Problem Child

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DEFINITION of 'Problem Child'

A company’s business unit that has a small market share in a rapidly growing industry. A Problem Child is one of the four categories or quadrants of the BCG Growth-Share matrix, developed by Boston Consulting Group in the 1970s to manage different business units within a company. A Problem Child is a net user of cash and resources in a company, since it consumes more cash than it generates.

This category of business is also known as a “Question Mark,” since its future may remain uncertain for a number of years, during which it may evolve into a Star (high market share in a fast growing industry) or a Dog (small market share in a mature industry).

INVESTOPEDIA EXPLAINS 'Problem Child'

Although some of the most successful businesses started off as a Problem Child, this business category often presents the biggest challenges to management.

The basic question management often faces is whether to deploy the resources necessary to capture greater market share in a Problem Child’s industry, which is usually in a high-growth phase. If management’s growth strategies are successful and the business gains significant market share, it may be transformed into a Star, capable of generating huge amounts of profits and cash flow. On the other hand, if management’s decisions prove incorrect and the Problem Child does not grow, despite large amounts of cash deployed, it could turn into a Dog that may need to be divested before it becomes a chronic problem.

The issues associated with a Problem Child are most apparent in dynamic industries like technology, where heavy investments are required to gain market share. For example, a software company may have devised a new suite of products for a fast-growing sector of the software market, but it would have to spend substantial capital on marketing and support to gain market share in the face of stiff competition. The question is whether it should spend this capital, given the dynamism of the software sector may make the company’s products redundant in a few years.

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