When and Why to Pursue Stability Strategy?

As discussed above, stability is common for most of the organizations at some point of time. However, it is better that the organizations concerned should evaluate when they should go for change in their strategy. In the following conditions, it is better to adopt stability strategy. 1. When the organization is serving a defined market or its segments according to business definitions, it can adopt stability strategy. This happens with most of organizations in the short term because their environment does not change and they can continue in the same business. 2. If the organization continues to pursue same objectives, it is better to adopt stability strategy adjusting the level of achievement about the same percentage each year as it has achieved in the past without substantial additional investment. For example, renovation of plant and machinery may add to production but by better efficiency and not through any substantial increase in the production facilities. 3. When there is scope for incremental improvement of functional performance in the same line of business, the organization should go for stability strategy. This is the motto of taking fullest advantages of the situation. Though most of the organizations follow stability strategy for a period of time, some organizations follow it for much longer than others. It has been observed that as the companies get older, they become more conservative and more likely to pursue a stability strategy. Following are some important factors which suggest why the organizations follow stability strategy: 1. Perception of management about the performance of the organization may motivate it to pursue stability strategy. If the managers are satisfied with present performance they will like to continue with the same. 2. A stability strategy is less risky in that it offers the safe business to the organization unless there is major environmental change. If management prefers to take less risk it can continue stability strategy. 3. Some organizations are slow to change or resistant to change. Since stability strategy fits in their total framework, they often prefer not to change. 4. If the organization s past history is full of change, it will like to adopt stability so as to become efficient and manageable and to reap the rich harvest of all such past changes. In fact, stability strategy should always be followed after the growth strategy to take the best advantages of the situation. 5. If the organization s competitive advantage lies in the present business and market, it pursues stability strategy. The stability strategy is basically defensive in its approach. It may be pursued to protect certain present organizational strengths, e.g., certain patent right, technical collaboration etc. It is implemented on the basis of steady as it goes approach to decision on the level of business definition and business objective. There is not much functional change in any part of the organization.

it is desirable to maintain stability for some time to take the advantages of future growth opportunities. These objectives usually approximate the industry average or somewhat lesser. It is easier to pursue as it does not disturb the organizational routines. 4. The organization is change resistant and prefers change only in extraordinary times. adjusted for inflation. The unit s product is not prestigious to the organization. These are as follows: Incremental Growth Strategy: Under incremental growth strategy. The following reasons make an organization to pursue incremental growth strategy: 1. Other external constraints may be in the form of Government policy or cheaper import. Stability as a Pause Strategy. 3. 2. the organizations set their objectiveachievement level that was accomplished in the past. Profit strategy is useful in the following circumstances: 1. this strategy is also known as breathing spell strategy. The unit s sales will decline less rapidly than the reduction in corporate support. In such a case. Profit strategy (also known as endgame or harvesting strategy) is followed when the main objective of the organization or any of its SUBs is to generate cash. 1 presents the examples of some companies. There are four common ways of ensuring stable growth which gives four alternative stability strategies. Even in liberalised era. future rapid growth may be dysfunctional. Profit Strategy. Sustainable Growth Strategy. 5. 3. many Indian companies have opted or have been forced to opt stability strategy. If necessary. Sustainable growth strategy is pursued when the organization perceives that the external conditions are not favourable due to certain critical resource constraints like financial resources or raw materials. . 2. or entry of big and capable players in the market. Exhibit 6. Therefore. Some organizations which follow this strategy even follow a strategy that allows them to pursue low market share in the industry as a whole. 4. Stability as a pause strategy is pursued by those organizations whose past history is full of growth. The unit s market share is small and increase in market share is a costly affair. The unit s contribution is not significant to the total sales of the organization. The organization is doing well or perceives as doing well in its present form.Variants of Stability Strategy Stability strategy generally aims at stable growth and there may be several ways of ensuring stable growth depending upon the circumstances. The unit s product is in stable or declining market. It being a less risky and the organization does not go for higher risk. The basic objective of the organization is to make present factors of production more productive as in the absence of this. even the market share is sacrificed to generate the cash.

liquor/wine industries fall in this category because of strict control over capacity expansion. Instead. Some other industries which are following this pattern are heavy commercial vehicle. 1951. Both these industries require licence under the provisions of Industries (Development and Regulations) Act. Many companies in public sector have been forced to adopt stability strategy because of Government s policy of cutting the role of public sector and budgetary support for expansion of these companies has been withdrawn. regulatory restrictions in some industries have forced companies to adopt stability strategy. 1 : Stability strategy of Indian companies Many companies in different industries have been forced to adopt stability strategy because of over capacity in the industries concerned. and so on. Steel Authority of India has adopted stability strategy because of over capacity in steel sector. Cigarette. it has concentrated on increasing operational efficiency of its various plants. Similar is the situation in cement industry and most of the companies in this industry have concentrated on increasing operational efficiency rather than going for expansion. Apart from over capacity. jute industry.EXHIBIT 6. For example. coal industry. .

Sign up to vote on this title
UsefulNot useful