Mastering Situational Analysis Tools
When to use what business analysis tool
General managers must consistently evaluate their company's position to make informed strategic decisions. Situational analysis tools provide a structured approach to assessing internal and external factors that impact a company's performance. However, with various tools available, it can be challenging to determine which one to use. Do you use SWOT? Should you try Porter’s Five Forces? What about some of the new tools that are available?
This blog post will explore the pros and cons of popular situational analysis tools and provide guidance on when to use them, considering that every business faces a unique set of challenges. I will try to help you figure out which analysis tool is right for your situation.
SWOT Analysis:
SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is a simple yet comprehensive tool that helps identify a company's internal and external factors and how you may attack a situation based on where your strengths and weaknesses lie.
Pros:
SWOT analysis is easy to understand and can be conducted quickly, making it an excellent starting point for situational analysis, particularly for small to medium-sized B2B manufacturing companies. This is taught in most business programs, almost everyone knows how to complete this analysis.
Cons:
The simplicity of SWOT analysis may lead to oversimplifying complex issues, and the results can be subjective based on the perceptions of the team. Simple analysis usually leads to simple conclusions. Simple conclusions don’t always fix complex problems.
When to use:
I am not a huge fan of the SWOT analysis. I have a gag reflex whenever a consultant wants me to conduct one and pay them for it. The SWOT analysis is most effective when used as an initial assessment tool or for periodic check-ins to gauge a company's overall position. They also can be effective at lower levels of the organization to increase situational awareness and engagement surrounding the current organizational status.
Porter's Five Forces:
The Porter's Five Forces model examines the competitive landscape by analyzing five key factors: the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the intensity of competitive rivalry.
Pros:
This model provides a detailed understanding of the competitive landscape, helping general managers identify potential threats and opportunities in their industry. It is far more specific than the SWOT analysis and prompts managers to review specific areas that businesses often face risks and don’t realize it.
Cons:
This analysis is mostly about what is going on in your business right this second. There is no part of the analysis that works on what you need to do about the risks, or how to take advantage of opportunities, etc. Porter's Five Forces primarily focuses on external factors.
When to use:
This tool is particularly useful when a company needs to assess its competitive position and develop strategies to maintain or improve it. If a company can conduct this analysis, then take it a step further and develop an action plan, then it can be useful in certain situations.
SOAR Analysis:
SOAR (Strengths, Opportunities, Aspirations, Results) analysis is a forward-looking tool that focuses on an organization's positive aspects and future goals. This is one of the few analysis options that lend itself to today’s results-oriented organizations with increasingly aggressive goals.
Pros:
By emphasizing strengths and opportunities, SOAR analysis helps align stakeholders and create a shared vision for the company's future. While the corporate vision is basic blocking and tackling, most companies do a poor job at articulating it and an even poorer job at engaging the entire organization around it. This analysis allows for the vision to integrate with the strategy, which in turns strengthens the buy-in to the vision.
Cons:
The SOAR analysis may overlook potential weaknesses and threats, which could lead to blind spots in strategic planning. We have all been here, where we focus too much on the aspirational goal-setting that we need in order to hit the aggressive targets, and we miss something that was a huge risk that we needed to take care of first in order to grow.
When to use:
The SOAR analysis is most effective when a company wants to set strategic priorities, create a growth roadmap, and foster a positive organizational culture. If that sounds like almost every large company with aggressive goals, then you realize why I really like this analysis.
General managers should use a combination of tools to gain a comprehensive understanding of their business situation. By leveraging the strengths of each tool and understanding their limitations, general managers can make informed decisions that drive their company's success in the competitive corporate landscape. Understanding where your company is in the business cycle, understanding the pros/cons of each analysis, and when to use them will also help you determine what analysis is best for your team.
Nothing kills engagement more than working on an analysis, coming up with a plan, then executing poorly or not at all. This guide is meant to help you zero in on what analysis to use so that you can keep your teams engaged and create successful business plans moving forward.