Corporate Level Strategy – Mix and Composition of Business Units, страница 5

From organizational performance point of view, the main use of the BCG matrix is for cash balancing.  Since every corporation is active in the financial market there is no requirement that the portfolio be perfectly balanced at all times.  Short-term excess funds are appropriately invested when they are available.  Also, there are accepted financial strategies for a corporation facing a permanent change in the level of its funding requirements.  Depending on the corporation's preferred financial risk level (and market opportunities) longterm loans and stock issues are used for raising additional funds.

Sometimes, as in cases of mature products or shrinking markets, a corporation may face permanent excess funds, with no use in the current strategic array.  From a purely economic point of view, the corporation should return these funds to its stockholders for reinvestment in other ventures.  But usually, managerial behavior and taxing laws, trigger a search for new investments (entry into new industries, market segments, countries, and so on).  Over time, significant cash flow imbalances within the corporation are not viable, even with all these financial tools and strategies.  Since the growth-share matrix is fundamentally aimed at the balancing of cash flows, the matrix may be of most use to companies that must operate with limited cash resources.

An abundance of Stars in the portfolio may sound very attractive, but it will require a constant stream of investment for several years to come.  Considering the lag between the initial development of a product-market business (from innovation, to application, to building a market), investment may continue for five to ten years before the business unit starts generating substantial positive cash flows (if ever!). Most corporations cannot support an unbalanced Star-heavy portfolio.  Moreover, even if financial requirements can be met, other resources such as skilled labor, equipment, plant, and particularly additional management skills and time, are constantly being invested in the Stars.  The end result is that these corporations deplete their resources and are taken over by unbalanced "Cash-Cow-heavy portfolio" corporations with the resources (financial and managerial) to maintain Stars.  Every high-paced product-market innovation organization faces these problems, and they are especially prevalent in high-technology industries.  In these businesses, life cycles become increasingly short, products are aimed at specific markets that are getting narrower and narrower, while the investments in innovation, application, production, market development, and sales are staggering.

When the portfolio is Cash Cow tilted, the corporation's very future is at stake. Though cash is generously available, such a portfolio indicates a near-term demise, since Cash Cows tend to eventually dry out.  Cash-Cow-heavy corporations with scant future alternatives in their portfolio are doomed to stagnation and consolidation.  Thus, corporations heavy with Cash Cows are usually engaged in a frantic search for Stars (by acquisition, or inhouse development); they are ready to pay large multiples of current earnings to acquire Stars, in an effort to attain future stability and growth.

A primary goal of the corporation is to protect the position of the Cash Cows, but to guard against excessive investment in these business units.  The first priority for usage of cash from the Cash Cows is to support the Stars that are not self-sustaining. However, if at any point a business (Cash Cow or Star) has a higher value to someone outside the corporation than to the parent company the business unit should be sold. The second priority is to work on the development of future Stars.  The third priority for this cash is to fund a number of promising Question Marks in order to move them to dominant positions as Stars in their industries.  The Question Marks that cannot or should not be funded are candidates for divestment.  It may be hard to find interested buyers for a Question Mark, and if so the price will be low.  It may be better to simply hold on to it, especially if it requires little of the corporation's management resources.  A Dog can sometimes be made viable by specialization into a niche that it can dominate.  Otherwise, a significant increase in share may be an expensive proposition.  Other alternatives are managing the business unit for cash, cutting off all investment, or divesting.  The overall strategy is to strike a balance such that the cash generated by the Cash Cows, plus that from the divestment of Question Marks and Dogs, is sufficient to support the Stars and to fund selected Question Marks in moves to dominant positions in their industries.