A situation analysis is considered to be the foundation of a business plan. It is an analysis of the various internal and external factors that affect the direction of a business(1). The basic elements of a situation analysis include (2):
- The cooperative environment, which includes all stakeholders in the business.
- The competitive environment, which includes other firms that compete for sales and resources.
- The economic environment, being the various macroeconomic conditions present such as inflation and unemployment.
- The social environment, which relates to the various norms, attitudes and social traditions.
- The political environment which includes public attitudes, reactions, and perceptions, the opinion of business critics and organizations like the Better Business Bureau in the US and Canada.
- The legal environment which includes all the regulations and laws in effect at municipal, state and federal levels that affect the business directly or indirectly.
The result of a situation analysis makes the firm aware of its strengths, weaknesses, opportunities, and threats also called SWOT(3). A SWOT analysis helps to create organizational goals, strategies and implementation practices. It supports decision-making and creates an understanding of the organization (4).
Such self-examination and self-awareness through the use of SWOT makes it possible for the organization to be more competitive. Situation analysis makes it possible for the organization to view itself from a lens of the past, the present and the future(5). Being able to plan for the future, using data and analysis, also known as informed predictions (6) is the primary concern (7).
To put situation analysis in proper context, let’s use an imaginary company, Yellow Software Inc as an example. Our imaginary company, Yellow Soft, produces software used by legal experts such as lawyers and judges, to ease their task of either finding past cases or past notes. The situation analysis would evaluate the Yellow Soft’s history as well as its present situation with regards to various sociopolitical, cooperative, legal, competitive and economic factors (8).
After conducting a situation analysis, Yellow Soft identifies its strength to be its technical competencies and its weakness being its small size and limited resources compared to its competitors. Yellow Soft sees an opportunity in incorporating artificial intelligence technology, thereby driving value and innovation. The threat perceived is the possibility of the enactment of a law which greatly dilutes the innovative potential of artificial intelligence.
Mindful of all aspects related to its situation, Yellow Software Inc. would be able to properly define its market, know how big it is, and know the relevant technology trends, (9) in this case it would be artificial intelligence.
References
*7-Goetsch, D. L. (2006). Effective Strategic Planning for Competitive Advantage: Ten Steps for Technical Professions. Upper Saddle River: Pearson Education Inc.
*1,3,4-Lorette, K. (n.d.). A situational analysis of a strategic marketing plan. Retrieved January 26, 2017, from http://smallbusiness.chron.com/situational-analysis-strategic-marketing-plan-1474.html
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