A company situational analysis consists of a strategic gap analysis, SWOT analysis and competitive analysis. A gap analysis determines which aspects of the current strategy are working and which require more work. A SWOT analysis looks at the strengths, weaknesses, opportunities and threats of an organization. A Competitive analysis assesses the overall competitive landscape. The situational analysis identifies the strategic issues that a company must address to be successful.
A situational analysis begins with strategic gap analysis, which involves understanding the deficiencies in the company’s current strategies. Identify the competitive approach of the company: Is is trying for cost leadership or product differentiation? Evaluate recent strategic moves, such as new product introductions, partnerships and mergers, and key financial indicators, such as market share and profit margin trends. Companies with finely tuned strategies show positive trend lines in most of their key indicators.
A SWOT analysis looks at a company's internal strengths and weaknesses and its external opportunities and threats. Strengths and weaknesses refer to what the company can and cannot do effectively in terms of internal operations. For example, a company might have an effective research and development unit but not the resources necessary to build an effective distribution system. Opportunities and threats refer to the external favorable conditions and risks facing a company. For example, a new geographic market might present an excellent opportunity for sales growth, but the introduction of a new product by a competitor could risk a loss of market share. A SWOT analysis identifies the core competencies of an organization, which it can build on, and the vulnerabilities that competitors can exploit, which must be addressed.
A competitive analysis is a more in-depth assessment of a company's opportunities and threats. Assess the company's current market position and its ability to sustain this position going forward. The five-forces model developed by Harvard Business School professor Michael Porter also can be used to understand the competitive dynamics. This model uses the rivalry between competitors, the power of suppliers and buyers, and the threat of new market entrants and substitutes to develop a comprehensive understanding of the industry context in which the firm operates. A company that is in a relatively strong position compared to its peers can build and extend this advantage, while a weaker company might find itself gradually squeezed out of the marketplace.
The situational analysis of a company determines the strategic issues that must be addressed. Gaps in a company's internal processes should be remedied because it must respond to external opportunities and protect itself against risks to thrive in a competitive environment. The situational analysis may identify businesses and markets that are no longer a strategic fit for a company and others where the company should invest additional funds.