mytest > help > Part 2. MM4XL Tools > 1. Strategic Tools > BCG Matrix > What Is BCG Interpreter

BCG Portfolio Analysis

What Is BCG Interpreter

BCG Interpreter, as the name implies, reads and evaluates the output of the Portfolio Analysis built into MM4XL. It looks in an objective manner at the product portfolio and highlights strengths and weaknesses. This helps managers to take corrective measures where needed, and ensures consistency in pursuing the envisaged product portfolio policy.

Interpreter saves you time and offers solid support for users who have not yet mastered the way Portfolio Analysis works. Managers called upon to shape the strategic route of companies will find it a valuable support tool, also taking investment levels into account and enlarging the overall strategic picture.

Warning:
BCG Interpreter alone, does not work with dynamic portfolio analyses, and consequently does not provide useful data.

How to Run BCG Interpreter

Choose BCG Portfolio Analysis from the MM4XL menu in Excel and enter the number of products to be analyzed, as shown in the chapter How to Run the Product Portfolio Analysis. Hit OK and the window below displays.

Tick the checkbox Interpret my portfolio analysis and input the two required values (see the chapter Input Values for details):

Matrix BCG Software for Brand Portfolio Analysis and Management

Hit OK and the predefined input data range of the BCG Portfolio Analysis appears. This differs in the last column (Investment), from the input range of the BCG analysis without Interpreter. Fill in all columns. Investment values must be in the same units as sales, for both yours and those of your competitors. If sales are expressed in millions, investment should also be in millions.

This is all you input to run BCG Interpreter:

  • Investment and cash flow levels for the whole portfolio,
  • Investment in value for each product.

BCG Interpreter returns a numerical summary report, three charts, and a verbal report that highlights the most relevant aspects of the analysis.

Tip:
Divide figures in millions by 1,000 or, even better, 1,000,000. Charts and reports will be neater.

Parameter Setting

Before you run Interpreter, define the format of the sales data and make your present portfolio policy clear.

Using cost price for sales rather than retail price has a profound impact on both investment and cash flow levels. This is especially true for investment levels, which should also be defined as accurately as possible, in order for the analysis tool to produce reliable results.

Choose one of two alternatives for portfolio policy: Profit or Competitiveness maximization. The latter is a long-term view and the former is short-term, and as many suggest, the first should be favored. In order to maximize competitiveness, investments in growing markets should be high. This, however, implies the company has attractive products to invest on and has the willingness and skills to establish a brand in a leading position. Maximizing profit implies lower investments, in order to show as much cash as possible. In general, short-term policies may make sense for some products in a mature market, such as some stars and dogs. Yet, not necessarily all stars and dogs should follow a short-term approach.

Tip:
Portfolios made up of many old products may be split into products that require a profit maximization approach, and products that require competitiveness maximization. Two analyses should be run and the results interpreted conjointly.

Input Values

Investment level is a standard that changes from industry to industry and from market to market. A value equal to 1,2 means that, in order to be balanced investments in growing markets (stars and question marks), must be at least 20% higher than investments in slow growing or recessive markets (cash cows and dogs). The same concept applies to the Cash flow level. Cash flow produced by leader products must be higher than that produced by non-leader products. A value equal 2 means that leaders must produce twice the cash flow of non-leaders. Both cash flow and investments cannot have a value lower than 1. At least 1,2 is recommended for investments and 2,0 for cash flow.

Tip:
Try the default values, read the analysis, and then change the values if required.

The picture below is a legend that summarizes the concept of portfolio evaluation built using BCG Interpreter.

Matrix BCG Software for Brand Portfolio Analysis and Management

In order to set the coefficients at reasonable levels, it must be clear which investments are included in the analysis. In general, cost of sales force, communication (advertising, promotions and public relations) and variable costs may cover a reasonable share of the whole expenditure managed in a marketing department.


Output



Charts

BCG Interpreter produces three charts, one table of values and a verbal report.

The bubble chart plots investments and cash flows, both in value. The size of the bubbles is proportional to the sales of all products belonging to one market segment (product group). The axes of the chart cross at the average value of both dimensions.

Matrix BCG Software for Brand Portfolio Analysis and Management

The remaining two charts are self-explanatory.

Matrix BCG Software for Brand Portfolio Analysis and Management

Investment and cash flow values computed for the whole portfolio are displayed just above the verbal report.

Matrix BCG Software for Brand Portfolio Analysis and Management

In our example, investments in growing markets are 1,75 times the level of investment in non-growing markets. This is consistent with the portfolio management theory outlined above. Cash flow of leader products is also higher than that of non-leader ones. This is also a reasonable condition. As a double check, run the analysis again using values slightly higher than the values computed by the software, say 1,9 and 2,3, and compare the two analyses. This may prove useful to prevent surprises related to financial and competitiveness matters.

The report of BCG Interpreter follows the BCG Summary Table.

Verbal Report

The verbal report offers an interpretation of the portfolio as a whole, of investments, cash flow, and of each quadrant in the share/growth grid. The illustration below shows the structure of the report.

Matrix BCG Software for Brand Portfolio Analysis and Management

The portfolio is evaluated by means of investments and cash flow. MM4XL compares the user input to the values produced by the portfolio analysis. A positive judgment is expressed if the latter are higher than the former, otherwise, MM4XL reports on the risk. Beside each evaluation, a solution is always offered. The same concept, evaluation and suggestion apply to both investments and cash flow.

The quadrants of the share/growth grid are evaluated in terms of number of products, market growth, and strength of leadership. Market growth is not evaluated for non-leader quadrants (question marks and dogs).

MM4XL warns when a portfolio has few cash generators and too many cash absorbers. It also flags the presence of slow or dynamic markets. In all cases the software elaborates and offers suggestions of how to deal with the situation.

The evaluation of strength of leadership is based on the concept that leaders are powerful when they make at least 1,5 times the sales of the direct competitor. MM4XL also applies the concept the other way around, to non-leaders. In other words, to have a strong position, leaders must have a logarithmic relative market share of at least 1,5. On the other side, non-leaders with a logarithmic relative market share of less than 0,5 are considered very weak.

Market Segments Summary Table

The Market Segments table follows the verbal report. It shows statistics of the product groups (as defined in the column Product Groups of the predefined data range. See the chapter How to Run the Product Portfolio Analysis ). An example is given below.

Matrix BCG Software for Brand Portfolio Analysis and Management

In the above illustration, the product group Canned Food, hence market segment, comprises 2 products, which made sales for 1779,0 and the direct competitors for 1684,0. We are leader, as shown by the relative market share, but with very little margin of safety, the strength of leadership is low. The segment grows 5.3%. We have invested 1237,9 and 619,0 on average by segment. The segment has a cash flow of 541,0, on average 270,5 for each product. Investments are about 27% of sales. The data above is given for each segment that the analysis accounts for.

Users can take full advantage of Excel flexibility. Any parts of the analysis can be cut and pasted elsewhere.

Tip:
Run the BCG analysis twice, once with real data and once with investment, market growth and sales values as products of educated guesses. Use the different scenarios to speculate about the future.

The output of the BCG Portfolio Analysis combined with the output of BCG Interpreter present an objective view of a portfolio and can be used to evaluate strategic decisions.

Lifetime license:

Price: euro

Vote this tool
We proudly serve
Your vote
vote1 vote2 vote3 vote4 vote5
Email:
Gender:
M
F
Age:
Position:
Department:
Comment: