Companies can develop powerful insights about how individual businesses and strategic initiatives contribute to value creation by using the BCG Value Lens. The approach starts with a company’s business and financial plans and translates them into estimates of future contribution to overall company TSR.
The BCG Value Lens has four key components.
Total Shareholder Return. TSR is the capstone metric for measuring company performance. It is the product of multiple factors: revenue growth, change in margins, valuation multiples, and direct distributions of free cash flow to shareholders. Because it is more comprehensive than share price, it is the preferred metric used by investment funds to assess business performance. In some locations, it’s also a requirement for regulatory compliance.
Future TSR Potential. TSR looks at what the company as a whole has done in the past. The next step is to translate a company’s financial plans into TSR estimates so that the company can assess its future value creation potential at the level of individual businesses and strategic initiatives.
Alternative TSR Scenarios. With a clear view of future TSR potential by product, business, or region, companies are in a better position to identify which initiatives will really move the TSR needle, debate alternative pathways to superior value creation, and target step-function improvements in their business plans.
Smart Multiple. BCG also has techniques for modeling the impact of different operational metrics on valuation multiples in a company’s peer group. The model helps executives anticipate the impact of specific strategic moves on their company’s valuation.
The Value Lens isn’t just for public companies. It’s also used by private companies to assess the value creation potential of their businesses and to guide value creation strategies.