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182 PART 2 • STRATEGY FORMULATION

TABLE 6-2 Example Factors That Make Up the SPACE
Matrix Axes
Internal Strategic Position External Strategic Position
Financial Position (FP) Stability Position (SP)
Return on investment Technological changes
Leverage Rate of inflation
Liquidity Demand variability
Working capital Price range of competing products
Cash flow Barriers to entry into market
Inventory turnover Competitive pressure
Earnings per share Ease of exit from market
Price earnings ratio Price elasticity of demand
Risk involved in business
Competitive Position (CP) Industry Position (IP)
Market share Growth potential
Product quality Profit potential
Product life cycle Financial stability
Customer loyalty Extent leveraged
Capacity utilization Resource utilization
Technological know-how Ease of entry into market
Control over suppliers and distributors Productivity, capacity utilization

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): 155–156.
The steps required to develop a SPACE Matrix are as follows:

1. Select a set of variables to define financial position (FP), competitive position (CP),
stability position (SP), and industry position (IP).
2. Assign a numerical value ranging from +1 (worst) to +7 (best) to each of the vari-
ables that make up the FP and IP dimensions. Assign a numerical value ranging
from -1 (best) to -7 (worst) to each of the variables that make up the SP and CP
dimensions. On the FP and CP axes, make comparison to competitors. On the IP
and SP axes, make comparison to other industries.
3. Compute an average score for FP, CP, IP, and SP by summing the values given to
the variables of each dimension and then by dividing by the number of variables
included in the respective dimension.
4. Plot the average scores for FP, IP, SP, and CP on the appropriate axis in the SPACE
Matrix.
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores
on the y-axis and plot the resultant point on Y. Plot the intersection of the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix through the new
intersection point. This vector reveals the type of strategies recommended for the
organization: aggressive, competitive, defensive, or conservative.
Some examples of strategy profiles that can emerge from a SPACE analysis are shown
in Figure 6-5. The directional vector associated with each profile suggests the type of
strategies to pursue: aggressive, conservative, defensive, or competitive. When a firm’s
directional vector is located in the aggressive quadrant (upper-right quadrant) of the SPACE
Matrix, an organization is in an excellent position to use its internal strengths to (1) take
advantage of external opportunities, (2) overcome internal weaknesses, and (3) avoid exter-
nal threats. Therefore, market penetration, market development, product development,
backward integration, forward integration, horizontal integration, or diversification, can be
feasible, depending on the specific circumstances that face the firm.