SOSTAC & Situation Analysis (External)

Situation Analysis is the first part of the Strategic Planning Framework, known as SOSTAC.

The SOSTAC framework uses the Outside-In analysis method to form a marketing plan, starting with Situation Analysis, which enables marketers to analyse the external and internal environment. This external analysis will highlight and threats and opportunities to the company before they continue with the rest of their marketing plan.

So what counts as internal and external? And how can we break the environment up into smaller chunks to analyse efficiently?  Well, I've conveniently laid it out in a diagram for you below...

The external environment is shown in light blue, and the internal in dark blue.  As you can see, the external environment can be split into two major sections; the macro environment, and the micro environment.  The macro covers a much wider area, including political legislation and social issues and can be analysed using the PEST/PESTEL method to establish market constraints.  The 5 Forces (Porter, 1980) method can also be used to establish the dynamics of the industry, though this is not generally used organisation-wide, but at a strategic business unit (SBU) level (Drummond et al., 2008) .  The micro environment covers the sectors much closer to home and could lie within the company's sphere of influence, i.e. the direct competition, the wider sector and the consumers.  The internal environment looks at the organisation as a whole and allows thorough internal analysis using tools such as the resource based view (RBV).

Macro Analysis Tools

PEST:
Political - e.g. tax, legislation, foreign trade agreements
Economical - e.g. interest rates, inflation rates
Social - e.g. education levels, attitudes and values
Technological - e.g. rate of technological advancement, materials development

5 Forces:
Buyers - powerful when a small number of buyers control a large number of smaller producers/ have a large market share
Suppliers - powerful when there are few suppliers (companies cannot switch suppliers easily)
Potential Entrants - the threat of new companies entering your market (depends on ease of entry e.g. high monetary costs etc)
Subsitutes - indirect competition may drive reduce your sales (e.g. a car or a holiday)
Competitive Rivalry - intensity of competition industry-wide

Micro Analysis Tools

Industry - industry life cycle
Market - consumer analysis, trends, distribution channels, market size (actual & potential)
Competitors (incl. strategic groups) - market share, sales turnover, capabilities, product range, distribution, brand image

Once the situation has been analysed, it is possible to place a company's competitors in a perceptual map (often covering quality or price vs another factor) or positioning triangle showing cost leadership, focus and differentiation, as defined by Porter (1980).

The analysis then turns inward, continuing with the internal situational analysis within the SOSTAC framework.

Bibliography

Drummond, G.  Ensor, J.  Ashford, R. (2008) Strategic Marketing: Planning and control. 3rd Edition., USA:Butterworth-Heinemann
Porter, M. E. (1980) Competitive strategy: techniques for analyzing industries and competitors. Free Press