The SPACE MATRIX Explained
Added: (Fri Jun 06 2008)
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The SPACE MATRIX Explained
The Strategic Position and Action Evaluation or the SPACE Matrix is a four-quadrant framework which indicates whether aggressive, conservative, defensive, 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 . 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. 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, a number of variables could make up each of the dimensions represented on the axes of the typical SPACE Matrix. 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. Other important variables that can be included in a SPACE Matrix examination are a firm's financial performance such as return on investment, leverage, liquidity, working capital, and cash flow commonly are considered determining factors of an organization's financial strength. Like the TOWS 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.
The steps required to develop a SPACE Matrix are listed below:
1. Select a set of variables to define financial strength (FS), competitive advantage (CA), environmental stability (ES), and industry strength (IS)
2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. Assign a numerical value ranging from -1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions.
3. Compute an average score for FS, CA, 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.
4. Plot the average scores for FS, IS, ES, and CA on the appropriate axis 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 they-axis 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.
The directional vector associated with each given profile suggests the type of strategies to pursue which are: aggressive, conservative, defensive, or competitive. When an organization's directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE Matrix, an firm is in an excellent position to use its internal strengths to (1) take advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid external threats. Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, conglomerate diversification, concentric diversification, horizontal diversification, or a combination strategy all can be feasible, depending on the specific circumstances that the company is facing at the time.
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