How to Perform a Situation Analysis for Strategic Planning
Thriving businesses know how to identify and capture market share. But are all businesses capable of capitalizing on potential opportunities? A situation analysis will help a company identify its strengths and weaknesses to understand how it can compete in the marketplace.
What is a situation analysis?
A situation analysis is a detailed examination of a company’s market presence based on internal and external factors. It examines a business’s current and potential customers and how they respond to the company’s products and services. A situation analysis also explores a firm’s capabilities and how the current business climate impacts the company.
An analysis can forecast what results a company can expect—based on the decisions made—so it can adjust its strategies to meet its goals. A situational analysis can reveal many important details about a business such as:
- The opinions and experiences of customers and stakeholders
- A business’s strength and weakness(es)
- How a company is capitalizing on market trends
- How it measures up to competitors
- What’s holding a business back from its desired goal(s)
- The current strategies in place to overcome the weakness(es)
A business should run a situational analysis periodically—the market is ever-evolving as customers’ needs and preferences change. A regular situation analysis provides the information a company needs to create a course of action to achieve its goals.
Components of a situation analysis
Analysis can reveal how your business is performing and help you adapt with course corrections if your plan isn’t achieving the expected results. There are several components in a situational analysis:
An analysis of a company’s vision, strategy, and goals—and if it’s meeting them—is a good start. Examining how the company is performing by reviewing sales, market share, and customer retention provides a useful snapshot that reveals if the business is fulfilling its goals. It will also help you evaluate competitors and market share.
Product and services
Analyzing current products or services, as well as future product launches, is a vital component of a situation analysis. Market research is needed to determine how viable a new product or service will be.
A market analysis conducted with potential customers who offer feedback or opinions about the product, service, or pricing can shed light on who the target market is and how to improve a company’s offerings. Examine products and services separately to identify which products best meet your clients' needs and which ones need adjusting.
The market analysis uncovers the target demographic and demand for a company’s products or services. The competitor analysis compares your business to other similar companies. Analyzing both can reveal important information about your company’s distribution channels.
The distribution portion of a situation analysis reviews how you get your products to market and compares it to your competitors’ to determine the best distribution channels for your business.
Unmet or underserved needs represent market opportunities. Knowing how to capture that market share is essential to a company’s success. But before a business can successfully target an untapped market, it should understand its strengths and weaknesses. A strength, weakness, opportunity, threat (SWOT) analysis is a useful tool to identify how capable your business is of capitalizing on opportunities.
A SWOT analysis is relatively simple to create and usually presents a list of information.
- Create four categories: strengths, weaknesses, opportunities, and threats.
- The strengths category should include internal systems and processes that are successful, competitive advantages, and assets such as technology, patents, expertise, and cash.
- Weaknesses include internal factors that keep your business from being more competitive, such as gaps in hiring or lack of funding.
- Opportunities are external factors that can aid your company such as regulation changes, upcoming press, and special events.
- Threats are external factors your company has no control over.
- List the appropriate information in each category box. Brainstorming is excellent for getting ideas and information onto paper. Save the ideas from the brainstorming sessions in each applicable box, and create an overall insight for each category. Once complete, pull together all the insights and summarize them.
- When performing a SWOT analysis, strengths and weaknesses are derived from an internal evaluation of your business, while opportunities and threats involve an external review.
The SBA Score division offers a SWOT analysis template for download.
Thorough research is critical to understanding your customers. Collect data on your customer’s demographics, locations, interests, and challenges. Once you know your customers well, you can identify other potential customers as your target market and create an effective marketing plan. Knowing your customers will help you identify your target market’s needs, preferences, and behaviors to devise the best strategies to reach them.
An analysis of your main competitors will help you determine how your business measures up. Identifying and comparing the competitive advantages of one company to another can help your business adapt to compete more effectively.
Researching competitors’ products or services, sales, and marketing strategies can help you adjust your company’s approach to get an edge. A competitor’s market share, as well as its strengths and weaknesses, should be part of your competitor analysis. The SBA provides a list of business statistics you can use in your review.
Partnerships and collaborations are a critical part of many business operations. They include the suppliers who provide raw materials to your business, business partners, and the distributors who may manage your company’s supply chain, manufacturing, and vendor relationships.
Analyze collaborations to understand the strength and durability of the partnerships. Reviewing contracts and studying whether products and services were historically delivered as promised can give a company insight on the reliability of these relationships.
Current business environment
A situational analysis should examine the external and internal environment that impact a business's performance. External factors include the economy, competitors, government policies, and regulations. Company culture, employees, business resources, and cash management are internal factors that affect a business.
A PESTLE analysis examines the external situation of a company by looking at political, economic, social, technological, legal, and environmental factors. Examining each category can provide insights into the overall business market. Look at each category of a PESTLE analysis more closely:
- Political factors: the impact of government policies or elections
- Economic factors: how fiscal trends, current import and export trade ratios, and taxes affect a business
- Social factors: the effect of customer lifestyles and demographics
- Technological factors: how technology and innovation impact a business
- Legal factors: the impact of safety regulations and employment laws
- Environmental factors: how environmental regulations or climate change affect a company
5C situation analysis example
A situational analysis should include the internal and external factors that affect a business, and a 5C approach may be the simplest. The 5Cs are company, customers, competitors, collaborators, and climate.
In a 5C analysis, the company segment includes the company’s vision and goals, its market position, distribution, opportunities, and products. The customers provide key information on current customers, the target market, and the opportunities a company should pursue through a marketing plan.
The competitors’ section reveals a company’s strengths and how it can improve, based on competitors’ strengths and weaknesses. Collaborators are the partnerships that make products and distribution possible. Climate includes factors like government policy and the economy, such as predictions for the 2020 election.
Performing a periodic situational analysis can help you identify the state of your company as it evolves so you can succeed in the market.
The many purposes of a situation analysis
An analysis can provide insight into where your business stands in the current market, what is working, what can improve, and opportunities to capitalize on and grow.
Use a situation analysis to develop a marketing plan, identify market gaps your company can fill, advance new technology, and respond to competitor changes. Adapt the report as needed to get better insight on where your business is coming from—and which direction it should take.