 Name: Shafeeque Ahmed

 F/Name: Qamaruddin Mallah

 Roll no: 2k17/COM/173

 Class: BS Part IV

 Department: Institute Of Commerce

 Subject: Strategic Management

 Topic: 01) What Is Space Matrix

02) Analysis & Features Of Space

Matrix

03) Space Matrix Organization

 Submitted To: Mam Najia Shaikh

 INTRODUCATION
SPACE Matrix Strategic Management
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:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy. Our
company has a strong competitive position it the market with rapid growth. It needs to use its
internal strengths to develop a market penetration and market development strategy. This can
include product development, integration with other companies, acquisition of competitors, and so
on.

Now, 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. The SPACE matrix is based on four areas of
analysis.

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. These factors
analyze a business internal strategic position. The financial strength factors often come from
company accounting. These SPACE matrix factors can include for example return on investment,
leverage, turnover, liquidity, working capital, cash flow, and others. Competitive advantage factors
include for example the speed of innovation by the company, market niche position, customer
loyalty, product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates. SPACE matrix factors
related to business external strategic dimension are for example overall economic condition,
GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures, industry
growth potential, and others. These factors can be well analyzed using the Michael Porter's Five
Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.
- CA values can range from -1 to -6.
- IS values can take +1 to +6.

- The FS and ES dimensions of the model are plotted on the Y axis.

- ES values can be between -1 and -6.
- FS values range from +1 to +6.

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. The Y axis is based on the environmental
stability (ES) and financial strength (FS) dimensions. 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), industry
strength (IS), environmental stability (ES), and financial strength (FS).
Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive
advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best).
Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6
(best).
Step 3: Find the average scores for competitive advantage (CA), industry strength (IS),
environmental stability (ES), and financial strength (FS).

Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.

Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS)
dimensions. This will be your final point on axis X on the SPACE matrix.

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.

Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix
to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example

The following table shows what values were used to create the SPACE matrix displayed above.

Each factor within each strategic dimension is rated using appropriate rating scale. Then averages
are calculated. Adding individual strategic dimension averages provides values that are plotted on
the axis X and Y.

What is the SPACE Analysis?

A SPACE Analysis makes it easier for upper management to make strategic choices and
decisions and create a plan. SPACE is an acronym of Strategy, Position, ACtion, and Evaluation.
Organisations’ external and internal environments play a major role in the SPACE Analysis. In
general, the analysis is represented in a matrix. The top of the Y-axis says ‘Financial Strength’
(FS), and the bottom of the Y-axis shows ‘Environmental Stability’ (ES). The left of the X-axis
shows the Competitive Advantage (CA), and Industry Attractiveness (IA) is shown on the right.

Combined this leads to four positions; conservative, aggressive, defensive, and competitive. The
SPACE Analysis can then lead to creative ideas with an appropriate corporate strategy.
SPACE Analysis : External Environment
To start, the SPACE Analysis shows two criteria that describe the organization’s external
environment:

1. Environmental Stability (ES)

This is the environment’s stability that can be found on the low end of the Y-axis on the matrix.
The stable environmental factors are influenced by a number of sub-factors. The bigger the
impact, the higher on the Y-axis it is shown. Think of sub-factors, such as:

Technology

Technology changes rapidly and has a significant impact on organisations. In order to survive,
businesses will have to adapt to new technologies.

Economy

One example is inflation, which refers to rising prices and money losing value and affecting
businesses

Stock market

When the stock market fluctuates (volatility), it becomes more difficult for businesses to make
larger investments

Competition

If competing protects are a lot cheaper, it’ll be hard for businesses to survive

Price elasticity

The stronger product demand responds to a price change, the harder it is for businesses to
calculate a stable price

Substitutes

The easier it is to replace a product or service, the harder it is for businesses in that market to
compete

2. Industry Attractiveness (IA)

To the right on the X-axis of the SPACE Analysis matrix, it shows the industry attractiveness. It
indicates how attractive it is for businesses to operate in a certain sector. The higher the AI, the
farther to the right it is on the X-axis. The following sub-factors could influence this external factor:

Growth potential

If there is certainty and a chance for growth by operating in a certain sector, companies would do
well to take on this adventure

Profit potential
This is directly related to the growth potential; changes of increased profits make it a wise decision
to focus on a certain sector

Financial stability

If entering a new market results in financial insecurity, it’s better for businesses to stay away

Complexity

The more complex getting into a certain sector is, the lower the chances of success. Some
(foreign) sectors have strict regulations, and permits, for instance

Labour productivity

To what extent will entering a new market/sector create new jobs? The better the labour
productivity, the more attractive the industry

Internal Environment
Like the external environment, the internal environment also consists of two criteria.

1. Competitive Advantage (CA)

The competitive advantage can be found on the left side of the X-axis of the SPACE Analysis. The
bigger this advantage is, the farther left it moves. This can also be influenced by a number of
factors, namely:

Market share

The larger the market share, the more has to be produced, which in turn affects the required
resources, machines, and personnel

Product quality

If the quality of the products goes down, it will affect sales. That’s why it’s a good idea for
businesses to always monitor their internal quality control process

Product life cycle

This is closely related to product quality; the longer a product lasts, the more reliable the consumer
will think it is. This also relates to continuous quality monitoring

Innovation cycle

This also relates to quality. Companies that don’t innovate and don’t apply new technologies in
their manufacturing, will fall behind and their products will be of lesser quality

Customer loyalty

To make customers loyal, businesses will have to make concessions to those customers. They
have to apply that what customers find important to their production
2. Financial Strength (FS)
The top of the SPACE Analysis matrix’s Y-axis shows the financial strength of the organisation.
The stronger an organisation is financially, the higher its position on the Y-axis. Here too are a
number of factors that influence this:

Returns

If companies make a lot of money from their investments, this will make them financially stronger

Liquidity

In addition to returns, it’s also important that there is enough available money, for instance to pay
suppliers without delay

Debt level

The lower the debt level, the more financially stronger the business. Lots of loans and outstanding
bills creates a higher debt level, negatively affecting financial strength

Inventory turnover

The higher the value of its stock, the stronger a company is financially. However, it’s important that
the inventory turnover ratio is high too, or there may be a risk of unsellable stock. The inventory
turnover ratio is a good indication of the total value of the company’s inventory and speed at which
it is sold
Four Positions within the SPACE Analysis matrix
In order to determine a strategy, you first have to find out the position of the organisation. Only
then can you take actions that can be evaluated later. There are four positions between the
SPACE Analysis matrix’s Y-axis and X-axis. Each end represents a sub-factor to which a value
can be assigned between 0 and 6; for CA and ES this is 0 to -6. The values of the individual
factors are then noted on the axes in the matrix. There where the surface area is largest because
of the value of these factors, is where the best choice for a strategic plan will be. You can see the
four strategic positions from the SPACE analysis below. P(osition) and AC(tion) are also
considered:

Conservative strategy
The conservative strategy is located between the company’s financial strength and the competitive
advantage. This is usually a stable organisation, with low growth.
The following actions would be potential options for a company in this position:

 Focus on existing successful products and cherish these

 Also leave room to develop new products
 Potential product penetration through expansion

Aggressive strategy
The aggressive strategy is located between financial strength and industry attractiveness. This is a
stable organisation that actively chooses to compete with similar businesses.
The following actions would be potential options for a company in this position:

 Focus on products that can really compete with other businesses

 A focused marketing campaign to gain a larger market share
 Focus on offering the lowest price compared to competitors
 Look for potential companies to take over and increase the market share

Defensive strategy
The Defensive strategy of the SPACE Analysis is located between environmental stability and
competitive advantage. These are businesses that are being pushed out by the competition. If
they don’t take action, chances are they won’t make it.
The following actions would be potential options for a company in this position:

 Reduce costs to realise a stronger competitive position

 Reduce investments and manufacture at low cost
 Focus on core business and sell off ancillary activities

Competitive strategy
The competitive strategy of the SPACE Analysis is located between industry attractiveness and
environmental stability. These are companies that are competitive but not stable.
The following actions would be potential options for a company in this position:

 Look for partnership opportunities with stable companies

 Increase productivity to make supply more reliable
 In addition to the core business, seek other products to boost sales
SPACE Analysis Evaluation
A company can only take action when the aforementioned position has been determined. Based
on this position, they can consider the best choices for strategic management and which actions to
take. After no more than a year, progress should be evaluated by creating a new matrix and
analysing it. If there are shifts, it’s important that upper management considers the pros and cons.
If there is an upside, they can stick to their strategy. However, if there is a downside, they must
consider implementing changes.

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