Presentation on space matrix

Guided By: Ashish Saihjpal sir

Presented By:

Neha Sharma

SIGNIFICANCE OF THE STUDY: Strategy models provide a common focus point for

discussion. The best strategies come of from the insight of applying the strategy tools and the discussions that happen within the management team and not as a direct result of using the planning model. Strategy models provides a common reference point. we can see a set of conditions or even a particular symptom and you can relate it back to the rest of the strategy model to understand more about what is happening at the moment, what is happening and perhaps what will happen.

Rationale Behind its Usage

The most important thing in this it tries to answer how can we determine our position in the competitive environment to find a rational strategy based on this method is strategic position and action evaluation matrix.

Any organization having its activity in an oligopoly market, have to take into account the competition existing in that market in order to survive.

Competitive strategy is the search of favorable, profitable and sustainable competitive position in a market against the forces that determine the competition in that market.

Various methods have been proposed for that purpose:

the Boston Consulting Group (BCG) approach, Profit Impact of Market Strategy (PIMS), Scenario Planning, etc.

Strategic Position and Action Evaluation matrix or space analysis matrix is a super technique for evaluating the sense and wisdom in a particular strategic plan.

It was developed by strategy academics” Alan Rowe, Richard Mason, Karl Dickel, Richard Mann and Robert Mockler”.

The Strategic Position Evaluation (SPACE) analysis framework is a very useful but not well known tool to develop and review company’s strategy.

THE STRATEGIC POSITION AND ACTION EVALUATION

(SPACE) MATRIX ………………..

The SPACE Matrix is a relatively easy to understand and use method as a decision aid. It uses two internal dimensions , two external dimensions

To determine the organization’s strategic posture in the market and determine its course of action. Each of these four dimensions includes several factors assessed individually during the analysis

Financial strength (FS)

Competitive advantage(CA)

internal

Industrial strength(IS)

Environment stability(ES)

external

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.

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FACTORS THAT MAKES UP THE SPACE MATRIXINTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITIONFINANCIAL POSITION

COMPETITIVE POSITION

STABILITY POSITION

INDUSTRY STRENGTH

Return on investment

Market Share Technological Changes

Profit Potential

Leverage Product Quality Rate of Inflation Financial StabilityLiquidity Product Life Cycle Demand

VariabilityExtent Leveraged

Working Capital Customer Loyalty Place range of competing products

Resource Utilization

Cash flow Capacity Utilization

Barriers to entry into the market

Ease of entry into market

Inventory Turnover

Technological Know-how

Competitive Pressure

Productivity, capacity utilization

Earnings per share

Control over suppliers and distributors

Ease of Exit from market

Price Earnings Ratio

Price Elasticity of demand

Table 1 : Dimensions & Strategies in SPACE Matrix with Details

Defensive Conservative Competitive Aggressive Strategy Postures

Dimensionsunstable Stable Unstable stable Environment

(ES)unattractive Unattractive Attractive attractive Industry (IA)weak Weak Strong strong Competitivenes

s weak high Weak high Financial

strength*Rationalization * Divestment as appropriate

* Cost reductionand product/servicerationalization* Invest in Search for new products/opportunities

* Cost reduction, productivity improvement, raising more capital to follow opportunities and strengthen competitiveness Possibly merge Less competitive cash rich organization

*Growth possibly by acquisition *Investment on opportunities * Innovate to sustain competitive advantage

Appropriate Strategies

recommendations

AGGRESSIVE QUADRANTExcellent position to use internal strength:

1. Take advantage of external opportunities2. Overcome Internal Weaknesses3. Avoid or minimize external threats

CONSERVATIVE QUADRANTFirm should stay close to its core competences and not take risks

DEFENSIVE QUADRANTFocus on rectifying internal weakness and external threats

COMPETITIVE QUADRANTUse Competitive strategies

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.

COMPLETE MATRIX……….