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MGT603 - Strategic Management - Lecture Handout 26

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THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

These dimensions are explained below:

Internal Strategic Position

External Strategic Position
Financial Strength (FS)
Environmental Stability (ES)
Risk involved in business
Impact of technology Price elasticity of demand
Debt to equity ratio
Working capital condition
Leverage
Political situation
Liquidity
Demand variability
Ease of exit from market
Price range of competing products
Cash flow statement
Rate of inflation
Return on investment
Competitive pressure
Competitive Advantage (CA)
Industry Strength (IS)
Access to the market
Market share
Demand and supply factors Resource utilization Growth potential
Quality of product and services
Profit potential
Product life cycle
Financial stability
Customer loyalty
Technological know-how
Capacity, location and layout
Productivity, capacity utilization
Technological know-how
Capital intensity
Backward and forward integration
Ease of entry into market

After the selection of variables the rating is assigned to each. After the addition of these variables taking the average. For example financial strength is explain below

Financial Strength (FS)
Rating
High Return on investment
3
Large amount of capital
2
Consistently increasing revenue
4
Working capital condition
1

Financial strength average is (3+2+4+1)/4 = 2.5
The industry strength is explained as follows

Industry Strength (IS)
Rating
Demand and supply factors
5
Resource utilization
3
Profit potential
3
Technological know-how
6

Ease of entry into market

The graph indicates that firm adopts aggressive strategy

Steps for the preparation of SPACE Matrix

The steps required to develop a SPACE Matrix are as follows:

  1. Select a set of variables to relating to financial strength, competitive advantage, environmental stability, and industry strength.
  2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the financial strength and industry strength dimensions. Assign a numerical value ranging from - 1 (best) to -6 (worst) to each of the variables that make up the environmental stability and competitive advantage dimensions.
  3. Compute an average score and dividing by the number of variables
  4. Plot the average scores in the SPACE Matrix.
  5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the yaxis and plot the resultant point on Y. Plot the intersection of the new xy point.
  6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. This vector reveals the type of strategies recommended for the organization: aggressive, competitive, defensive, or conservative.

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