A stability involves maintaining the status quo or growing in a methodical but slow manner. The firm follows a safety oriented, status quo type strategy without effecting any major changes in its present operations. The resources are put on existing operations to achieve moderate, incremental growth. As such, the primary focus is on current products, markets and functions, and maintaining the same level of effort.
— If the company is doing reasonably well, managers may not like to take the risks or hassles associated with more aggressive growth.
— Stability allows the firm to stop for a while re-examine what it has already done and then proceed cautiously.
An organization that has stretched its resources during the period of accelerated growth may want to attain stability before it attempts further accelerated growth.
— If managers believe that growth prospects are low, they may follow a stability strategy with a view to hold on to their current market share. Stability strategy is however not a ‘do-nothing’ strategy. To maintain the current position the organization definitely needs to carry out marginal improvements in performance in line with the changing trends.
— Introducing new products, entering new markets, undertaking major organizational changes – all require huge investments. If the organization’s advantage lie in the current business and market, it pursues to exploit its competitive advantages fully.
Stability would work only when the firm is doing well and the environment is not excessively volatile. However, present day organizations have to grapple with change continually. They have to operate in highly competitive environments. So functioning along existing lines would work initially when the firm is able to carve out a niche for itself but would fail to work as new firms enter into the market or new developments in the business environment occur. It is true that future means change and adjustment to new situations and conditions. But it is better to indulge in proactive planning rather than living with the low profits and low stockholder dividends year after year. Failure to improve profits over a long time means corporate loss. The corporate loss is filled with companies that failed to respond to the changes in the environment.
So organizations must practice pro-active planning. They must practice planning in order to manage the changes successfully. The manager who is able to anticipate and prepare for possible changes in the business has more control than the manager who does not plan ahead, and is content with the present set up and the status quo arrangements. The results of taking a short term perspective can be severe. Auto industry in the U.S. failed to adapt to the changing requirements and wants of the market place. Japanese and other foreign auto companies moved into fill the market void (need for fuel efficient cars). One of the important advantages of planning is that it helps a manager or an organization to affect rather than accept the future. In a competitive environment resting on past performance could prove to be loss oriented. No-change strategies force managers to live with wrong products and wrong markets. In volatile industries doing nothing can mean- short run success, long run debacle. In order to progress in an orderly manner, every firm must employ appropriate growth strategies that help in improving the present as well as the future performance in the market place.
Types of stability actions:
Incremental growth: The firm following this strategy concentrates on one product line at a time, growing steadily. It is a low risk, low market share, change resistant kind of strategy followed by firms that are very comfortable with their present line of business.
Profit / harvesting strategy: This is followed when the primary goal of the firm or any of its strategic business units is to generate cash so as to ensure a steady growth of business. The unit’s product is in a stable / declining market; when the product is not prestigious to the firm, when the unit’s market share and increase in market share is a costly exercise; the unit’s contribution is not significant to the total sales of the firm; the unit’s sales will decline less rapidly than the reduction in corporate support.
Sustainable growth: This is followed when the firm perceives that the external environment is not favorable due to certain critical resource constraints like financial resources or raw material import / export restrictions government policy changes, entry of a big player etc. could also constrain the firm to stay on course and seek only sustainable growth.
As a pause strategy: After organizations have undergone a turbulent period of rapid growth, managers often pause for a while to integrate strategic business units, consolidate their position, improve operational efficiency R&D marketing etc pause for a while and prepare themselves for another big leap forward.
Now a days almost all successful companies are proactive and keep on expanding or diversifying or are involved in backward or forward integration.