The Purpose and Elements of Situation Analysis

Discover the Benefits of Situation Analysis for Business Success

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Before developing a marketing strategy, it is important to conduct a situation analysis to determine the health of your business. This analysis serves as a useful tool for determining your business's strengths and weaknesses, and any opportunities and threats (SWOT) that can affect its health. The results can be eye-opening to what’s really going on within your business and help determine your business's strategy within the marketplace.

Definition of Situation Analysis

Situation analysis is defined as an analysis of the internal and external factors of a business. It clearly identifies a business's capabilities, customers, potential customers and business environment, and their impact on the company. A situation analysis is an essential part of any business plan and should be reviewed periodically to ensure that it is current.

Factors to Consider in Situation Analysis

When considering performing a situation analysis of your business, it is important to look at several factors:

  • Product situation. Determine your current product. You may want to view this definition in parts such as the core product and any secondary or supporting services or products that you sell. Viewing your products and services separately helps determine how each relates to your core clients' needs.
  • Competitive situation. Analyze your main competitors and determine how they compare to your business such as competitive advantages.
  • Distribution situation. Review your distribution situation in terms of how you get your products to market, such as through distributors or other intermediaries.
  • Environmental factors. Determine the external and internal environmental factors, which can include economic or sociological factors that impact your business's performance.
  • Opportunity and issue analysis. Conduct a SWOT analysis to determine any strengths, weaknesses, opportunities, and threats that may affect your business and its performance.

While this information may be obvious to most business owners, it can be beneficial to review the core fundamentals.

Determine If Your Situation Analysis Is Useful

To determine if your situation analysis is functional and provides value, it should:

  • Be simple and practical to use
  • Be clearly understandable to an outsider
  • Focus on key factors impacting your business, both internally and externally
  • Clearly identify future goals for your business
  • Spark even further analysis

If your analysis falls short of these items, it should be reworked.

Common Challenges in Situation Analysis

You also may encounter one or more of these common challenges:

  • You've listed an excessive amount of strengths, weaknesses, opportunities, and threats, so that the information appears confusing and makes it difficult to get a strong picture of your business at a glance. 
  • You are lacking prioritization within your analysis. 
  • You are too broad going through the factors, so it's difficult to really focus on them.
  • The factors you have listed are opinion, not fact. 
  • Strengths, weaknesses, opportunities, and threats lack distinguishing factors. 

If performed properly, situation analysis can be a useful tool for determining the health of your business. Once you know how your business is doing, you can set proper strategies to ensure its success in the future.