The Strategic Position and Action Evaluation (SPACE) Matrix

The Strategic Position and Action Evaluation (SPACE) MatrixThe SPACE matrix is just a little bit more complex than the SWOT analysis. The SPACE matrix evaluates different variables and assigns them a score considering how important they are for the situation of the company. It analyzes four different areas (two internal to the company and two external) that will represent four quadrants in a graphic. The purpose of this matrix is to situate the company in one of these four quadrants and give a suggestion –according to which quadrant results- about what type of strategies a company should follow: conservative, aggressive, defensive or competitive. But, how do we come up with the quadrant where our company is located? The first step is to address each of the four areas of question: the internal strategic dimensions represented by the financial strength (FS) and the competitive advantage (CA); and the external strategic dimensions represented by the environmental stability (ES) and the industry strength (IS) (Figure 3).

Internal strategic dimensionsFinancial strength (FS)

It includes everything that refers to the financials of the company. We can consider the Return on Investment (ROI), which is how much money is recovered from each unit of money invested, the liquidity of the company –it means how easy a company can make cash all his assets- and the cash flow. Each one of these variables is given a numeric value from 1 (worst) to 6 (best) according to our perception of how good the company is doing regarding that variable. If the company has a high ROI compared to the industry, the variable can have a 6; conversely, in the case of a Web based company that has not much concrete materials to sell, the liquidity will be low, let’s say 2. Experience is required to evaluate each factor as there is no procedure defined on how to do it. The result will mostly depend on knowledgeable people that can have an idea of how these variables weigh among each other within the company.

Competitive Advantage (CA) This is the next variable considered

in the internal strategic dimension. Market share, quality of the product, product life cycle, customer loyalty, the know-how and the power of company over its suppliers and intermediaries are some of the variables to be considered. As in the other internal strategic dimension, each variable considered is given a numerical value, but in this case from -1 (being the best) to -6 (being the worst).

Environmental stability (ES)Last, ES is considered. It refers to how

stable is the market where the company operates. Things like rate of technological change, inflation, demand variability, price range of competing products, risks of the industry and the barriers to enter or exit the market are considered. The more stable is the market; more favorable is for the company to operate in it. A score from -1 (best) to -6 (worst) is given to each of the variables considered.

External strategic dimensionsIndustry strength (IS)

It considers external forces that belong to the industry where the company develops its activities. Variables as growth potential, profit potential, financial stability, resource utilization and productivity are considered. As well, in this dimension each of these variables is given a score that goes from 1 (worse) to 6 (best).

Once all the variables have been considered and scored, an average score is calculated for each internal and external dimension. This is done by adding all the scores of the single variables and dividing it by the number of variables considered in that dimension. Each of these four numbers is plotted in the x and y axis of the matrix. By definition, the CA and IS are plotted on the x axis, while the FS and ES in the y axis (Figure 4). The next step is to figure out in which of the four quadrants the company will fall. To do this, the x value is obtained by adding CA and IS, and the y value by adding FS and ES. These two new values are plotted and they will determine the quadrant. We’ll see this with an example in a little bit.