SPACE method

SPACE method
See also
McKinsey matrix Evaluation of sector's attractiveness Strategic trajectory evaluation Key success factors Competitive risk Technological portfolio Economic profile of a sector Hofer matrix Altman Z score

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) return on investment, leverage, liquidity, working capital, cash flow, ease of market switch, industry risk.
The stability of the environment ES environmental stability) changes in technology, rate of inflation, price level of products, barriers to entry into the market, intensity of competition, demand flexibility of prices.	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, s.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:

• the first (x+, y+)-aggressive strategy,
• the second (x-, y+)-conservative strategy,
• third-defensive strategy,
• fourth-competitive strategy.

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.

References

• Pearce, J. A., Robinson, R. B., & Subramanian, R. (2000). Strategic management: Formulation, implementation, and control. Columbus, OH: Irwin/McGraw-Hill.
• Rasmussen, J. (1997). Risk management in a dynamic society: a modelling problem. Safety science, 27(2), 183-213.