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65 Financial M anagem ent and Planning w ith the Product Life Cycle Concept
Financial Management and
Planning with the Product
Life Cycle Concept
David R. Rink, Dianne M. Roden, and Harold W. Fox
article, w e shall synthesize,
expand, and update previ-
ous PLC-FS m odels to assist
m anagers in form ulating
and im plem enting even
m ore tim ely and effective
FSs.
These PLC-FS m odels
originated during the
1970s. Since then, corpo-
rate finance has broadened
to include m ore strategies
for handling uncertainty
and risk. Rapid grow th in
the popularity of options
and derivative securities
reflect this trend. The ex-
ternal environm ent has also changed dram ati-
cally. Products have grow n m ore com plex. Tech-
nology is m oving at such a rapid pace that PLCs
are becom ing shorter. Custom ers dem and higher
quality products m anufactured m ore quickly and
m ore efficiently. Intense com petition from the
global m arketplace requires quicker and m ore
cogent responses. To deal w ith all this, financial
m anagers need help. Thats w here the new PLC-
FS m odel com es in.
THE PRODUCT LIFE CYCLE CONCEPT
he product life cycle is a generalized
m odel depicting the unit sales trend of
som e narrow ly defined product from the
tim e it is first placed on the m arket until it is later
rem oved by the firm . It can be approxim ated by
a bell- or S-shaped curve, w hich is divided into
several stages or phases. The tim e length of any
stage and the shape of the overall PLC m ay vary
odern firm s are confronted w ith inten-
sifying global com petition, rapidly
evolving technology, rising costs, and
m ercurial custom er preferences. D em ands for risk
reduction, quality im provem ent, efficiency, and
continued grow th have greatly broadened the
scope of financial m anagem ent, elevating its stat-
ure at the corporate level. As a result, financial
m anagers m ay do m ore forecasting and planning,
com m and greater decision-m aking authority, be
m ore active in developing and im plem enting
strategies for different functions w ithin the firm ,
and participate in form ulating corporate strategies.
To assum e these new responsibilities suc-
cessfully, financial m anagers require a new con-
cept of their role and function as an integral part
of the firm . They need to think and act m ore
strategically, w ith an eye tow ard tim eliness and
effectiveness. They w ill also need to develop and
use m ore tim ely and effective financial strategies.
M ost im portant, how ever, is the need for a set of
carefully conceived financial strategies and tactics
sequenced according to som e w orkable fram e-
w ork. O ne such guideline is the product life
cycle (PLC) concept, w hich can indicate the na-
ture of financial strategies that should be form u-
lated and im plem ented by stages in a products
sales cycle.
The dependence of financial activities on a
products sales trend w as originally recognized by
Fox (1973). U sing the PLC as a gauge of chang-
ing m arket conditions, Fox form ulated a set of
prescriptive financial strategies (FSs) that he rec-
om m ended for each stage of the products sales
cycle. Later, on the basis of subsequent research
and discussions w ith several financial m anagers,
Fox and Rink (1978) expanded the initial PLC-FS
m odel to include 91 norm ative FSs. H ere in this
M
Financial strategies
can be timelier,
more integrated,
and more effective
when financial
managers plan
according to the
new PLC-FS model.
T
Business Horizons
Copyright 1999
by Indiana U niversity
K elley School of
Business. For reprints,
call H BS Publishing
at (800) 545-7685.
BH037
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Business H orizons / Septem ber-O ctober 1999 66
for different products and industries. But exclud-
ing com m odities, such as w heat, or prem ature
intervention by the firm , m ost products follow
som e type of PLC curve.
W riters generally refer to a four-stage PLC
introduction, grow th, m aturity, and decline. H ow -
ever, in discussions w ith various executives w e
have found that a five-stage PLC is m ore practical
and therefore appropriate for strategic planning
purposes. This is because it incorporates a design
or pre-m arket introduction stage. M any strategic
and operational decisions m ust be m ade at the
corporate and functional levels of the firm before
a new product can be put on the m arket. H ence,
w e have adopted a PLC curve that com prises the
follow ing five stages: pioneering, introduction,
grow th, m aturity, and decline. Figure 1 depicts
typical unit sales and profit curves for a five-stage
PLC.
Strategic Planning and the PLC Concept
The PLC concept is especially appropriate for
com panies in w hich particular products dom inate
m anagerial thinking or actual volum e. But its
im portance varies by stage. The early phases are
m ore volatile and m ore consequential in their
im pact on functional operations than later ones.
Seasonal patterns m ay override the PLC in a pro-
tracted, stable m aturity period. D uring the decline
stage, m anagem ents attention passes to succes-
sor products. The PLC concept does not apply to
organizations w hose output has a steady long-
term trend (such as unbranded hardw are), or has
balanced diversity such that no one
product lines sales pattern justifies
special attention.
It is im portant to note that the
PLC does not just happen w ith the
passage of tim e. Rather, it is the
result of the interaction of a num -
ber of variables. It is shaped by
both m arket dem and factors and
other external conditionsusually
beyond the firm s controlas w ell
as by the firm s m arketing efforts.
Even w hen a products sales level
off or start to decrease, the firm has
several alternative strategies it can
im plem ent to prolong or revive the
sales cycle, if it desires to do so. It
can add extra features, target a new
m arket, redesign the product, or
develop a new prom otional cam -
paign. (O f course, this assum es that
m arket dem and factors and external
conditions rem ain favorable.)
Business scholars and practitio-
ners generally agree that the PLC
concept is a crucial factor in the
successful m anagem ent of a firm s m arketing
effort as w ell as in determ ining appropriate m ar-
keting strategies. By portraying the evolution of
product attributes and m arket characteristics
through tim e,says Polli (1968), it can be used
prescriptively in the selection of. [strategic and
tactical] actions and in planning.K otler (1997)
notes that by identifying the stage that a product
is in, or m ay be headed tow ard, com panies can
form ulate better m arketing plansand m ore
effective strategies and tactics. H ence, as a plan-
ning tool, says K otler, the PLC is useful in indi-
cating the m ajor alternative m arketing strategies
available to the firm in each stage.
G up and Agraw al (1996) suggest that the PLC
concept provides unique insights for evaluating
corporate grow th and perform ance. According to
K otler, products require different m arketing,
financial, m anufacturing, purchasing, and per-
sonnel strategies in each stage of their life cycle
(em phasis added).
Rationale for Using the PLC Concept
in Financial Planning
The use of the PLC concept as a fram ew ork to
form ulate and im plem ent tim ely financial strate-
gies can be readily justified. Product developm ent
team s often include a finance expert w hose m ain
objective is to ensure overall com pany profitabil-
ity and m axim ize shareholdersw ealth. O ptim al
financial decisions m ay result from using different
approaches at various PLC stages. Investing in a
new product w ith a negative net present value in
Figure 1
A Generalized Product Life Cycle Curve
S
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e
s

V
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u
m
e

a
n
d

P
r
o
f
i
t
Pioneering Introduction Growth Maturity Decline
Sales
Profit
Time
+
0

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67 Financial M anagem ent and Planning w ith the Product Life Cycle Concept
the pioneering phase m ay allow the firm to enter
a m arket that w ill be profitable in the grow th and
m aturity phases. Thus, in the pioneering phase,
strategic value originating from options that allow
follow -up investm ents and grow th opportunities
m ay dom inate traditional discounted cash flow
analysis. W hereas the decision to produce at
com m ercial scale m ay be view ed as a standard
capital budgeting problem , the decision to pro-
ceed w ith pilot production and test m arketing is
sim ilar to purchasing an option. Strategic value
m ay also becom e im portant in the decline stage,
w hen the option to abandon should be consid-
ered. O ption pricing theory can be used to evalu-
ate these strategic opportunities in order to either
am plify good fortune or m itigate loss.
Products in different stages m ay be com bined
to form a diversified product portfolio, w hich can
reduce risk. M ature products w ith strong steady
cash flow s can help balance the cash flow deficit
of products in the pioneering stage, w hich w ill
low er the risk of bankruptcy. A balanced product
portfolio w ill also help sm ooth production and
personnel needs. Low unit sales in the introduc-
tion and decline stages can be offset by higher
sales during the grow th and m aturity phases. This
w ill facilitate scheduling as w ell as increase the
stability and efficiency of operations.
If the com pany desires to be a healthy, ongo-
ing concern, it cannot rely on only one product
that w ill eventually reach m aturity and decline.
Instead, it should m aintain a portfolio of several
productsideally, at least one product in each
PLC stage. The cash flow s generated by m ature
and declining products can feed the cash flow
needs of new , developing products, creating a
continuous cycle of evolution. O ne generation of
products can help give birth to the next. Cash
resources need not com e from the capital m arket,
but rather from those units that generate cash
flow s. In this w ay, the firm can perpetuate itself
as a continually evolving, viable system .
A NEW, IMPROVED MODEL
ur synthesized, expanded, and updated
PLC-FS m odel includes 126 financial
strategies classified according to the five
PLC stages. The basic criterion for strategy selec-
tion and classification is the finance departm ents
contribution to com pany-w ide profitability in its
effort to m axim ize shareholdersw ealth.
M ost FSs in our m odel evolve and change
across a products sales cycle. In the pioneering
stage, financial executives m ay assist in analyzing
the financial strength of prospective suppliers. In
the introduction phase, they m ay urge their firm
to use subcontractors as m uch as possible, thus
m inim izing fixed investm ent in plant and equip-
m ent. D uring the grow th stage, they can consider
various alternatives to ensure long-term distribu-
tion or supply, such as buying ow nership interest
in key distributors or suppliers. They also negoti-
ate w ith suppliers for favorable credit term s; these
negotiations becom e m ore intense and aggressive
in the m aturity phase. W ith the decline stage,
financial m anagers can assist in m aintaining tight
controls to keep inventories low , as w ell as dis-
posing of specialized facilities and equipm ent, if
these cannot be converted to new uses.
O n the other hand, som e FSs initiated in one
stage w ill continue across the rem aining stages.
For exam ple, during the pioneering phase, finan-
cial m anagers form ulate a sales forecast for the
proposed new product, using the inform ation as
input for developing cash flow estim ates. As the
m arket continues to change, the m anagers w ill
revise and update the products sales forecast and
cash flow estim ates throughout its PLC.
In w hat follow s, prescribed FSs correspond-
ing to several financial operations w ill be dis-
cussed for each of five PLC stages. O nly those
financial activities of m ajor strategic im portance
w ill be presented. Additional FSs consistent w ith
the PLC classification w ill probably occur to the
reader.
Pioneering Stage
N ew products are developed and test m arketed
during the pioneering stage. A high degree of
uncertainty and risk is characteristic. The m ajor
challenge is juggling a strained cash flow in an
uncertain environm ent w hile trying to m aintain
flexibility and allow for future grow th options.
The first step in the pioneering stage is to
cooperate w ith m arketing to develop a sales fore-
cast for the prospective product. Increm ental
cash flow s can then be estim ated. These should
include all cash flow s that result as a direct con-
sequence of accepting the new project. Sunk
costs should be excluded, but side effects, such
as the erosion of sales of existing products,
should be counted. The financial m anager should
also look for em bedded options, such as addi-
tional future grow th opportunities. N ew products
w ill alw ays involve a degree of uncertainty, and
the estim ated cash flow s can be adjusted for risk
by using certainty equivalents or a higher dis-
count rate.
Several techniques can help evaluate a pro-
posed new product. Besides the traditional dis-
counted cash flow techniques, such as net
present value (N PV) and internal rate of return
(IRR), strategic elem ents should also be consid-
ered. Investing in a new product w ith a negative
N PV in the pioneering phase m ay allow the firm
to enter a m arket that w ill be profitable in the
grow th and m aturity phases. Thus, strategic value
originating from options that allow follow -up
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investm ents and grow th opportunities m ay dom i-
nate traditional discounted cash flow analysis.
The financial m anager needs to evaluate
several financing options. Internal sources of
funds should be used w henever possible, but
external capital m arkets m ay also be needed.
D ebt should be com pared to equity, and short-
term versus long-term borrow ing should be com -
pared based on m arket conditions, the need for
flexibility, and the overall goal of m axim izing
shareholdersw ealth. The m anager should con-
sider venture capitalists for possible funding of
new technology, and establish relationships w ith
bankers and creditors for future needs.
An im portant challenge involves m anaging
w orking capital to accom m odate tight cash flow s.
This m ay include stretching payables and doing
som e juggling for progressively higher cash out-
lays, such as R& D advances.
Routine operating decisions are also neces-
sary, such as w hether to budget new personnel
needs, lease or purchase m anufacturing equip-
m ent, and de-
velop estim ated
standards for
m anufacturing
costs and quality.
O ften these deci-
sions w ill involve
interfacing w ith
several other de-
partm ents, such as
personnel, pro-
duction, engineer-
ing, purchasing,
and m arketing.
The financial m an-
ager m ay also
w ork w ith the
legal departm ent in analyzing the benefits and
costs of patent protection versus first-m over ad-
vantages.
Introduction Stage
The introduction stage begins w ith full-scale m ar-
keting of the new product. U sually there are a
lim ited num ber of com peting firm s, profitability is
low , prices are high, and liquidity and leverage
positions are strained. Financial m anagers seek to
balance the likelihood of new product failure
w ith the urgency of adequate facilities and m ate-
rials if the new product succeeds. The m ajor
challenge is to m aintain flexibility by keeping
options open, because a new product launch
alw ays carries a certain level of risk.
D uring this introduction stage, variable costs
should be used instead of fixed costs, such as
leasing equipm ent instead of buying. Subcontrac-
tors should be used as m uch as possible. Produc-
tion should be labor-intensive in order to m ini-
m ize fixed investm ents in plant and equipm ent,
thereby m aintaining flexibility. Cash flow esti-
m ates should be revised and updated as the
product is continually m onitored for changes.
Strained liquidity m eans careful m anagem ent
of w orking capital. Payables m ay need to be
stretched, w hile credit and collections m ay need
to be stream lined. Special deals and sales induce-
m ents used to encourage potential custom ers to
buy the new product m ust be carefully m anaged.
The financial m anager m eets w ith m arketing
to establish pricing, develop cost-effective selling
tools and sales com m issions, and determ ine plant
location. Engineering can assist in determ ining
the ultim ate scale of the plant and debugging
production, as w ell as designing a reporting sys-
tem to m onitor quality, costs, and scrap. The
financial m anager also participates in planning
total quality m anagem ent (TQ M ) and just-in-tim e
(JIT) m anufacturing program s.
M arket conditions should be continually
evaluated in order to consider financing alterna-
tives. The financial m anager m ay also establish a
relationship w ith an underw riter for future issues
of securities. The m ost im portant consideration is
to m aintain flexibility and m anage risk, continu-
ally m onitoring the environm ent for changes in
the econom ic clim ate, changes in the original
assum ptions, and com petitive reactions.
Growth Stage
G row th begins w hen unit sales start rising at a
faster rate. Typically, there are substantial profits,
a rapid expansion in dem and, increasing com pe-
tition, an im proved cash flow position, im proved
liquidity, and high leverage. A big challenge is to
m aintain quality standards despite pressure for
speedy deliveries.
D uring the grow th phase, variable costs m ay
be converted into fixed costs as the quantity pro-
duced rapidly rises. This increase in operating
leverage w ill m ean greater profits. Production
should be sw itched from labor-intensive to capi-
tal-intensive. As m uch of the product as possible
should be produced in the firm s ow n facilities.
To ensure long-term distribution or supply, con-
sideration should be given to buying an ow ner-
ship interest in key distributors or suppliers.
M anufacturing w ill likely incur a heavy am ount of
overtim e to accom m odate the rapid expansion in
dem and. Inventories need to be carefully m an-
aged to avoid stockouts at m inim um cost.
Although the cash flow position is greatly
im proved, w orking capital m ust be carefully
handled to accom m odate an increased outflow of
cash. Rapidly rising receivables w ill need to be
m anaged to ensure tim ely collection. Favorable
credit term s should be negotiated w ith suppliers.
An important challenge
involves managing working
capital to accommodate
tight cash flows. This may
include stretching payables
and doing some juggling
for progressively higher
cash outlays, such as R&D
advances.
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69 Financial M anagem ent and Planning w ith the Product Life Cycle Concept
The substantial profits generated during this
stage m ay be used to fuel additional grow th.
Expansion alternatives to handle the increasing
product dem and should be carefully evaluated.
M oney should be com m itted to R& D for product
extensions or successor products. At the sam e
tim e, optim istic executives should be cautioned
against overbuilding specialized facilities. Enter-
ing foreign m arkets should be considered.
Although grow th m ay be financed internally
by reinvesting profits, access to external capital
m ay also be needed. Choices m ust be m ade be-
tw een debt and equity, and the financial m anager
should w ork w ith an underw riter to select the
best price and tim e to sell securities. Financial
ratios should be m onitored in order to appear
favorable to creditors. The environm ent should
be continually scrutinized for changes, and prod-
uct cash flow estim ates need to be revised.
Maturity Stage
D uring a products m aturity, sales volum e contin-
ues to increase, but at a low er rate; eventually it
levels off or drops slightly. This stage is also char-
acterized by declining profits, falling prices, m any
aggressive com petitors, im proved liquidity, de-
creased leverage, and excess cash flow . O ne of
the biggest challenges is to m aintain quality stan-
dards despite pressure for low er costs. Financial
m anagers should continually search for w ays to
both reduce costs and im prove quality through-
out the organization.
In the m aturity stage, production should be
capital-intensive in order to gain the advantages
of operating leverage. The financial m anager
should evaluate w hether to establish decentral-
ized m anufacturing facilities. Standards for m anu-
facturing costs and quality should be m onitored,
and a cost reduction analysis perform ed. Incen-
tives should be developed for production effi-
ciency. Tight control is needed for the extensive
and com plex inventories. M any clerical and other
routine jobs m ay be com puterized. Capital bud-
geting decisions at this stage m ay rely m ore
heavily on traditional discounted cash flow ap-
proaches, such as N PV and IRR.
M ature products w ith strong, steady cash
flow s can help balance the cash flow deficit of
products in the pioneering stage. The firm should
look for new products in the developm ent stage
to balance its product portfolio. The cash flow s
generated by m ature products can feed the cash
needs of new products. A balance of products
can reduce risk as w ell as sm ooth production and
personnel needs, facilitate scheduling, and in-
crease the stability and efficiency of operations.
An effort should also be m ade to optim ize
interactions and synergies of the existing product
w ith other products in different PLC stages. N ew
m arkets and uses for the product should be
evaluated, including international m arkets and
product extensions.
As dem and levels off, m arketing should be
consulted about sales forecasts to develop re-
vised cash flow estim ates. The financial m anager
should also w ork w ith m arketing to determ ine
the m ost cost-effective distri-
bution system , authorize
price reductions and sales
inducem ents, and evaluate
com pensation packages for
salespeople.
The im proved liquidity
and high cash flow during
this stage m ay represent
excessive slack and present
agency problem s as m anag-
ers becom e com placent and
indulge in m any extra perks.
These perks m ust be m ini-
m ized, and incentives should
be im plem ented to m ake the
organization m ore efficient
and com petitive. The excess
cash flow can be used to
pay dow n debt, thereby im proving the firm s
credit rating. M anagem ent should also consider
paying out profits as dividends.
Through benchm arking, the financial m an-
ager should m onitor trends in the firm s financial
ratios relative to those of its m ajor com petitors.
Financial strengths and w eaknesses as w ell as
plans of m ajor com petitors should be evaluated
to help the com pany determ ine appropriate stra-
tegic and tactical actions. D iversification, m ergers,
and forw ard or backw ard vertical integration m ay
also be considered.
Decline Stage
D uring a products decline, unit sales drop at a
rapid rate. Typically, there are falling prices, ex-
trem ely low profit, good liquidity, and low lever-
age. A m ajor focus is on adm inistering a system -
atic retrenchm ent.
As sales of the existing product decrease,
capital should be reinvested in new products to
m aintain a balanced product portfolio. O ne gen-
eration of products can help give birth to the
next, thereby increasing the overall stability and
efficiency of operations and ensuring that the
com pany rem ains a healthy, ongoing concern.
The product line should be sim plified in this
stage, if som e m odels have low revenues. Prod-
uct abandonm ent is an option. Even if the prod-
ucts net present value is positive, it m ay be ben-
eficial to abandon it in order to pursue m ore
profitable alternatives. M arketing resources m ay
be shifted to m ore favorable product prospects.
One generation of
products can help
give birth to the next,
thereby increasing
the overall stability
and efficiency of
operations and
ensuring that the firm
remains a healthy,
ongoing concern.
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The financial m anager should focus on true
cost elim inationsselling m anufacturing equip-
m ent, w ithdraw ing prom otional support, reduc-
ing or cancelling the R& D budgetrather than
cost reassignm ents. W hen possible, m anufactur-
ing facilities m ay be converted to m ore prom ising
products. Specialized equipm ent and facilities
m ay need to be disposed of, w hich could m ean a
return to subcontracting for the existing product.
Equipm ent and facility disposal should be per-
form ed in a m anner that m inim izes tax liability.
U nsalable inventory and equipm ent should be
w ritten off to take advantage of tax breaks.
Tight controls should be m aintained to keep
inventories low . H igh net cash inflow s should be
used intelligently. Agency costs that w aste cash,
such as excessive m anagerial perks, should still
be avoided. Excess cash can be used to pay off
rem aining debt. The firm m ay also consider pay-
ing dividends to shareholders.
A SYSTEM PERSPECTIVE OF THE MODEL
nother im portant aspect of our PLC-FS
m odel is the system perspective it pro-
vides for financial m anagem ent and
planning. In addition to classifying 126 FSs across
five PLC stages, our m odel organizes them ac-
cording to 14 intradepartm ental, intracom pany,
and external financial relationships: Financial
O bjectives, Investm ent and Capital Budgeting,
Financing and Capital Structure, W orking Capital,
Financial Adm inistration, M arketing and Sales,
R& D , Production and Engineering, Inventory
M anagem ent and Control, Purchasing, Account-
ing and Legal, Stockholders, Creditors, and G ov-
Figure 2
Schemata Summarizing the Authors PLC-FS Model
PRODUCT LIFE CYCLE STAGES
(Pioneering, Introduction, Growth, Maturity, Decline)
Intradeparmental
Relationships
Intracompany
Relationships
External
Relationships
Examples of Selected Financial Strategies for Pioneering Stage
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71 Financial M anagem ent and Planning w ith the Product Life Cycle Concept
ernm ent. Figure 2 presents a schem atic sum m a-
rizing the organizational form at of our m odel,
and displays selected FSs from the pioneering
stage for illustrative purposes. (Sim ilar displays
can be developed for the other PLC stages.)
The basic criterion for strategy selection and
slotting in this m odel is finances contribution to
com pany-w ide profitability in its effort to m axi-
m ize shareholdersw ealth. Financial decisions are
not m ade in a vacuum , independent of other
functional areas or corporate strategy. For ex-
am ple, in the pioneering stage the objective is to
evaluate the financial strength of the proposed
new product. Financial executives participate in
developing a prelim inary sales forecast and m ar-
keting plan, w hich perm its them to estim ate the
new products increm ental cash flow s.
The structure of our m odel is aligned both
vertically and horizontally. In each PLC stage, all
financial functions are m utually consistent. Across
the five sales phases, each of the 14 functions
follow s a logical path in conform ance w ith the
w ealth m axim ization criterion. For instance, con-
cerning R& D , financial m anagers plan for pro-
gressively higher cash outlays during the pioneer-
ing stage. D uring introduction, they m onitor engi-
neering changes in order to m inim ize new prod-
uct debuggingcosts. W hen the products sales
grow , they begin com m itting m oney to R& D for
product extensions or successor products. D uring
m aturity, they use cash generated by the existing
product to fund further product extensions or
new product developm ent. Finally, in the decline
period, they either reduce or cancel the existing
products R& D budget.
y using our synthesized, expanded, and
updated PLC-FS m odel, financial execu-
tives can ascertain the set of prescribed
strategies they should consider im plem enting in
each phase of a products sales cycle. These strat-
egies, in turn, can serve as references for con-
tinuous reprogram m ing of financial activities
across the PLC. O ptim al financial decisions m ay
result from using different approaches in various
PLC stages. Products in different stages m ay be
com bined to form a diversified product portfolio,
w hich w ill reduce the com panys risk and sm ooth
its cash flow s, production, and personnel needs.
In planning and executing better financial
strategies, at least tw o factors need to be consid-
ered: corporate objectives and changing condi-
tions in the m arketplace. The actions of a firm
are determ ined by its objectives. A direct link
betw een corporate and finance objectives gives
m eaning to the contributions and actions of fi-
nancial executives. Planners and doers both know
w hat is expected of finance as w ell as how these
efforts relate to the broader objectives of the func-
tion and the firm . Flexibility is incorporated into
the financial plan by anticipating shifts in m arket
conditions. U sing the PLC concept as a gauge,
these basic shifts can be anticipated as a product
m oves through its phases.
Financial planners w ho know w hat they w ant
to accom plish can gain desired flexibility by fit-
ting financial strategies to PLC phases. The em -
phasis in this type of planning is on tim ing the
strategic changes to best use com pany resources.
The contingency financial plan says, in effect,
W hen this happens, finance has these alterna-
tives available.
The adoption of this m odel can proceed in
increm ental steps. M ost urgent is financial m an-
agem ents attention to products in their early PLC
phases, w hich are m ore volatile and often require
radical departures from operational routines. In
the stable m aturity phase, seasonal patterns m ay
have m ore im pact on financial activities. W hen
sales decline, m anagem ents attention shifts to
successor products. After som e trial adoptions, if
results argue in favor of m ore extensive use of
our m odel, financial m anagers can incorporate it
into departm ental objectives, position descrip-
tions, and w ork schedules. H ow ever, the overall
approach and the constituent details are not uni-
versals, but a point of departure for custom tailor-
ing to the conditions facing the individual firm .
The PLC-FS m odel also provides a panoram ic
perspective of the finance function across the
phases of a products sales cycle. Because it af-
fords an overview of the function in term s of a
w orkable fram ew ork, it can be useful in m any
w ays: in on-the-job training program s for new ly
hired salaried personnel, recently prom oted or
junior financial executives, and m anagem ent
trainees; in executive education and retraining
program s for experienced m anagers from finance
and other functions; and for college students and
instructors interested in financial m anagem ent
and planning.
M oreover, by depicting financial m anagem ent
in a system perspective, the m odel clarifies fi-
nances relationship w ith other functions of the
firm in the decision-m aking process, especially as
it assum es top m anagem ent stature. Financial
m anagers interact alm ost daily w ith executives
from other functions either on an individual basis
or as part of cross-functional team s. Because one
of the m ajor advantages of the PLC concept is
that it helps integrate thinking in all functional
areas, the m odel can be valuable in illustrating
the interrelationship of financial m anagem ent
w ith the rest of the firm . This can also assist m an-
agers of finance and other departm ents to dove-
tail their operations. If other departm entsactivi-
ties follow the sam e guide, its effectiveness w ill
be m axim ized.
Finally, our m odel can serve as a platform
from w hich to conduct future em pirical research
B
D
O

N
O
T

C
O
P
Y
Business H orizons / Septem ber-O ctober 1999 72
and track changes. This research, in turn, can
lead to further conceptual expansions and refine-
m ents in the m odel.
References
John Clark, Thom as H indelang, and Robert Pritchard,
Capital Budgeting (Englew ood Cliffs, N J: Prentice-H all,
Inc., 1989): 443-446.
H arold Fox, Product Life CycleAn Aid to Financial
Adm inistration,Financial Executive, April 1973, pp.
28-34.
H arold Fox and D avid Rink, Synchronization of Finan-
cial M anagem ent w ith D em and,unpublished m anu-
script, 1978.
Benton G up and Pankaj Agraw al, The Product Life
Cycle: A Paradigm for U nderstanding Financial M an-
agem ent,Financial Practice and Education, Fall-
W inter 1996, pp. 41-48.
Bruce K ogut and N alin K ulatilako, O ptions Thinking
and Platform Investm ents: Investing in O pportunity,
California Management Review, W inter 1994, pp. 52-71.
Philip K otler, Marketing Management, 9th ed. (Engle-
w ood Cliffs, N J: Prentice-H all, Inc., 1997): Ch. 12.
W illiam N elson, Financial M anagers M ust Think Strate-
gically,Healthcare Financial Management, O ctober
1995, p. 10.
Rolando Polli, A Test of the Classical Product Life
Cycle by M eans of Actual Sales H istories,unpublished
Ph.D . dissertation, U niversity of Pennsylvania, 1968.
Alfred Rappaport, CFO s and Strategists: Forging a
Com m on Fram ew ork,Harvard Business Review, M ay-
June 1992, pp. 84-91.
D avid Rink and John Sw an, Product Life Cycle Re-
search: A Literature Review ,Journal of Business Re-
search, Septem ber 1979, pp. 219-242.
John Sw an and D avid Rink, Fitting M arket Strategy to
Varying Product Life Cycles,Business Horizons, Janu-
ary-February 1982, pp. 72-76.
John Thackray, W hats N ew in Financial Strategy?
Planning Review, M ay-June 1995, pp. 14-19, 46.
Jam es Van H orne, Financial Management and Policy
(Englew ood Cliffs, N J: Prentice-H all, Inc., 1998): 3-7.
David R. Rink is a professor of marketing at
Indiana University Kokomo in Kokomo, Indi-
ana, where Dianne M. Roden is an associ-
ate professor of finance. Harold W. Fox, an
emeritus professor of marketing at the Uni-
versity of Texas-Pan American, Edinburg,
Texas, passed away on January 29, 1999.