A Complete Guide To Situational Analysis (With Examples)

By Sky Ariella - Sep. 8, 2021
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Successful businesses don’t just wing it and hope for the best. They proactively evaluate the landscape of their industry and the internal assets they possess. To do this, executives, team leaders, project managers, and others in positions of strategic leadership perform situational analyses.

A situational analysis allows for a company to take stock of its internal strengths and deficiencies, while also identifying the broader trends happening among competition and customers. It’s an invaluable step zero that smart teams run before making any grand plans.

We’ll cover three of the most popular methods for running a situational analysis, break down the benefits of each, and provide tips for performing one.

What Is a Situational Analysis?

A situational analysis is a method used to assess the internal and external factors of a business. It identifies both the advantages a business enjoys and the challenges that it is likely to face.

The ultimate goal of situational analysis is to determine a business’ strengths, weaknesses, potential new customers, and lingering issues that contribute to the company’s general standing. Multiple different methods of analysis are used to complete this evaluation, and they’re often used in conjunction with one another.

Usually, this process is started before launching a new project or embracing new marketing strategies. A situational analysis incorporates a few factors for consideration. These include:

  • Competition

  • Product

  • Distribution

  • Customers

  • Market Environment

The purpose of conducting a situation analysis is to get a better understanding of the factors that will affect your company’s success. The results of a situational analysis give the business insight into how to move forward.

Why Is a Situational Analysis Important?

A situational analysis is important because there’s no way to fully grasp the scope of mitigating factors that impact the outcome of a company without implementing it in some form. It’s running an organization blindly.

A situational analysis describes the work environment for what it does well, where it needs improvement, and where the likeliest avenues of growth are.

Methods of Situational Analysis

Companies use several different methods to outline their overall performance and decide on what actions they should take next. A comprehensive situational analysis uses at least two of these methods to evaluate a company’s status.

Popular methods of situational analysis include:

  • SWOT analysis

  • 5C’s analysis

  • Porter five forces

What Is SWOT Analysis?

A SWOT analysis is a method of situational analysis that relies on taking stock of your Strengths, Weaknesses, Opportunities, and Theats. It;s a popular method of situational analysis. There are four main areas that this SWOT analysis looks into:

  1. Strengths. Evaluating a company’s strengths asks you to determine what they do well. These can be positive aspects of their product, customer relations, or any other feature that acts as a strength.

  2. Weaknesses. While many organizations are vocal and aware of their strengths, they may be less willing to face their weaknesses. However, understanding a company’s weaknesses and what areas these reside in is crucial to improvement.

  3. Opportunities. Gathering a company’s opportunity pool is often a lot of brainstorming. Opportunities are places that the business expands to further its success. This could be in the form of catering to a new customer base or entering an emerging market.

  4. Threats. More than any other piece of the SWOT analysis, the threats portion asks a business to think about external factors. These are outside entities or aspects that hurt a business and can lead to failure down the line.

These broad aspects are the qualities that determine a business’ current standing, future options, and potential problems.

What Is the 5C’s Analysis?

The 5C’s analysis serves a similar function to the SWOT, but it’s used as a framework for marketing, rather than determining a company’s overall health. Understanding the 5C’s establishes marketing strategies that put a business ahead of its competition.

The 5C’s are:

  1. Company. Even though the 5C method of analysis deals with marketing and competition, the first step is to look inward at your own company. Consider your business’ abilities, products, current marketing, and financials. Take stock of where your company stands.

    Beginning with the SWOT analysis helps create a well-rounded evaluation for the first C.

  2. Customers. Now that a picture of your company has been established, shift attention to the customer base. Ask yourselves what your company’s customers need and want. This leads to better communication between an organization and the individuals it serves.

    This can be done through either open discussion, polls online, or setting up official consumer testing.

  3. Competitors. In any kind of business, knowing your competitors is how your company eventually surpasses them. If you don’t know who your company’s top competitors are, do some market research into the subject. When you have a firm grasp on who your team competes with, dig deeper into these brands and their marketing strategies.

  4. Collaborators. The collaborators involved with your company are the exact opposite of the competition. It’s organizations that you could have a symbiotic relationship with. They’re investors or other businesses that you could potentially have a professional partnership with in the future.

  5. Climate. The final aspect to assess through the 5C’s analysis is climate. This refers to the environment that your company is functioning in. That could refer to your business’ specific field or more global events that impact a variety of industries.

    Evaluating climate is crucial to understanding the conditions your company is working under and establishing an effective plan within these confines.

What Is a Porter Five Forces Analysis?

Competition is a huge aspect of a business’ success in its market. The Porter Five Forces analysis highlights this principle by evaluating competition to assess threats and using this knowledge to further your own company.

The elements of the Porter Five Forces are:

  1. Evaluating existing competition. The first factor that the Porter Five Forces asks businesses to establish is the number of competitors they have and how strong they are.

    The number of competitors in your company’s industry and the size of those corporations describe your business’s power within the market.

  2. The threat of substitutes. The threat of substitutes refers to the ability of a company’s product to be recreated. A company whose product or service has no similar substitutes has more control and power in the market.

  3. The threat of new entrants. A company’s standing is also determined by how easily new competitors can enter their field in the future. Industries that are hassle-free to enter and become a valid competitor weaken the power of businesses participating overall.

  4. Bargaining power of customers. Small businesses are often the most affected by the bargaining power of customers. This means how influential the customers are to driving a product’s price up or down.

    The more customers a business has, the less individual power they have over the price and company. Alternatively, the customer base of small businesses has the power to impact their prices significantly.

  5. Bargaining power of suppliers. Finally, the bargaining power of suppliers makes up the last tier of a complete competition picture. Just about every brand requires unique supplies to create their products, and these have to come from somewhere.

    In industries with many suppliers available, each one has less bargaining power. Businesses that function in markets with fewer suppliers carrying the items they need give each supplier more control over costs.

How to Complete a Situational Analysis

  1. Choose a method of analysis. To complete a situational analysis at your company, first, choose a method that you’ll be using for evaluation. Many companies begin with the SWOT analysis because it provides the most comprehensive picture of a business’ status in terms of what it does well and how it could improve.

  2. Complete the method’s guidelines. The second step to a situational analysis is the fairly simple direction of following your chosen method’s guidelines.

  3. Reproduce with another method of analysis. Finally, reproduce your company’s situational analysis using a different method. Run through its steps completely. It’s recommended to perform all three methods of analysis for the most complete results and best strategy formulation.

Qualities of Useful Situational Analysis Results

  1. It’s easily understandable. A company’s situational analysis results should be easily understandable. Someone who doesn’t work at your company or in your field should be able to understand it.

  2. It’s practical. The point of conducting a situational analysis of a business is to gather useful data and formulate practical marketing strategies. If the results from a situational analysis are impractical and have no use, then the process was a waste.

  3. Equal attention to external and internal factors. A business is never solely affected by internal or external factors. It’s a combination of both. A useful situational analysis pays equal attention to aspects inside and outside the business.

  4. Inspires more company analysis. Beginning the discussion about where a company currently stands in the market and their potential outlets for improvement gets the ball rolling on future analysis. Practical analysis almost always ends with inspiration for more later on.

  5. Includes goals for the future. Situational analysis isn’t just about the current status of your company but also setting intentions for expansion. A huge part of successful situational analysis is the formulation of goals for the future because, without them, the business simply remains stagnant.

  6. Outlines plans for these goals. In addition to setting goals for your company’s future, useful situational analysis results in outlining a plan for how this feat will be accomplished.

    The plan doesn’t need to be set in stone, but there should be some groundwork to back up the intention of reaching the goals presented by situational analysis.

Situational Analysis FAQ

  • Is situational analysis the same as SWOT? No, situational anaylsis is not the same as SWOT. SWOT is one method for conducting a situational anaylsis. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.

  • What is situational analysis used for? Situational analysis is used to create a framework from which a plan can develop. Performing a situational analysis is the first step toward setting priorities, delegating tasks, carrying out processes, and ultimately evaluating the success of a project.

  • What are the basic components of situational analysis? The basic components of situaional analysis in SWOT are:

    • Strengths

    • Weaknesses

    • Opportunities

    • Threats

    The basic components of situaional analysis in the 5C’s analysis are:

    • Company

    • Customers

    • Competitors

    • Collaborators

    • Climate

    The basic components of situaional analysis in a Porter Five Forces analysis are:

    • Evaluating existing competition

    • The threat of substitutes

    • The threat of new entrants

    • Bargaining power of customers

    • Bargaining power of suppliers

  • What is the outcome of situational analysis? The outcome of situational analysis is a comprehensive idea of the internal and external forces that will affect a business or project’s success. Ideally, a complete situational analysis should be recorded and sent to all relevant stakeholders, for use in designing plans specific to their department.

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Author

Sky Ariella

Sky Ariella is a professional freelance writer, originally from New York. She has been featured on websites and online magazines covering topics in career, travel, and lifestyle. She received her BA in psychology from Hunter College.

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