Strategic position and action evaluation matrix (SPACE)

Strategic position and action evaluation matrix (SPACE)

Strategic Position and Action Evaluation Matrix  (SPACE) is “an approach to  hammer out an appropriate strategic posture for a firm and its individual  business.”  SPACE is an analysis of the following four dimensions in as in two-dimensional  portfolio analysis and involves a consideration of:

1. Company’s competitive advantage
2. Company’s financial strength
3. Industry strength
4. Environmental stability

Various factors are evaluated for determining each of the dimensions  and they are summarized below:

Steps essential to construct a Strategic Position and Action Evaluation Matrix are described below:

1. Choose a combination of factors that best characterize Competitive Advantage (CA), Environmental Stability (ES), Financial Strength (FS) and Industry Strength (IS).
2. To the CA and ES, dimensions allot a numerical value ranging from -6 (worst) to -1 (best) to each of the factors. Allot value ranging from +6 (best) to +1 (worst) to all of the factors that constitute the IS and FS dimensions.
3. Calculate an average score for IS, ES, CA, and FS by summing the numbers allotted to the factors of the entire dimension separately and dividing by the set of factors included in the particular dimension.
4. Plot the average scores for each dimension such as ES, CA, IS, and FS on the proper axis in the matrix.
5. Add or combine the scores of two dimensions that lay in the x-axis and design the resultant point on X, in the same way add scores of dimensions that lay in the y-axis and plot the consequential point on Y. Then, plot the intersection of the both new XY points.
6. Sketch a directional vector from the basis of the Strategic Position and Action Evaluation (SPACE) matrix throughout the new intersection points. This vector discloses the kind of strategies suggested for the firm such as aggressive, defensive, conservative, or competitive.

Using the  Strategic Position and Action Evaluation Matrix method we find the strategic position/posture of an organization. We have analyzed four dimensions in this method; two contribute to the internal dimensions and the other two to external dimensions. The internal dimension includes competitive advantage and financial strength which are the major factors to determine the strategic position of any organization. The external dimension includes the industry strength and the environmental stability which is used to identify the strategic position in the industry. By evaluating these four dimensions, we result in four different strategic postures namely;

1. Aggressive Posture indicating that the company can fully exploit available  opportunities and enhance its market share. As the company has high financial strength,  high industry strength, enjoys competitive advantage and belongs to an attractive industry and operates in a relatively stable environmental conditions. This posture is akin to Michael Porter’s generic strategy of overall cost leadership.
2. Competitive Posture indicating limited financial strength, medium competitive advantage in an attractive industry and operating in a relatively volatile or unstable  environment, necessitating the company to maintain and enhance competitive advantage by improving/differentiating product; widening the product line, improving marketing effectiveness and mobilizing, augmenting financial resources. This posture is considered to be quite similar to Michael Porter’s generic strategy of product differentiation.
3. Conservative Posture indicating a company having a limited competitive advantage, in a  not so attractive industry but enjoying financial strength and operating in a relatively stable environment. Such a company should endeavor to cut down non-performing products, control costs, improve productivity, introduce new products and enhance sales by profitable market expansion. This posture can be compared with Michael Porter’s generic strategy of focus.
4. Defensive Posture indicates a company that lacks both competitive advantage and financial strength and belongs to a not-so-attractive industry and operates in an unstable environment. All four dimensions are weak and work against the company. It is advisable for a such a company to initiate measures like discontinue nonviable products,  tightly control costs, and monitor cash flows strictly, cutting down/reducing capacity and postponing or limiting investments.

The basic strategic posture determines the appropriate financial as regards the project related investment. After identifying the appropriate posture of an organization, which in turn helps to identify the organization’s generic competitive strategies. This leads to define the strategic thrust for the business. Afterward, the managers or the top-level management of the organization can choose the appropriate strategy in which their organization needs to focus to achieve the strategic objective and goal.