Is your business on the path to success?
While no one can predict the future, we do have a tool that can help you better understand the factors that influence it.
That tool is situation analysis.
Intrigued?
In this article, we cover situation analysis and what it looks at before sharing five frameworks and an example to help you get started today.
What is Situation Analysis?
Situation analysis is a method for assessing the external and internal factors that can influence your business.
It helps you find opportunities, challenges, and risks, whether these come from the market or your product. You can use the knowledge you obtain from this analysis to build your business strategy and make sound decisions based on real-time data.
Why Do You Need To Do a Situation Analysis?
Imagine building a product and entering a market, only to discover:
- Your enterprise-level competitor already offers your exact product at a lower price.
- The demand for the brand-new service you launched has significantly dropped a month prior.
- Customers don’t really need the feature you’ve invested in for solving their problems.
Situation analysis helps you avoid disastrous decisions and outcomes like these. It gives you a comprehensive view of all factors that influence your business. From there, you assess potential scenarios and make better decisions based on your newly-acquired knowledge.
Situation analysis helps you find the best possible way forward in more ways than one:
- Create a foundation for strategic planning
- Develop a better market understanding
- Recognize opportunities and threats
- Identify strengths and weaknesses
- Mitigate risks
Andrew Smith, Co-Founder of PropFusion shares how situation analysis helped him identify an opportunity for improvement in his business:
Situation analysis sharpens decision-making and aligns the team with our goals. For example, early in PropFusion's journey, a SWOT analysis revealed that while we had strong tech expertise (a strength), we lagged in market awareness (a weakness).
By identifying this gap, we doubled down on educational content, creating blogs and resources tailored to homeowners’ association management.
A single business strategy tool does all that? Indeed—and it does so by pushing you to analyze the core components that influence your business success.
7 Core Components of Situation Analysis
An effective situation analysis is a complex machine; leave out core components, and you’ve got a liability—a blind spot that can and will come back to bite you when you launch that product.
Andrew goes on to explain some of the challenges to be wary of when conducting situation analysis:
“The most challenging aspect is maintaining objectivity. As founders, we’re emotionally invested in our product, which can make it hard to acknowledge weaknesses or market gaps.
Another pitfall is over-relying on historical data. The tech landscape evolves rapidly, so past trends may not predict future outcomes. Founders should watch out for confirmation bias and ensure they’re factoring in both internal data and external trends.”
So, with this in mind, here are the seven components you should objectively evaluate when conducting a situation analysis.
1. The Company
Start from the inside and work out. A situation analysis should include your company’s mission, vision, and values. Especially important are your long-term goals, whether your company is meeting them or how it intends to do so.
If you’ve got them, focus on metrics like sales volume, retention, and market share. Getting an up-to-date snapshot of your business will help you understand how it fits into the wider context, which you’ll also explore during this process.
Ask yourself:
- What is our vision, mission, and values and how do they guide our business decisions?
- What are our long-term goals and some of the obstacles we face to achieve them?
- What do our metrics say about our current situation?
2. The Products and Services
What products and services are you offering customers? You need to conduct market research to understand your product and how your solution fits into the wider landscape.
Given you’ve launched products, do a market analysis by asking customers for feedback. Consider your product’s strengths and weaknesses with the insights you’ve gathered, and adjust as necessary.
Having deep insight into your own products and using it for situation analysis helps you gain a better understanding of how you can effectively solve customer problems and optimize your strategy.
Ask yourself:
- What problem does our product solve?
- What are our product’s strengths and weaknesses based on market research?
- How can we improve our product based on what we know about customers and the market?
3. Distribution
A game-changing product won’t do anything unless you get it in your customers’ hands. Assess your planned distribution channels so you can ensure your products are readily accessible to your customers. Putting distribution in your situation analysis helps you spot any gaps or opportunities in the fulfillment process.
Do you intend to put your product on the AWS marketplace to make it available to a broad audience? How about partnering with other app stores for more users? Or perhaps you need a flashy landing page to get sign-ups? Before making a distribution choice, be sure to consider factors like accessibility, geographic reach, and logistics costs.
Ask yourself:
- Are our current distribution channels delivering the product to the right audience?
- Are there any barriers or inefficiencies in our distribution channels?
- Can we expand our distribution network to make our products more accessible?
4. The Competition
It’s called market share for a reason. Other players (AKA competitors) are selling similar products to yours. Observing their positioning and analyzing their offerings can help you spot unique product opportunities and areas for improvement. To scoop up more of the market, your overall business strategy should focus on delivering products that are better than the competition’s.
Research their offerings, market share, messaging, and branding. Doing so helps you determine how to best position your product for an advantage.
Ask yourself:
- Who are our primary competitors, and what are they doing?
- What differentiates competitor offerings to our own?
- Are there gaps in their offerings that we can capitalize on?
5. The Customers
Building your company is less about you and more about the people you’re selling to. Be sure to analyze your ideal customer persona and include important factors like demographics, psychographics, and pain points. By developing a knowledge of your customers and including it in your situation analysis, you can spot opportunities to refine your strategy based on their needs.
Consider creating a customer journey map representing all the potential touchpoints they will have with your brand. Doing so helps you pinpoint exactly where your product falls short in serving your customer base.
Ask yourself:
- Who is our ideal customer and what are their pain points?
- How effectively does our product fulfill their needs?
- Are there any other unmet customer needs we could be addressing?
6. The Business Environment
Markets are volatile. Even slower-moving ones won’t stay static forever. Demand can suddenly increase or drop, leaving you scrambling to adapt. You might also face supply disruptions due to material shortages or logistical issues, making it difficult to produce your product.
It’s important to always have your ear to the ground and follow factors like market trends, inflation rates, and purchasing power. Shifting market behavior is oftentimes a reflection of other trends. Some include technological advancements, political and legal changes, and evolving consumer values.
Having this information ASAP arms you with the knowledge you need to adapt and make better business decisions. For example, a SaaS company catching wind of tighter data regulation laws can enhance its security features early, avoiding any potential compliance risks.
Ask yourself:
- What external trends could impact our business?
- Are there any new regulatory, legal, or political changes we need to comply with?
- What shifts in consumer behavior should we prepare for as a result of the changes in environment?
7. Opportunities
As you begin to analyze the previous factors, your situation analysis snapshot will become clear. You’ll be able to identify strengths, weaknesses, and opportunities your competitors are leaving on the table.
For example, you might identify an unserved and neglected customer segment where your product can squeeze right in and save the day. Perhaps you’ll uncover an emerging trend of heightened demand and less buying power, prompting you to create your product more cheaply.
Ask yourself:
- What untapped customer groups can we target?
- Can we leverage emerging trends to differentiate ourselves?
- How can we leverage competitor drawbacks to improve our product?
Once you’ve identified opportunities, you’ll need a plan. Here are some FP&A tools to help you identify and action financial opportunities.
Frameworks for Situation Analysis: 5 Tools for Assessing Your Situation
Using a framework for situation analysis gives you an organized approach to your investigation, letting you reel in hyper-focused insights on the factors that influence your business. Some frameworks work best in one situation, whereas others work best in another—you’ll likely want to use a combination of frameworks to get a comprehensive, in-depth view of your business situation.
Here are five frameworks for situation analysis.
1. SWOT Analysis
A SWOT analysis gives you a foundational scan of your company or product’s unique strengths, weaknesses, opportunities, and threats. By identifying these four core internal and external factors, you get a well-rounded view of your business's current situation.
When To Use SWOT
It’s best to use SWOT analysis when you want a complete overview of your business, and you need to home in on both your internal and external areas for improvement. With the information in each of these categories, companies can get a comprehensive and actionable overview of their business situation.
2. PESTLE Analysis
PESTLE stands for political, economical, social, technological, legal, and environmental. It gives you a panoramic view of the business world your product will be performing in.
When To Use PESTLE
Use PESTLE when you need an overview of external business environment factors that can influence your long-term business strategy. It includes multiple components, such as political factors that influence the business environment and social factors that can impact your customers. Performing PESTLE, businesses can spot potential risks and adapt to them swiftly.
3. 5C Analysis
The 5Cs is a situation analysis framework that focuses on five areas: company, customers, competitors, collaborators, and climate. Each of these is key for understanding both the internal and external factors for business success and offers a focused, granular view of each.
When To Use the 5Cs
Use the 5 C framework when you need information for a holistic business strategy, and you want to understand business dependencies between internal and external factors. For example, you can use each C to inform your product development strategy before making a final decision.
4. Porter’s Five Forces Analysis
Introduced by Harvard professor Michael E. Porter in the late 1970s, Porter’s Five Forces analysis is a framework made especially for understanding your competition and potential risks. It looks at the five forces acting against your business: substitutes, new competitors, established competitors, supplier bargaining power, and customer bargaining power.
When To Use Porter’s Five Forces
Use Porter’s five forces when you want a closer look at competitor behavior, and you want to identify the risks that can affect your business’s success. You can then use the information from Porter’s five forces to adapt your overall business strategy to any risks such as competitors coming to market with newer, cheaper products.
5. VRIO Analysis
VRIO situation analysis helps you evaluate your resources and advantages by assessing value, rareness, inimitability, and organization. It sets a series of these conditions to assess if your company has sustained competitive advantage.
When To Use VRIO
Use VRIO if you want to strength-test your business and make sure you have a clear, multi-faceted advantage for when your product hits the market. If your VRIO analysis is positive, you’ll likely be able to compete and even dominate the market share amongst a sea of competitors. If it doesn’t meet the criteria, then you’ll need to revisit your offerings.
That’s a lot of frameworks. While they’re all beneficial, you don’t have to use each one for your business. How to pick between them? We asked Andrew from PropFusion about that, too:
“I lean on the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) as it offers a balanced view of internal and external factors. I pair this with PESTLE analysis (Political, Economic, Social, Technological, Legal, Environmental) to understand macro-level influences.
This dual approach ensures that I’m looking at both micro-level operational details and macro-environmental dynamics that might affect PropFusion's long-term strategy.”
Now, let’s take a look at an example.
How To Conduct A Situation Analysis: An Example
Let’s say you’ve created a brand-new platform called EcoFind. Its main feature is helping businesses find eco-friendly raw materials for production. After success in your initial market, you’re thinking about expanding into the packaging industry.
There are external threats waiting just around the corner, you just don’t know what they are. Plus, you’re unaware of any weaknesses you need to fix before the product is ready for launch.
It sounds like the perfect time to perform SWOT analysis. You get together with your team, and brainstorm:
With all these strengths, weaknesses, opportunities, and threats where all can see them, you can develop a more informed business strategy. By using the information from situation analysis, you begin by drafting a plan to target opportunities and preparing yourself for the market.
Observing the opportunities section you decide on:
- Investing in the new carbon tracking feature for businesses as a part of your entrance
- Contacting multiple eco-friendly companies to establish new partnerships
- Reaching out and collaborating with other eco-conscious brands for marketing, and bundling services
However, you also need to address weaknesses, so decide to do it by:
- Using AI to quickly find product information off of store websites
- Outsourcing branding and social media management for product awareness.
- Investing in content and initiatives to raise awareness on the importance of eco-friendly business practices
By using the insights from situation analysis, you’ve created a strategy to enter the market with confidence. You’ve covered your bases, improved work weak points, and seized opportunities to ensure success.
Well done!
You now have the tools you need to effectively assess your business and the environment it exists in. If on your situation analysis journey, you identify that rising SaaS costs and management needs are threatening your operations, Cledara can help.
Cledara lets you monitor, manage, and optimize your software stack. From eliminating software duplicates to spotting unused tools, Cledara gives you complete control of your platforms. You can even monitor your budget and capture invoices automatically—so you can nip any SaaS management threats in the bud.
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