A stability strategy refers to a strategy by a company where the company stops the expenditure on expansion, in other words it refers to situation where company do not venture into new markets or introduce new products. Stability strategy is adopted by company due to following reasons –
- When the company plans to consolidate its position in the industry in which company is operating.
- When the economy is in recession or there is a slowdown in the economy than companies want to have more cash in their balance sheet rather than investing that cash for expansion or other such expenses.
- When company has too much debt in the balance sheet than also company stops or postpones their expansion plans because if company takes more debt for expansion than it would not able to pay interest rate on such debt and it may create liquidity crunch for the company.
- When the company is operating in an industry which has reached maturity phase and there is no further scope for growth than also company adopts stability strategy.
- When the gains from expansion plans are less than the costs involved for such expansion than company follows the stability strategy.