SPACE Analysis with Strategic Position and Action Evaluation Matrix

The SPACE (Strategic Position and Action Evaluation ) analysis developed by Alan Rowe, Richard Mason, Karl Dickel, Richard Mann and Robert Mockler is a strategic tool that can be used for strategic planning or to evaluate whether a strategic plan is making sense or not.

This analysis assesses 2 internal environments (Financial Strength and Competitive Advantage) and 2 external environments (Industry Attractiveness and Environmental Stability) and map them into a SPACE Matrix diagram. Based on the analysis, the strategic position of the company can be seen bias towards conservative, aggressive, competitive or defensive.

Factors affecting Financial Strength include:

• Return on sales
• Return on investment
• Liquidity
• Debt ratio
• Available vs required capital
• Cash flow
• Inventory turnover
• Use of economies of scale and experience

Factors affecting Competitive Advantage include:

• Market share
• Product range
• Product quality
• Product lifecycle
• Innovation cycle
• Customer loyalty
• Cost levels
• Vertical integration
• Speed of new product introduction

Factors affecting Industry Attractiveness include:

• Growth potential
• Profit potential
• Financial stability
• Technological know-how
• Resource utilization
• Complexity of entering the industry
• Labour productivity
• Capacity utilization
• Bargaining power of manufacturers
• Customer power

Factors affecting Environmental Stability include:

• Political uncertainty
• Technological change
• Inflation rate
• Interest rate
• Currency exchange rate
• Demand volatility
• Price range of competitive products
• Price elasticity of demand
• Pressure from the substitutes
• Cyclical issues

A score of 0 to 6 is given for the company's strength in each of the factors for Financial Strength and Industry Attractiveness, and a score of -6 to 0 is given in each of the factors for Competitive Advantage and Environmental Stability. The higher the score, the stronger the company is in respect to the evaluated factor.

The score for each of the 4 environments is the average of all their underlying factors, which need to be plotted at their respective axis. Then, 4 lines are drawn joining all the dots.

The quadrant with the largest area of the drawn quadrilateral shows the favourable strategic position to be taken.