- Retrenchment strategy
- Stability Strategy
- Growth Strategy
- Expansion Strategy
Meaning of stability strategy in strategic management
Stability strategy in strategic management means an organization will retain its current strategy, and it will continue focusing on its current products and markets.
An organization will only focus on its present business and products, maintains its level of efforts and have incremental growth, a company can analyse its position by portfolio analysis.
Stability strategy in strategic management does not focus on policies like, investing in new projects (new factories) purchasing capital assets, gain market share etc..
Another, reason for stability strategy in strategic management is when an organization go through regular expansion policies and now they want to evaluate the position and strategies of an organization.
Definition stability strategy in strategic management
Stability strategy in strategic management is a type of strategy which is adopted by an organization that attempts to maintain its current position and focuses only on incremental growth.
In this type of strategy, there is merely changes are one or more related to the business functions or related to customer segmentation or related to technology or product uses.
Reasons For Stability Strategy
Stability strategy in strategic management is caused because of many reasons. Here are the organization’s reasons to adopt for stability strategy in strategic management:
- In case the firm wants to make its position stronger in its operating industry.
- When an organisation do not want to take a huge risk in case the economy is facing a recession, the country is slowing down.
- In case the company have a huge debt or loan to pay it back. It is to make sure that the company will be able to pay the principal and interest amount with convenience.
- If the industry has reached maturity and the future does not hold the prospects of growth.
- If the ROI received from the expansion is negative.
- Suppose the market current position or earrings are in a satisfying position then management can opt for this position.
- A stability strategy is also used for risk management in an organization.
- Companies also adopt a stability strategy after post-merger, if the transition happened smoothly.
- Stability strategy in strategic management allows the organization to take a break in fast-growth years to plan and formulate future growth and expansion plans.
- Family businesses also opt for this strategy when they do not want to give their financial control in the case when the market or economic conditions are not good.
These were the reasons which make the company adopt for stability strategy in strategic management.
Types Of Stability Strategy
Stability strategy has a different reason for its implementation, so there are different type of stability strategy, and the reason for its are also different. Here are different stability strategy in strategic management:
No-change stability strategy in strategic management means not to adopt anything new, which means and to stay on current work. Stability strategy is not meant there is no strategy adopted by the organization.
This means an organization is not working on any expansion. If the organization is satisfied with earnings, they can adopt for stability strategy.
In case the company can estimate some major problems in the external environment which can disturb the business, at the time this strategy will work fine.
Modest Growth Strategy
In this type of stability strategy in strategic management company do not want to make growth plans, the company puts the same goal or target from last year.
Let’s say, the company has a 15% growth in the last quarter, so now they adopt for the same growth this year.
This is the easiest strategy to opt for as it does not requires investments or resources nor it has huge risk involved.
Sustainable Growth Strategy
A sustainable growth strategy is adopted by the company when the company do not have a comfortable outside environment.
Like, the company won’t have growth prospects while the economy is going down or recession.
Profit stability strategy in strategic management is adaptable when the objective is to create more sales, in this case, stability strategy is most suitable.
In this scenario, the company wants to generate more cash and for that, they can even give up some of its market shares.
If the company has good growth years last years they can adopt for pause strategy. Pause strategy gives the time to the company for planning and getting ready for future growth strategy.
It can also, be when the company is taking their steps very carefully before they are taking a step of growth or expansion. Another reason can be where the company want to improve their internal processes to grab more opportunities in future.
These are the different types of stability strategy in strategic management.
Advantages Of Stability Strategy
A stability strategy provides many benefits like a sense of security and stability to the organization.
So, here are the advantages of stability strategy in strategic management:
One of the reasons to choose a stability strategy is satisfaction from the level of performance. Focusing on regular work and targets, with not focusing on growth, gives satisfaction from work.
Performance satisfaction is a crucial part of motivating and the employees and management.
A stability strategy is the least risky which a company can adopt. As organization only focuses only on the day to day working and only achieving yearly growth. So, the organization does not have to focus on expansion or change, so they do not risk it.
No Environment Analyses
In the case of stability strategy, organizations only focus on current product and market and yearly growth. Management does not have to focus on analyzing any threats or opportunities to the product or market.
In the case of stability, strategy organizations do not focus on product or market growth or innovation.
Focus On Regular Work
In the case of a stable strategy, the organization has clearly defined its goals and objectives, which are in stable condition. It helps employees and management to focus on routine work.
Plus, management can focus on improving and smoothing the internal functioning of the organization. No change in targets helps the employees to build more quality work.
These were the few advantages of the stability strategy in strategic management.
Disadvantages Of Stability Strategy
There are many disadvantages of stability strategy to the firms. So, here are the disadvantages of a stability strategy in strategic management:
Not Useful for Big Scale Industries
Formulating a stability strategy is only available to small and medium scale industries as the big scale industries have multiple markets and products with continuous innovation processes. So, stability strategy pushes big scale industry into losses.
Not Applicable In Long Run
An organization usually adopts stability strategies to pause working on growth and expansion to plan future strategies. Adopting this strategy in the short run does not impact the business. In the long run, not making the organization expand and or grow pushes the company into losses.
In the case of Stability strategy organization only focuses on the current product and market, and there is no desire to make changes in the current organization situation, which leads to no innovation in the organization.
No Change In Process
Since there is a demand for no change in product or market, and there is no increase in output level.
The organization keeps the same process of their working; all the working process also kept stable. This leads to no change in the active process and internal environment.
These were the few disadvantages of the stability strategy in strategic management.
Examples of Stability Strategy In Strategic Management
Steel Authority of India
Steel Authority of India is a public sector company in India which is operated and governed by the central government of India. Their headquarters is located in New Delhi.
Steel Authority of India is the third-fastest growing in the world. Over-capacity in the industry caused the organization to adopt for stability strategy.
They only focused on the company operations i:e increase efficiency rather than increases more plants.
Cigarette, Liquor industries
Cigarette, liquor and tobacco industries adopt for stability strategy because there are government regulations on expansion policies.
Since these industries have regulations on their working and growth, it becomes necessary for these industries to operate with stability strategies.
Both these industries require a license under the provisions of the Industries (Development and regulations) Act, 1951
NTPC and ONGC
National Thermal Power Corporation Limited (NTPC) is a public sector company in India which is operated and governed by the central government of India.
It deals in generating electricity and other related activities. It is incorporated under the Companies Act 1956 and is promoted by the Government of India.
Oil and Natural Gas Corporation which deals in crude oil and gas and owned by the govt of India. Their headquarters is located in New Delhi.
Ministry of Petroleum and Natural Gas have the maximum number of share in the ONGC and they are the administrator of the organization.
Bata India is also a good example of stability strategy but the only drawback, in this case, they didn’t handle this strategy very well. They always stuck to their footwear industry and never indulged into the activities of expansion.
These companies have also adopted a stability strategy instead of expansion because of being part of the private sector and government decision.