What Is The SPACE Analysis? The SPACE Analysis In A Nutshell

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. 

SPACE AnalysisDescriptionAnalysisImplicationsApplicationsExamples
1. Strategic Dimensions (S)SPACE Analysis assesses four strategic dimensions: Aggressive, Conservative, Defensive, and Competitive.– Evaluate the current strategic position of an organization along each dimension based on internal and external factors. – Assign a position on a scale from -6 to +6 for each dimension.– Provides a holistic view of the organization’s strategic stance and potential vulnerabilities. – Highlights whether the organization is proactive, defensive, or balanced in its approach.– Assessing the strategic position of a retail company in a competitive market. – Analyzing the strategic stance of a tech startup in a dynamic industry.Strategic Dimensions Example: Aggressive (+6), Conservative (-3), Defensive (-2), Competitive (+4).
2. Internal Strategic Factors (I)Internal Strategic Factors include the financial strength (FS) and competitive advantage (CA) of the organization.– Evaluate the financial strength based on factors like profitability, liquidity, and solvency. – Assess the competitive advantage considering factors like market share, brand image, and innovation.– Influences the strategic dimension positions by reflecting the organization’s internal capabilities. – Determines whether the organization has a strong or weak foundation for strategic actions.– Evaluating the financial strength and competitive advantage of a retail chain. – Assessing a tech company’s market share and innovation capabilities.Internal Factors Example: Financial Strength (FS) = +3, Competitive Advantage (CA) = +2.
3. External Strategic Factors (E)External Strategic Factors include environmental stability (ES) and industry strength (IS).– Evaluate the environmental stability based on factors like market growth, demand stability, and technological change. – Assess the industry strength considering factors like barriers to entry, rivalry, and profitability.– Influences the strategic dimension positions by reflecting external conditions and industry dynamics. – Determines whether the external environment is conducive or challenging for strategic actions.– Analyzing the market growth and technological change in the technology sector. – Assessing industry rivalry and barriers to entry in the automotive industry.External Factors Example: Environmental Stability (ES) = -1, Industry Strength (IS) = +4.
4. Strategic Position (SP)Strategic Position is determined by the sum of the internal and external strategic factors.– Calculate the strategic position (SP) by adding the internal factors (FS and CA) and subtracting the external factors (ES and IS). – SP = (FS + CA) – (ES + IS).– Provides a quantitative measure of the organization’s strategic position in relation to its internal strengths and external opportunities. – Helps identify whether the organization is in a strong or weak position.– Calculating the SP of a pharmaceutical company with strong financials but a challenging regulatory environment. – Assessing the SP of a restaurant chain in a competitive market with high demand.Strategic Position Example: SP = (3 + 2) – (-1 + 4) = 10.
5. Recommended Actions (RA)Recommended Actions suggest strategic actions based on the calculated Strategic Position (SP).– Interpret the SP value and recommend appropriate actions, such as aggressive, competitive, defensive, or conservative strategies. – Determine the desired strategic posture.– Guides decision-makers in selecting the most suitable strategic posture based on the SP. – Helps align strategic actions with the organization’s current position and desired outcomes.– Recommending an aggressive expansion strategy for a tech startup with a high SP. – Suggesting a conservative approach for a retail company with a low SP.Recommended Actions Example: SP = 10 suggests an Aggressive strategy.

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.

Similarly, the SPACE analysis can also form the basis of similar analyses, including the SWOT analysis, BCG matrix, and IE matrix.

The four key components of the SPACE analysis

The SPACE analysis is best represented by a matrix diagram, with two internal and external strategic dimensions used to determine the competitive strength of an organization.

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

  1. Financial strength (FS) inventory turnover, cash flow, debt ratio, available vs. required capital, return on investment, and liquidity.
  2. Competitive advantage (CA) – market share, innovation cycle, customer loyalty, vertical integration, product quality, and product lifecycle.

External strategic dimensions

  1. Environmental stability (ES) – technological change, inflation rate, price elasticity of demand, pressure from substitutes, inflation rate, price range of competitive products, and demand volatility.
  2. 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 business must then average sub-factor scores for each of the four areas of analysis. 

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.

Each quadrant determines the strategy the business should pursue according to its unique position in the market. The SPACE analysis calls these “postures”.

The four postures are:

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Case Studies

  • Aggressive Strategy in the Smartphone Industry:
    • Financial Strength (FS): Strong financial resources, high cash flow, and a solid market position (Score: 6).
    • Competitive Advantage (CA): Strong brand, innovation capability, and loyal customer base (Score: 6).
    • Environmental Stability (ES): Rapid technological changes and high demand for smartphones (Score: -4).
    • Industry Attractiveness (IA): Highly attractive due to high consumer demand and innovation (Score: 5).
    • Quadrant: Aggressive (due to strong financials, competitive advantage, and industry attractiveness).
    • Strategy: Focus on innovation, aggressive marketing, and potential mergers or acquisitions to increase market share.
  • Competitive Posture in the Airline Industry:
    • Financial Strength (FS): Struggling with high operational costs and debt (Score: -3).
    • Competitive Advantage (CA): Moderate brand strength but not a clear differentiator (Score: -2).
    • Environmental Stability (ES): Competitive and volatile with price wars (Score: -4).
    • Industry Attractiveness (IA): Attractive due to customer demand (Score: 4).
    • Quadrant: Competitive (due to industry attractiveness despite financial challenges).
    • Strategy: Short-term efforts involve cost reduction, improving profitability through pricing strategies, and exploring partnerships or mergers to gain financial stability.
  • Conservative Approach in Cloud Computing:
    • Financial Strength (FS): Strong financial position, substantial capital (Score: 5).
    • Competitive Advantage (CA): Established clientele and reputation (Score: 3).
    • Environmental Stability (ES): Stable market with moderate growth (Score: 3).
    • Industry Attractiveness (IA): Moderate growth potential (Score: 3).
    • Quadrant: Conservative (due to a strong financial position and moderate industry growth).
    • Strategy: Prioritize the development of new cloud services or expand into related markets to maintain steady growth and profitability.
  • Defensive Strategy for a Social Media Platform:
    • Financial Strength (FS): Moderate financial resources (Score: 2).
    • Competitive Advantage (CA): No clear competitive advantage (Score: -2).
    • Environmental Stability (ES): Highly competitive with emerging competitors (Score: -5).
    • Industry Attractiveness (IA): Attractive due to user demand (Score: 4).
    • Quadrant: Defensive (due to lack of competitive advantage and intense competition).
    • Strategy: Divest non-core assets, streamline operations, and focus on improving user experience to defend market position.
  • Conservative Posture in the Traditional Retail Industry:
    • Financial Strength (FS): Stable financial position with steady cash flow (Score: 4).
    • Competitive Advantage (CA): Established brand and customer loyalty (Score: 3).
    • Environmental Stability (ES): Moderate technological change and stable demand (Score: 3).
    • Industry Attractiveness (IA): Limited growth potential due to e-commerce competition (Score: 2).
    • Quadrant: Conservative (due to stable financials and industry, but limited growth).
    • Strategy: Focus on optimizing in-store operations, exploring cost-effective e-commerce solutions, and diversifying into related markets.
  • Aggressive Strategy for a Start-up Tech Company:
    • Financial Strength (FS): Limited initial capital (Score: -3).
    • Competitive Advantage (CA): Innovative technology with potential for disruption (Score: 5).
    • Environmental Stability (ES): Rapid technological advancements (Score: -4).
    • Industry Attractiveness (IA): High growth potential in emerging tech sector (Score: 6).
    • Quadrant: Aggressive (due to innovative technology and high industry growth).
    • Strategy: Seek venture capital funding, rapid product development, and aggressive market expansion to capitalize on growth potential.
  • Competitive Posture in the Software Development Industry:
    • Financial Strength (FS): Healthy financials with consistent revenue streams (Score: 5).
    • Competitive Advantage (CA): Strong portfolio of proprietary software solutions (Score: 4).
    • Environmental Stability (ES): Moderate technological changes and steady demand (Score: 3).
    • Industry Attractiveness (IA): Attractive due to growing software needs (Score: 4).
    • Quadrant: Competitive (due to strong financials, competitive advantage, and industry attractiveness).
    • Strategy: Focus on expanding the software product portfolio, exploring new markets, and enhancing customer support to maintain competitiveness.
  • Defensive Approach in the Semiconductor Industry:
    • Financial Strength (FS): Limited resources for R&D (Score: -3).
    • Competitive Advantage (CA): Facing competition from larger players (Score: -4).
    • Environmental Stability (ES): Rapid technological shifts and evolving market (Score: -5).
    • Industry Attractiveness (IA): Attractive due to high demand for semiconductors (Score: 4).
    • Quadrant: Defensive (due to resource constraints and industry challenges).
    • Strategy: Explore partnerships for R&D, focus on niche markets or specialized products, and consider alliances to stay competitive.

Key takeaways:

  • 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.

Key Highlights

  • Definition: The SPACE Analysis is a strategic management and planning tool developed by Alan Rowe, Richard Mason, Karl Dickel, Richard Mann, and Robert Mockler. It focuses on evaluating the competitive position of an organization and guiding strategy formation.
  • Purpose of Analysis: The SPACE Analysis serves various purposes, including evaluating strategic plan viability, predicting key themes during project planning, checking at the process completion, and assessing strategic options generated by tools like the Ansoff growth matrix.
  • Influences Similar Analyses: The SPACE Analysis can form the basis for other analyses like SWOT analysis, BCG matrix, and IE matrix.
  • Four Key Components of the SPACE Analysis:
    • Internal Strategic Dimensions: Includes Financial Strength (FS) and Competitive Advantage (CA) factors.
    • External Strategic Dimensions: Involves Environmental Stability (ES) and Industry Attractiveness (IA) factors.
  • Scoring and Averaging: Sub-factors within each dimension are scored between 0 and 6 or between -6 and 0, depending on their nature. The scores are averaged for each dimension.
  • Matrix Plotting: The average values are plotted on a matrix using cartesian x and y coordinates, creating a four-sided shape.
  • Quadrant Determination: The quadrant with the largest area on the shape indicates the organization’s strategic position.
  • Four Postures:
    • Aggressive: Stable industry with a competitive advantage but facing threats from new entrants. Strategy focuses on increasing market share.
    • Competitive: In attractive industries but lacking financial strength. Short-term strategy involves raising capital or seeking mergers.
    • Conservative: Moderate to strong financial position in stable markets. Priority lies in new product development or finding more profitable markets.
    • Defensive: Weak competitive advantage in a highly competitive industry. Strategy focuses on selling non-competitive assets and reallocating resources.

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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. 

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