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The BCG-Analysis
In this know-how report, we would like to take a closer look at another helpful and understandable form of corporate assessment: The BCG Matrix developed by the Boston Consulting Group.
The individual business areas:
This approach provides an overview of the individual business areas. Essentially, a star shines brightest just before it burns out. Therefore, you want to know whether a company’s success is sustainable or if its best days are in the past.
Stars:
This category includes segments with high growth rates and a high market share. Stars usually require high investments to sustain their growth. These investments can become an immediate (and permanent) burden when growth declines.
Cash cows:
Segments with a high market share but low growth are called “cash cows.” They significantly contribute to profit because, due to the low growth, no extensive investments are made, at best. Also known as “milking strategy.”
Poor dogs:
Segments with low market share and stagnant or declining growth and generally unsatisfactory share of the overall result.
Question marks:
Corporate fields with high growth and low market share, often following product launches or relaunches. The important question: Will this become a “star” or a “poor dog” in the future?
The Facts:
- A good tool for evaluating a company’s market positioning.
- The focus is not so much on the products, but rather on the management performance.
- All necessary information can be found in the balance sheet and the company’s reports.
- In particular, read publications such as “Letters to Shareholders” to learn more about the alignment and strategy.
Our Conclusion:
You immediately realize that with the BCG Matrix, you are not only evaluating a company, but particularly the management. Do you remember Mobilcom? The company bought a UMTS license for many billions and overlooked that only further high investments could have turned it into a “star.” Foresight – it may sound old-fashioned, but this ability is necessary to successfully lead a corporation for years. As an investor, you should therefore critically examine not only the present, but especially the past.
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