SPACE method

From CEOpedia | Management online

SPACE Strategic Position and Action Evaluation - is one of the methods of testing the total development capacity of a company. It facilitates taking decisions in relation to the diversification of the company's business and the evaluation of individual domains.

Procedure

Procedure of action in this method can be divided into four steps:

  1. Determination of four dimensions of space, in which manager identifies the position of the company, as well as characterizing them determinants.
  2. Draw a coordinate system whose axles (+x, - x, +y, - y are respectively: IS, CA, FS, ES).
  3. Quantify the dimensions and determinants.
  4. Determine the strategic position of the company.

Determinants of external dimensions: the strength of the sector and the stability of the environment. Determinants of internal dimensions: financial potential and competitive advantage. Details are shown in table 1.

Table 1. Determinants of external and internal dimensions

External dimensions Internal dimensions
Industry strength IS industry strength)
  • potential for growth,
  • market potential,
  • financial stability,
  • technological know-how,
  • the use of resources,
  • the intensity of capital growth,
  • ease of market entry
  • productivity.
 Financial potential FS financial strength)
The stability of the environment ES environmental stability) Competitive advantage CA- competitive advantage)
  • market share
  • quality of products,
  • life cycle of products
  • customer loyalty,
  • use of manufacturing capacity
  • technological know-how,
  • supervision of suppliers and distribution system.

Source: [A. Stabryła 2000, p. 362-363]

The coordinate system is built as follows:

  • vertical axis (Y) on the side of positive (top)-FS, and negative ES,
  • horizontal axis (X) positive side (right)-IS negative, left - CA.

Quarters of the chart represent:

Quantification

The intensity of the dimensions is estimated according to the selected scale, and for (IS) and (FS) a value of 1 is the lowest rating and 6-the highest. For (CA) and (ES) - 6 is the lowest evaluation, and - 1 - the highest.

In order to take into account the strength of the impact of variables, you can enter the weight (rank) for each of the variables, and then the weighted rating will be the product of scoring and rank assigned to the variable. It is assumed that the sum of all the weights for one dimension is 1, and the total indicator for the dimension is equal to the sum of the weighted assessments of each variable.

Coordinate value is calculated as the mean value (average) for the sum of points of common dimensions for the given axis. x = f¯(IS) + f¯(CA) y = f¯(FS) + f¯(ES), where m f¯(IS) = SUMA (fi (IS)) / m 1 Other values are calculated using similar equations. Designated point P with coordinates (x, y) shows the strategic position of the company in accordance with manager can pick out the right strategy for a particular company.

In the SPACE method, it is assumed that the weak competitive position of the company could be compensated by the high attractiveness of the industry and vice-versa, while working in the declining industry may be compensated by a high competitive position in the sector. Similarly, a strong finance of companies allow fairly free function even in conditions of high volatility of environment, and stable environment does not require large financial resources.

Examples of SPACE method

  • A company manufacturing furniture may use the SPACE method to assess potential opportunities. The SPACE matrix is a strategic tool used to analyze the external and internal factors of the business. The external factors are industry attractiveness and competitive advantage. The internal factors are financial strength and competitive strength. The results of each factor are plotted on a graph and analyzed to determine the best course of action for the company.
  • A retail store could use the SPACE method to evaluate a potential expansion into the online market. The external factors considered would be the size of the online market, the competition, and the customer base. The internal factors considered would be the company's financial resources, the resources available to build a website, and the current customer base. After plotting the results on the SPACE matrix, the company can then make an informed decision about the best course of action for the expansion.
  • A software company may use the SPACE method to decide which new products to develop. The external factors would be the size of the market, the competition, and the customer base. The internal factors would be the company's financial resources, the resources available to develop the product, and the current customer base. After plotting the results on the SPACE matrix, the company can then make an informed decision about which products to develop.

Advantages of SPACE method

The SPACE method is a useful tool for evaluating the total development capacity of a company and taking decisions related to business diversification. It has the following advantages:

  • It provides an integrated view of the organization, which helps to identify the strengths, weaknesses, opportunities and threats (SWOT) associated with the company.
  • It allows for a systematic evaluation of the organization’s resources, capabilities and competencies.
  • It encourages systematic planning and decision-making, as it enables the organization to focus on the most important factors for success.
  • It facilitates the identification of strategies to achieve competitive advantage.
  • It helps to ensure that resources are allocated efficiently and effectively.
  • It is a flexible tool, which can be adapted to the specific needs of an organization.

Limitations of SPACE method

SPACE method is a useful tool for evaluating a company’s development potential; however, it has certain limitations that should be taken into consideration. These limitations include:

  • The SPACE method is based on subjective opinions, which can be biased and inaccurate. It is not always possible to obtain reliable and unbiased data.
  • The SPACE method does not provide insight into the specific problems that may be affecting the company’s performance.
  • The SPACE method does not take into account the external factors that can impact the company’s performance, such as market conditions, competitive landscape, and economic conditions.
  • The SPACE method is limited in its ability to provide an accurate assessment of the company’s long-term potential. It is difficult to accurately predict the future performance of a company.
  • The SPACE method does not provide any practical advice on how to address potential problems or take advantage of potential opportunities. The analysis only provides a snapshot of the company’s current position and does not provide any guidance on how to move forward.

Other approaches related to SPACE method

The other approaches related to SPACE method are:

  • SWOT Analysis - is a strategic technique used to evaluate the Strengths, Weaknesses, Opportunities and Threats of a business. It helps to identify the areas that need improvement, as well as the areas where the business has a competitive advantage.
  • PEST Analysis - is a tool for understanding the external influences on business operations such as political, economic, social, and technological factors. It helps to identify the opportunities and threats that can affect the business.
  • Porter’s Five Forces Analysis - is a tool used to analyze the competitive environment in which a business operates. It helps to identify the forces of competition and the opportunities for creating a competitive advantage.
  • Value Chain Analysis - is a tool used to identify the activities in a business that add value to its products and services. It helps to identify areas where the business can create a competitive advantage.

In conclusion, the SPACE method is a strategic technique used to evaluate the total development capacity of a company. It can be used in conjunction with other approaches such as SWOT Analysis, PEST Analysis, Porter’s Five Forces Analysis and Value Chain Analysis, to gain a better understanding of the business and its competitive environment, and to identify areas where the business can create a competitive advantage.


SPACE method — recommended articles
Strategic analysis methods — Market attractiveness — Technological portfolio — Functions of portfolio — Key success factors — Evaluation of sector's attractiveness — ASTRA analysis — Hofer matrix — Internal analysis

References

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