The Business Book

(Joyce) #1

252


T


he term “cash cow” refers
to an investment or area of
business that provides a
dependable source of revenue. In a
corporate context, the cash cow is
the product or service that buoys
profits year in, year out and provides
funds so the business can grow. It
brings cash in, which becomes the
lifeblood: contributing most of the
operating expenses; paying for
development, launch, and support of
new products; and propping up it’s
less profitable ventures.

Cash generator
The cash cow is typically a product
that has reached maturity in its life
cycle. Like its real-life counterpart,
its initial cost has been paid off, it
needs little maintenance, and it
can be “milked” for the rest of its
life. Although such products may
no longer be growing, they still
generate substantial revenue
because they have good market
share and no longer require much
capital outlay to keep them going.
Management veteran Peter
Drucker is said to have first used
the “cash cow” metaphor in the
mid-1960s; he certainly referred to
it throughout his career to describe

IN CONTEXT


FOCUS
Product assessment

KEY DATES
9000 BCE Cattle, including
cows, are used as the first
form of currency.

Mid-1960s Peter Drucker
uses the term “cash cow”
in the context of business
management.

1968 The Boston Consulting
Group devises the growth-
share matrix: a model for
categorizing a company’s
products according to its
market share and growth
potential.

Early 1970s Consultancy
company McKinsey &
Company develops alternative
GE–McKinsey matrix with
client General Electric.
1982 H. C. Barksdale and
C. E. Harris publish their new
matrix in “Portfolio analysis
and the PLC.”

a product that is an easy cash
generator. He was drawing on the
history of commerce in his analogy:
livestock such as cows, goats, and
camels served as currency from
around 9,000 BCE. While Drucker
understood the value of the cash
cow, at the same time he cautioned
against overreliance on it. He
advocated a strategy of planned
abandonment when the cash cow
is challenged by another product,
potentially a rival within the
company’s portfolio, which is
growing faster.

The Boston Consulting Group


In 1875, the Boston Safe Deposit
and Trust Company was set up
in its home port in New England
to offer safekeeping services to
local merchants and ship owners.
Run by several generations of the
prominent Bostonian family, the
Lowells, the company had grown
by the 20th century to become a
prominent financial institution.
In 1963, a chance meeting
between the Boston Safe
Deposit and Trust Company
CEO John Lowell and one of the
US’s brightest management

the company. Initially finding it
difficult to land clients and
compete against larger
consultancies, Henderson came
up with the idea of offering
“business strategy” as a unique
service. A few years later, with
a team of 36, Henderson devised
the now-famous growth-share
matrix (1968). His company,
BCG, has since grown to
become a significant global
management consultancy
employing more than 2,000 staff
in 75 offices around the world.

thinkers Bruce Henderson (1915–
1992) led to the founding of the
Boston Consulting Group (BCG).
This management consultancy
was essentially a one-man band
with Henderson at the helm.
Henderson had been a Bible
salesman before completing an
engineering degree at Vanderbilt
University, Nashville, and going on
to study at Harvard Business
School. He joined Westinghouse
Corporation before graduating,
becoming one of the youngest
vice-presidents in the history of

As entrepreneurs, we adore
shiny new things. But don’t
forget to give some love to the
(cash) cows that keep the
business going.
John Warrillow
UK entrepreneur (1971–)

PRODUCT PORTFOLIO

Free download pdf