The Strategic Position and Action Evaluation Matrix (SPACE)

Abey Francis
Strategic Position and Action Evaluation Matrix (SPACE) is “an approach
to hammer out an appropriate strategic posture for a firm and its
individual business.” SPACE is an analysis of the following four dimensions in
as in a two-dimensional portfolio analysis and involves a consideration of:
1. Company’s competitive advantage
2. Company’s financial strength
3. Industry strength
4. Environmental stability

Components of SPACE Analysis

SPACE Analysis: The External Environment
The external environment in SPACE Analysis focuses on factors outside
the organization that can impact its strategic position. These factors are
assessed through the dimensions of Industry Strength (IS) and
Environmental Stability (ES).
Industry Strength (IS)
Industry Strength evaluates the attractiveness and potential growth of the
industry in which the company operates. Key factors to consider include:
• Market growth rate: The rate at which the market is expanding,
indicating potential for new opportunities.
• Industry profitability: Overall profitability of the industry, which affects
all players within it.
• Demand variability: Stability and predictability of demand for the
industry’s products or services.
• Competitive intensity: Level of competition within the industry, which
can impact market share and profitability.
• Barriers to entry: Ease or difficulty for new competitors to enter the
market.
• Technological change: Rate of technological advancement and its impact
on the industry.
Environmental Stability (ES)
Environmental Stability assesses the stability and predictability of the
external environment. Factors to consider include:
• Economic conditions: General economic climate, including factors like
inflation, unemployment, and economic growth.
• Political stability: Stability of the political environment, including
government policies, regulations, and political risk.
• Regulatory environment: Impact of laws and regulations on the industry
and business operations.
• Technological trends: Impact of emerging technologies and innovation
on the industry.
• Social and cultural trends: Changes in societal attitudes, demographics,
and cultural factors that can affect demand.
• Environmental factors: Ecological and environmental considerations,
including sustainability and climate change impacts.
SPACE Analysis: The Internal Environment
The internal environment in SPACE Analysis focuses on factors within
the organization that can influence its strategic position. These factors are
assessed through the dimensions of Financial Strength (FS) and
Competitive Advantage (CA).
Financial Strength (FS)
Financial Strength evaluates the financial health and resources of the
organization. Key factors to consider include:
• Profitability: Measures such as return on investment (ROI) and return on
assets (ROA).
• Leverage: Debt-to-equity ratio and the company’s ability to manage and
repay its debt.
• Liquidity: Current ratio, quick ratio, and the organization’s ability to
meet short-term obligations.
 • Cash flow: Cash inflows and outflows, indicating financial stability and
operational efficiency.
• Cost of capital: The cost of financing the company’s operations and
growth.
Competitive Advantage (CA)
Competitive Advantage assesses the company’s ability to compete
effectively in the market. Factors to consider include:
• Market share: The company’s share of the market compared to its
competitors.
• Product quality: Perceived quality and reliability of the company’s
products or services.
• Customer loyalty: Strength of customer relationships and repeat
business.
• Brand strength: Recognition and reputation of the company’s brand.
• Technological know-how: The company’s expertise and capability in
technology and innovation.
• Marketing effectiveness: The effectiveness of the company’s marketing
strategies and campaigns.

Various factors are evaluated for determining each of the dimensions and they
are summarized below:
Dimensions Factors Evaluated
Company’s competitive advantage 1. Market Share
2. Product Quality
3. Product life cycle
4. Product Replacement cycle
5. Customer Loyalty
6. Competitor’s Capacity Utilization
7. Technological knowhow
8. Vertical integration
 Company’s Financial Strength 1. Return on investment
2. Leverage liquidity
3. Capital Required/Available
4. Cash Flow
5. Ease of exit from market
6. Risk involved in business
Industry Strength 1. Growth potential
2. Profit potential
3. Financial Stability
4. Technological know how
5. Resource utilization
6. Capital intensity
7. Ease of entry into market
8. Productivity
9. Capacity Utilization
Environmental Stability 1. Technological charges
2. Rate if inflation
3. Demand variability
4. Prices of competing products
5. Barriers to entry into market
6. Competitive pressure
7. Price elasticity of demand
Steps essential to construct a Strategic Position and Action Evaluation Matrix
are described below:
1. Choose a combination of factors that best characterize Competitive
Advantage (CA), Environmental Stability (ES), Financial Strength (FS)
and Industry Strength (IS).
2. To the CA and ES dimensions allot a numerical value ranging from -6
(worst) to -1 (best) to each of the factors. Allot value ranging from +6
 (best) to +1 (worst) to all of the factors that constitute the IS and FS
dimensions.
3. Calculate an average score for IS, ES, CA and FS by summing the
numbers allotted to the factors of the entire dimension separately and
dividing by the set of factors included in the particular dimension.
4. Plot the average scores for each dimensions such as ES, CA, IS and FS on
the proper axis in the matrix.
5. Add or combine the scores of two dimensions that lay in the x-axis and
design the resultant point on X, in the same way add scores of dimensions
that lay in the y-axis and plot the consequential point on Y. Then, plot the
intersection of the both new XY points.
6. Sketch a directional vector from the basis of the Strategic Position and
Action Evaluation (SPACE) matrix throughout the new intersection
points. This vector discloses the kind of strategies suggested for the firm
such as aggressive, defensive, conservative or competitive.
Using the Strategic Position and Action Evaluation Matrix method we find the
strategic position/posture of an organisation. We have analyzed four dimensions
in this method; two contribute to the internal dimensions and the other two to
external dimensions. The internal dimension includes competitive advantage
and the financial strength which are the major factors to determine the strategic
position of any organization. The external dimension includes the industry
strength and the environmental stability which is used to identify the strategic
position in the industry. By evaluating these four dimensions, we result in four
different strategic postures namely;
1. Aggressive Posture indicating that the company can fully exploit
available opportunities and enhance its market share. As the company
has high financial strength, high industry strength, enjoys competitive
advantage and belongs to an attractive industry and operates in a
relatively stable environmental conditions. This posture is a
kin to Michael Porter’s generic strategy of overall cost leadership.
2. Competitive Posture indicating limited financial strength, medium
competitive advantage in an attractive industry and operating in a
relatively volatile or unstable environment, necessitating the company
to maintain and enhance competitive advantage by
improving/differentiating product; widening the product line,
improving marketing effectiveness and mobilizing, augmenting financial
 resources. This posture is considered to be quite similar to Michael
Porter’s generic strategy of product differentiation.
3. Conservative Posture indicating a company having limited competitive
advantage, in a not so attractive industry but enjoying financial strength
and operating in a relatively stable environment. Such a company should
endeavor to cut down non-performing product, control costs, improve
productivity, introduce new products and enhance sales by profitable
market expansion. This posture can be compared with Michael
Porter’s generic strategy of focus.
4. Defensive Posture indicates a company that lacks both competitive
advantage and financial strength and belongs to a not-so-attractive
industry and operates in an unstable environment. All the four
dimensions are weak and works against the company. It is advisable for a
such a company to initiate measures like
discontinue nonviable products, tightly control costs and monitor cash
flows strictly, cutting down/reducing capacity and postponing or limiting
investments.
The basic strategic posture, determines the appropriate financial as regards the
project related investment. After identifying the appropriate posture of an
organisation, which in turn helps to identify the organisation generic
competitive strategies. This leads to define the strategic thrust for the business.
Afterwards the mangers or the top level management of the organisation
can choose the appropriate strategy in which their organisation needs to focus
to achieve the strategic objective and goal.
Thus we can say the Strategic Position and Action Evaluation Matrix will help
the organisation to formulate its strategic goal and help to identify its
competitive position in the market space. If we need to make decision based on
two or more strategic factors, then we need to go for the other tool
called Quantitative Strategic Planning Matrix (QSPM).