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# SPACE Matrix Strategic Management Method

**SPACE Matrix Strategic Management Method
**

The SPACE matrix is a management tool used to analyze a company. It is used to determine what type of a strategy a company should undertake. The Strategic Position & Action Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization. The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

**What is the SPACE matrix strategic management method?
**

To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:

• • • •

Aggressive Conservative Defensive Competitive

This is what a completed SPACE matrix looks like:

1

SPACE matrix factors related to business external strategic dimension are for example overall economic condition. These factors can be well analyzed using the Michael Porter's Five Forces model. inflation. integration with other companies. cash flow. Our company has a strong competitive position it the market with rapid growth. how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix analysis functions upon two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. working capital. Competitive advantage factors include for example the speed of innovation by the company. product quality. acquisition of competitors. leverage. These factors analyze a business internal strategic position. market niche position. product life cycle. and others. These SPACE matrix factors can include for example return on investment. competitive pressures. This can include product development. liquidity. The financial strength factors often come from company accounting. 2 . the CA and IS values in the SPACE matrix are plotted on the X axis. barriers to entry. technology.By definition. and others. Now. price elasticity. Internal strategic dimensions: Financial strength (FS) Competitive advantage (CA) External strategic dimensions: Environmental stability (ES) Industry strength (IS) There are many SPACE matrix factors under the internal strategic dimension. turnover. and so on. industry growth potential. The following are a few model technical assumptions: . Every business is also affected by the environment in which it operates. The SPACE matrix is based on four areas of analysis.This particular SPACE matrix tells us that our company should pursue an aggressive strategy. It needs to use its internal strengths to develop a market penetration and market development strategy. The SPACE matrix calculates the importance of each of these dimensions and places them on a Cartesian graph with X and Y coordinates. market share. and others. GDP growth. customer loyalty.

. Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis. This will be your final point on axis X on the SPACE matrix. The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions. Step 7: Find intersection of your X and Y points. . 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). . .ES values can be between -1 and -6. SPACE matrix example The following table shows what values were used to create the SPACE matrix displayed above. and financial strength (FS).CA values can range from -1 to -6. environmental stability (ES). 3 . Step 3: Find the average scores for competitive advantage (CA).FS values range from +1 to +6.The FS and ES dimensions of the model are plotted on the Y axis. Draw a line from the center of the SPACE matrix to your point. and financial strength (FS). Step 2: Rate individual factors using rating system specific to each dimension. environmental stability (ES).IS values can take +1 to +6. industry strength (IS). This line reveals the type of strategy the company should pursue. Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS) dimensions. Rate competitive advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best). 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. Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6 (best). industry strength (IS).. 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.

conservative. The SPACE MATRIX Explained The SPACE MATRIX Explained The Strategic Position and Action Evaluation or the SPACE Matrix is a four-quadrant framework which indicates whether aggressive. a number of variables could make up each of the dimensions represented on the axes of the typical SPACE Matrix. Should you have any questions about the SPACE matrix. These four factors are the most important determinants of an enterprise's overall strategic position in the marketplace. (for an actual SPACE Matrix in action--follow this link for a graphic explanation with images) Depending upon the type of firm and its industry. The axes of the SPACE Matrix represent the two internal dimensions of a competitive firm which are its financial strength or FS and its competitive advantage or CA] and two external dimensions which are environmental stability ES and industry strength or IS. Other important variables that can be included in a SPACE Matrix examination are a firm's 4 . The SPACE Matrix Analysis is most often employed during professional market analysis of a firm or for graduate level MBA coursework .Each factor within each strategic dimension is rated using appropriate rating scale. Adding individual strategic dimension averages provides values that are plotted on the axis X and Y. Then averages are calculated. Factors that are typically included are those found in the firm's External Factor Analysis and its Internal Factor Analysis (EFA & IFA) and these should be considered in developing a SPACE Matrix. defensive. But. what if we have 2-3 strategies and need to decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can help to answer this question. you might want to submit them at our management discussion forum. or competitive strategies are most appropriate for a given enterprise or company. Where do I go next? The SPACE matrix can help to find a strategy.

market development. IS. 5. When an organization's directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE Matrix. and ES by summing the values given to the variables of each dimension and dividing by the number of variables included in the respective dimension. backward integration. IS. Add the two scores on the x-axis and plot the resultant point on X. and (3) avoid external threats. Plot the average scores for FS. The steps required to develop a SPACE Matrix are listed below: 1.financial performance such as return on investment. leverage. forward integration. The directional vector associated with each given profile suggests the type of strategies to pursue which are: aggressive. product development. Matrix The Strategic Position and Action Evaluation or the SPACE Matrix is a four-quadrant framework which indicates whether aggressive. liquidity. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. an firm is in an excellent position to use its internal strengths to (1) take advantage of external opportunities. and CA on the appropriate axis in the SPACE Matrix. the SPACE Matrix should be completely customized to the particular firm being studied and based on factual information derived from industry and market data. horizontal diversification. competitive advantage (CA). Add the two scores on they-axis and plot the resultant point on Y. Therefore. conservative. ES. Like the TOWS Matrix. defensive. defensive. 6. (2) overcome internal weaknesses. or competitive. Select a set of variables to define financial strength (FS). environmental stability (ES). and industry strength (IS) 2. Assign a numerical value ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. This vector reveals the type of strategies recommended for the organization: aggressive. The axes of the SPACE Matrix represent the two internal dimensions of a competitive firm which are its financial strength or FS and its competitive advantage or CA] and two external dimensions which are environmental stability ES and industry strength or IS. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. 3. horizontal integration. Compute an average score for FS. These four factors are the most important determinants of an enterprise's overall strategic position in the marketplace. A generic SPACE Matrix is detailed below: 5 . or competitive strategies are most appropriate for a given enterprise or company. The SPACE Matrix Analysis is most often employed during professional market analysis of a firm or for graduate level MBA coursework . market penetration. conglomerate diversification. Plot the intersection of the new xy point. conservative. working capital. competitive. CA. or conservative. and cash flow commonly are considered determining factors of an organization's financial strength. defensive. 4. concentric diversification. or a combination strategy all can be feasible. depending on the specific circumstances that the company is facing at the time.

5. ES. Add the two scores on the x-axis and plot the resultant point on X. Compute an average score for FS. 3. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. environmental stability (ES). the SPACE Matrix should be completely customized to the particular firm being studied and based on factual information derived from industry and market data. working capital. CA. 6 . The steps required to develop a SPACE Matrix are listed below: 1. Plot the average scores for FS. Plot the intersection of the new xy point. Add the two scores on they-axis and plot the resultant point on Y. the 4. IS. and ES by summing the values given to the variables of each dimension and dividing by the number of variables included in the respective dimension. IS. and CA on appropriate axis in the SPACE Matrix. Assign a numerical value ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. liquidity. leverage. and cash flow commonly are considered determining factors of an organization's financial strength. Select a set of variables to define financial strength (FS). Factors that are typically included are those found in the firm's External Factor Analysis and its Internal Factor Analysis (EFA & IFA) and these should be considered in developing a SPACE Matrix. Like the TOWS Matrix.Depending upon the type of firm and its industry. and industry strength (IS) 2. Other important variables that can be included in a SPACE Matrix examination are a firm's financial performance such as return on investment. a number of variables could make up each of the dimensions represented on the axes of the typical SPACE Matrix. competitive advantage (CA).

or competitive. product development. and (3) avoid external threats. defensive. This vector reveals the type of strategies recommended for the organization: aggressive. forward integration. horizontal diversification. depending on the specific circumstances that the company is facing at the time. competitive. Therefore. When an organization's directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE Matrix. or conservative. concentric diversification. A sample SPACE Matrix Analysis for a bank or financial institution is included below so that you can see how it is actually applied in practice: Financial Institution SPACE Matrix 7 . defensive. market penetration.6. (2) overcome internal weaknesses. conglomerate diversification. backward integration. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. conservative. market development. an firm is in an excellent position to use its internal strengths to (1) take advantage of external opportunities. or a combination strategy all can be feasible. Some examples of strategy profiles that can emerge from a SPACE analysis are shown below: The directional vector associated with each given profile suggests the type of strategies to pursue which are: aggressive. horizontal integration.

33 IS Average is + 10.0 -4.25) = -2.0 ÷ 3 = -3. -2.70.33 + (12.0 9. CONCLUSION ES Average is -13.0 • • • • • • The bank has a large customer base. Headquartered in Pittsburgh. 1. 8 .00 FS Average is + 9.0 -2.33) = +0.0 ÷ 3 = 3. -4. Superregional banks. the bank historically has been heavily dependent on the steel.23 percentage points over the generally required ratio of 6 percent. COMPETITIVE ADVANTAGE • • The bank provides data processing services for more than 450 institutions in 38 states. The bank's return on assets is negative 0. Kentucky.0 4.77.00 + (13.0 -5. and gas industries.0 10.08 • The bank should pursue Competitive Strategies.0 4.0 1. down 9 percent from a year earlier. Deregulation increases competition in the banking industry.0 ÷ 4 = 2.23 percent. the District of Columbia. compared to a bank industry average ratio of positive 0.0 • Banking deregulation has created instability throughout the industry.0 • • • • The bank's revenues increased 7 percent to $3.0 2. and nonbanks are becoming increasingly competitive. INDUSTRY STRENGTH Deregulation provides geographic and product freedom. which is 1.0 ÷ 3 = -4.0 -5.46 billion.25 Directional Vector Coordinates: x-axis: -3. ENVIRONMENTAL STABILITY • • Less-developed countries are experiencing high inflation and political instability. Ohio.0 -13.33 y-axis: -4. oil.0 3.FINANCIAL STRENGTH Ratings • • • The bank's primary capital ratio is 7. The bank's net income was $183 million.0 Pennsylvania's interstate banking law allows the bank to acquire other banks in New Jersey.33 CA Average is -9.0 -9. international banks. 4. and West Virginia. These industries are depressed.

The directional vector may appear in the conservative quadrant (upper-left quadrant) of the SPACE Matrix. The directional vector may be located in the lower-left or defensive quadrant of the SPACE Matrix. divestiture. and concentric diversification.In the figure above. the actual diagram would go in the blank space in the lower right corner. market development. market penetration. Competitive strategies include backward. liquidation. and joint venture. to name but a few. which implies that staying close to the company's basic competencies and not taking excessive risks should be the recommended strategy. Conservative strategies most often include market penetration. forward. which suggests that the company might want to focus on rectifying internal weaknesses and avoiding external threats. indicating competitive strategies would be most appropriate. and horizontal integration. the directional vector may be located in the lowerright or competitive quadrant of the SPACE Matrix. Understanding all of these potential options can be a complicated and time consuming undertaking. product development. China Doll Publishing or follow the link for more 9 . Finally. market development. If you need a SPACE Matrix produced for your organization or for a business research project just contact explanations regarding custom writing services . and concentric diversification for example. product development. Defensive strategies include retrenchment.