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Lesson#26

THE STRATEGIC POSITION AND ACTION EVALUATION-2

Internal Strategic Position External Strategic Position
Financial Strength (FS) Environmental Stability (ES)

Risk involved in business Impact of technology
Price elasticity of demand
Debt to equity ratio
Working capital condition
Leverage
Political situation
Liquidity Demand variability
Ease of exit from market Price range of competing products
Cash flow statement Rate of inflation
Return on investment Competitive pressure

Competitive Advantage (CA) Industry Strength (IS)

Access to the market
Market share
Demand and supply factors
Resource utilization
Growth potential
Quality of product and services Profit potential
Product life cycle Financial stability
Customer loyalty Technological know-how
Capacity, location and layout Productivity, capacity utilization
Technological know-how Capital intensity
Backward and forward integration Ease of entry into market
After the selection of variables the rating is assigned to each. After the addition of these variables taking the
average. For example financial strength is explain below

Financial Strength (FS) Rating

High Return on investment 3
Large amount of capital 2
Consistently increasing revenue 4
Working capital condition 1
Financial strength average is (3+2+4+1)/4 = 2.5
The industry strength is explained as follows

Industry Strength (IS) Rating

Demand and supply factors 5
Resource utilization 3
Profit potential 3
Technological know-how 6

(2.5, 3.8)
Ease of entry into market 2
Industry strength average is (5+3+3+6+2)/5 = 3.8. It is plotted on graph:
The graph indicates that firm adopts aggressive strategy

Steps for the preparation of SPACE Matrix

The steps required to develop a SPACE Matrix are as follows:
1. Select a set of variables to relating to financial strength, competitive advantage, environmental
stability, and industry strength.
2. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make
up the financial strength and industry strength dimensions. Assign a numerical value ranging from -
1 (best) to -6 (worst) to each of the variables that make up the environmental stability and
competitive advantage dimensions.
3. Compute an average score and dividing by the number of variables
4. Plot the average scores in the SPACE Matrix.
5. Add the two scores on the x-axis and plot the resultant point on X. Add the two scores on the yaxis
and plot the resultant point on Y. Plot the intersection of the new xy point.
6. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point.
This vector reveals the type of strategies recommended for the organization: aggressive,
competitive, defensive, or conservative.

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