Welp MagazineReactive business strategies are those that respond to some unanticipated event only after it occurs, while proactive strategies are designed to anticipate possible challenges. Because no one can anticipate every possibility, no organization can be proactive in every situation. However, businesses that emphasize proactive strategy are usually more effective at dealing with challenges.
What is Reactive Strategy?
In business strategy, the term reactive strategy implies policies that are devised in response to an event or change, rather than by taking the initiative to develop a strategic plan. Reactive strategy lets events take control of your policies, and requires a course change only when there is a crisis event.
While reactive strategy appears to give you more freedom to respond to events, it usually makes your business more vulnerable to outside forces. When you have no strategy, and are just reacting to events as they occur, you cannot control your firm’s future. Reactive strategy puts you at the mercy of your competitors, the government, and other outside forces that you cannot control.
Different Types of Reactive Strategy
There are three basic types of reactive strategies, any or all of which can be used at different times during the development of a business plan:
Emergency strategy – A response to an immediate crisis event that places the organization in an immediate state of survival. This form of strategy may be adopted when there is a need to protect the company’s survival until a crisis has passed. An immediate crisis may not be apparent to the organization and may be a result of corporate policy mistakes in areas such as R&D. This strategy involves quick, decisive action that gets the organization out of a crisis situation. There is a demand for a short-term response to a crisis event, and this strategy provides it.
Push strategy – A proactive policy involving direct competition with existing businesses. The push strategy involves adopting a pricing strategy meant to force competition out of an industry. For example, a company may lower its prices to below cost in order to drive competitors out of business. The push strategy lets a business eliminate its competition before focusing on the surrounding market.
Pull strategy – A strategy that anticipates the market for a product and ‘pulls’ customers to a product by improving the quality of that product. This strategy requires extensive market research to anticipate customers’ changing needs and wants. Once those needs have been determined, the organization uses R&D to develop a product or service that meets the need, and then expands into surrounding markets.
Strategies
There are three main strategic models that are used in reactive management, each having advantages and disadvantages:
Contingency – The kind of strategy that is best for executives who are operating in unpredictable industries or in competitive circumstances. This model is more flexible and allows the organization to shift gears in response to ever-changing market conditions.
Delay-Reduce – A strategy in which the business adopts a reactive behavior whenever possible, and assumes that competitors are likely to follow the same model.
Dynamic – A strategy model in which executives may be proactive or reactive without defining an overall strategy.
Characteristics of Reactive Strategy
A reactive system has certain systematic qualities that allow it to remain efficient and viable. While this strategy provides a mechanism for a business to change course, there is no overall direction and no overall control. Organizational activities are uncoordinated, and advantages are sacrificed for greater flexibility. This strategy is more concerned with short-term results.
When Should You Use Reactive Strategy?
Reactive strategy is used in businesses that are seeking the following:
Sustained growth – Reactive strategy is used in organizations that are growing rapidly, and is the most popular strategy in organizations that are experiencing hypergrowth. A typical consequence of the reactive strategy is hypergrowth.
Occasional prosperity – Reactive strategy is used in organizations that need to prosper for a short period of time.
Unexpected events – Businesses that need to respond to unanticipated events.
A shift in the market – Reactive strategy is used when the business needs to respond to events that occur in the external environment that are caused by changes in the market itself.
Reactive strategies are no good for corporations that have a multidimensional business model, but they are excellent for corporations that have several simple business models. They’re also good for businesses that do business in a single country and do not want to venture outside of that country. They also provide more freedom for those businesses that use them.
When Not to Use Reactive Strategy
Because there is no overall coordination, there is less control and oversight. In businesses that venture beyond their home base or do business in multiple countries, the reactive strategy is impractical.
A company that uses reactive strategy to run its business will face difficulties in the following situations:
- Businesses that expand their operations rapidly or need to make multiple acquisitions
- Businesses that need a solid corporate image in the marketplace and the media
- Businesses that need to coordinate business activities among several departments
- Businesses that need to coordinate financial policy decisions with the business strategy
- A business that does business with more than one supplier or distributor
There are a few disadvantages of the reactive strategy, including a lack of flexibility, difficulty planning like a pro, and potential damage to a company’s reputation. There’s a lack of direction and purpose, making reactive strategy a poor choice for long-term management of a business.
Because companies adopting the reactive strategy have no overall corporate vision regarding long-term management, they may find it difficult to operate outside of moderate and short-term plans. This is the reason why more than half of all companies in the Fortune 500 abandon this strategy within five years.
Since the reactive strategy makes no attempt to take the initiative, it is a poor choice for businesses that operate in difficult markets. Competitive activity is high and businesses must be able to respond to current and future challenges.
The reactive model of management may lead to a loss of corporate image and damage to a company’s reputation. This is a very real possibility in businesses that have experienced mergers and acquisitions, where there are many stakeholders who rely on the reputation and integrity of the business to make a profit.
In addition to these inherent problems, businesses that choose the reactive strategy must be prepared for three additional dangers:
Underestimate the power of the competition- There is a chance that the company will underestimate the power of the competition in the marketplace.
Mismatch customer with product offerings- Without an overall direction, the company will not be able to coordinate business activities among its sectors. This could result in a mismatch between the customer and the product or service offerings.
Corporate Fragmentation- When the reactive strategy is chosen, there is no overall coordination, which could lead to a division of the company into small units that have little contact with one another. This could fragment the company.
When is the Best Time to Use the Reactive Strategy?
If a company is successful and its market share is rising, the reactive strategy can be effective for it. While not overly popular, the reactive strategy does have its fans. The reactive strategy is best for businesses that are in constant flux, like Silicon Valley startups, for example.
Companies that are in the computer software and hardware business are normally in a constant state of change, which includes unplanned changes. This is the reason why companies in such industries don’t welcome planning and are content to work in a reactive way.
Another example is the famous American fast food chain McDonald’s. With more than 31,000 locations in 122 countries, McDonald’s has used the reactive strategy to remain a force in the market.
Because no two businesses are the same and all are in a different stage of development, as well as operating in a different industry, there are no rules to say that a company cannot succeed with the reactive strategy.
A company may have to use the reactive approach in the beginning or during the initial stages of development. The management team may choose this strategy because it’s more manageable for them to work in this manner. However, once the company begins to grow, it needs to adopt a more proactive strategy to ensure future growth and future prosperity.
Some reactive approach companies achieve high growth because they have one or two gifted people who are willing to gamble on new businesses. They can create and develop an organization just from scratch, and this is their core value.
Advantages
- Superior ability to seize opportunities
- Helps organizations to capitalize on strengths and redirect resources to develop new and innovative products, processes, and marketing approaches
- Helps organizations to capitalize on strengths and redirect resources to develop new and innovative products, processes, and marketing approaches
- Flexibility
- Allows adjustments to the organization’s environment
- Enables businesses to respond quickly to the specific requirements of each market segment
- Enables businesses to respond quickly to the specific requirements of each market segment
- Provides opportunities to rethink organizational strategy
Deficiencies
- Limited ability to anticipate long-term changes in the environment
- May be too unfocused and haphazard for some markets
- May create fragmented decision-making
- May be overwhelmed by an overly strong competitive position
- May be too focused on short-term demands
The reactive strategy is best used by a business that plans to react to the needs of the marketplace. This strategy is also used when a business requires rapid growth or limited growth. This strategy is not one that allows for a lot of flexibility or freedom.
Strategic management concepts introduce businesses to several reactive strategy alternatives, including the following:
- Enter the New Market Strategy, developed by Michael Porter and used to search, explore, and enter new markets
- Capture the New Market Strategy, developed by Michael Porter and used to capitalize on the high potential of markets that are either emerging, such as the Internet, or coming to a state of maturity, such as agriculture
- Redesign the Product Strategy, used to alter existing products and processes to compete in existing or changing markets
- Develop the Business System Strategy, used to find the ways by which a new business will compete in the marketplace
Summary of Reactive Strategy
- It allows businesses to respond quickly to emerging and changing situations
- It gives businesses an advantage over competitors
- It is flexible as it allows for adjustments
- It speeds decision-making
- It allows businesses to expand their influence
- It enables businesses to foresee changes
- It generates a higher degree of certainty
- It encourages synergy between departments
- It promotes fairness
- It allows businesses to reduce risk
- Disadvantages of the Reactive Strategy
- There are also disadvantages to using the reactive approach, including the following:
- It can place serious stress on individuals
- It does not support the company’s higher objectives
- It generates a stressful atmosphere in the area of the business
- It does not support long-term planning
- It does not always allow businesses to explore various alternatives
- It does not allow businesses to concentrate on one specific area of the business
- It may lead to chaos in the business
- It does not provide stability to the business
- It does not consider future changes
The reactive approach is generally the preferred strategy for businesses that need to respond to changing situations on a daily basis. This approach tends to make changes necessary within the business.
Both the reactive and proactive approaches are considered good strategies for businesses looking to develop a competitive advantage. No matter which one is chosen, the business must put a lot of effort into implementing the strategy.
A well-planned approach is the best way to ensure that the strategy works. Planning for the future is one of the best ways to ensure a business’s growth.
Reactive Strategy – The Best or Worst?
The concept of the reactive strategy is the best for certain businesses, but the worst for others. This concept is best for businesses that operate within a competitive environment. When a business chooses to explore the market and see what gaps they can fill, it is applying the reactive strategy.
Companies that hope to explore the market and attempt new ventures of their own are applying this strategy. This concept is not one that is being used for businesses that are considering implementing a competitive edge.
The reactive strategy often does not provide information about the business’s future. Some businesses have opted to use this strategy for marketing and sales. While the reactive strategy is considered beneficial by numerous businesses, there are still those who prefer the proactive strategy instead.
This is considered to be an elite approach to business and has yet to be embraced by a large number of companies, despite other companies’ success with it. It is difficult to say whether the proactive or reactive approach is best for any given business.
