SPACE Analysis

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What is SPACE Analysis?

Space analysis is an approach to strategic analysis used to develop an appropriate strategy for a business. SPACE is an acronym that stands for Strategic Position and ACtion Evaluation.

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.