Definition:
A Bubble chart is a graphical tool that will let you display three types of data on the same graphic. It will let you see all three factors interact on the same graphic.
- What it is: A Bubble Chart is an Excel charting tool (of course many other charting programs also have Bubble Charts) that displays 3 types of data on a single chart. The chart is a variation on the scatter plot with the added dimensions of differing sizes for the points displayed on the scatter graph. The bubble chart is normally shown as a box or map where the X and Y axis measure the width and height of the box. The X and Y-axis create 4 quadrants and the bubbles (of different sizes) are mapped onto the grid letting their location represent the X and Y factors.
- What does it do: it allows you to see 3 factors for a single entity and compare multiple entities across all three factors. As an example, the chart could compare Price, Volume, and Percentage Profitability on a single chart. A well-designed bubble chart will allow conclusions to be drawn for the size and location of the bubbles on the chart.
Uses:
- How is it used: There are many times when you are comparing companies, places, people, and other entities when you want to compare them to multiple factors. A line or bar chart only lists one factor. A bar and line chart (or double line or bar chart) compare two factors. A bubble chart creates a 3-dimensional graph without the false illusion of a three dimensional (x, y, and Z-axis) chart that tries to imply height, width, and depth.
- Where: Very popular in comparing 2 factors along the X and Y-axis and often the Z-axis (the one that describes the diameter of the bubble) is used to indicate the size of the entity. If you define the X and Y axis so they are mapping the location of the entities in the map created within the box and the quadrants. It is common that the proximity of the entities on the chart means they have similar X and Y characteristics and the size of the bubbles differentiates them along with a third factor (often a measurement of size). Examples of common bubble charts include:
- Relative Competitive Position: This is a chart that compares competitors on sources of competitive advantage. This chart displays the advantaged positions competitors have related to price, cost, and size.
- Financial Characterization: This is a chart that compares industries or companies/ products to profitability vs industry growth. You can determine the attractiveness in investing in industries, companies, or products based on competitive advantage (as measured by relative profitability), industry growth, and size of profit or revenue.
- Supply Chain Outsourcing Country Analysis: This is used to determine which country should be considered as a source country from which to manufacture goods to be imported to the US.
- Why: bubble charts are used to compare and contrast different companies, countries, and other entities on three separate factors.
Limitations:
- Where it shouldn't be used: Bubble Charts should not be used when you intend one of the axes to be a category axis. A category axis defeats the mapping characteristics of the scatter plot. Both the X and Y axis is intended to be valued.
- Any restrictions: None
- Warnings: Do not make the bubbles larger than the size of the chart, or create too much overlapping. You can control this by making the standard size bubble smaller.
Demonstrations:
How to Create a Bubble Chart in Excel
Step-by-step process:
- Gathering data
- Determine which data sets will highlight the insights necessary to make your recommendations
- Particularly consider which data will create common recommendations based on proximity to each other (for X and Y data)
- Use Z data to measure differentiation between alternatives based on size or magnitude
- Place the data into a table
- Analysis of data
- Use the data table as the source for the Bubble chart
- Create the chart and format as necessary to highlight insights
- Interpretation of results
- Identify what actions or recommendations are most relevant for each quadrant
- Determine which corner of the quadrant is most valuable in making the recommendation
- Use the size of the bubble to differentiate between alternatives in the same quadrants
- Or use the size of the bubbles to determine which quadrants might be the most advantaged positions in the past or the future
- Presentation of results
- The presentation of the bubble chart itself is the most valuable part of the presentation
- It can be valuable to label the quadrants as to their indications or recommendations
- It can be valuable to show the chart without any data, but just the insights to be gained or recommendations to be made from each quadrant.
Template for capturing data:
Link: Bubble Chart.xlsx
Output representation and recommendations:
The Bubble chart is the representation, and the recommendations come from the proximity of the points on the chart and the size of the bubbles. Normally there is a recommendation associated with each quadrant of the chart. You should look for the likely suggested ideas based on the conditions described in the quadrant. See the examples below for specific examples of how to form recommendations.
Examples:
Below are examples of bubble charts and what the output representation suggest for recommendations:
Relative Competitive Position: This is a chart that compares competitors on sources of competitive advantage. This chart displays the advantaged positions competitors have related to price, cost and size.
- Northeast quadrant has competitors with advantaged cost and price. They should try and grow
- Southeast quadrant has competitors with advantaged cost and disadvantaged price. They should try and differentiate their product to increase price or grow volume
- Northwest quadrant has competitors with advantaged price and disadvantaged cost. They should try and reduce the cost of their product to increase profit or strengthen differentiation or price position to sustain profitability.
- Southwest quadrant has competitors with disadvantaged cost and price. They should divest or incur major efforts to revamp product market.
- X axis is Relative Cost (How much larger or smaller is the cost of each competitor compared to the industry average cost)
- Y axis is relative Price (How much larger or smaller is the price charged by each competitor compared to the industry average price)
- Z axis or size of bubble (Measures the total profitability or revenues of each competitor)
- What can you notice as you view the chart:
- Financial Characterization: This is a chart that compares industries or companies/ products on profitability vs industry growth. You can determine the attractiveness in investing in industries, companies or products based on competitive advantage (as measured by relative profitability), industry growth and size of profit or revenue.
- X axis is Relative growth (How much larger or smaller is the growth of each company/product compared to the industry average growth)
- Y axis is relative profitability (How much larger or smaller is the profitability of the company/product compared to the industry average profitability)
- Z axis or size of bubble (Measures the total profitability or revenues of each company/product)
- What can you notice as you view the chart:
- Northeast quadrant has companies/products with profitability and growth. They should invest in and grow.
- Southeast quadrant has companies/products with negative profitability but growing. They should increase price, or lower price to grow volume and reduce unit cost.
- Northwest quadrant has companies/products which are profitable, but with low growth. These are cash cows where you should harvest the available profits, but do not invest or grow.
- Southwest quadrant has companies/products with negative profitability and low or negative growth. They should be divest or incur major efforts to revamp company/product.
- Supply Chain Outsourcing Country Analysis: This is used to determine which country should be considered as a source country from which to manufacture goods to be imported to US. This specific example is for a labor intensive product production that has a need for significant export infrastructure requirements:
- X axis is Relative Cost of country labor (How much larger or smaller is the cost of labor of each country compared to the world average cost, lowest cost to the right side of the axis, and the highest cost to the left of the axis scale)
- Y axis is relative Political Stability (Highest stability countries at the top, the average at the midpoint and lowest stability countries at the bottom)
- Z axis or size of bubble (Measures the total export revenues of each country as a measure of in place infrastructure capable of moving export goods)
- What can you notice as you view the chart:
- Northeast quadrant has countries with advantaged labor cost and political stability. They are the best candidates today, but as political stability improves the labor cost normally grows so they may not be the best long term choice if you have to invest significant capital costs
- Southeast quadrant has competitors with advantaged labor cost and disadvantaged political stability. These are countries that could be a good long-term choice for capital investment if the political stability is close to the average and improving. They could still have decades of low cost labor available. It is also necessary that the bubble size be large enough to indicate adequate export infrastructure.
- Northwest quadrant has countries with advantaged political stability and disadvantaged labor cost. These countries should only be used if there are no countries in the NE quadrant and no countries near the Y midpoint with improving political stability in the SE quadrant.
- Southwest quadrant has counties with disadvantaged labor cost and unstable political situations. These countries should not be considered as import partners.
Additional resources:
