SPACE Analysis - Explained
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What is a SPACE Analysis?
Space analysis is an approach to strategic analysis used to develop a business strategy. SPACE is an acronym that stands for Strategic Position and ACtion Evaluation. The process for carrying out a SPACE Analysis is outlined below.
Back to: BUSINESS STRATEGY
A SPACE analysis involves both an internal and external analysis.
The external environment is evaluated based upon:
Environmental Stability (ES) - Stability includes such factors as:
- technological change,
- inflation rate,
- demand volatility,
- price range of competitive products,
- price elasticity of demand, and
- pressure from the substitutes
Industry Attractiveness (IA) - Industry Attractiveness includes the following factors:
- growth potential,
- profit potential,
- financial stability,
- resource utilization,
- complexity of entering the industry,
- labor productivity,
- capacity utilization,
- bargaining power of manufacturers
The internal environment is evaluated based upon:
- Competitive Advantage (CA) - Competitive advantage includes the following factors:
- Market Share
- Product Quality
- Product Lifecycle
- Innovation Cycle
- Customer Loyalty
- Vertical Integration
- Financial Strength (FS) - Financial Strength includes the following factors:
- Return on investment,
- Debt ratio,
- Available versus required capital,
- Cash flow,
- Inventory turnover
Each of these factors are assigned a value of 0-6 (or 0 through -6 for CA and ES). The average of these factor scores constitutes the value of the category. These values are plotted on a matrix with four quadrants.
This image depicts SPACE Analysis in strategic management.
Each of the respective quadrants represents a strategic business behavior. The strategic behaviors are as follows:
- Aggressive position - Generally, this position is for a company in a stable industry within a protectable competitive advantage. Though new entrants into the market by competitors is a threat. Strategic objectives might include mergers or acquisitions, growing market share, or diversifying products/services.
- Competitive position - Generally, this position is for a financially stable company in an unstable environment. The company has some level of competitive advantage. There is generally opportunity in business combinations/partnerships, efficiency improvement, and a stronger cash flow.
- Conservative position - Generally, this position is for a highly stable company in a stable industry. Generally, the company has a strong market share and competitive position, but a low growth rate. There is opportunity through focusing on successful products and new product development.
- Defensive position - Generally, this position is for a company in a competitive industry that lacks a strong competitive advantage. The company must generally compete on efficiency and other cost-reduction methods. Though it should strongly consider pivoting or leaving the industry.