What is Situational Analysis?

Situational analysis is a term that refers to a collection of systems that the top manager of an organization implies to analyze the external and internal business environment and understand the capabilities and customers of the company. A marketing plan is generated to guide the business on how a particular product can satisfy the needs of the customer. Situational analysis is the second step after the marketing plan creation in the establishment of a long term with the customers.

The situational analysis scrutinizes both the macro and micro environmental factors that can especially have an impact on the company. The main purpose of the situational analysis is to create a report about the position of the product and the organization in the market, and the overall chances of survival of the company within a specific environment. This analysis also assists the business to summarize the problems and opportunities within that environment so that the companies can understand their scope within that market.

Situational analysis, in other words, is implemented in market research and different observations to derive some marketing decisions that can help the managers to determine the effectiveness of the policies they are going to implement. A situational analysis calculates the potential customers, project growth, assesses the possible competitors and makes a suitable and realistic strategy for the business.

Situational Analysis

Methods of Situational Analysis

The situational analysis comprises the following methods for analyzing the situations of the organization. They are as follows.

  • 5C Analysis

5C analysis is a type of situational analysis method that allows a business to access more information about the macro, micro, internal and external factors of the company. The 5c’s of the analysis are described below.

  1. Company: The company factor includes the evaluation of the objectives, capabilities, and strategies of the organization. The company analysis indicates the areas for improvement, the strength of the marketing model, and how well that model will fit properly into the external environment. It indicates:
  • Objectives and goals of the business
  • Position of the product or company in the market
  • Performance analysis of how the organization is achieving its targeted goal
  • Analysis of the products in the market

2. Competitors: The competitor analysis indicates the position of the competitors in the industry and the potential threats they may impose on the business. This analysis includes:

  • Identification of the competitors
  • Assessment of the position of the competitors in the market
  • Prediction of the initiatives taken by the competitors in the future

3. Customers: Customer analysis is a vast section and is very complicated to analyze. The areas included in this analysis are:

  • Demographics
  • Size of the market and potential growth rate
  • Demands of the customer
  • Motivations for buying the products
  • Channels for distribution like retail, online or wholesale
  • Frequency and quantity of purchase
  • An annual income of the customer

4. Collaborators: Collaborators are necessary for the enhancement of the idea of creation and gaining more profitable opportunities. Before making the collaboration, the organization must know the capabilities of the collaborator and the level of commitment they will offer to the organization. The different types of collaborators are:

  • Agencies
  • Suppliers
  • Partnerships
  • Distributors

5. Climate: Climate analysis deals with various factors that may affect the environment and climate of the business. All these factors must be well understood and heavily researched. The climate analysis includes:

  • The regulatory and political environment
  • Cultural and social environment
  • Economic environment
  • Technical analysis

6. SWOT Analysis

A SWOT analysis is another method to implement situational analysis to examine the strengths, weaknesses, opportunities, and threats of the company. This analysis sees through the future and current situations where they compare all of the above factors. The target is to maximize the potentiality of the organization and to reduce the different kinds of risks involved. SWOT analysis assists an organization to come up with a plan to be prepared in several difficult scenarios.

  • Porter’s Five Forces Analysis

Porter’s Five Forces analysis engages scanning of the environment and early detection of the risks from the competitors to reduce the impact. This model applies to any type of industry, be it size or small size organizations. The main purpose of Porter’s five forces analysis is to help the companies to evaluate and scrutinize the profitability and their position in the industry against indirect or direct competitors. This analysis mainly focuses on:

  • The new entrant threats
  • Buyer’s bargaining powers
  • Risks from the substitute services or products
  • Bargaining capabilities of the suppliers
  • Competition among the current competitors

How to determine if the Situational analysis is valuable or Not?

To determine if the recent situational analysis is practical or not, it should include the following.

  • It should be practical and simple to use
  • An outsider should understand the analysis as clear as water
  • It should focus on the main external and internal factors impacting the businesses
  • Identification of the future objective for the organization
  • Opens scopes for further analysis

If your model fails to qualify these conditions, then the situational analysis of your company should redesign another strategy.

Challenges in the Situational Analysis

The organization may face many challenges while designing the situational analysis for their marketing strategies. The difficulties are:

  • There is too much SWOT information that appears confusing and makes it extremely difficult to properly analyze the situation.
  • There is a lack of priority in the analysis
  • The factors included in the lists are based on the opinions and not on the facts
  • SWOT analysis has an absence of distinguishing factors

Thus situational analysis can be concluded as a method to collect data for the evaluation of the present and past economic, technological, political and social information that is meant for the identification of external and internal forces. This analysis also helps the company to influence the performance and strategy choices. If executed sincerely, situational analysis can be a powerful tool for the determination of business health.