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Operations, Strategy

In Bruce Henderson’s Words: Cash Traps

January 01, 1972
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About This Podcast

Read from BCG’s 1972 Perspective, “Cash Traps.”

Recorded

2 Oct 2011

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BCG's founder Bruce Henderson argued that prices could be lower and profit could be higher if all competitors would recognize their cash traps—products that absorb more money in required investment than they will ever generate in revenues.

Companies seeking to escape such cash traps must take extreme measures: either ceasing investment and managing solely to maximize cash withdrawal or investing so heavily that a leading market position is attained. But even if companies escape from cash traps eventually, they still lose. The longer it takes to escape, the greater the loss in present value of the investments.

To avoid cash traps, companies should focus on products that command about twice the market share held by the next-largest competitor. For products that cannot meet this threshold, companies should plan to extricate their investments as expeditiously as possible.

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