Context Analysis

Context analysis is used to analyse the environment in which a business operates. It considers both the internal and external environment, which is an important aspect of business planning. Its main goal is to analyse the environment in order to develop a plan of action for your business.

So how do you conduct a context analysis?

Step 1
Define the particular market or subject you wish to analyse and focus on. This could be for example a newly proposed product (subject).

Step 2
Conduct a trend analysis. This analyses the macro environmental factors in the external environment of your business, also know as a PEST analysis. It consists of analysing social, political, economical, technical and demographic trends. This can be done by determining which factors are relevant and by scoring each one according to its importance. This way you are able to identify which factors will have an influence on your business. These factors can’t be controlled but you can try to cope with them by adapting.

Step 3
The next step is to analyse your business’ competitors. It is important to know who your competition is and how they do their business. Four analysis techniques are used: determining competition levels, competitive forces, competitor behaviour and strategy. Businesses usually compete on several different levels. It is important that they analyse all of them so that they can better understand the demand. There are four levels of competition: consumer needs, general competition, brand and product. Consumer needs is the level of competition that looks at the needs and desires of consumers. General competition is the kind of consumer demand. Brand refers to which brand is preferred by consumers and product refers to the type of demand, the type of product preferred by consumers.

Step 4
Competitive forces are forces that determine the level of competition within a market. The forces that need to be taken into consideration and analysed are: the power of your competition, the threat of new entrants, buyers and suppliers bargaining power, the threat of substitute products and the importance of complementary products.

Step 5
Analyse your competitor’s behaviour. This is the defensive and offensive actions of your competition.

Step 6
Analyse your competitor’s strategy. This refers to how they compete with others, their low price strategy and their product differentiation strategy.

Step 7
The next step is to determine what threats and opportunities are presented by the market. The set of trends, either positive or negative, revealed by the trends and competitor analysis can be classified as either opportunities or threats.

Step 8
An analysis of the internal environment of the organisation takes place. The aim of this analysis is to determine which skills, knowledge and technological fortes the business possesses. Two types of analyses are conducted: an internal and competence analysis.

The internal analysis, or SWOT analysis, is used to identify the strengths and weaknesses of the organisation. Strengths are factors that can result in a market advantage and weaknesses are factors that give a disadvantage, as the business cannot comply with the needs of the market. Competence analysis identifies market, integrity and functional related competences. Competences are a combination of an organisation’s knowledge, skills and technology that gives them a competitive edge over their competition.

The ultimate goal of the context analysis is to develop the best a strategic plan for your organisation. The steps above provide stepping-stones to developing this plan. After following these eight steps you should have a better understanding of your business externally and internally, your market, your consumers and your competition. This analysis should help to identify any issues that need to be dealt with and help devise a plan to reach your organisation’s objectives.