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IAI Actuarial Core Principles · Business Management · Mission, business strategy, teamwork and time management

Nilgiri Pensions has a business unit with a small share in a fast-growing market for retirement apps. It needs heavy investment, and its future is uncertain. Under the Boston Consulting Group matrix, how is this unit classified and what is the usual recommended approach?

The unit is a question mark. It has low relative market share in a high-growth market, consuming cash with uncertain returns, so the usual approach is to invest selectively to build share and become a star, or otherwise divest. Stars, cash cows and dogs have different share and growth combinations.

  1. ACash cow; harvest cash and invest minimally
  2. BStar; hold as it generates surplus cash
  3. CDog; divest immediately without evaluation
  4. DQuestion mark; invest selectively to build share or else divestCorrect
  5. Star; reduce investment because market growth is high

Explanation

Low relative market share in a high-growth market is a question mark (problem child). It absorbs cash and the choice is to invest to turn it into a star or to divest. Stars have high share and high growth; cash cows high share, low growth; dogs low share, low growth.

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