SPACE Analysis is an analytical technique used in strategic management and planning. SPACE is an acronym of Strategic Position and ACtion Evaluation. The analysis allows to create an idea of the appropriate business strategy for the enterprise. The analysis assesses the internal and external environment and allows to design an appropriate strategy. The analysis describes the external environment using two criteria:
- Environmental Stability (ES) – it is influenced by the following sub-factors: technological change, inflation rate, demand volatility, price range of competitive products, price elasticity of demand, pressure from the substitutes
- Industry Attractiveness (IA) – it is influenced by the following subfactors: growth potential, profit potential, financial stability, resource utilization, complexity of entering the industry, labor productivity, capacity utilization, bargaining power of manufacturers
The inside environment is also described by two criteria:
- Competitive advantage (CA) – it is influenced by the following factors: market share, product quality, product lifecycle, innovation cycle, customer loyalty, vertical integration
- Financial strength (FS) – it is influenced by the following indicators: return on investment, liquidity, debt ratio, available versus required capital, cash flow, inventory turnover
The SPACE analysis concerns the key decisions made by CEO and senior management of the organization. The evaluation process is as follows:
- For each sub-factor in each criterion a value of 0-6 is assigned (for CA and ES it is 0 to -6)
- For each criterion, the value of the total factor is expressed as the mean of the individual factors.
- The values of factors are put into the relevant axes of the matrix (see figure)
- In the quadrant, where the largest part of the surface of the resulting quadrilateral is, there is a suitable alternative of the business behavior
Following this analysis, a strategic competitive positioning for your company and the available strategic alternatives can be articulated.