September 30, 2008, 3:32 PM — There are two common models for situation analysis: SWOT and PEST. These models help you answer the questions at the core of situation analysis: Does the proposed initiative move the company forward in its e-Business Readiness strategy? Does the proposed initiative expand the firm's competitiveness?
A SWOT analysis reviews Strengths, Weaknesses, Opportunities, Threats and looks at both internal and external factors that impact the company’s decision to execute or not on any given initiative. The 'S' and 'W' components are specific to the company. The 'O' and 'T' factors are specific to the market in which the company operates. The internal analysis will focus on specifics within the company that either support (strength) or impede (weakness) the project execution. These factors would include operations, products, technology, support, organization and sales.
The external analysis of opportunities and threats help a firm determine the value of a project relative to the overall market. Opportunities and threats include factors such as overall market adoption of the proposed initiative, examination of competitors, suppliers and customers. This is where competitive analysis and internal analysis add value to the organization. A SWOT analysis would look like this:
Strengths – Opportunities
Identify the firm’s internal strengths to take advantage of external opportunities.
These are the optimal strategies to employ.
Weaknesses - Opportunities
Identify internal weaknesses that prevent or inhibit the firm from pursuing opportunities.
Prioritize and aim to strengthen weaknesses.
Strengths - Threats
Use strengths to avoid or reduce threats.
Do NOT attempt to tackle all of the threats to the firm at once.
Weigh the severity and immediacy of each threat.
Weakness - Threats
These are defensive tactics designed to reduce weaknesses.
A firm faced with many threats and weaknesses may have to consider merging, cutting costs, jettisoning product lines, expanding customer service.
A PEST analysis reviews Political, Economical, Social and Technological influences. Where a SWOT looks at the micro business environment, PEST reviews the macro environment. Conducting both analyses lays the ground work for the company to establish long term goals and the roadmap to achieving them.
A few of the elements to consider for each of the PEST components are:
Political: political stability, trade barriers, telecommunications regulation, tax policies, business licensing, employment laws and environmental regulations.
Economic: economic growth, foreign investment, interest rates, currency exchange rates, inflation, unemployment, average standard of living, savings rates.
Social: population age, population growth rate, education levels, overall concern for health issues, cultural practices.
Technological: research and development activities, speed of technology change, access to technology, access to technology-based skills.
Changes in the external environment can and do create opportunities for businesses. For example, in today’s fiscally constrained environment, companies can reduce office space expenses through virtual business processes, allowing the company to retain its talent and grow market share while its competitors struggle under unnecessary expenses.
Internal and external situation analysis is fundamental for developing a complete business strategy and roadmap. A comprehensive strategy supports a firm’s efforts in developing a sustainable competitive advantage. With a roadmap in hand, the business is prepared to respond to internal and external factors quickly and definitively, mitigating risk and exploiting opportunities.
