Space matrix is an important strategic management tool used for the purpose of determining the type of a strategy a company should undertake. The top management of an organization could easily identify the most appropriate strategy for a given enterprise. For example they could identify whether to go for aggressive, conservative, defensive, or competitive strategies. Aggressive strategies include market penetration, market development, product development, backward integration, forward integration etc. On the other hand conservative strategies include; market penetration, market development, product development and concentric diversification. Similarly, defensive strategies include entrenchment, divestiture, liquidation and concentric diversification. Whereas competitive strategies include market penetration, product development, joint ventures and market development. Step by step construction of space matrix is given for the Harrah’s Entertainment (largest gaming company in the world that owns and operates over 50 casinos, hotels, and seven golf courses under several brands).
How to Construct Space Matrix
Choose a set of variables to define industry strength (IS), Environmental stability (ES), Competitive advantage (CA), and financial strength (FS).
Assign numerical values to all the variables of FS and IS ranging from +1(worst) to +6 (best).
Assign numerical values to all the variables of ES and CA ranging from -1(best) to -6 (worst).
Calculate the scores for CA, ES, FS, and IS.
Plot the average for CA, ES, FS, and IS on the appropriate axis.
Now add the two scores on the Y-axis and plot the resultant point on Y. Similarly add the two scores on the x axis and plot the resultant point on X and Plot the intersection of the new XY point.
Sketch a directional vector from the origin of the SPACE Matrix through the new intersection point. The vector shows the type of strategies recommended for the organization: competitive, conservative defensive, and aggressive.
Space Matrix for Harrah’s Entertainment Inc
Space Matrix Calculations
ES Average Score = -3.4 + Average FS Score (+3.16) = -0.24
Average CA Score = -2.14 + Average IS Score (+3.43) = +1.29
According to the graph above, we noticed that the Harrah’s Entertainment Inc falls into the competitive quadrant of the SPACE matrix. It is located at the coordinates of +1.29 for x-component and a y-component of -0.24. It shows that Harrah’s Entertainment Inc is good in financial strength and average in environmental stability. Therefore, the company has to achieve the competitive advantages by adopting growth strategies in order to increase market share and explore the product demand. Some of the other important strategies include; market penetration, product development, joint ventures and market development.