Dortmund dramatically lost the league title to Bayern Munich on the final matchday last season and this campaign failed to remain in contention for long.
They are in fourth place in the standings on 41 points, one ahead of fifth-placed RB Leipzig and 20 behind leaders Bayer Leverkusen. Stuttgart are third on 47 points. The top four teams qualify for the Champions League group stage next season.
"It is a difficult situation because it is only 11 matches left (in the Bundesliga)," Watzke told a conference call from the United States where his club is setting up an office.
"We have the fourth position now but it has been a difficult situation."
Watzke said last season's last-gasp title loss hit the team hard and he had not been too confident at the start of the season.
"You have the feeling the championship is there but you don't win it. That was a big problem for the team and the coach," he said. "For this season I was not optimistic of being competitive. We are not playing too good. We have two faces."
Dortmund may have been struggling in the Bundesliga and are 12 points behind second-placed Bayern Munich.
But they are still in the Champions League knockout stage, having drawn 1-1 in their last 16 first leg at PSV Eindhoven. They host them in the return leg in Germany next month.
"In the Bundesliga this year it is not very good. There is no flow. We must work hard to win games and it is not automatic," Watzke said.
"It is difficult. Leverkusen are very strong. Stuttgart played to avoid relegation last season and now they are playing fantastic football. Leipzig are always strong. We must get our points, win our games."
In the last 13 seasons Dortmund qualified all but once for the lucrative Champions League and Watzke said their European run this season was not over yet.
Dortmund had finished the group stage in top spot.
"I think the chance is more than 50% to go through to the quarters," he said. "Because we are playing in Dortmund. We have a lot of experience. Every time we win the group stage as number one, we go to quarters."
