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. 

A SPACE analysis involves both an internal and external analysis.

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

Internal Analysis

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, 
  • Liquidity, 
  • 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. 

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