SPACE Analysis (Strategy)

What is a space ysis and how is it used as part of strategic planning

Well, this is an approach to evaluating how a company positions itself or sits to determine what would be the most appropriate competitive strategy to pursue based upon four distinct criteria

So the acronym SPACE itself stands for Strategic Position and Action Evaluation

And here is a quadrant that shows what the overall ysis entails

At the top, you'll see financial strength. At the bottom, environmental sustainability

To the left, competitive advantage. To the right, industry strengths. These are not opposites of each other, even though they're on similar axes in this matrix

Rather, they are simply elements of the business or its environment that you will assess the extent to which this is a positive for the company or a negative for the company

Now, by doing this, you will get an outline that generally shows how one factor relates to the other

And how these factors relate to the other will give some indication of what type of strategy to pursue whether that a conservative strategy an aggressive strategy a defensive strategy or competitive strategy So with that being said here how it works

So, you use this to develop a strategy by taking each of these factors and assessing

the company or the environment on a scale of zero to six. For the positive factors, such as, as we go back to financial strength or industry strength

these are going to be assessed on a positive. Competitive advantage and environmental stability

are assessed on a negative. So the idea is that these need to be present and that to the extent

they are not, you assess a negative number to it along the graph. Okay, so the average of these

factors or scores constitutes what the score is in that category. So for each of these factors

there are numerous criteria that you will use to evaluate whether there's financial strength

whether there's competitive advantage, whether there's environmental stability or industry strength. So with that being said, once you come up with a score for each of these categories

you will plot that in each of the four quadrants to represent how the company stands in that

position So let look at the first environmental stability The things you would assess are technological change inflation rate demand volatility price range of competitive products price elasticity of demand that is how much does demand change based upon a change in price and then pressures from substitute products

In the industry attractiveness side, you will look for growth potential, profit potential, financial stability, resource utilization, complexity of entering the industry, labor productivity, capacity utilization, and bargaining power of other manufacturers

On the competitive advantage side, you look to see, does the company hold a significant market share

Is there product quality? Where is the products or services at in their life cycle

Or what is the innovation cycle for coming up with new value propositions

Is there extreme or low customer loyalty? Is there vertical integration or combination along the supply or value chain

So all of these factors. And then lastly, financial strength. What is the company's return on investment generally

Is it highly liquid? That is, does it have a lot of cash to spend? What is the debt-to-equity or other ratios that are related to how much debt the company has

Profit-to-debt, revenue-to-debt, debt-to-equity, that type of thing. How available is capital out there in the market if the company has needs What does the cash flow look like And what is the inventory turnover So if you plot if you assess all of these factors for each of these and you giving it a score of zero through six and then each factor comes up with a score and you take

the average of that score for that category, and then you plot that category on this chart

So when you do so, so in this first one, aggressive, you've got high financial stability and high

industry attractiveness, but not very high competitive advantage or environmental stability. In this type of scenario, it's saying an aggressive strategy is appropriate. If you switch it over and

have high industry attractiveness and stability, then a competitive strategy is more suitable

A conservative strategy is when you have competitive advantage and financial stability

but low environmental stability and industry attractiveness, then a conservative strategy, And then, of course, low competitive advantage, low industry stability, a more defensive approach is used

So in summary and very quickly, this is how the space ysis is used to evaluate the company and its position in the given market in which it operates

to determine, based upon these factors and how you rate the company for those factors, what is the most appropriate strategy to employ

Thank you