The stability strategy

Merger: Occurs when two companies, usually of similar size, combine their resources to form a new company.

Acquisition: Occurs when a larger company buys a smaller one and incorporates the acquired company’s operations into its own.

Stability strategy: A strategy that is characterized by absence of significant change.

A stability strategy is best known for what it is not; that is, the stability strategy is characterized by an absence of significant changes. With this strategy an organization continues to serve its same market and customers while maintaining its market share. When is a stability strategy most appropriate? It is most appropriate when several conditions exist: a stable and unchanging environment, satisfactory organizational performance, a presence of valuable strengths and absence of critical weaknesses, and non-significant opportunities and threats.

Some organizations successfully employ stability strategy, but most do not get the press that companies using other strategies get. One reason might be that no change means no news. Another might be that the company itself wants to keep a low profile; stakeholders may consider the status quo to be inappropriate, or the strategy may be indication of rigidity of the planning process. Nonetheless, a company such as Bata India does use the stability strategy very well. Bata has not moved far from its footwear emphasis. The company has not demonstrated a desire to diversity into other apparels as have of its competitors.

Retrenchment strategy: A strategy characteristic is a company that is reducing its size, usually in an environment of decline.

Combination strategy: The simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies.

The retrenchment strategy: Before the 1980s, few companies ever had to consider anything but how to grow or maintain what they currently had. However, the effects of technological advancements, global competition, and other environmental changes may no longer viable for some companies. Instead, organizations such as Sears, AT&T, General Motors, the US Army, and Apple Computer in the US as well as TISCO, SAIL, Bajaj Auto, and Mahindra & Mahindra in India have had to pursue a retrenchment strategy. This strategy is characteristic of an organization that reduces its size or sells off less profitable product lines.

The combination strategy: A combination strategy is the simultaneous pursuit of two or more of the strategies described earlier; that is, one part of the organization may be pursuing a growth strategy while another is retrenching. That is precisely that happened when L&T sold off its cement division to Kumar Mangalam Birla’s Grasim industries. By selling off this division, L&T was better able to concentrate on its growth strategy of its core engineering business.

Competitive strategy: A strategy to position an organization in such a way that it will have a distinct advantage over its competition; three types are cost leadership, differentiation, and focus strategies

Cost-leadership strategy: The strategy an organization follows when it wants to be the lowest cost producer in its industry.

Determining a competitive strategy: The selection of a grand strategy sets the stage the entire organization. Subsequently each unit within the organization has to translate this strategy into a set of strategies that will the organization a competitive advantage. That is, to fulfill the grand strategy, managers will seek to position their units so that they can gain a relative advantage over the company’s rivals. This positioning requires a careful evaluation of the competitive forces that dictate the rules of competition within the industry in which the organization operates.

One of the leading researchers into strategy formulation is Michael Porter of Harvard’s Graduate School of Business. His competitive strategies framework argues that managers can choose among three generic competitive strategies. According to Porter, no firm can successfully perform at an above average profitability level by trying to be all things people. rather, Porter proposed that management must select a competitive strategy that will give it a distinct advantage by capitalizing on the strengths of the organization and the industry it is in. These three strategies are cost leadership, differentiation and focus.

According to Porter, when an organization sets out to be the lowest cost producer in its industry it is following cost leadership strategy. Success with this strategy requires that the organization be the cost leader, not merely one of the contenders for that position. In addition, the products or service being offered must be perceived as comparable to that offered by rivals or at least acceptable to buyers. How does and firm gain such a cost advantages? Typical means include efficiency of operations, economies of scale, technological innovation, low cost labor, or preferential access to raw materials. Firms that have used this strategy include Moser BearIndia, Big Bazaar, Bajaj Auto, Reliance petrochemicals and Gujarat Ambuja Cements.

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