What is the strategic position and action evaluation SPACE matrix?

The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake.

The Strategic Position & ACtion Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization.

The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

What is the SPACE matrix strategic management method?

To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:

• Aggressive
• Conservative
• Defensive
• Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our company has a strong competitive position it the market with rapid growth. It needs to use its internal strengths to develop a market penetration and market development strategy. This can include product development, integration with other companies, acquisition of competitors, and so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. The SPACE matrix is based on four areas of analysis.

Internal strategic dimensions:

          Financial strength (FS)
          Competitive advantage (CA)

External strategic dimensions:

          Environmental stability (ES)
          Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors analyze a business internal strategic position. The financial strength factors often come from company accounting. These SPACE matrix factors can include for example return on investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive advantage factors include for example the speed of innovation by the company, market niche position, customer loyalty, product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates. SPACE matrix factors related to business external strategic dimension are for example overall economic condition, GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures, industry growth potential, and others. These factors can be well analyzed using the Michael Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.- CA values can range from -1 to -6.

- IS values can take +1 to +6.

- The FS and ES dimensions of the model are plotted on the Y axis.- ES values can be between -1 and -6.

- FS values range from +1 to +6.

How do I construct a SPACE matrix?

The SPACE matrix is constructed by plotting calculated values for the competitive advantage (CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be created using the following seven steps:

Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best). Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best).

Step 3: Find the average scores for competitive advantage (CA), industry strength (IS), environmental stability (ES), and financial strength (FS).

Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.

Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. This will be your final point on axis X on the SPACE matrix.

Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial strength (FS) dimensions to find your final point on the axis Y.

Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example

The following table shows what values were used to create the SPACE matrix displayed above.

Each factor within each strategic dimension is rated using appropriate rating scale. Then averages are calculated. Adding individual strategic dimension averages provides values that are plotted on the axis X and Y.

Where do I go next?

The SPACE matrix can help to find a strategy. But, what if we have 2-3 strategies and need to decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can help to answer this question.

Should you have any questions about the SPACE matrix, you might want to submit them at our management discussion forum.

For the formulation of the framework, another important matching tool is used, known as Strategic Position and Action Evaluation or SPACE Matrix. It specifies the current strategic position of the Business Organization and the required actions that need to be taken.

The SPACE Matrix is prepared on the graph & is closed on the matrix. The counterclockwise direction is followed in this kind of matrix. There are four-quadrant are included in the graph which is as below.

SPACE Matrix Graph Quadrant

1. Aggressive
2. Conservative
3. Defensive
4. Competitive

Two internal dimensions financial strength (FS) & competitive advantage (CA) are specified by the axes of the matrix graph. Similarly, the remaining two axes of the graph represent environmental stability (ES) and industry strength (IS). The overall strategic position of the organization is determined by these four factors.

The graph of Strategic Position and Action Evaluation or SPACE Matrix is categorized into two internal dimensions (financial strength & competitive advantage) and two external dimensions (environment stability & industry strength). The sequence is firm & must be followed in the graph.

There are a certain set of strategies for each kind of quadrant of the matrix specified by the framework.  The organization that lies in the first aggressive quadrant of the graph should adopt an aggressive strategy. The organization that falls in the second conservative quadrant of the graph follows the conservative strategy.

Similarly, the third quadrant is defensive & the organization should follow a defensive strategy while the organization falling in the fourth quadrant follows the competitive strategy. A rating ranging from +1 (worst) to +6 (best) is given to each kind of variable that represents the dimensions of financial strength and industry strength.

On the other hand, a numerical value ranging between -1 (best) to -6 (worst) is assigned to the variables that make the dimensions of environment stability & competitive advantage.

Preparation of SPACE Matrix

There are certain steps that need to be followed while preparing the Strategic Space Matrix. These steps are discussed below

1. A set of variables are selected that should be related to financial strength, industry strength, environmental stability & competitive advantage.
2. All those variables that makeup dimensions of financial strength & industry strength are given a certain numerical value that ranges between +1 (worst) to +6 (best). On the other hand, all those variables that make dimensions of environmental stability & competitive advantage are assigned by a numerical value that ranges between -1 (best) to -6 (worst).
3. In the third step average score is ascertained by dividing the number of variables.
4. The average scores are plotted in the SPACE matrix.
5. Two scores are added on the x-axis and the resultant points are plotted on the X. Similarly two scores are added on the y-axis and the resultant points are plotted on the Y. The new intersection point of the xy is plotted.
6. Form the origin of SPACE Matrix a directional vector is drawn that passes through the new intersection point. The vector in this graph represents the effective category of strategies for the organization which may anyone among the aggressive, defensive, competitive or conservative.

Richard DanielsAuthor at Business Study Notes

Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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