If you run a Start-Up or an SME and you want to have a clear understanding of your current position in the business environment and also your capabilities then you need to conduct a Situation Analysis.
The best way to do that is to use a collection of the most important methods that exist out there for conducting situation analysis. These methods will help you to put all the necessary data together in order to comprehend where you are business wise, to plan and to base your decision making on analyzed facts.
So, what are these methods? There are four well-known methods that we usually use for analyzing the situation of a business. These are the following:
1. SWOT Analysis
SWOT Analysis is the method that businesses use for understanding the strengths and weaknesses they have (internal) and also the opportunities and threats that exist in the market they operate in (external). The word SWOT comes from the words, Strengths, Weaknesses, Opportunities and Threats. It is one of the most famous ways of business analysis, but you have to be realistic in the data you put in. SWOT analysis is very good for identifying issues, for strategic planning and for decision making.
2. PEST Analysis
PEST Analysis is an acronym for Political, Economic, Social and Technological. It is a method of analysis for identifying the external factors that exist and affect your business.
Political factors such as government, regulations, legal issues, taxation and so on.
Economic factors like inflation, growth of the economy, interest rates, unemployment rate, economic policies, etc.
Social factors are the demographics, lifestyle, education levels, culture and other.
Finally, Technological factors that have to do with the existing technology and limitations, R &D spending, innovation, internet, and so on.
3. 5C’s Analysis
5C’s Analysis comes from the 5 C’s which are the following: Company, Competitors, Customers, Collaborators, and Climate.
In the Company section you can put everything that has to do with your business such as products, services, corporate brand and brands, history, patens, assets, culture, positioning, know-how, location, etc.
In the Competitors section you can put everything that has to do with your competition (direct and indirect). Market shares, positioning, and comparison between them and you in all the areas, products/services, distribution, prices, promotion, internet, social media, PR, USP’s production capabilities, R & D, location, culture, innovation, assets, know-how, and so on.
In the Customers section you can put all the elements of segmentation, consumer behavior, habits, demographics, social and cultural elements, lifestyles, believes, etc.
In the Collaborators section you can put all the characteristics of your suppliers, agencies, distribution, alliances, and so on.
Finally, in the Climate you analyze anything you have already put in the PEST Analysis plus the environmental issues or regulations that affect your company.
4. Porter’s Five Forces Industry Analysis
- Threat of New Market Entrants
- Threat of Substitution
- Competitive Rivalry
- Buyer Power
- Power of Suppliers
Last but not least, you can use the method of Porter’s Five Forces Industry Analysis. This is a closer look to your industry and market. This method is a model from Michael E. Porter’s 1980 book called “Competitive Strategy: Techniques for Analyzing Industries and Competitors” According to Porter, there are five forces that determine the attractiveness of an industry and therefore the overall profitability. That is why it is very important to analyze these five forces.
The first force that you should analyze in your industry and market is the Threat of New Market Entrants. Here, you analyze how easy it is for new companies to enter the industry and the market you operate in. How many barriers exist that make the entrance of new companies difficult?
The second force is the Threat of Substitution. How many companies can switch to a substitute product or service that can create extra competition for you? Is this easy for them to do regarding the costs? How many alternative products or services consumers have instead of yours? All the factors that play a role in this area should be reported.
The Competitive Rivalry is the third force. Here you analyse the intensity of your competition. All the factors that determine the profitability of your industry and market (created by your competitors) have to be mentioned.
The first three forces are the “Horizontal” competition. The fourth and fifth forces are the “vertical” competition. Let’s see them.
The fourth force is the Buyer Power. Here you analyze the pressure your customers can place in the industry and market. What are the switching costs of your customers? What is their bargaining power? Are your customers concentrated? Can they force down the prices? Try to think as many factors as possible.
Lastly, the fifth force, Power of Suppliers, is also significant. Here you analyze the pressure that suppliers place in the industry and the market you operate. How many suppliers exist? Are they concentrated? Can they expand vertically and be your competitors in the future? What is the power of the distribution channel? Do you have high fixed costs? Is there scarcity of resources? Do you know if suppliers favor in their pricing policy your competitors? Again, it is important to think as many factors as possible.
Therefore, following these methods, you will conduct a situation analysis for your business that is truly professional and will help you understand clearly where you are and where you are going as a company.
How did you conduct Situation Analysis for your business so far?