The SPACE matrix is a tool that evaluates a company's strategic position based on four factors: internal financial strength and competitive advantage, and external environmental stability and industry strength. Each factor is scored on a numeric scale, and the average scores are plotted on a graph to place the company in one of four quadrants, suggesting different strategies: conservative, aggressive, defensive, or competitive. The document provides details on how each of the four factors is evaluated based on financial, market share, industry, and environmental variables.

1. The Strategic Position and Action
Evaluation (SPACE) Matrix

5. The Strategic Position and Action Evaluation (SPACE) Matrix
The SPACE matrix is just a little bit more complex than the SWOT
analysis. The SPACE matrix evaluates different variables and assigns
them a score considering how important they are for the situation of the
company. It analyzes four different areas (two internal to the company
and two external) that will represent four quadrants in a graphic. The
purpose of this matrix is to situate the company in one of these four
quadrants and give a suggestion –according to which quadrant results-
about what type of strategies a company should follow: conservative,
aggressive, defensive or competitive. But, how do we come up with the
quadrant where our company is located? The first step is to address
each of the four areas of question: the internal strategic
dimensions represented by the financial strength (FS) and the
competitive advantage (CA); and the external strategic
dimensions represented by the environmental stability (ES) and the
industry strength (IS) (Figure 3).

7. Internal strategic dimensions
Financial strength (FS)
It includes everything that refers to the financials of the
company. We can consider the Return on Investment
(ROI), which is how much money is recovered from each
unit of money invested, the liquidity of the company –it
means how easy a company can make cash all his assets-
and the cash flow. Each one of these variables is given a
numeric value from 1 (worst) to 6 (best) according to our
perception of how good the company is doing regarding
that variable. If the company has a high ROI compared to
the industry, the variable can have a 6; conversely, in the
case of a Web based company that has not much concrete
materials to sell, the liquidity will be low, let’s say 2.
Experience is required to evaluate each factor as there is
no procedure defined on how to do it. The result will
mostly depend on knowledgeable people that can have an
idea of how these variables weigh among each other
within the company.

8. Competitive Advantage (CA)
This is the next variable considered in
the internal strategic dimension.
Market share, quality of the product,
product life cycle, customer loyalty,
the know-how and the power of
company over its suppliers and
intermediaries are some of the
variables to be considered. As in the
other internal strategic dimension,
each variable considered is given a
numerical value, but in this case from -
1 (being the best) to -6 (being the
worst).

9. Environmental stability (ES)
Last, ES is considered. It refers to how stable is
the market where the company operates.
Things like rate of technological change,
inflation, demand variability, price range of
competing products, risks of the industry
and the barriers to enter or exit the market
are considered. The more stable is the
market; more favorable is for the company
to operate in it. A score from -1 (best) to -6
(worst) is given to each of the variables
considered.

10. External strategic dimensions
Industry strength (IS)
It considers external forces that belong to the
industry where the company develops its
activities. Variables as growth potential,
profit potential, financial stability,
resource utilization and productivity are
considered. As well, in this dimension each
of these variables is given a score that goes
from 1 (worse) to 6 (best).

11. Once all the variables have been considered and
scored, an average score is calculated for each
internal and external dimension. This is done by
adding all the scores of the single variables and
dividing it by the number of variables considered in
that dimension. Each of these four numbers is
plotted in the x and y axis of the matrix. By
definition, the CA and IS are plotted on the x axis,
while the FS and ES in the y axis (Figure 4). The next
step is to figure out in which of the four quadrants
the company will fall. To do this, the x value is
obtained by adding CA and IS, and the y value by
adding FS and ES. These two new values are
plotted and they will determine the quadrant. We’ll
see this with an example in a little bit.