Page 255 - (DK) The Business Book

SUCCESSFUL SELLING 253

See also: Managing risk 40–41 ■ How fast to grow 44–45 ■ The Greiner curve 58–61 ■ Profit versus cash flow 152–53 ■
Leading the market 166–69 ■ The MABA matrix 192–93 ■ The marketing model 232–33 ■ Marketing mix 280–83

However, it is
The cash
cow generates It does not require The cash cow a mature product
any further outlay and growing
a good income and it funds the is the beating star products
and has a good development of heart of the are also necessary
share of the organization.
new products. in a balanced
market.
portfolio.

Peter Drucker cited the case of IBM risks that come with innovation decline. When making decisions
in the mid-1970s. The mainframe and developing new, leading-edge about which products it should
computer was its cash cow, but the products and ended up being continue to manufacture, an
newly launched PC was its fastest- unable to compete amid the rapid organization needs to consider
growing product; in fact, IBM technological and marketplace the life cycle of each product and
dominated the PC market at first. changes of the 1990s. the balance or synergy between
However, the company deliberately Drucker may have been the all the products in their portfolio.
restricted sales of PCs for fear of first to use the term in a business The BCG matrix provides an
jeopardizing its cash cow, and in context, but the Boston Consulting analytical tool for assessing the
doing so, allowed time for clones to Group (BCG), founded by Bruce effectiveness of the product mix
flood the market. In fact, IBM lost Henderson, first incorporated the and its profitability. A business ❯❯
so much ground that its PC cash cow into a business model in
business never recovered. IBM’s 1968. Referred to as the BCG
product portfolio continued to be matrix, Boston Box, or growth-
subordinate to its cash cow. With share matrix, this model graphically
investors in mind, they avoided the depicts the relationship between
market growth and market share.
It quickly became a popular
business tool for making decisions
about which products to wind
down and which ones to invest in.

A company should have a The product portfolio
portfolio of products with The starting point for the BCG
different growth rates and matrix is the concept of a product
different market shares. The portfolio—the total mix of products
portfolio is a function of the offered by an organization. These
balance between cash flows. can be categorized according to
Bruce Henderson their share of the market, revenues,
and growth potential. Each one can
also be assessed by its position in
IBM launched its PC in 1981 and it
the “product life cycle,” which sold well. However, the company failed
tracks the path of a product from to capitalize on its success, focusing
initial growth to maturity and then instead on its mainframe computers.