Major Strategy Option: Stability, Growth
The Stability Strategy is adopted when the organization attempts to maintain its current position and focuses only on the incremental improvement by merely changing one or more of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or collectively.
Generally, the stability strategy is adopted by the firms that are risk averse, usually the small scale businesses or if the market conditions are not favorable, and the firm is satisfied with its performance, then it will not make any significant changes in its business operations. Also, the firms, which are slow and reluctant to change finds the stability strategy safe and do not look for any other options.
Stability Strategies could be of three types:
- No-Change Strategy
- Profit Strategy
- Pause/Proceed with Caution Strategy
To have a better understanding of Stability Strategy go through the following examples in the context of customer groups, customer functions and technology alternatives.
- The publication house offers special services to the educational institutions apart from its consumer sale through the market intermediaries, with the intention to facilitate a bulk buying.
- The electronics company provides better after-sales services to its customers to make the customer happy and improve its product image.
- The biscuit manufacturing company improves its existing technology to have the efficient productivity.
In all the above examples, the companies are not making any significant changes in their operations, they are serving the same customers with the same products using the same technology.
A growth strategy is one under which management plans to advance further and achieve growth of the enterprise, in fields of manufacturing, marketing, financial resources etc.
As growth entails risk, especially in a dynamic economy, a growth strategy might be described as a safest policy of growth-maximising gains and minimising risk and untoward consequences.
Financially sound, bold and adventurous managements vote for growth strategies.
Point of comment:
In the fast expanding economies of today, adoption of growth strategies by business enterprises is a must for the survival, in the long-run; lest they should be swept away by environmental influences, especially competition, technology and governmental regulations.
Growth strategies may be classified into two categories:
(I) Internal growth strategies
(II) External growth strategies.
Internal growth strategies are those in which a firm plans to grow on its own, without the support of others. On the other hand, external growth strategies are those in which a firm plans to grow by combining with others.
Types of Growth Strategies:
Following is an account of important growth strategies, comprised in both categories as stated above:
(I) Internal Growth Strategies:
Some popular internal growth strategies are described below:
(1) Market Penetration:
Market penetration is a growth strategy, in which a firm tries to seek a higher volume of sales of present products by penetrating (or getting deeper), into existing markets through devices like the following:
- Aggressive advertising and other sales promotion techniques.
- Encouraging new uses of the old product e.g. use of coffee during summer season by way of cold coffee or coffee-shake.
- Coming out with exchange offers e.g. exchange of old scooters or TV for new ones at a discount etc.
(2) Market Development:
This growth strategy, as the name implies, aims at increasing sales of existing products through l market development, i.e. exploring new markets for company’s products. For example, many companies have achieved remarkable growth by entering into foreign markets; pushing their products I by changing size, packaging, and brand name etc.
Market development may be tried by a company I within the same country also e.g. sale of electronic goods like transistors etc. in rural areas.
(3) Product Development:
Product development as a growth strategy implies developing new and improved products for sale in existing markets; so that people who have otherwise become indifferent to the old product with passage of time get attracted to the new product because of the charisma associated with the phenomenon of newness.
Examples: introduction of Babool and Promise toothpastes by Balsara Hygiene Products Ltd.; introduction of Colgate Super Shakti by Colgate-Palmolive (India) Ltd. etc.
Diversification is quite an important growth strategy. As growth entails risk, diversification, as a growth strategy, implies developing a wider range of products to diffuse risk or to reduce risk associated with growth. The fundamental philosophy of diversification is presumably contained in an old English proverb which suggests that one should not keep all one’s eggs in one basket.
Major dimensions of diversification growth strategy are as follows:
(a) Internal horizontal diversification:
Under this type of diversification, new products – whether related or unrelated to the present business line are developed by the business enterprise on its own. For example, Raymon Woolen Mills have added new product, cement to their existing line of woolen textiles. Similarly, Godrej added refrigerators and later on detergents to their original product lines of steel safes and locks.
(b) Vertical diversification:
Vertical diversification maybe backward or forward. In backward vertical diversification, the aim of a firm is to move backwards in the production process so that it is able to produce its own raw-materials/basic components. For example, a TV manufacturer may start producing picture tubes, built-in-voltage stabilizers and other similar components.
In forward vertical diversification, the aim of a firm is to move forward towards distribution process so as to reach the final consumer. For example, many textile mills like Mafatlal, Reliance, Raymond etc. have set up their own retail distribution systems.
(c) Concentric diversification:
In case of market related concentric diversification, new product/service is sold through existing distribution system. For example, addition of lease-financing for buying cars to the existing hire-purchase business is market related concentric diversification.
In technology related concentric diversification, new products are provided by using technologies similar to the present product line. For example, Food Specialties Ltdh as added ‘Tomato Ketchup’ to the existing ‘Maggi’ produced by them.
(d) Conglomerate diversification:
This growths strategy involves addition of dissimilar new products to the existing line of business. DCM Ltd. is a good example of conglomerate diversification. There has been an addition of a wide range of products such as fertilizers, sugar, chemicals, rayon, trucks etc. to their basic line of textiles. ITC, Godrej, Kirloskars etc. are other examples of conglomerate diversification.
Advantages of Diversification Growth Strategy:
Following are some advantages of diversification, as an internal growth strategy:
(i) Diversification enables a company to make better use of its resources like managerial personnel, technology, marketing network, research facilities etc. As such, diversification may lead to cost reduction and profit-maximization.
(ii)Diversification helps to minimize risk associated with growth. For example, loss in one line may be made good through profits in some other lines.
(iii)Diversification adds to the competitive strength of a company because of more products, greater resources, wider distribution network etc.
(iv) Diversification acts as shock-absorber for a company, in phases of business cycle. For instance, if there is depression in one product line; the firm may survive if there is good business in other lines of production.
(v) Diversification adds to the goodwill of a firm; because of its brand name associated with a variety of product items.