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Understanding Your Business (Situation Analysis) Introduction

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Understanding Your Business (Situation Analysis) Introduction Understanding your business (Situation Analysis) Introduction Situation Analysis In order to profitably satisfy customer needs, the firm first must understand its external and internal situation, including the customer, the market environment, and the firm's own capabilities. Furthermore, it needs to forecast trends in the dynamic environment in which it operates. Situation analysis is basically done to analyze your: 1 Internal Environment (S.W.O.T.) 2 ‘Customer’ and ‘customer relation to product’ (5W H) 3 External Environment (P.E.S.T.) 4 Competitive Environment Situation analysis gives you a much better understanding about these things. It is used to understand what kind of environment your company will be in, what are the factors that may affect its possibility to succeed, and what might make your business fail. S.A’s offer both simplicity and flexibility in the structure of the activity. You can modify, move, add or delete information over any period of time as you discover information that you feel is relevant. A Situational Analysis is comprehensive and looks at all aspects of a business; drawing your focus to factors you may have otherwise overlooked. Its organized and easy to access; including relevant qualitative and quantitative information effecting business operations past, present & future. It allows you to easily collaborate with peers where the sharing of information can be a valuable tool in gaining opinions relevant to you decision to buy, sell or hold a position. Finally, any S.A. performed on a specific company is then easy to compare against peers in the same industry, sector or group of stocks to gain a sense of relative strength or weakness. A useful framework for performing a situation analysis is the 5 C Analysis. The 5C analysis is an environmental scan on five key areas especially applicable to marketing decisions. It covers the internal, the micro-environmental, and the macro-environmental situation. The 5 C analysis is an extension of the 3 C analysis (company, customers, and competitors), to which some marketers added the 4th C of collaborators. The further addition of a macro- environmental analysis (climate) results in a 5 C analysis, some aspects of which are outlined below. Internal Environment The Internal Environment of a company involves all activities of the business from an inside point of view: what factors affect the daily operations of the company. A S.W.O.T. is simply a four part comparison of a company’s internal environment that consists of Strengths, Weaknesses, Opportunities (for future success) and Threats (to future success). It’s important to not include any information from outside factors; we’re examining a company from within only and all other aspects are examined in the Situational Analysis later on in other components. Suitable Examples of each: Strength: streamlined supply chain management Weakness: poorly trained & executed sales force Opportunities: new strategic alliance with ABC Company Threat: rising material and overhead costs Not Suitable Examples of each: Strength: get stuff to places fast Weakness: crappy products Opportunities: sell more stuff Threats: head office might collapse because it’s old Company • Product line • Image in the market • Technology and experience • Culture • Goals Collaborators • Distributors • Suppliers • Alliances Customer & his/her relation to the product The Customer Environment of a company should be something you always pay attention to during this analysis. This section incorporates all the relevant answers to my 5W H format: Who, What, Where, When, Why & How. You want to examine everything you possibly can about a company’s product or service and how their customer/consumer base interacts with that. Examples may be: - Where do consumers get the product - When do customers purchase the product - What are customers buying - How often do customers buy the product - How does the company penetrate the market to get to its customers - Why do consumers buy the product - Who are their customers This section will provide insight back into the S.W.O.T. analysis so you can add or modify more specific information that may be involved. The importance here is to understand the target market, its habits, tendencies, likes & dislikes associated with a wide range of specific activities. Customers • Market size and growth • Market segments • Benefits that consumer is seeking, tangible and intangible. • Motivation behind purchase; value drivers, benefits vs. costs • Decision maker or decision-making unit • Retail channel - where does the consumer actually purchase the product? • Consumer information sources - where does the customer obtain information about the product? • Buying process; e.g. impulse or careful comparison • Frequency of purchase, seasonal factors • Quantity purchased at a time • Trends - how consumer needs and preferences change over time The External Environment The External Environment is usually the most difficult because it can be the hardest to find relevant information for; but is equally as important as the first two. This section is organized into a P.E.S.T. for the company and looks at all external factors outside of the daily operations of a business: Political, Economical, Social & Technological. What you want to look for here are external factors that may: influence the company’s business operations, legal or regulatory hindrance, emerging cultural trends, economic environment concerns or the changing needs of technology. Suitable Examples of each: Political: unionized workforce, government involvement & jurisdiction Economical: tariffs, embargos and foreign tax rules Social: cultural differences, community involvement Technological: rapidly changing factors, patent infringement barriers Not Suitable Examples of each: Political: government is full of crooks Economical: no one invests in this sector Social: people want more red shirts Technological: my phone dies when at my cottage Climate (or context) The climate or macro-environmental factors are: • Political & regulatory environment - governmental policies and regulations that affect the market • Economic environment - business cycle, inflation rate, interest rates, and other macroeconomic issues • Social/Cultural environment - society's trends and fashions • Technological environment - new knowledge that makes possible new ways of satisfying needs; the impact of technology on the demand for existing products. The Competitive Environment The Competitive Environment is the last component of a Situational Analysis. This section examines any and all factors that competition (whether direct or indirect) has or could have on the business you’re researching. You want to answer the questions: - Who are the competitors (direct & indirect) - What competitive pressures is the business exposed to - Limitations & Opportunities that competition currently or could provide - Vulnerability of the business in comparison to competition - What competitive advantage (if any) is the company up against Competitors • Actual or potential • Direct or indirect • Products • Positioning • Market shares • Strengths and weaknesses of competitors The Relationships among Environments in a Situation Analysis Internal Environmen t Obviously all the environments hold equal importance while uncovering the factors of Situational Analysis. If we are asked to choose the most important factor among all these above stated factors, then in our opinion Customers are very crucial in SA. Q: Of the three major environments in a situation analysis (internal, customer, external), which do you think is the most important in a general sense? Why? Understanding Consumers is Essential Marketing is all about understanding consumers and creating the products or services that will meet their needs in terms of design, price and place. The understanding of their needs will be reflected in the promotion of the offerings. You’ve heard that the customer is always right. You may or may not agree with that statement, but everyone ought to agree that customers hold a very important place in our lives. After all, without customers - people who buy our products and services - our businesses close down and we all pack up to go home. The faster you can adapt to accommodate customer needs, the stronger your company’s reputation. Just as parents of young children tend to their young breeds every need, businesses should concentrate on the needs of their customers. In today’s demanding business emporium, it is crucial that businesses consistently strive to focus on the needs of their customers. It makes no difference if your business offers a specified service, or multiple products. The bottom line is that the quality of customer service can ultimately dictate whether a business will flourish or fail. Businesses are dependent on customers to survive. Customers are the foundation of any business, without them a business simply wouldn’t exist. The importance of Customers • Customers are the most important people for any organization. They are the resource upon which the success of the business depends. When thinking about the importance of customers it is useful to remember the following points: 1. Repeat business is the backbone of selling. It helps to provide revenue and certainty for the business. 2. Organizations are dependent upon their customers. If they do not develop customer loyalty and satisfaction, they could lose their customers. 3. Without customers the organization would not exist. 4. The purpose of the organization is to
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