A harvest strategy is employed when a company that decides it will no longer put much investment into a particular product or branch of their business. This is done because the product or branch in question has reached a point where continued investment in it will only produce diminishing returns. As a result, companies employ a harvest strategy to simply use the cash pulled in by the waning product to fund newer initiatives. In most cases, this strategy is used when technological advances render a certain product obsolete or the product reaches a point where no amount of new investment in it will produce any increase in sales.
Many people mistakenly believe that business investment only centers on money put into other companies. The way that a company reinvests in itself can have a profound effect on its long-term outlook. For companies that may be juggling many product lines or different initiatives, deciding which of these should get the bulk of funding for promotion and improvement is a vital part of the business process. One technique often employed 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 could be because a particular product, due to technological advances, is becoming obsolete. In some cases, the product line might simply become so popular that it reaches its peak, from which it will likely start to decline in sales.
As an example of this phenomenon, imagine a company that makes video games. One particular game has always been one of the company's most popular, but it is played on a game system that is slowly falling out of favor for newer models. As a result, the company decides upon a harvest strategy and stops promoting the game. Any sales of the game from that point will be purely profit, since there is no investment going into it.
In that case, the game becomes known as a "cash cow," since it will simply pull in extra cash until it finally becomes obsolete. Using the harvest strategy, the company in question can use these funds to help them introduce new lines of product. The key to this strategy is timing, since pulling the plug too soon on a proven product in favor of an untested one can be risky. Company management must make sure that the cash cow has outlived its usefulness before such a decision is made.
By Jim B.