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CMA Intermediate · Operations Management and Strategic Management · Introduction to Strategic Management

A firm has three SBUs. SBU P has high relative market share in a mature, low-growth market and generates surplus cash. SBU Q has low share in a high-growth market. SBU R has low share in a stagnant market with poor prospects. Which allocation is consistent with the BCG-based portfolio strategy?

Use surplus cash from P, the cash cow, to selectively build Q, the question mark, if it can become a star, and harvest or divest R, the dog. BCG logic treats cash cows as funding sources and dogs as candidates for exit.

  1. AFund P heavily with new investment; harvest Q; build R
  2. BUse cash from P to selectively build Q if it can become a star, and divest or harvest RCorrect
  3. CDivest P, retain R, and ignore Q
  4. DTransfer cash from Q to P and R equally

Explanation

P is a cash cow, Q a question mark, R a dog. Cash cows fund the rest of the portfolio, so surplus from P can support Q if it has potential to become a star. Dogs like R are usually harvested or divested. The other options reverse these roles, for example investing in a cash cow that needs little growth spending.

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