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Free IIA-CIA-PART4 Exam Braindumps (page: 16)

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In the Boston Consulting Group (BCG) growth-share matrix, which strategic business units generate large amounts of cash, need heavy investment to grow and maintain competitive positioning, but usually have modest net cash flow?

  1. Cash cows.
  2. Question marks.
  3. Dogs.
  4. Stars.

Answer(s): D

Explanation:

A star is a business with a strong competitive position in a growth industry. It has a high relative market share, and the market growth rate is high. Thus, the industry is robust, and the SBU is highly attractive. Net cash flow is modest because investment is heavy, although stars generate large amounts of cash.



A firm has a strategic business unit (SBU) that has a low market share in a high growth market. To maintain even this low share of the market requires the firm to commit a significant amount of cash. The firm might successfully adopt a build strategy for this unit if the:

I). SBU shows a strong potential to grow and obtains a significant share of the market.
II). Firm can finance its growth.
III). Firm expects a short-term increase in cash flow.
IV). Firm is willing to forgo short-term earnings.

  1. I only.
  2. II and Ill only.
  3. Ill and IV only.
  4. I, II, and IV only.

Answer(s): D

Explanation:

One of the two portfolio models most frequently used for competitive analysis was created by the Boston Consulting Group (BCG). This model, the growth-share matrix, has two variables. The market growth rate (MGR) is on the vertical axis, and the firm's relative market share (RMS) is on the horizontal axis. The growth-share matrix has four quadrants. The firm's SBUs are commonly represented in their appropriate quadrants by circles. The size of a circle is directly proportional to the SBU's sales volume. Question marks (low RMS, high MGR) are weak competitors in high-growth markets. They need large amounts of cash not only to finance growth and keep pace with the market but also to increase RMS, but do poorly in cash generation. If RMS increases significantly, a question mark may become a star. If not, it becomes a dog. A build strategy is necessary for a question mark with the potential to be a star. Consequently, a firm may adopt a build strategy for this type of SBU if it shows a strong potential to grow, if the firm is willing to forgo short- term earnings and cash flow, and if the firm is willing and has the capacity to finance its growth. However, a firm that expects only a short-term increase in cash flow may adopt either a divest or a harvest strategy but not a build strategy. This type of SBU needs a lot of cash flow to finance its growth.



A strategic business unit (SBU) has a low relative market share (RMS) and a high market growth rate (MGR). According to the portfolio model for competitive analysis (thegrowth sharematrix) created by the Boston Consulting Group, the SBU is considered a

  1. Star.
  2. Question mark.
  3. Cash cow.
  4. Dog.

Answer(s): B

Explanation:

Question marks (low RMS, high MGR) are weak competitors in high-growth markets. They need large amounts of cash not only to finance growth and keep pace with the market but also to increase RMS, but do poorly in cash generation. If RMS increases significantly, a question mark may become a star. If not, it becomes a dog.



According to the growth-share matrix approach developed by the Boston Consulting Group, a harvest strategy is most likely to be used for SBUs that are

  1. Question marks that may become stars.
  2. Strong cash cows.
  3. Weak cash cows.
  4. Dogs that reduce the firm's profits.

Answer(s): C

Explanation:

Each SBU should have objectives, a strategy should be formulated to achieve those objectives, and a budget should be allocated. A harvest strategy maximizes short- term net cash inflow. Harvesting means zero-budgeting R&D, reducing marketing costs, not replacing facilities, etc. This strategy is used for weak cash cows and possibly question marks and dogs.






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