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CHAPTER 6 • STRATEGY ANALYSIS AND CHOICE 181

environment may not be revealed in a single matrix. Third, SWOT analysis may lead the
firm to overemphasize a single internal or external factor in formulating strategies. There
are interrelationships among the key internal and external factors that SWOT does not
reveal that may be important in devising strategies.

The Strategic Position and Action Evaluation (SPACE) Matrix
The Strategic Position and Action Evaluation (SPACE) Matrix, another important Stage 2
matching tool, is illustrated in Figure 6-4. Its four-quadrant framework indicates whether
aggressive, conservative, defensive, or competitive strategies are most appropriate for a
given organization. The axes of the SPACE Matrix represent two internal dimensions
(financial position [FP] and competitive position [CP]) and two external dimensions
(stability position [SP] and industry position [IP]). These four factors are perhaps the most
important determinants of an organization’s overall strategic position. 5
Depending on the type of organization, numerous variables could make up each of the
dimensions represented on the axes of the SPACE Matrix. Factors that were included
earlier in the firm’s EFE and IFE Matrices should be considered in developing a SPACE
Matrix. Other variables commonly included are given in Table 6-2. For example, return on
investment, leverage, liquidity, working capital, and cash flow are commonly considered to
be determining factors of an organization’s financial strength. Like the SWOT Matrix, the
SPACE Matrix should be both tailored to the particular organization being studied and
based on factual information as much as possible.

FIGURE 6-4

The SPACE Matrix
Conservative FP Aggressive
• Market penetration +6 • Backward, forward, horizontal
• Market development integration
• Product development +5 • Market penetration
• Related diversification • Market development
+4 • Product development
• Diversification (related or unrelated)
+3

+2
+1

0
CP IP
–7 –6 –5 –4 –3 –2 –1 0 +1 +2 +3 +4 +5 +6 +7

–1

Defensive –2 Competitive
• Retrenchment • Backward, forward, horizontal
• Divestiture –3 integration
• Liquidation • Market penetration
–4 • Market development
• Product development
–5

–6
–7
SP
Source: Adapted from H. Rowe, R. Mason, and K. Dickel, Strategic Management and Business Policy: A
Methodological Approach (Reading, MA: Addison-Wesley Publishing Co. Inc., © 1982): 155.