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
Peter Drucker cited the case of IBM
in the mid-1970s. The mainframe
computer was its cash cow, but the
newly launched PC was its fastest-
growing product; in fact, IBM
dominated the PC market at first.
However, the company deliberately
restricted sales of PCs for fear of
jeopardizing its cash cow, and in
doing so, allowed time for clones to
flood the market. In fact, IBM lost
so much ground that its PC
business never recovered. IBM’s
product portfolio continued to be
subordinate to its cash cow. With
investors in mind, they avoided the
risks that come with innovation
and developing new, leading-edge
products and ended up being
unable to compete amid the rapid
technological and marketplace
changes of the 1990s.
Drucker may have been the
first to use the term in a business
context, but the Boston Consulting
Group (BCG), founded by Bruce
Henderson, first incorporated the
cash cow into a business model in- Referred to as the BCG
matrix, Boston Box, or growth-
share matrix, this model graphically
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.
The product portfolio
The starting point for the BCG
matrix is the concept of a product
portfolio—the total mix of products
offered by an organization. These
can be categorized according to
their share of the market, revenues,
and growth potential. Each one can
also be assessed by its position in
the “product life cycle,” which
tracks the path of a product from
initial growth to maturity and thenSUCCESSFUL SELLING
IBM launched its PC in 1981 and it
sold well. However, the company failed
to capitalize on its success, focusing
instead on its mainframe computers.The cash
cow generates
a good income
and has a good
share of the
market.It does not require
any further outlay
and it funds the
development of
new products.The cash cow
is the beating
heart of the
organization.However, it is
a mature product
and growing
star products
are also necessary
in a balanced
portfolio.decline. When making decisions
about which products it should
continue to manufacture, an
organization needs to consider
the life cycle of each product and
the balance or synergy between
all the products in their portfolio.
The BCG matrix provides an
analytical tool for assessing the
effectiveness of the product mix
and its profitability. A business ❯❯A company should have a
portfolio of products with
different growth rates and
different market shares. The
portfolio is a function of the
balance between cash flows.
Bruce Henderson