Under the Stability strategy, a company where stops the expenditure on expansion, do not introduce new products or venture into new markets rather decides to focus on the current portfolio and market share.
To put it simply, stability strategy is one of “taking stock of the situation.” Stability can be a bid time option. Stability allows an organization to plan for reorganization before growth.
Stability strategy is followed when the organization decides to maintain the current level of business.
It chooses not to be aggressive in its search and movement towards new markets or the development of new products. There is an incremental improvement in functional performance.
While pursuing stability, organizations need to draw up a plan to get moving either by investments in research and development or by divesting nonperforming areas to free capital for new promising areas.
Stability seems “a not-much-action-going-on” phase, but the organization in its functional areas is trying furtively to do something new.
In today’s intensely competitive market place stability strategy this makes sense under certain conditions, such as;
Post-merger; when an organization has to settle the congruity issues between the different entities coming together.
The organization devotes more time to ensure a smooth transition to the new entity before making substantive changes in the business.
Prolonged duration of rapid growth
After a prolonged duration of rapid growth, consolidate the results and resources, and take time to initiate any strategic shift.
Firms expecting major environmental changes prefer to wait and consciously postpone any strategic move until a clear picture emerges.
For example, Dell Computers followed the stability strategy for a while after having experienced 285 percent growth in two years!
The rapid growth leading to its presence in 95 countries, revenues of USD 2 billion, and about 6,000 employees threw all the existing processes out of gear.
Dell was not prepared to handle such growth. It had to stabilize to restructure its vendor management, services logistics, and operations.
The organization needed time to hire, train, and put people on the job to build new businesses to service its products and systems to meet the demand of many associates to take care of such phenomenal expansion.
In family-dominated organizations
In family-dominated organizations under predictable market conditions, stability strategy is followed for fear of loss of financial control if external funds had to be sought for further growth and expansion of the business.
Organizations service niche markets
When organizations service niche markets (for example, patisseries or cafes in metro stations).
Once they attain a level of business, they maintain that level either because there is no further growth or because the owner doesn’t have the will or resources to expand.
Recession conditions impose the choice of stability strategy.
Investments may not get the due returns, so the organization strengthens its key areas in this forced slow down.
Pathways to Stability Strategy
Do Nothing Strategy
This is a stage when the organization finds itself in placid waters.
There is no appreciable change in its industry environment, and there is no area in which the organization would venture of its own, so it does what it has been doing without any significant change. The organization is reactive, and this strategy serves a small niche business.
Organizations facing threats and reducing margins opt for this strategy by curtailing discretionary expenditure and investment. This is a short-term strategy as, in the long term curtailing investments also erodes the organization’s competitiveness.
It is a strategy to be followed only to give management a breather, not as a smokescreen to hide passivity or wrong decisions.
What happens when you sprint 200 meters?
You feel breathless and sit down to recoup.
Similarly, organizations that grow rapidly in fast growing markets need to assess their operations, pause, and invest in developing resources commensurate with growth to grow further.
According to Michael Dell, the founder of Dell Computers, the company grew so rapidly after its e-retailing that it had to slow down to create an organization with systems for operations in 95 countries, sales of USD 2 billion, and approximately 5700 employees!
This is the consolidation period before launching a renewed assault.