Question

You are the CEO of a large company that has a very diverse portfolio. One industry that you operate in has high overhead costs and profit margins of 23%, meaning it is a very lucrative industry. Additionally, your business has a large market share but the market itself has low growth rate. What should you do?

A. The 23% margins make this business a cash cow. That high of a commission per project means that you should continue to invest in that business to make sure nothing happens to it.
B. According to the BCG Matrix, this industry is a dog which means you should reinvest its profits into other businesses in the portfolio.
C. None of the above
D. According to the BCG Matrix, this business resembles a cash cow which means you should reinvest its profits into other businesses in the portfolio.
E.According to the BCG Matrix, this business is a star because of its large market share. You should reinvest in the business, but make sure to keep checking on it.

Answer 1

The correct action for the CEO is to treat the business as a cash cow according to the BCG Matrix and reinvest its profits into other areas of the company's portfolio. This ensures continuous profit generation while supporting growth in other sectors.

Step-by-step explanation:

Based on the BCG Matrix, a business with high overhead costs, high profit margins (23%), a large market share, and a low market growth rate is categorized as a cash cow. This means the industry operates efficiently, generates significant profits, and requires little investment to maintain its current position. The typical strategy for managing a cash cow according to the BCG Matrix would be to reinvest its profits into other businesses within the portfolio that have higher growth prospects or need additional resources to become more competitive.

Therefore, the correct action for the CEO to take is option D: According to the BCG Matrix, this business resembles a cash cow which means you should reinvest its profits into other businesses in the portfolio. Investing in businesses within the portfolio can enhance overall company growth and competitiveness in different markets or sectors. It is important to ensure the cash cow continues to generate a robust cash flow while using the excess profits to support strategic business objectives in more dynamic areas.