Page 172 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes for the company. The firm should focus on and invest in these products or business units. The
general features of stars are:
1. High growth rate means they need heavy investment

2. High market share means they have economies of scale and generate large amounts of
cash
3. But they need more cash than they generate.

The high growth rate will mean that they will need heavy investment and will therefore be cash
users. Overall, the general strategy is to take cash from the cash cows to fund stars. Cash may
also be invested selectively in some problem children (question marks) to turn them into stars.
The other problem children may be milked or even sold to provide funds elsewhere.

Notes Over the time, all growth may slow down and the stars may eventually become
cash cows. If they cannot hold market share, they may even become dogs.

Cash Cows (Low Growth, High Market Share)

These are the product areas that have high relative market shares but exist in low-growth
markets. The business is mature and it is assumed that lower levels of investment will be
required. On this basis, it is therefore likely that they will be able to generate both cash and
profits. Such profits could then be transferred to support the stars. The general features of cash
cows are:
1. They generate both cash and profits
2. The business is mature and needs lower levels of investment
3. Profits are transferred to support stars/question marks

4. The danger is that cash cows may become under-supported and begin to lose their market.
Although the market is no longer growing, the cash cows may have a relatively high market
share and bring in healthy profits. No efforts or investments are necessary to maintain the status
quo. Cash cows may however ultimately become dogs if they lose the market share.

Question Marks (High Growth, Low Market Share)

Question marks are also called problem children or wild cats. These are products with low
relative market shares in high-growth markets. The high market growth means that considerable
investment may still be required and the low market share will mean that such products will
have difficulty in generating substantial cash. These businesses are called’ question marks because
the organisation must decide whether to strengthen them or to sell them.
The general features of question marks are:
1. Their cash needs are high
2. But their cash generation is low
3. Organisation must decide whether to strengthen them or sell them.

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