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What Is The SPACE Matrix Strategic Management Method?

The SPACE matrix is a strategic management tool used to evaluate an organization's competitive position and determine an appropriate strategy. It analyzes internal factors like financial strength and competitive advantage, and external factors like environmental stability and industry strength. These factors are rated and plotted on a graph to place the organization in one of four strategic categories: aggressive, conservative, defensive, or competitive. The document then provides details on how to construct a SPACE matrix using a seven step process of selecting variables, rating factors, calculating averages, and plotting the results.

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Subhadeep Paul
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437 views

What Is The SPACE Matrix Strategic Management Method?

The SPACE matrix is a strategic management tool used to evaluate an organization's competitive position and determine an appropriate strategy. It analyzes internal factors like financial strength and competitive advantage, and external factors like environmental stability and industry strength. These factors are rated and plotted on a graph to place the organization in one of four strategic categories: aggressive, conservative, defensive, or competitive. The document then provides details on how to construct a SPACE matrix using a seven step process of selecting variables, rating factors, calculating averages, and plotting the results.

Uploaded by

Subhadeep Paul
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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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 Xon 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.

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