Quaid-i-Azam University, Islamabad, Pakistan.

Quaid-i-Azam School of Management Sciences.

Assignment:
Strategic management
Submitted by:
Ahmad Ali
Class:
BSBA-6th (B)
Registration#:
04151713016
Submitted to:
Dr. Rabia Khan
What is SPACE Analysis?

A SPACE Analysis makes it easier for upper management to make strategic choices and
decisions and create a plan. SPACE is an acronym of Strategy, Position, ACtion, and Evaluation.
Organizations’ external and internal environments play a major role in SPACE Analysis. In
general, the analysis is represented in a matrix. The top of the Y-axis says ‘Financial Strength’
(FS), and the bottom of the Y-axis shows ‘Environmental Stability’ (ES). The left of the X-axis
shows the Competitive Advantage (CA), and Industry Attractiveness (IA) is shown on the right.

Combined this leads to four positions; conservative, aggressive, defensive, and competitive. The
SPACE Analysis can then lead to creative ideas with an appropriate corporate strategy.

SPACE Analysis: External Environment

To start, SPACE Analysis shows two criteria that describe the organization’s external
environment:

1. Environmental Stability (ES)

This is the environment’s stability that can be found on the low end of the Y-axis on the matrix.
Stable environmental factors are influenced by many sub-factors. The bigger the impact, the
higher on the Y-axis it is shown. Think of sub-factors, such as:

Technology

Technology changes rapidly and has a significant impact on organizations. To survive,

businesses will have to adapt to new technologies.

Economy

One example is inflation, which refers to rising prices and money-losing value and affecting
businesses

Stock market

When the stock market fluctuates (volatility), it becomes more difficult for businesses to make
larger investments

Competition

If competing protects are a lot cheaper, it’ll be hard for businesses to survive

Price elasticity
The stronger product demand responds to a price change, the harder it is for businesses to
calculate a stable price

Substitutes

The easier it is to replace a product or service, the harder it is for businesses in that market to
compete

2. Industry Attractiveness (IA)

To the right on the X-axis of the SPACE Analysis matrix, it shows the industry attractiveness. It
indicates how attractive it is for businesses to operate in a certain sector. The higher the AI, the
farther to the right it is on the X-axis. The following sub-factors could influence this external
factor:

Growth potential

If there are certainty and a chance for growth by operating in a certain sector, companies would
do well to take on this adventure

Profit potential

This is directly related to the growth potential; changes of increased profits make it a wise
decision to focus on a certain sector

Financial stability

If entering new market results in financial insecurity, businesses should stay away

Complexity

The more complex getting into a certain sector is, the lower the chances of success. Some
(foreign) sectors have strict regulations, and permits, for instance

Labor productivity

To what extent will entering a new market/sector create new jobs? The better the labor
productivity, the more attractive the industry

Internal Environment

Like the external environment, the internal environment also consists of two criteria.

1. Competitive Advantage (CA)

The competitive advantage can be found on the left side of the X-axis of the SPACE Analysis.
The bigger this advantage is, the farther left it moves. This can also be influenced by several
factors, namely:

Market share

The larger the market share, the more has to be produced, which in turn affects the required
resources, machines, and personnel

Product quality

If the quality of the products goes down, it will affect sales. That’s why it’s a good idea for
businesses to always monitor their internal quality control process

Product life cycle

This is closely related to product quality; the longer a product lasts, the more reliable the
consumer will think it is. This also relates to continuous quality monitoring

Innovation cycle

This also relates to quality. Companies that don’t innovate and don’t apply new technologies in
their manufacturing, will fall behind and their products will be of lesser quality

Customer loyalty

To make customers loyal, businesses will have to make concessions to those customers. They
have to apply that what customers find important to their production

2. Financial Strength (FS)

The top of the SPACE Analysis matrix’s Y-axis shows the financial strength of the organization.
The stronger an organization is financial, the higher its position on the Y-axis. Here too are some
factors that influence this:

Returns

If companies make a lot of money from their investments, this will make them financially
stronger

Liquidity

In addition to returns, it’s also important that there is enough available money, for instance, to
pay suppliers without delay
Debt level

The lower the debt level, the more financially stronger the business. Lots of loans and
outstanding bills creates a higher debt level, negatively affecting financial strength

Inventory turnover

The higher the value of its stock, the stronger a company is financial. However, the inventory
turnover ratio must be high too, or there may be a risk of the unsellable stock. The inventory
turnover ratio is a good indication of the total value of the company’s inventory and speed at
which it is sold

Four Positions within the SPACE Analysis matrix

To determine a strategy, you first have to find out the position of the organization. Only then can
you take actions that can be evaluated later. There are four positions between the SPACE
Analysis matrix’s Y-axis and X-axis. Each end represents a sub-factor to which a value can be
assigned between 0 and 6; for CA and ES, this is 0 to -6. The values of the individual factors are
then noted on the axes in the matrix. There where the surface area is the largest because of the
value of these factors is where the best choice for a strategic plan will be. You can see the four
strategic positions from the SPACE analysis below. P (position) and AC (tion) are also
considered:

Conservative strategy

The conservative strategy is located between the company’s financial strength and the
competitive advantage. This is usually a stable organization, with low growth.
The following actions would be potential options for a company in this position:

 Focus on existing successful products and cherish these

 Also, leave room to develop new products
 Potential product penetration through expansion

Aggressive strategy

The aggressive strategy is located between financial strength and industry attractiveness. This is
a stable organization that actively chooses to compete with similar businesses.
The following actions would be potential options for a company in this position:

 Focus on products that can compete with other businesses

 A focused marketing campaign to gain a larger market share
 Focus on offering the lowest price compared to competitors
 Look for potential companies to take over and increase the market share

Defensive strategy
The Defensive strategy of the SPACE Analysis is located between environmental stability and
competitive advantage. These are businesses that are being pushed out by the competition. If
they don’t take action, chances are they won’t make it.
The following actions would be potential options for a company in this position:

 Reduce costs to realise a stronger competitive position

 Reduce investments and manufacture at low cost
 Focus on core business and sell off ancillary activities

Competitive strategy

The competitive strategy of the SPACE Analysis is located between industry attractiveness and
environmental stability. These are companies that are competitive but not stable.
The following actions would be potential options for a company in this position:

 Look for partnership opportunities with stable companies

 Increase productivity to make supply more reliable
 In addition to the core business, seek other products to boost sales

SPACE Analysis Evaluation

A company can only take action when the aforementioned position has been determined. Based
on this position, they can consider the best choices for strategic management and which actions
to take. After no more than a year, progress should be evaluated by creating a new matrix and
analyzing it. If there are shifts, upper management must consider the pros and cons. If there is an
upside, they can stick to their strategy. However, if there is a downside, they must consider
implementing changes.

SPACE Matrix for Pepsico

Pepsi is the world’s second-largest beverage and food company based on net revenue. In North
America, it is the first largest beverage and Food Company by net revenue. PepsiCo is a
multinational Corporation, offering manufacturing, distribution, and marketing of soft drinks,
beverages, grain-based snack foods, and other products.

Pepsi company has diversified business units such as soft drinks (Pepsi, Slice, Mountain Dew),
beverages (Tropicana Juices, Dole Juices, Lipton tea, Aquafina bottled water, Sports drinks,
Tropicana Juices), Snacks (Rold Gold pretzels and Frito-Lay). In 2009, nineteen product lines of
PepsiCo's achieved revenue of greater than $1 billion each, and its products are distributed more
than 200 countries, by achieving an annual $43.3 billion net revenue. As of 2010, it has more
than 285,000 employees globally. Here is the SWOT analysis of PepsiCo.
                                               
The Strategic Position and Action Evaluation (SPACE) Matrix is one of the strategic
management tools for analyzing the company and its environment to formulating the strategies.
It is a four-quadrant structure that specify whether aggressive, defensive competitive, or
conservative strategies are most suitable for a given organization, company, or business.

The Strategic Position and Action Evaluation Matrix Analysis are most frequently in use during
the professional industry or market analysis of a company. The SPACE Matrix axis signifies the
2 external proportions which are industry strength (IS) environmental stability (ES) and two
internal dimensions of a competitive company which are a competitive advantage (CA) and
financial strength (FS). These 4 dimensions are the most significant determinants of a company's
overall strategic position in the industry or marketplace.

Several factors could frame worked each of the dimensions/quadrants characterized on the axis
of the SPACE matrix usually depend upon the nature of the company its environment and
industry. Variables that required to developing the SPACE matrix are found in the company’s
Internal Factor Evaluation (IFE) and External Factor Evaluation (EFE) matrix.

SPACE matrix also contains the other significant factors that are used to its assessment are
company’s financial performance for instance liquidity, cash flows, working capital, and return
on investment (ROI) generally are measured formative variables of a firm’s financial strength.
Similar to the TOWS, the SPACE matrix would be modified to the exacting company being
considered and based on realistic information derived from market data and industry data. 
Pepsi’s directional vector is positioned in the aggressive vector (upper-right quadrant) of the
matrix, it shows that a firm is in an outstanding position to utilize its Internal Strengths (IS) to
surmount internal weaknesses, obtain the advantage of external opportunities, and evade external
threats. As a result, market development, market penetration, product development, forward,
backward and horizontal integration, concentric, conglomerate, and horizontal diversification or
a mix of strategies can be employed, depending on the particular environment that the firm is
practicing at the time.