space-analysis

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. 

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.

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.

Other Strategic Analysis Tools

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

Gap Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

lean-startup-canvas
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Digital Marketing Circle

digital-marketing-channels
A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Blue Ocean Strategy

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"