The SPACE (Strategic Position and Action Evaluation) analysis was developed by strategy academics Alan Rowe, Richard Mason, Karl Dickel, Richard Mann, and Robert Mockler. The particular focus of this framework is strategy formation as it relates to the competitive position of an organization. The SPACE analysis is a technique used in strategic management and planning.
- Understanding the SPACE analysis
- The four key components of the SPACE analysis
- Internal strategic dimensions
- External strategic dimensions
- Scoring the SPACE analysis matrix
- Key takeaways:
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Understanding the SPACE analysis
The analysis can be used to:
- Evaluate the viability of a strategic plan.
- Predict the broader key themes during project planning.
- Perform a check at the completion of the process, and
- Evaluate a list of strategic options generated by a tool like the Ansoff growth matrix.
The four key components of the SPACE analysis
This yields four areas of analysis in total. Each area in turn is influenced by several sub-factors which are listed below.
Internal strategic dimensions
- Financial strength (FS) – inventory turnover, cash flow, debt ratio, available vs. required capital, return on investment, and liquidity.
- Competitive advantage (CA) – market share, innovation cycle, customer loyalty, vertical integration, product quality, and product lifecycle.
External strategic dimensions
- Environmental stability (ES) – technological change, inflation rate, price elasticity of demand, pressure from substitutes, inflation rate, price range of competitive products, and demand volatility.
- Industry attractiveness (IA) – growth potential, profit potential, resource utilization, complexity of entering the industry, labor productivity, capacity utilization, manufacturer bargaining power, financial stability.
Scoring the SPACE analysis matrix
Each of these sub-factors is then assigned a score. Financial strength and industry attractiveness are given a score between 0 and 6, with higher scores representing a more favorable position.
Conversely, competitive advantage and environmental stability are given a score between -6 and 0, with lower scores representing a less favorable or weak position.
The average values are then plotted on the matrix according to cartesian x and y coordinates, with each point joined to form a four-sided shape.
To interpret the matrix results, the business must determine the quadrant in which the shape occupies the largest area.
The four postures are:
- Aggressive – in general, companies in this quadrant occupy a stable industry with a protectable competitive advantage. Having said that, new entrants remain a constant threat. Strategy should focus on increasing market share through mergers, acquisitions, or product diversification.
- Competitive – this quadrant describes companies in attractive industries without the financial strength to capitalize on them. As a result, the short-term strategy should focus on raising capital, improving profitability, or seeking out a merger with a cash-rich organization.
- Conservative – or companies with a moderate to strong financial position operating in stable markets with little scope for growth. New product development and/or the identification of more profitable markets should be a priority.
- Defensive – the least enviable position a company can occupy. Fundamentally, these companies lack a strong competitive advantage in a highly competitive industry. Strategy favors selling off non-competitive assets to concentrate available resources on potentially more profitable opportunities.
- The SPACE analysis is a technique used in strategic management and planning. It was developed by a team of researchers to guide strategy formation with respect to competitive position.
- The SPACE analysis is best represented on a matrix consisting of two internal and two external dimensions: financial strength, competitive advantage, environmental stability, and industry attractiveness. Each dimension comprises various criteria the business can rate itself against.
- With each dimension scored, averaged, and plotted on the SPACE analysis matrix, each business will predominantly occupy one of four quadrants. Each quadrant defines four postures that guide strategy formation.
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