Problem Child
What Is a Problem Child?
A problem child is a business with a small market share in a quickly developing industry. It is one of the four categories in the BCG Growth-Share Matrix, a management device presented by Boston Consulting Group in 1968 to assist companies with choosing which business units or products to invest in and which to sell.
The growth-share matrix is likewise called the BCG Matrix or Boston Matrix and the problem child assignment may likewise be alluded to as a "question mark".
Grasping a Problem Child
The concept behind the BCG Matrix is to assist companies with rambling business interests rapidly characterize and focus on various business lines for capital mixture or liquidation. Problem children are plotted on the growth-share matrix, alongside other business units. The x-pivot shows relative market share (or the ability to generate cash) and the y-hub shows the rate of market growth (or the requirement for cash).
- Cash cows are businesses that have a high market share (and generate heaps of cash) however low growth possibilities (and in this way a low requirement for cash). They are much of the time in mature industries that are going to fall into decline.
- Stars have high growth possibilities (need a ton of cash) and a high market share (and generate loads of cash).
- The problem children have high growth prospects yet a nearly low market share
- Dogs have small market shares in mature industries.
The BCG system recommends that surplus cash ought to be moved from a conglomerate's cash cows to the stars and the problem children, while the dogs ought to be divested.
Dealing With a Problem Child
Problem children are especially difficult, as they consume more cash than they generate. The inquiry that management faces is whether investing in a problem child's business will increase market share to the point of transforming it into a star. A problem child may as yet transform into a canine, even subsequent to consuming cash on marketing and sales. The technology sector, for instance, has heaps of problem children, since it is so competitive and dynamic.
As the name proposes, problem children require management consideration. Problem children ought not be invested in except if there is real potential for growth, and it is management's responsibility to judge those possibilities. In the event that the possibilities look great, management might have to invest vigorously to bring up the problem child to star status. On the off chance that, in any case, management misjudges this, they might be left with a canine in the end that will sell for short of what they might have realized whether they stripped early.
Problem Children and the BCG Matrix Today
Grids like the BCG Matrix were very elegant for some time when companies would in general hold a great deal of business lines, secure more and strip rarely. So they will quite often be more fit to conglomerates in their 1970s prime. The 1980s brought much more corporate discipline through the disruptive impacts of strikes, hostile takeovers, and leveraged buyouts (LBOs). From that point forward, it is rare to find a company that doesn't routinely assess all its business lines consistently with a severe set of key performance indicators. Besides, market share is as of now not a direct predictor of supported performance.
Today, the ability to adjust to change is an even greater driver of competitive advantage. Assuming corporate culture moves again to mixture — something that actually holds tight in locales like Asia — then, at that point, we might see the BCG matrix and others return into vogue.
Highlights
- Problem child is a quadrant in the BCG Matrix and is the triage category among the cash cows, stars, and dogs.
- A problem child is a business line that has great growth potential however a small share of the developing market.
- Making a problem child into a star requires heavy capital investment, so a management confusion of the growth possibilities can be an expensive slip-up.
