We are all familiar with SWOT and PEST as strategic analysis tools. Many will be less familiar with the Strategic Position & ACtion Evaluation matrix, frequently referred to as SPACE Matrix tool.
The SWOT and PEST tools are both environment (internal and external) analysis tools.
PEST takes us through a process that scrutinizes the external environment within which the organization has got to plan and operate.The four factors Political, Economic, Social and Technical will all to a greater or lesser extent impact the organization. The PEST analysis helps to get clarity around these factors that will impact the planning horizon and get consensus among the members of the planning team.
SWOT analysis focuses on Strengths, Weaknesses, Opportunities and Threats. It helps to identify and clarify the strengths and weaknesses of the organizations as it seeks to develop a strategy and plan that can pursue and exploit the identified Opportunities while taking due cognizance of identified Threats, all within the external environment identified by the PEST analysis.
Our Strategic Planning Workbook can be used to facilitate and record the PEST and SWOT analysis outcomes.
The SPACE Matrix
The SPACE matrix takes a slightly different approach to the analysis.
It is used to determine what type of strategy a company should undertake. It focuses on strategy formulation especially as related to the competitive position of an organization.
The matrix is broken down to four quadrants where each quadrant suggests a different strategy:
The outcome of the analysis is plotted and the result depicted in one of the four quadrants to suggest the appropriate strategy.
The SPACE Matrix Analysis
The SPACE Matrix uses two internal and two external strategic dimensions in order to determine the organization's strategic posture in the industry. The four areas of analysis are:
Internal strategic dimensions:
- Financial strength (FS)
- Competitive advantage (CA)
External strategic dimensions:
- Environmental stability (ES)
- Industry strength (IS)
Financial Strength (FS): This internal dimension can include return on investment, leverage, liquidity, capital, risk involved in business etc. as key factors.
Competitive Advantage (CA): This internal dimension can include market share, product quality, product life cycles etc. as key factors.
Industry Strength (IS): This external dimension can include growth and profit potential, financial stability, technological know-how etc. as key factors.
Environmental Stability (ES): This external dimension can include technological change, rate of inflation, demand variability, price range of competing products etc. as key factors.
Which Analysis Should Use?
The SPACE matrix can be a useful initial analysis to identify a generic strategy. It can also be useful in assessing strategic alternatives suggested by the PEST or SWOT analysis.