Struggling to find the right strategy to help your business sail through? Discover Space Matrix tool which helps you build strategies after careful analysis of factors influencing your business. Business decisions are the tricky and careful formulation of strategy is vital else it may backfire on you, throwing you out of the business forever. Let us take you through Space Matrix to know how to frame a strategy that is surely going to benefit your business.
Table of Contents
What is Space Matrix?
It is a tool to help businesses formulate business strategies. It involves the preparation of a strategic position and action evaluation matrix to set the base for strategy formulation. Strategies so formed will determine the nature. Basically, this Space Matrix will categorize the strategies formed under 4 heads as below:
The aggressive strategy is opted for when the business needs urgent action or resolution to the problem it is currently facing. It is advisable to take up an aggressive strategy when there is no alternative option available. Rather when the situation demands such aggressiveness.
Example – Offering Buy 1 Get 1 free offer. Free samples of the products. Free service trials.
Conservative strategy is most popular with the management. It is a cautious call, keeping in mind the actions and reactions. It considers cost, revenue, margins, and everything possible to achieve the objective.
Example – Offering free delivery only on the specified minimum bill amount.
This strategy is reactive in nature. It is more of taking corrective action or measure for whatever has happened in the past. Survival against the odds is the objective of this strategy. It helps the business to sustain and sail through difficult times.
Example – Aligning with NGO or contributing to a charitable trust to promote CSR in order to promote how the products or services offered will help society in the broader picture.
Competitive strategy is taken up to survive the cutthroat competition in the market. Continuous innovation with enhancement in product features and service offerings it becomes difficult for any business to gain a competitive edge. Creating brand loyalty is an uphill task.
Example – Various strategies like penetration pricing, or affiliate marketing strategies are used to compete.
Components of Space Matrix?
The Space Matrix considers two dimensions as below:
Internal factors or dimensions
These factors are internal to a company. They will vary from company to company and will be unique in nature. These will help give specific touch when the strategy is formulated.
- Financial strength (FS)
This talks about financial stability, creditworthiness, and the ability to manage funds. Financial performance and position reflect in the financial statements of a company. Whether a company has good cash liquidity or great working capital becomes its financial strength.
- Competitive advantage (CA)
Competing against competitors is very difficult. A company may have a unique advantage that other competitors are devoid of. This may give a competitive edge to the company. When a company is able to manage to reduce its cost of production and is able to sell its product at a lower price in the market that will become its competitive advantage.
Below is the table to give you more ideas on what the Internal factors comprise:
Internal Strategic Position
|Financial Strength (FS)||Competitive Advantage (CA)|
|Return on investment||Market share|
|Liquidity||Product life cycle|
|Working capital||Customer loyalty|
|Cash flow||Competition’s capacity utilization|
|Ease of exit from the market||Technological know-how|
|The risk involved in business||Control over suppliers & distributors|
External factors of dimensions
These factors are external to a company. It is generic in nature and applies to all the companies belonging to the same business. Strategy formulation has to take these external factors into account to devise a strategy that works under all conditions.
- Environmental stability (ES)
Environmental changes may affect a business to an extent that it may become the deciding factor for its existence. Rapidly changing technologies, and innovations may push a company to upgrade its business model or accept the change and trade the trend. Companies that sold tapes, and cassettes once had to switch to CDs or digital systems like pen drives, etc to survive.
- Industry strength (IS)
Any business solely depends upon the kind of industry it deals in. The profit margins, growth everything will be dependent upon the business industry the company is into. Like for a grocery shop, the profit margins are lower and they earn only through a higher volume of sales. Similarly a hotel, their profit margins are higher and they earn high depending upon the number of customers they get. Every business is dependent upon the characteristics of the industry it chooses.
Below is the table to give you more ideas on what the External factors comprise:
External Strategic Position
|Environmental Stability (ES)||Industry Strength (IS)|
|Technological changes||Growth potential|
|Rate of inflation||Profit potential|
|Demand variability||Financial stability|
|The price range of competing products||Technological know-how|
|Barriers to entry||Resource utilization|
|Competitive pressure||Capital intensifies|
|Price elasticity of demand||
Ease of entry into the market-productivity, capacity utilization
How to devise the strategy using this tool?
Let us now understand how everything above is put together and how to devise the strategy relevant to your business?
- Select variables to define Financial strength (FS), Competitive advantage (CA), Environmental stability (ES), & Industry strength (IS). You need to list out all the points under the above-mentioned four categories.
- Assign numerical ranking from +1 (worst) to +6 (best) for Financial Strength (FS) and Industry strength (IS); Assign numerical ranging from –1 (best) to –6 (worst) for Environmental stability (ES) and Competitive advantage (CA). Rank the listed points mentioned under categories as per the above-mentioned ranking numbers. You need to rank each point listed out.
- Compute average score for Financial strength (FS), Competitive advantage (CA), Environmental stability (ES), & Industry strength (IS). Just do an average for all the points under a specific category one by one as shown below:
- Plot the average scores on the Matrix -add the two scores on the x-axis and plot point on X. Add the scores on the y-axis and plot Y. Plot the intersection of the new XY point.
- Draw a directional vector from origin through the new intersection point.
|Competitive advantage (CA)||Internal Analysis||Industry Strenght (IS)||External Analysis|
|Market share||-6||Profit potential||6|
|Product variety||-2||Growth potential||6|
|Product quality||-1||Financial stability||5|
|Consumer loyalty||-1||Resource Utilization||5|
|Control over suppliers and distributors||-3|
Benefits of Space Matrix
Space Matrix offers various benefits for a business as below:
- Introspect first
Space Matrix helps the company to take out time to introspect and identify internal strengths and weaknesses. Further external strengths and opportunities are also identified. The company should be informed about itself before trying to strategize better. Knowing real self and real worth is the first step that can be easily achieved.
- Profit Maximization
Strategy formulation becomes easier and end results lead to an increase in profit margins. Devising the right strategy at the right time is critical for the success of any business. It helps in maximizing revenue and profits.
- Risk diversification
Understanding the internal and external factors and then formulating a strategy help in diversifying any kind of inherent risks. Controllable risks can be reduced to a great extent. Uncontrollable risks can be mitigated again to a large extent by using the space matrix.
Space Matrix in strategic management is widely used by startups across the globe to guide them in strategy formulation. It was found that 40% of those who failed had no focus on strategies at all.
What are your thoughts on Space Matrix?