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A harvest strategy is used when a company decides that it will no longer invest heavily in a particular product or branch of its business. This is done because the product or industry in question has reached a point where continued investment will produce diminishing returns. As a result, companies employ a harvesting strategy to simply use the cash gained from decreased production to fund newer initiatives. In most cases, this strategy is used when technological advances make a product obsolete or the product reaches a point where no additional investment will produce an increase in sales.
Many people mistakenly believe that business investment only focuses on money invested in other companies. How a company reinvests in itself can have a profound effect on its long-term vision. For companies that may be dealing with many different product lines or initiatives, deciding which should receive the most funding for promotion and improvement is a vital part of the business process. A technique often used in this process is the harvest strategy.
The harvest strategy is generally used when some aspect of a company’s business has reached a point where no amount of reinvestment can increase its fortunes. It may be because a certain product, due to technological advances, is becoming obsolete. In some cases, the product line may simply become so popular that it peaks, at which point sales will likely begin to decline.
As an example of this phenomenon, imagine a company that makes video games. One game in particular has always been one of the company’s most popular, but it’s being played on a gaming system that is slowly falling out of favor with newer models. With that, the company decides on a harvest strategy and stops promoting the game. Any sale of the game from then on will be purely for profit as there is no investment for this.
In this case, the game is known as “Cash Cow” as it will simply make extra money until it eventually becomes obsolete. Using the harvest strategy, the company in question can use these resources to help them introduce new product lines. The key to this strategy is timing, as pulling the plug on a proven product too soon in favor of an untested one can be risky. Company management must ensure that the dairy cow is no longer useful before making such a decision.