The Strategic Position and Action

Evaluation (SPACE) Matrix

The SPACE matrix is just a little bit more complex than the SWOT analysis. The
SPACE matrix evaluates different variables and assigns them a score
considering how important they are for the situation of the company. It
analyses four different areas (two internal to the company and two external)
that will represent four quadrants in a graphic. The purpose of this matrix is to
situate the company in one of these four quadrants and give a suggestion
according to which quadrant results- about what type of strategies a company
should follow: conservative, aggressive, defensive or competitive. But, how do
we come up with the quadrant where our company is located? The first step is
to address each of the four areas of question: the internal strategic
dimensions represented by the financial strength (FS) and the competitive
advantage (CA); and the external strategic dimensions represented by the
environmental stability (ES) and the industry strength (IS) (Figure 3).

Figure 3

Internal strategic dimensions

Financial strength (FS)
It includes everything that refers to the financials of the company. We can
consider the Return on Investment (ROI), which is how much money is
recovered from each unit of money invested, the liquidity of the company it
means how easy a company can make cash all his assets- and the cash flow.
Each one of these variables is given a numeric value from 1 (worst) to 6 (best)
according to our perception of how good the company is doing regarding that
variable. If the company has a high ROI compared to the industry, the variable
can have a 6; conversely, in the case of a Web based company that has not
much concrete materials to sell, the liquidity will be low, lets say 2. Experience
is required to evaluate each factor as there is no procedure defined on how to
do it. The result will mostly depend on knowledgeable people that can have an
idea of how these variables weigh among each other within the company.

Competitive Advantage (CA)

This is the next variable considered in the internal strategic dimension. Market
share, quality of the product, product life cycle, customer loyalty, the knowhow and the power of company over its suppliers and intermediaries are some
of the variables to be considered. As in the other internal strategic dimension,
each variable considered is given a numerical value, but in this case from -1
(being the best) to -6 (being the worst).

External strategic dimensions

Industry strength (IS)
It considers external forces that belong to the industry where the company
develops its activities. Variables as growth potential, profit potential, financial
stability, resource utilization and productivity are considered. As well, in this
dimension each of these variables is given a score that goes from 1 (worse) to
6 (best).

Environmental stability (ES)

Last, ES is considered. It refers to how stable is the market where the company
operates. Things like rate of technological change, inflation, demand variability,
price range of competing products, risks of the industry and the barriers to
enter or exit the market are considered. The more stable is the market; more
favourable is for the company to operate in it. A score from -1 (best) to -6
(worst) is given to each of the variables considered.

Once all the variables have been considered and scored, an average score is
calculated for each internal and external dimension. This is done by adding all
the scores of the single variables and dividing it by the number of variables
considered in that dimension. Each of these four numbers is plotted in
the x and y axis of the matrix. By definition, the CA and IS are plotted on
the x axis, while the FS and ES in the y axis (Figure 4). The next step is to figure
out in which of the four quadrants the company will fall. To do this, the x value
is obtained by adding CA and IS, and the y value by adding FS and ES. These
two new values are plotted and they will determine the quadrant. Well see this
with an example in a little bit.

Figure 4