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This Week’s Summary:
Boston Consulting Group may have created the Cash Cow but …
Your company has its own version of a cash cow
Business continuity ensures that the cash cow keeps delivering
Remember that you are a link in an overall process chain
Preserving business continuity should be a top priority
Wouldn’t it be great to have a cow that gave cash instead of milk? You might actually have one! The Boston Consulting Group (BCG) introduced their Growth Share Matrix concept a while back which may be familiar to many of you. It has four boxes, one of which they really named the “Cash Cow.” This term applies to a company or product that has a high market share in a low growth (mature) marketplace. The implication of this designation is that a company lucky enough to hold a “Cash Cow” position should do what it can to maintain that position for as long as it can. Why? Because this is the product that offers higher sales levels, usually with higher profits. From a business planning perspective, The “Cash Cow” is the product that offers the stable income (profits) that the company will need to develop the future products or services which may become the next “Cash Cow.”1
Image created by Ed Paulson using Copilot in Windows.
The BCG model is used by managers to determine future expectations from a group of products, and how to allocate company resources. Any company fortunate enough to have a BCG Cash Cow should recognize it and take full advantage of the benefits it offers. The rewards can be substantial.
If you work for an established company, then you have your own “cash cow” of some kind or you would not be in business.2 Your “cash cow” may not be the robust profit-making, market leading offering that BCG refers to in their matrix, but it is extremely important to your company because it is the one that your customers continue to order and pay for. It is the one that your company can produce over and over again in a consistent way that keeps your customers satisfied. Protecting your company’s cash cow is critically important.
The value that your company gains from the consistent cycle from product, to sale, to customer, to received payments is what keeps your company alive. Ensuring that this routine value-creation process continues uninterrupted is the goal of business continuity planning, and it should play a role within any thriving company because if the value-creation process suffers, the organization suffers.
I have found that when folks hear business continuity they often nod their heads like they know what it means, but later discussions usually indicate that their understanding is superficial, at best.3
This simplified understanding of business continuity as a process flow is the approach I use when explaining it to my clients and adult working university students. Business continuity concepts are powerful, and I believe underutilized, which is why we are looking at them today. We will also find that communication is integral to making business continuity management function.
I think of businesses as multistage processing engines that convert inputs like raw materials, data, labor, energy, and capital into a product or service that is sold and delivered to customers who pay for the stuff they ordered (hopefully). The company uses that received customer money to buy more inputs and the process repeats. The smooth operation of this process from ordering the inputs, through the product or service creation stage, to the marketing and sale stage, and finally to the receivables collection stage is an integrated process, and any interruption along the way is a problem that causes the cash cow to get a little sick. A major disruption can kill the cow, and your company.
To illustrate the interdependent nature of these stages, let’s start with the inputs. If there are no materials or workers (the inputs), then the next operational stage that creates your product or service is not possible. There would be nothing for the production stage to use to create the product or service that your company sells. Any disruption to the procurement stage can stop the engine, so reliable input stage function is critical. Industry knows this and has developed a sophisticated supply chain discipline to ensure that it functions smoothly, delivering just enough product, at just the right time (“Just In Time”). There is an art to doing this well.4
The product or service production stage is important in that without a product or service to offer, the company would have nothing to sell, and would not exist. This step may involve manufacturing a product like a calculator or an automobile, or it might be offering a service like a great dining experience or a chiropractic adjustment. If the produced calculator doesn’t work or the automobile design is of such poor quality that it gains a reputation as a lemon, then the cow gets sick, and the organization will struggle. Likewise, a poorly cooked meal or an unnecessarily painful chiropractic adjustment might prompt customers to look elsewhere. Many companies focus their attention here because, in my opinion, it is the stage over which they have the most control. Unfortunately, this means that the other stages may not get the attention they need.
Then we come to the marketing and sales stage, without which there would be no customers and the company would run out of money. This stage is where many companies struggle and those who have not dedicated substantial resources to sales and marketing could find themselves with no orders, which means no money coming in. Lack of sales usually portends future difficult cost cutting and personnel layoff decisions. No manager who has ever been through this type of downsizing would want to go through it again. It is no fun.
It is hard to overemphasize the importance of generating sales. As an early manager used to say, “You can recover from a lot of other mistakes when you have robust sales!”
The final stage in this simplified process is the receivable collection process whereby the customer pays the amount of money that was agreed upon at the time of the sale. These funds are tracked by the accounting and finance department which then uses those funds to pay the vendors, employees, and others who make the business function, and keep the lights on. This is another critical step in the business continuity process.
You can think of business continuity as preserving an idealized process flow from the inputs, through production, to the sale and shipment, and finally to receiving customer payments. The most successful companies are able to repeat this process on a consistent basis with minimal interruption. They are good at maintaining business continuity.
Image created by Ed Paulson using Copilot in Windows.
The idealized version of business continuity flow is like a dance where each partner does their part while also watching to ensure that their partner does not stumble, but reality is different. We don’t live in an idealized world and, as I wrote about on April 15, 2024, sh*t happens!
A common problem occurs when one member of the dance team focuses more on their part and forgets about their partner. It is usually not done with malice but results from our brain’s tendency to focus on what is in front of it and minimize the brainpower allocated to things it cannot see. For example, let’s assume that a person in procurement (input stage) has decided to reduce the cost of a certain part and by doing so, inadvertently, slowed its availability. Assume at the same time a salesperson (sales stage) has closed an extra-large order which will require building more of a specific product that uses that part. Oops! Can you see the problem brewing here? If sales agrees to the order but manufacturing cannot deliver because of a delay with this critical part, then the customer agreement will not be fulfilled, and business continuity will be compromised.
There may be multiple partners involved with this breakdown in business continuity. Sales should not take the order without agreement from manufacturing that they can fulfill the quantities in the desired timeframe. Manufacturing should not agree to make the products without ensuring that they will have the needed parts and manpower to make it happen. If any link in this chain is broken business continuity takes a hit, and depending on the size of the hit, the business can be seriously injured. Maintaining a smooth business continuity flow through all stages is hard to do correctly and repeatedly.
Making all of these parts work together is complicated stuff, even for a small company, and when the company gets larger the scale of the complexity can become enormous. Technology is critical to making sure all the links in the business continuity chain remain intact, but the people along the way should never forget that they are a key link in a critical chain to which everyone is connected, especially the customer.
A great place to begin evaluating potential business continuity impacts when considering any type of change or when experiencing a setback in your area is to ask questions such as, “How will this affect the customer?” followed up by, “How will this affect others in the company and/or stakeholders?”
You could quickly solve a problem thinking only of your immediate area, but if doing that interrupted overall business continuity, you may have injured the overall organizational health. You solved your local battle but lost the organizational war.
Train yourself to take a moment to consider how your actions may affect others within your company’s value creation process. By doing so, you may be able to solve your problem and minimize overall business continuity impact, doing your part to keep your organizational Cash Cow healthy.
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Investopedia does a nice job of explaining the matrix for those who are interested. https://www.investopedia.com/terms/b/bcg.asp
I’m not including startups in this group because they often do not show a profit. They keep the lights on by drawing funds from a financial reserve of some kind. This is a different business model.
NOTE: For more information about Business Continuity check out this link to the Business Continuity Institute. https://www.thebci.org/knowledge/introduction-to-business-continuity.html
NOTE: For a quick and solid overview of Just In Time manufacturing process check out this link. https://www.inboundlogistics.com/articles/just-in-time-manufacturing/