A situation analysis "allows a company to understand their own internal and external situation, the customer, the market environment, and the firm’s own capabilities." This information is crucial for any company as it makes plans, conducts research and developmens new products, organizes marketing campaigns, and strives to remain profitable in the business environment.
Companies need to be aware of their capacity to produce and distribute goods, which relies upon their ability to obtain materials and resources, availability of factory space and equipment, having workers who have the skills needed to produce the goods, and so on. Companies need to understand the desires of potential customers in order to produce goods or services that will be purchased. Companies need to be able to change products or methods of manufacturing or marketing or in other ways in response to a dynamic business market.
Situational analysis can provide these kinds of vital information.