There are several different types of strategy. Your company uses each kind of strategy according to certain conditions. Your knowledge of the different types of strategy qualifies you to choose the most suitable type.
The types of strategy refer to a set of strategic alternatives to choose between to achieve the company goals. The company selects a certain type of strategy according to what suits the company’s internal and external environment.
I learned the types of strategy the hard way, trial and error, which cost me much effort and money. But after refining my experience by studying and learning, I wish I had read about it earlier, and things would have gone more easily. This article will introduce you to the types of strategy in a simple and sufficient explanation. Let’s start
Introduction: The Four main types of strategy
People use strategy in many different fields such as the military, business, etc. Each field has different classifications of the types of strategy. Therefore, we would like to point out that this article focuses on using strategy in businesses and companies.
The different types of strategy is a summary of others’ experiences in management and planning. Therefore, by studying them, you can benefit from their experiences and expertise.
Your knowledge of the different types of strategy helps you choose the right type of strategy for your company, then modify it according to your company’s internal and external environment requirements.
The Four main types of strategy:
- Stability strategy
- Growth strategy
- Austerity strategy
- Mixed strategy
The following paragraphs will explain these strategies in more detail. Let’s start
1. Stability Strategy
When an organization is satisfied with its present condition, it will not want to change. From here, it will adopt a stabilization strategy in its business.
The stability strategy is the strategy that depends on extending the company’s previous strategy to maintain the same growth rate. It is pursuing the same policies that created its current market position. A stability strategy is a conscious decision not to do anything new, i.e., continue with the existing one.
This type of strategy does not mean there is no strategy; not taking any change in itself is a strategy.
When the external environment is predictable and the regulatory environment is stable, the company may wish to continue in the current situation.
A stabilization strategy is successful when the environment is stable. The company often uses this strategy because it is less risky than other strategies.
The company’s satisfaction is in the form of satisfaction with the same product, serving the same groups of consumers, and maintaining the same market share.
Usually, satisfaction occurs when there are no threats to the company or great temptations that change its strategy.
This strategy is possible in a mature industry and with established technology.
One of the disadvantages of this strategy is the creation of self-satisfaction among the managers in the organization. Managers of such an organization may find it difficult to deal with changes when they occur.
Stability strategies can be of these following types:
- No-change strategy
- maintain profitability
- Proceed-With Caution
The following paragraphs will explain these strategies in more detail.
There may be no new threat from competitors or no new competing product entering the market. Under such circumstances, it would be wise to continue with existing strategies and not change.
The no-change strategy is to continue with the current strategy and not to change.
SMEs generally operate in a limited market, so they prefer to continue with their current business unless there is a need to do otherwise.
There may be unfavorable external factors like increased competition, stagnation in the industry, an attitude of the government, etc. Under these situations, it becomes difficult to maintain profitability.
The Maintain-Profitability strategy refers to the strategy that enables the company to maintain its previous profit within an environment changing. Your company can Maintain the same profit by following different policies and procedures, such as lack of spending, increased productivity, and raising prices.
The assumption is that the changed situation will be temporary, and the old situation will return. The company will maintain profitability by controlling expenses, reducing investments, raising prices, reducing costs, increasing productivity, etc. These actions will help the company maintain current profitability in the short term.
The Maintain-Profitability strategy will only work for a short time. If things do not improve in favor of the companies, this strategy will only worsen their situation. This strategy can only work if the problems are temporary.
Proceed-With Caution strategy:
The company uses the Proceed-With Caution strategy to test the ground before going ahead with a full grand strategy.
Also, companies may follow this strategy when they have a fast pace of expansion and now want to rest for a while before moving forward.
The Proceed-With Caution strategy refers to the movement towards the goals slowly. This strategy may be necessary for a limited period to test some facts before investing in them or preparing the internal environment for the company to transform into a new strategy.
This type of strategy also allows strategic changes to seep down organizational levels, allowing structural changes to occur and making the system adopt new strategies. Hence, it is possible to move quickly towards the goal.
2- Growth Strategy
When the company is not satisfied with its current situation and the environment changes, there are favorable opportunities for profit and growth. In such cases, a growth strategy will be beneficial.
A growth strategy means that the company seeks to increase its market share. The company uses this strategy in several ways, including expanding into new markets and geographic areas, diversifying its operations and products, or increasing its production capacity.
The growth strategy can implement through product development, market development, diversification, vertical integration, or consolidation.
The company adds new products to existing products in product development strategy or replaces old ones with new ones.
Also, the company may start producing its raw materials, or it may start processing its production to generate a new product.
Since growth is an indicator of effective management, a growth strategy (in normal circumstances) is not an option but a necessity.
But growth must be properly planned and controlled; otherwise, it may be counterproductive.
There are many types of growth strategies in the following paragraphs; we will explain the most important of them:
Growth Through Focus:
Growth involves pooling resources into one or more divisions of the company rather than scattering them over several different divisions.
The growth strategy is to focus resources on one or more products or customer segments, to obtain a larger market share in a specific part of it.
An organization may focus on existing markets with existing products by using better marketing and attracting new users. Or it may introduce new products into existing markets by focusing on product development.
This type of strategy (focus) is applied when an industry has high growth potential. The company must also be strong enough to sustain this growth.
Growth Through Integration:
Under the integration strategy, the company serves the same customers but increases its business definition through backward integration or forward integration.
This type of strategy is based on expanding through the manufacture of raw materials instead of buying them (backward integration). Or by using the company’s final products to create a new product (forward integration).
For example, textile companies may invest in ready-made garments (forward integration) or the production of textile yarns and gins (backward integration).
In general, several activities range from the procurement of raw materials to the marketing of finished products. The firm may move up or down the value chain to increase the scope of its business.
Many process-based industries such as petrochemical, steel, textile, etc., have integrated businesses. These companies deal with products with a value chain that extends from basic raw materials to the final consumer.
Companies are operating at one end of the value chain attempt to move up or down the current process to gain more value.
When choosing an integration strategy, the firm must consider the alternative cost of the procurement or production process. If the cost of manufacturing the product is less than the cost of purchasing it from the market only, it should incorporate it.
Similarly, if the cost of selling the final product is less than the price paid to sellers to do the same, it will be profitable to move down the value chain.
Growth through diversification:
This type of strategy aims to focus on the same customer segments. But they are growing by increasing the number of products offered to them.
Growth through diversification means increasing the types of products and services a company offers. The company uses this strategy only if it has a period in the market and has experience. In addition, it has information and data about customers and the geographical areas in which it operates. So you can easily add a new product or service.
The company can also grow by investing in activities related to the existing business. The cigarette company may diversify into the hotel industry. Or new products for the same customer segments.
Diversification strategies help spread risk across many companies. If environmental and regulatory factors inhibit growth, diversification may be an appropriate method.
Growth Through Collaboration:
There is an opinion that firms operate in a competitive market. When one company gains in its market share, one or more companies lose this share. If one wins, then one or several others must lose.
But thinkers believe that competition can coexist with cooperation.
Strategies can consider the possibility of cooperation with competitors while competing to expand the market’s potential.
Collaborative strategies can take the form of mergers and acquisitions, joint ventures, and strategic alliances. All these strategies taken separately or jointly can help the growth of the company.
Growth Through Internationalization:
International strategies are a growth strategy that requires companies to market their products or services outside the national or local market.
The company must evaluate the international environment, evaluate its capabilities and formulate strategies for entering foreign markets. The company may begin exporting products or services to foreign countries or establish a subsidiary in other countries to produce and market products or services.
In such a strategy, the company has to implement the strategies and monitor and control its foreign operations. International strategies require a different strategic perspective from the strategies implemented in the national context.
3- Austerity strategy
The organization may roll back or retreat from its present position to survive or improve its performance. The company can adopt this strategy during a recession, intense competition, scarcity of resources, and reorganization of the company to reduce spending.
This type of strategy expresses the failure of the company to achieve profits or continue to operate in the same way as it is currently. It becomes essential to use this type of strategy for the survival of the company. Maintaining the company’s survival is the last line of defense before the company’s bankruptcy and dissolution.
The austerity strategy has several different forms. In the following paragraphs, we will present the most important of them:
Transformation strategies: This strategy transforms some parts or activities of the company into other activities, which can be profitable compared to the first activity.
Non-investment strategies: This strategy is based on selling or liquidating part of the non-viable business. So that the company does not spend money on it, the lack of investment is usually part of a rehabilitation or restructuring plan.
This disinvestment strategy is adopted when the turnaround strategy has failed. The company may cancel the investment in two ways: divesting part of the company by writing it down as a financially and administratively independent company while retaining the parent company or not retaining partial ownership.
Alternatively, the company may sell the unwanted sharpness immediately.
Liquidation Strategies: This type of strategy involves closing down the company and selling its assets. This strategy is considered a last resort because it leads to dire consequences such as labor loss, selling the company’s assets at often low prices, and the competitors taking over its market share.
4- Mixed strategy
This type of strategy is usually only followed in large multi-activity companies.
The mixed strategy is a mixture of the other three strategies: the stability, growth, and austerity strategies.
Large companies with diverse activities may practice one strategy in a specific type of activity and at the same time use another strategy in another activity.
For this strategy to be effective, people with great knowledge and experience can make objective and intelligent decisions by considering the various factors between these strategies.
You can learn about the different types of strategy and use the experience and expertise of others to develop the strategy for your company at the lowest cost.
In normal circumstances, the main strategy that companies should always pursue is growth to achieve profits and increase market share. But sometimes, the company is tempted to follow other strategies to maintain its profits or its presence in the market.
The four main types of strategy:
- stability strategy
- growth strategy
- austerity strategy
- mixed strategy
The stability strategy is the strategy that depends on extending the company’s previous strategy to maintain the same growth rate.
It flows the same policies that created its current market position. The stability strategy is a conscious decision not to do anything new, i.e., to continue with the existing one.
The Growth strategy means that the company seeks to increase its market share. The company adept this strategy in several ways, including expanding into new markets and geographic areas, diversifying its operations and products, or increasing its production capacity.
The austerity strategy expresses the company’s failure to achieve profits or continue operating in the same way it is currently.
It becomes essential to use this type of strategy for the survival of the company. Maintaining the company’s survival is the last line of defense before the company’s bankruptcy and dissolution.
The mixed strategy is a mixture of the other three strategies: the stability, growth, and austerity strategies. This type of strategy is usually only followed in large multi-activity companies.