For formulation of framework another important matching tool is used, which is known as Strategic Position and Action Evaluation or SPACE Matrix. It specifies the current strategic position of the Business Organization and the required actions that need to be taken. The SPACE Matrix is prepared on graph & is closed on matrix. Counter clock wise direction is followed in this kind of matrix. There are four quadrant are included in the graph which are as below.
SPACE Matrix Graph Quadrant
Two internal dimensions financial strength (FS) & competitive advantage (CA) are specified by the axes of the matrix graph. Similarly the remaining two axes of the graph represent environmental stability (ES) and industry strength (IS). The overall strategic position of the organization is determined by these four factors.
The graph of Strategic Position and Action Evaluation or SPACE Matrix is categorized into two internal dimension (financial strength & competitive advantage) and two external dimensions (environment stability & industry strength). The sequence is firm & must be followed in the graph. There are certain set of strategies for each kind of quadrant of the matrix specified by the framework. The organization that lies in the first aggressive quadrant of the graph should adopt aggressive strategy. The organization that fall in the second conservative quadrant of the graph follows the conservative strategy. Similarly the third quadrant is defensive & the organization should follow defensive strategy while the organization falling in the fourth quadrant follows the competitive strategy. A rating ranging from +1 (worst) to +6 (best) is given to each kind of variable that represent the dimensions of financial strength and industry strength. On the other hand numerical value ranging between -1 (best) to -6 (worst) is assigned to the variables that make the dimensions of environment stability & competitive advantage.
Preparation of SPACE Matrix
There are certain steps that need to be followed while preparing Strategic SPACE Matrix. These steps are discussed below
- Set of variables are selected that should be related to financial strength, industry strength, environmental stability & competitive advantage.
- All those variables that make up dimensions of financial strength & industry strength are given certain numerical value that ranges between +1 (worst) to +6 (best). On the other hand all those variables that make dimensions of environmental stability & competitive advantage are assigned by numerical value that range between -1 (best) to -6 (worst).
- In the third step average score is ascertained by dividing on the number of variables.
- The average scores are plotted in the SPACE matrix.
- Two scores are added on the x-axis and the resultant points are plotted on the X. Similarly two scores are added on the y-axis and the resultant points are plotted on the Y. The new intersection point of the xy is plotted.
- Form the origin of SPACE Matrix a directional vector is drawn that passes through the new intersection point. The vector in this graph represents the effective category of strategies for the organization which may any one among the aggressive, defensive, competitive or conservative.