Strategic
Management MGT603

**VU**

Lesson
26

**THE
STRATEGIC POSITION AND ACTION EVALUATION
(SPACE) MATRIX**

These
dimensions are explained below:

**Internal
Strategic Position**

**External
Strategic Position**

**Financial
Strength (FS)**

**Environmental
Stability (ES)**

Impact
of technology

Risk
involved in business

Price
elasticity of demand

Debt
to equity ratio

Political
situation

Working
capital condition

Leverage

Liquidity

Demand
variability

Ease
of exit from market

Price
range of competing products

Cash
flow statement

Rate
of inflation

Return
on investment

Competitive
pressure

**Competitive
Advantage (CA)**

**Industry
Strength (IS)**

Demand
and supply factors

Access
to the market

Resource
utilization

Market
share

Growth
potential

Quality
of product and
services

Profit
potential

Product
life cycle

Financial
stability

Customer
loyalty

Technological
know-how

Capacity,
location and layout

Productivity,
capacity utilization

Technological
know-how

Capital
intensity

Backward
and forward
integration

Ease
of entry into market

After
the selection of variables the rating is
assigned to each. After the
addition of these variables
taking the

average.
For example financial strength is explain
below

**Financial
Strength (FS)**

**Rating**

High
Return on investment

3

Large
amount of capital

2

Consistently
increasing revenue

4

Working
capital condition

1

Financial
strength average is (3+2+4+1)/4 =
2.5

The
industry strength is explained as
follows

**Industry
Strength (IS)**

**Rating**

Demand
and supply factors

5

Resource
utilization

3

Profit
potential

3

Technological
know-how

6

101

Strategic
Management MGT603

**VU**

Ease
of entry into market

2

Industry

strength

average

is

(5+3+3+6+2)/5

=

3.8.

It

is

plotted

on

graph:

6

FS

5

4

(2.5,
3.8)

3

2

1

IS

1

2

3

4

5

6

The
graph indicates that firm
adopts aggressive
strategy

**Steps
for the preparation of SPACE
Matrix**

The
steps required to develop a SPACE Matrix
are as follows:

1.
Select a set of variables to relating to
financial strength, competitive
advantage, environmental

stability,
and industry
strength.

2.
Assign a numerical value ranging
from +1 (worst) to +6 (best) to
each of the variables that
make

up
the financial strength and industry strength
dimensions. Assign a numerical
value ranging from -

1
(best) to -6 (worst) to each of the
variables that make up the
environmental stability
and

competitive
advantage dimensions.

3.
Compute an average score and
dividing by the number of
variables

4.
Plot the average scores 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 the y-

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.

102