Context analysis

The first step of the method is to define a particular market (or subject) one wishes to analyze and focus all analysis techniques on what was defined. A subject, for example, can be a newly proposed product idea.

The next step of the method is to conduct a trend analysis. Trend analysis is an analysis of macro environmental factors in the external environment of a business, also called PEST analysis. It consists of analyzing political, economical, social, technological and demographic trends. This can be done by first determining which factors, on each level, are relevant for the chosen subject and to score each item as to specify its importance. This allows the business to identify those factors that can influence them. They can’t control these factors but they can try to cope with them by adapting themselves. The trends (factors) that are addressed in PEST analysis are Political, Economical, Social and Technological; but for context analysis Demographic trends are also of importance. Demographic trends are those factors that have to do with the population, like for example average age, religion, education etc. Demographic information is of importance if, for example during market research, a business wants to determine a particular market segment to target. The other trends are described in environmental scanning and PEST analysis. Trend analysis only covers part of the external environment. Another important aspect of the external environment that a business should consider is its competition. This is the next step of the method, competitor analysis.

As one can imagine, it is important for a business to know who its competition is, how they do their business and how powerful they are so that they can be on the defense and offense. In Competitor analysis a couple of techniques are introduced how to conduct such an analysis. Here I will introduce another technique which involves conducting four sub analyses, namely: determination of competition levels, competitive forces, competitor behavior and competitor strategy.

Businesses compete on several levels and it is important for them to analyze these levels so that they can understand the demand. Competition is identified on four levels:

• Consumer needs: level of competition that refers to the needs and desires of consumers. A business should ask: What are the desires of the consumers?
• General competition: The kind of consumer demand. For example: do consumers prefer shaving with electric razor or a razor blade?
• Brand: This level refers to brand competition. Which brands are preferable to a consumer?
• Product: This level refers to the type of demand. Thus what types of products do consumers prefer?

Another important aspect of a competition analysis is to increase the consumer insight. For example: [Ducati] has, by interviewing a lot of their customers, concluded that their main competitor is not another bicycle, but sport-cars like [Porsche] or [GM]. This will of course influence the competition level within this business.

These are forces that determine the level of competition within a particular market. There are six forces that have to be taken into consideration, power of the competition, threat of new entrants, bargaining power of buyers and suppliers, threat of substitute products and the importance of complementary products. This analysis is described in Porter 5 forces analysis.

Competitor behaviors are the defensive and offensive actions of the competition.

These strategies refer to how an organization competes with other organizations. And these are: low price strategy and product differentiation strategy.

The next step, after the trend analysis and competitor analysis are conducted, is to determine threats and opportunities posed by the market. The trends analysis revealed a set of trends that can influence the business in either a positive or a negative manner. These can thus be classified as either opportunities or threats. Likewise, the competitor analysis revealed positive and negative competition issues that can be classified as opportunities or threats.

The last phase of the method is an analysis of the internal environment of the organization, thus the organization itself. The aim is to determine which skills, knowledge and technological fortes the business possesses. This entails conducting an internal analysis and a competence analysis.

The internal analysis, also called SWOT analysis, involves identifying the organizations strengths and weaknesses. The strengths refer to factors that can result in a market advantage and weaknesses to factors that give a disadvantage because the business is unable to comply with the market needs.

Competences are the combination of a business’ knowledge, skills and technology that can give them the edge versus the competition. Conducting such an analysis involves identifying market related competences, integrity related competences and functional related competences.

The previous sections described the major steps involved in context analysis. All these steps resulted in data that can be used for developing a strategy. These are summarized in a SWOT-i matrix. The trend and competitor analysis revealed the opportunities and threats posed by the market. The organization analysis revealed the competences of the organization and also its strengths and weaknesses. These strengths, weaknesses, opportunities and threats summarize the entire context analysis. A SWOT-i matrix, depicted in the table below, is used to depict these and to help visualize the strategies that are to be devised. SWOT- i stand for Strengths, Weaknesses, Opportunities, Threats and Issues. The Issues refer to strategic issues that will be used to devise a strategic plan.

This matrix combines the strengths with the opportunities and threats, and the weaknesses with the opportunities and threats that were identified during the analysis. Thus the matrix reveals four clusters:

• Cluster strengths and opportunities: use strengths to take advantage of opportunities.
• Cluster strengths and threats: use strengths to overcome the threats
• Cluster weaknesses and opportunities: certain weaknesses hamper the organization from taking advantage of opportunities therefore they have to look for a way to turn those weaknesses around.
• Cluster weaknesses and threats: there is no way that the organization can overcome the threats without having to make major changes.

The ultimate goal of context analysis is to develop a strategic plan. The previous sections described all the steps that form the stepping stones to developing a strategic plan of action for the organization. The trend and competitor analysis gives insight to the opportunities and threats in the market and the internal analysis gives insight to the competences of the organization. And these were combined in the SWOT-i matrix. The SWOT-i matrix helps identify issues that need to be dealt with. These issues need to be resolved by formulating an objective and a plan to reach that objective, a strategy.