The SPACE matrix assesses a business along four dimensions to find an appropriate strategic thrust and in this article, we’ll look at the SPACE factors for environmental stability.
Environmental Stability In SPACE
According to the creators of the Strategic Position and Action Evaluation Matrix, (Strategic Management – A Methodical Approach”, Rowe, Mason, Dickel, Mann and Mockler. Published by Addison Wesley) the following items should be considered when assessing Environmental Stability:
- Technological changes
- Rate of inflation
- Demand variability
- Price range of competing products
- Barriers to entry into market
- Competitive pressure/rivalry
- Price elasticity of demand
- Pressure from substitutes
Assessment of Environment Stability
Environmental stability is offset by Financial Strength on the y-axis of the traditional SPACE matrix. The other axis offsets the competitive advantage of the business and the attractiveness of its industry.
It is usually assessed as a negative, ranging from -1 (excellent, very stable) to -6 (very poor, very unstable).
The creators of SPACE recommend that each item is assessed individually before aggregating the score to form a composite measure. Special attention should be given to any extreme scores to make sure that there is substance behind the assessment.
My Thoughts On Using The SPACE Matrix In Practice
There is a danger of using the SPACE analysis system too literally.
What matters is tailoring the idea of SPACE to fit your own industry sector.
Looking at the list, you’ll see that the factors the authors picked are a combination of PEST Analysis factors and Michael Porter’s Five Forces. These two, well established models are an excellent starting point but for many businesses I’d want to factor in political issues like the uncertainty surrounding the Euro and the weak political response to the problems and economic issues like exchange rates.
As a general guide, if you feel the environmental instability is strong enough to require scenario planning because of some kind of fundamental uncertainty, then I think a poor score is appropriate.
What Does The Score On Environmental Stability Imply?
A strong score backed up with reasonable financial strength suggests that either an aggressive strategy or conservative strategy is appropriate.
A poor score without remarkable financial strength indicates that either a competitive strategy or defensive strategy is required.