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184 PART 2 • STRATEGY FORMULATION

When a particular company is known, the analyst must be much more specific in
terms of implied strategies. For example, instead of saying market penetration is a recom-
mended strategy when your vector goes in the Conservative quadrant, say that adding 34
new stores in India is a recommended strategy. This is a very important point for students
doing case analyses because a particular company is generally known, and terms such as
market development are too vague to use. That term could refer to adding a manufacturing
plant in Thailand or Mexico or South Africa—so students—Be specific to the extent possi-
ble regarding implications of all the matrices presented in Chapter 6.
The directional vector may appear in the conservative quadrant (upper-left quadrant) of
the SPACE Matrix, which implies staying close to the firm’s basic competencies and not tak-
ing excessive risks. Conservative strategies most often include market penetration, market
development, product development, and related diversification. The directional vector may be
located in the lower-left or defensive quadrant of the SPACE Matrix, which suggests that the
firm should focus on rectifying internal weaknesses and avoiding external threats. Defensive
strategies include retrenchment, divestiture, liquidation, and related diversification. Finally,
the directional vector may be located in the lower-right or competitive quadrant of the SPACE
Matrix, indicating competitive strategies. Competitive strategies include backward, forward,
and horizontal integration; market penetration; market development and product development.
A SPACE Matrix analysis for a bank is provided in Table 6-3. Note that competitive
type strategies are recommended.

TABLE 6-3 A SPACE Matrix for a Bank
Financial Position (FP) Ratings
The bank’s primary capital ratio is 7.23 percent, which is 1.23 percentage points over the generally required ratio of 6 percent. 1.0
The bank’s return on assets is negative 0.77, compared to a bank industry average ratio of positive 0.70. 1.0
The bank’s net income was $183 million, down 9 percent from a year earlier. 3.0
The bank’s revenues increased 7 percent to $3.46 billion. 4.0
9.0
Industry Position (IP)
Deregulation provides geographic and product freedom. 4.0
Deregulation increases competition in the banking industry. 2.0
Pennsylvania’s interstate banking law allows the bank to acquire other banks in New Jersey, Ohio, Kentucky, the
District of Columbia, and West Virginia. 4.0
10.0
Stability Position (SP)
Less-developed countries are experiencing high inflation and political instability. -4.0
Headquartered in Pittsburgh, the bank historically has been heavily dependent on the steel, oil, and gas industries. -5.0
These industries are depressed.
Banking deregulation has created instability throughout the industry. -4.0
-13.0
Competitive Position (CP)
The bank provides data processing services for more than 450 institutions in 38 states. -2.0
Superregional banks, international banks, and nonbanks are becoming increasingly competitive. -5.0
The bank has a large customer base. -2.0
-9.0
Conclusion
SP Average is -13.0 ÷ 3 = -4.33 IP Average is +10.0 ÷ 3 = 3.33
CP Average is -9.0 ÷ 3 = -3.00 FP Average is +9.0 ÷ 4 = 2.25
Directional Vector Coordinates: x-axis: -3.00 + (+3.33) = +0.33
y-axis: -4.33 + (+2.25) = -2.08
The bank should pursue Competitive Strategies.