Stability Strategy

Strategies
PRERNA GUPTA
NRO0417586
Meaning and Levels of Strategy
Strategy is the direction and scope of an organization in a changing business environment
through the configuration of its resources and competence with a view to meeting stakeholder
expectation.
There are basically three different levels where strategy can be formulated, they are:
•Corporate level strategy
•Business level strategy
•Functional level strategy
Corporate Strategy
Corporate Strategy involves the careful analysis of the selection of businesses the company can
successful compete in. Corporate level strategies affect the entire organization and are considered
delicate in the strategic planning process.
Types of Corporate Level Strategies
1. Growth
2. Combination
3. Stability
4. Retrenchment
Stability Strategy
 Decision to stabilize current operations of organization
Can be due to multiple reasons
 Temporary approach
 Deliberate decision to not make any major changes
 3 different types of Stability strategy

 No change Strategy
 Profit Strategy
 Pause/Proceed with Caution strategy
No Change Strategy
 Conscious decision is taken to maintain status quo
 Different from being complacent
 Lack of initiatives vs. deliberate decision to stay where you are
 Constant watch on external and internal environment
 Always a Temporary Approach
 Frequent short time spans when organizations fall in and out of this strategy
 Followed when the operations are smooth, profits are stable, no major
opportunities or threats in the external environment, no instability in internal
environment
Profit Strategy
 When profits are not stable
 Temporary threats in external environment
 Intention to stay afloat until threat has passed
 Increase cash flow or profit by:
• Reducing costs
• Increasing productivity
• Reducing or postponing investments
 Keep the organization’s bottom line stable

 Always a Temporary Approach
Pause / Proceed with caution Strategy
 Followed under two circumstances:
 Taking it slow (proceed with caution) right before any major change
 Taking a break (pause) immediately after a major change
 Used along with any growth or retrenchment strategy
 Proceed with caution before beginning a major project:

Testing waters – ensuring preparedness – sample testing
 Pause after a rigorous project:

Cool off period – Reviewing response – Giving time to sync with changes – Stabilize
operations
 Always a temporary phase

What is Retrenchment Strategy
When an organization aims at reducing its one or more business
operations
◦ To cut expenses
◦ To reach a more stable financial position
◦ To reduce the scope of current activities
◦ Done when industry and / or market is declining
Why organizations face retrenchment
External factors such as
1.Upgraded technology
2.New business models
3.Government policies
4.Changing customer needs / taste
5.Demand saturation for products
6.Substitute products availability
Why organizations face retrenchment
Internal factors such as
1.Ineffective top management
2.Functional (departmental) quality issues like marketing issues or production
problems or poor after sales service
3.Stakeholders resistance to change when the situation demands evolving
4.Cost inefficiency or disadvantage due to location or skill or knowledge
5.Ineffective organizational design (from top management)
Symptoms of decline
Common symptoms that reflect decline in business:
1.Decrease in profits
2.Decrease in sales
3.Decrease in market share
4.Decrease in credibility or goodwill with financial institutions or suppliers or
creditors
5.Increase in debts
Types of Retrenchment strategies
1.Turnaround strategy
2.Divestment strategy
3.Liquidation strategy
Turnaround Strategy
When organization’s leadership identifies any symptoms reflecting a decline in
meeting the objectives of the organization, its first effort is to recover from losses
and regain the original position in the market. This strategy is called a turnaround.
Reversing a negative trend / turning around the organization from loss making to
profit making is called a turnaround strategy.
Only when a turnaround strategy does not work, does the company move to
divestment or liquidation.
Methods to implement Turnaround
Strategy
Existing CEO (or top management) + advisory support (an external consultant specializing in
turnaround of failing companies) = improving efficiency and effectiveness of the organization.
Existing CEO (or top management) withdraws from their position temporarily. External consultant
works towards improving profitability of the firm by increasing efficiency and effectiveness. Once the
turnaround is successful, the CEO (or top management) return to their original positions.
The top management of the firm is replaced by new leaders, or the firm is merged into another firm
(through M&A) to bring about a change in operations.
Action plan for Turnaround strategy
1.Thorough analysis of product, market, internal and external environments,
production processes, competitors etc. to identify problem areas
2.Clarity on desired product, production systems and market segment
3.Small achievable targets are made with continuous monitoring, evaluation,

feedback and remedial actions
Divestment strategy (Divestiture)
Only when there is no possibility of revival or turnaround of the firm using existing funds / skill or
leadership
It is the selling off of a business unit or division or portion of the loss making business unit.
Disinvestment – Sale of govt. equity in any public sector organization to another public sector firm
(or even to a private firm, which is then called privatization of the firm)
Done in order to streamline a diversified business and bring back the focus on core competencies.
The original parent company may receive stocks from the new parent company or capital in lieu of
the business which is sold off.
Common reasons for Divestment
1.An acquired BU does not gel with the current company, e.g. cultural gap
2.The SBU has been making losses consistently
3.The firm needs technological advancement or upgrade which demands
unaffordable investment
4.Unable to match competition or identify competitive scope
5.To keep the other SBUs afloat and overall health of the organization stable
6.To fulfil capital requirement for another lucrative SBU or project or a better
investment
Examples
Hindustan Unilever (HUL) divested from sea-food processing business
Tata sold off its soaps and detergents business to HUL
Samsung sold off its automobile manufacturing unit to Renault in 2000
Balmer Lawrie closed down its tea business

Liquidation
The final or last step when turnaround or divestment is not possible
Inability to recover from persistent losses
Divestment  selling off a business unit or a part of the firm to another party, liquidation 
selling off or closing down the entire firm
Carried out when all attempts at turnaround have failed; divesting only some part of the business
is also not able to revive other sick Business Units
Firm then closes down its operations and sells off the assets to pay for the pending debts and dues
Generally seen in small scale enterprises or single owner proprietorships
Dissolution – When the legal existence of the firm ends, and its name is removed from all
markets and books of accounts of all stakeholders.
Process of Liquidation
1.Winding up, property administered for creditors and members.
2.Liquidator is appointed who sells off assets and distributes the funds received
from selling assets to repay debts and creditors and financial institutions etc.
(Filing for bankruptcy or going through liquidation does not free the company
from the liabilities of all due payments).
3.When all assets have been sold and as much liability resolved as possible, the
organization is formally dissolved.
Liquidation
Compulsorily, on Court’s order
Voluntarily, to wind up business when it is no more profitable
Voluntarily, but under the supervision of Court

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Strategies

 3 different types of Stability strategy

 Keep the organization’s bottom line stable

 Proceed with caution before beginning a major project:

 Pause after a rigorous project:

 Always a temporary phase

2.Clarity on desired product, production systems and market segment

3.Small achievable targets are made with continuous monitoring, evaluation,

Tata sold off its soaps and detergents business to HUL

Samsung sold off its automobile manufacturing unit to Renault in 2000

Balmer Lawrie closed down its tea business

Voluntarily, to wind up business when it is no more profitable

Voluntarily, but under the supervision of Court

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