Question

New York Times news Oct 22, 2012, BP board approves Russia deal. For BP, the sale comes as the biggest step in “putting its global business on a new footing by selling older, less profitable fields and concentrating on exploration”. In the BP’s BCG matrix, TNK-BP is in the cell of _____________.

 

A.) Star

B.) Cash Cow

C.) Question Mark (problematic child)

Answer 1

The right option is (B).

 

Explanation:

The Boston Consulting Group (BCG) matrix is designed to aid a business in contemplating growth potential by reviewing its product portfolio to identify where to invest, where to cease, or where to develop goods.

 

A planning tool developed by the Boston Consulting Group (BCG) uses graphical representations of a company's goods and services to assist it in deciding what to keep, sell, or spend more in.

 

Each quadrant of the matrix depicts a combination of the market share and the growth. The four quadrants of a BCG matrix along with their representation are:

Quadrant	Growth	Market Share
Star	High	High
Cash Cow	Low	High
Dog	Low	Low
Question Mark	High	Low

 

A company should invest in the products under star quadrant, use the cash from the products in cash cow quadrant to reinvest, and liquate the products in dog quadrant. And the products in the question mark category should be discarded or more investment should be made in them, depending on their growth potential.

 

The objective behind selling the TNK-BP is to sell the old less profitable field, and focus on exploration. The company aims at adopting a "shrink to grow" strategy, in which the investment in older fields with high market share and low growth potential is reduced.

 

Correct Option:

B.) The high market share and low growth/less profitability are the features of the products in the cash cow quadrant. Reduction in the investment and taking out the maximum cash flow from the product is the most suitable strategy for the products in "Cash Cow" quadrant. The TNK-BP is in the "Cash Cow" quadrant, therefore the option is correct.

 

Incorrect Options:

A.) The products in star quadrant are characterized by high market share and more profitability. The TNK-BP has less profitability, therefore the option is incorrect.

 

C.) The products in cash question mark quadrant have a high growth potential, but a low market share, the profitability of TNK-BP is low, and the market share is high because it is an old field, thus this option is also incorrect.

 

Hence Option (B) Cash Cow is correct.

Hence Option (B) Cash Cow is correct.