It's time to dig deeper and look at where your business stands

When you've climbed to the top of the career ladder, you have to make momentous decisions. But before you can do that, you need to perform some situational analysis. 

If you're not familiar with this term, you've come to the right place. In the following guide, we'll be taking a look at a definition of situational analysis, the approaches you can use, and how this practice can benefit your company. Here's everything that you should know. 

What is situational analysis?

First up, let's kick things off with a situational analysis definition. In the simplest terms, this is the process of gathering data and information about the business and analysing it. 

Chances are, you've heard of a SWOT analysis. That's the baseline for most situational analysis approaches. While, as you will see, some delve into different areas and consider a wider picture, you need to first understand the basic measures we use, as follows: 

Strengths: What is the business doing well? What strengths does the company already possess? How can we further use these to our greater advantage?

Weaknesses: How can the business improve? What are the aspects of the company that simply aren't working as well as they should? Let's define and work on them.

Opportunities: Are there new opportunities on the horizon? What does the future of the business look like? How can we seize the opportunities that come our way?

Threats: What are the possible threats that the business is facing? What can we do about them? How can we mitigate any damage here?

Performing situational analysis allows you to answer these all-important questions. Of course, some businesses will stop at a standard SWOT analysis. If you want to learn more there are additional approaches below that you can use to get the inside scoop, but first, let's look at the benefits. 

Benefits of performing a situational analysis

Before you perform a situation analysis, you need to understand why you're doing it. This process takes time and energy, so you need to make sure that it's worth it in the end. The truth is that there are many benefits to undertaking a situational analysis. In the following section, we'll cover some of the core reasons to get started with one: 

Support goal-setting practices 

Business leaders must continually set goals and targets for the company. We can see that on a macro level, i.e. outlining company-wide goals that will shape the future of the enterprise, and a micro level, when setting targets for teams or departments. In each case, it's important that the goals set are in-line with the demands of the business. 

That's where situational analysis comes into the picture. The well-known tool allows you to better understand where your business stands, so that you can set goals that align with the future of your company. Oftentimes, situation analysis is the first stage of goal-setting.

Identify opportunities and threats 

One aspect of situation analysis is understanding both current and future trends - sometimes called “forecasting.” This element of the approach allows you to determine what opportunities and threats your business is currently facing. It also involves using the available information to predict what hurdles the business may come up against soon. 

No crystal ball can tell you what the future holds. However, going through this part of situational analysis gives you the insights that you need to make fact-based predictions. When you better understand the opportunities and threats that surround your company, you can decide how you want to push things forward. Do you want to hold off launching a service for a few months? Can you get ahead of the competition in a specific area?

Learn about your competitors 

That brings us neatly on to the next benefit of situational analysis: you have the chance to learn about your competitors. The analysis gives you the time and space to delve into the practices, values, strategies, strengths, and weaknesses of the competition. You'll look into what's working for them, what's not, and how you can do what they do… only better. 

Ignoring the competition is always going to be a mistake. You need to be ahead of the game and know what they have up their sleeves. Whenever you perform a certain type of situational analysis, you'll get the opportunity to focus your attention on the market.

Pinpoint possible weaknesses 

Every business has its weaknesses. That's a given. However, there's real strength in understanding what they are. Through situational analysis, you can pinpoint the possible weak links within your company. This process means that you can decide how to use your resources to manage the issue and overcome the problem. After all, only when you understand what your weaknesses are can you create a strategy to strengthen them.

Understand your strengths 

On the flip-side of that, situational analysis allows business leaders to define the company's strengths. In which areas is the business excelling? What evidence do you have of that fact? What can we learn from these strengths and why do they matter? You will have the chance to answer all of those questions when you undertake the analysis. 

Make informed decisions 

When you've worked your way up the ranks of your business, you'll become a fully-fledged leader. That means that you have the chance to make decisions that could impact the future of the company. It's a pretty huge deal. However, you don't want to go about making decisions until you have all of the information in your arsenal. Situational analysis allows you to gather the information you need to scope out your next move.

The best situational analysis approaches 

Looking for a situational analysis example? We've got you covered. As we've already mentioned, there are multiple approaches you can use here. The SWOT analysis is the baseline approach. But what if you want to take things a step further? Let's take a look at other forms of situational analysis that you may choose to carry out, and how they work. 

The 5C analysis

Not sure where your business stands in the grand scheme of things? You can use the 5C analysis to figure it out. That means looking at different aspects of the company - or the five Cs - and seeing how each of them measures up. Here's what you look into.

Company: In this part of the situation analysis, you look into the company as a whole - its values, vision, and products or services. Through this process, you'll start to pinpoint any existing problems or obstacles within the business. 

Competitors: It's no good only looking internally. If you want to understand what's happening with your business, you should also look at the external. What are your competitors doing? How can you learn from their triumphs and mistakes? 

Collaborators: Chances are, your business works alongside other agencies, businesses, or partners. You also have your stakeholders to consider when it comes to making decisions. When you perform this part of the situational analysis, you'll gain an understanding of who your collaborators are and learn from it. 

Customers: It hardly takes a rocket scientist to know that your customers matter. When people first start businesses, they spend a lot of time pinpointing their audience. However, it's easy to lose sight of this when dealing with the everyday operations of the business. This part of the process means that you focus on who your customer is, what their needs are, and how you can fulfil them. 

Climate: No, we're not talking about the weather. Analysing the current climate means looking at a range of external factors. That may be the political climate, things that are happening in the media, current trends, or legal changes. 

The VRIO analysis

Next up, there's the VRIO analysis. As you may have guessed, this is another acronym and it stands for value, rarity, imitability, and organisation. If you're not sure which of your company's resources matter the most, it's worth using this situational analysis example. When you've done that, you'll know how to best use each of your resources. 

Value: The aim of the game is to offer customers value. So, the first thing you want to measure in this situational analysis is just that. When it comes to the business' resources, how are they being used to add value to the products and services?

Rarity: Is the resource unique to your business? Or is it something that most companies in your field have? The rarer your resource, the more likely it is to give you an edge over the competition. Look into whether it's a widespread factor.  

Imitability: Can the resource easily be multiplied and, if so, how? If your business has the power to double-up on this resource, it can gain even more value here. 

Organisation: How does the company make use of these resources? How do they equate to money? Put simply, how well does the business organise its resources?

The Five Forces analysis

Worried about the threats that your business is set to face? Okay, then you need the Five Forces approach to situational analysis. When you use it to pinpoint certain threats, you can look at the ways that you can prevent them from damaging the business' profits. Here's a quick breakdown of the five forces that you need to analyse here.

Competitive rivalry: How strong are your competitors? Understanding how many rivals you have in the market and how they are succeeding will help you to know how your company can improve. It's all about understanding what you have in common with these businesses - and what differences you have, too.

Supplying power: Next up, you need to look at your suppliers. What role do they play? Can you get those resources elsewhere at a lower cost? If so, where? How many options are available to the business at this time?

Product substitutes: Does your main product or service have a competitor? If there's a substitute available, is it more affordable than your offering? Look at what your competitors offer and compare them to your services or product.

Buying power: This one is about looking at your customers' buying power and how that impacts the cost of your services or products. What factors could drive the general cost of your offering down and, of course, why?

New businesses: Are there any new businesses that are entering into your territory? If so, what are they bringing to the table and how will that impact your business? Is this a threat that you may need to consider soon?

Leverage situational analysis to improve your company 

When you get asked to perform a situational analysis, you no longer have to scratch your head. We've outlined three approaches you can use - as well as the standard SWOT analysis - in this guide. Rely upon these to help you better understand how you can improve your company's output and plan ahead for the years to come. 

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