SPACE Analysis or the SPACE Matrix with an example - Simplest Explanation Ever

Summary

In this tutorial on Space Analysis (Space Matrix), the concept of evaluating a company's strategic position is explored. The Space Matrix helps businesses assess internal and external factors using four key metrics: Industry Attractiveness, Competitive Advantage, Financial Strength, and Environmental Stability. The matrix divides into four quadrants, each suggesting a different strategic approach, from aggressive growth to defensive cost-cutting. By calculating average scores for each factor, companies can determine their dominant quadrant and select the most suitable strategy for growth or improvement in their competitive environment.

Takeaways

• 😀 Space Analysis (Space Matrix) is a strategic management tool that helps evaluate both internal and external factors affecting a business.
• 😀 The X-axis of the Space Matrix represents **Industry Attractiveness (IA)** (external) and **Competitive Advantage (CA)** (internal).
• 😀 The Y-axis of the Space Matrix represents **Financial Strength (FS)** (internal) and **Environmental Stability (ES)** (external).
• 😀 Each factor in the Space Matrix is rated on a scale from 0 to 6 (positive) or -2 to -6 (negative).
• 😀 Industry Attractiveness is influenced by growth potential, profit potential, and market complexity, among other factors.
• 😀 Competitive Advantage is influenced by sub-factors like market share, product quality, and customer loyalty.
• 😀 Financial Strength is assessed based on return on investment, liquidity, and cash flow.
• 😀 Environmental Stability considers factors like technological change, inflation, and price volatility.
• 😀 After rating each factor, the average score is calculated and plotted to find the dominant quadrant of the matrix.
• 😀 The four quadrants of the Space Matrix represent strategic positions: Aggressive, Conservative, Defensive, and Competitive.
• 😀 The Aggressive position (Top Right Quadrant) indicates a strong, stable industry with a competitive advantage, suggesting growth in market share.
• 😀 The Conservative position (Top Left Quadrant) is for companies in stable industries but low growth, recommending slow and steady expansion into new industries.
• 😀 The Defensive position (Bottom Left Quadrant) suggests a weak industry and financial position, recommending cost-cutting and potential exit from the industry.
• 😀 The Competitive position (Bottom Right Quadrant) is for industries that are attractive but unstable, urging companies to improve financial stability and efficiency.

Q & A

What does the term 'Space Analysis' stand for?

Space Analysis stands for 'Strategic Position and Action Evaluation'. It is a technique used in strategic management to evaluate the internal and external factors affecting a business.

What are the two axes of the Space Matrix?

The Space Matrix consists of the X-axis and the Y-axis. The X-axis includes 'Industry Attractiveness (IA)' as an external factor and 'Competitive Advantage (CA)' as an internal factor. The Y-axis includes 'Financial Strength (FS)' as an internal factor and 'Environmental Stability (ES)' as an external factor.

How are the factors on the Space Matrix scored?

Each factor is scored on a scale from 0 to 6 on the positive axis, and from 0 to -6 on the negative axis. Positive scores indicate favorable conditions, while negative scores indicate unfavorable conditions.

What is the process of creating a Space Matrix?

To create a Space Matrix, you first score the relevant sub-factors for each factor, calculate averages for each axis, then plot the scores on the matrix. The resulting points form a quadrilateral, which is analyzed to determine the dominant quadrant.

What does a high positive score on the X-axis indicate?

A high positive score on the X-axis (Industry Attractiveness and Competitive Advantage) indicates favorable external and internal conditions that benefit the business.

What do the four quadrants of the Space Matrix represent?

The four quadrants of the Space Matrix represent different strategic positions a company can adopt: Aggressive (Quadrant I), Conservative (Quadrant II), Defensive (Quadrant III), and Competitive (Quadrant IV). Each quadrant suggests a different strategic action.

What is the recommended strategy for a company in Quadrant I (Aggressive Position)?

In Quadrant I, where both industry attractiveness and competitive advantage are high, the recommended strategy is to aggressively grow market share and protect the competitive advantage.

What does a company in Quadrant III (Defensive Position) need to focus on?

A company in Quadrant III, where both industry attractiveness and financial strength are low, should focus on minimizing costs, reducing investments in the current industry, and considering exiting the industry.

Why is it important to average the scores for each factor before plotting them on the matrix?

Averaging the scores ensures that all relevant sub-factors are taken into account, providing a more accurate and balanced assessment of each axis. This helps in determining the overall strategic position of the company.

What strategic advice is given to a company in Quadrant II (Conservative Position)?

In Quadrant II, where the industry is stable but has low growth, the company should focus on safeguarding its existing products and consider expanding into new industries at a steady pace, ensuring financial stability.