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Strategic Position and Action Evaluation (SPACE) Matrix

Strategic Position and Action Evaluation (SPACE) Matrix has been materialized as a dominant instrument in formulating alternative strategies. Like Grand Strategy Matrix this matrix is also based on four important elements called four quadrants of SPACE Matrix. First two elements called internal dimensions which are Financial Strength (FS) and Competitive Advantage (CA) and other two are called external dimensions namely Environmental Stability (ES) and Industry Strength (IS). Undoubtedly these four rudiments are conceivably the most imperative determinants of an organization’s by and large strategic position. The four quadrants framework of SPACE Matrix represents the suitability or appropriateness of the strategies to be selected by a company such as aggressive, conservative, defensive, or competitive strategies.  Organizations falling in four quadrants should adopt the strategies as follows:

Quadrant I    Financial Stability and Industry Strength                         Aggressive
Quadrant II    Financial Stability and Competitive Advantage              Conservative
Quadrant III    Competitive Advantage and Environmental Stability    Defensive
Quadrant IV    Industry Strength and Environmental Stability             Competitive

image thumb1 Strategic Position and Action Evaluation (SPACE) Matrix

The steps required to develop a SPACE Matrix

1. A set of variables should be selected to define financial strength, competitive advantage, environmental stability, and industry strengths. The set of variables could be as follows:

Internal Dimensions

Financial Strength

•    Return of investment
•    Financial and operating leverage
•    Liquidity
•    Working capital
•    Cash flows

Competitive Advantage

•    Market share
•    Quality
•    Product life cycle
•    Customer preference
•    Technological innovation
•    Sound supply chain

External Dimensions

Environmental Stability

•    Technological changes
•    Inflation
•    Demand elasticity
•    Competitor’s price ranges
•    Barriers to entry
•    Competitive pressure
•    Ease of exit
•    Price elasticity of demand
•    Risk exposure

Industry Strength

•    Growth potential
•    Profit potential
•    Financial stability
•    Resource availability
•    Ease of entry
•    Capacity utilization

2.Assign a numerical value ranging from +1 (worst) to +6(best) to each of the variable that comprise the financial stability and industry strength dimensions. On the other hand assign a numerical value ranging from -1 (best) to -6(worst) to each of the variables that consist of environmental stability and competitive advantage dimensions. It is to note that on the financial stability and competitive advantage side comparison is made to competitors whereas on the environmental stability and industry strength side comparison is made to other industries.

3. In the third step the average of the values assigned to each variable above is computed by adding the values and dividing by the number of variables included in the analysis. This average is calculated for each dimension.

4.Now the average values calculated in the step 3 are plotted on the appropriate axis in the SPACE Matrix.

5.Add the two values on x-axis (competitive advantage and industry strength) and plot the resultant value on x-axis.

6. Add the two values on y-axis (financial strength and environmental stability) and plot the resultant value on y-axis.

7. An intersection of the new xy points is to be drawn in the next step.

8. In the last step a directional vector should be drawn from the origin of the SPACE Matrix. This directional vector represents the strategies to be pursued i.e. aggressive, conservative, defensive, or competitive.

Practical example of SPACE Matrix

Following example for SPACE Matrix is presented.

1. In the first step we need to establish variables for each dimension of SPACE Matrix. We assume the above enlisted variables as similar for each dimension for ABC also.

2. In the 2nd step we assign them values according to their importance as worst and best as briefed above.

spacematrix thumb Strategic Position and Action Evaluation (SPACE) Matrix

3.    The average values of each dimension are calculated which are:

image thumb2 Strategic Position and Action Evaluation (SPACE) Matrix

4.In the next subject we will plot the average values on the appropriate axis in the shape.

5.Now the x-axis values (competitive advantage and industry strength) are added which comes to (-3.3+2.8) = -0.5 and y-axis values (financial strength and environmental stability) are added which comes to (2.6+(-3.9))= -1.3

6.In the final step -0.5 is to be plotted on x-axis and -1.3 on y-axis. The directional vector from the origin of SPACE Matrix is drawn.

7. The directional vector reveals that the firm should adopt defensive strategies as it is suffering from weak competitive position, negative growth, and financial distress.

Above analysis clearly suggests that directional vector of the SPACE Matrix is the basis of strategy selection. This vector is based on the average values of each dimension. The average values are computed from individual values assigned to each variable in the dimensions. Apparently the Matrix depends on the phenomena that how much these values are near to the reality and represent the quantification of the factors appropriately. It is required that values should be assigned after careful thought process by the individuals closely in touch with the organization’s key fundamentals. A well organized process of discussion and debates before working on the SPACE Matrix is also indispensable.

If organized professionally the SPACE Matrix can provide an opportunity for a deeper insight into the organizations key strengths and weaknesses. The strengths can accordingly be exploited to reap the fruits from further opportunities and appropriate measure can be taken to improve the deficiencies.

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One Response to "Strategic Position and Action Evaluation (SPACE) Matrix"

  1. Kevin says:

    In step 2 of your practical example, you state to assign a value based on the “importance” of the factor. Should they not be ranked by how well the organization is performing in each factor??

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