The south-coast club have been one of the Premier League's surprise packages this season, with manager Ronald Koeman guiding the club to fifth place with 29 points from 17 matches.
Southampton's form has been particularly impressive considering Koeman had to deal with an exodus of several key best players at the start of the season, with the likes of Adam Lallana, Rickie Lambert and Luke Shaw all departing.
However, the task of sustaining a challenge for European football showed when they lost four straight matches in the Premier League recently - a run ended by a resounding 3-0 beating of Everton last weekend.
And Watson, who had a two-year spell at Southampton between 1995 and 1997, believes that the current squad needs a trio of additions to remain competitive.
"I think we need three new players, a striker who's different to [Graziano] Pelle, a winger who's different to [Dusan] Tadic and a new centre-back," he told Perform.
"When everyone is fit they have an outstanding squad. The biggest plus I've seen this year is that we've finally been able to change the game from the bench."
Watson also paid tribute to the job done by Koeman considering the uncertainty facing the Dutchman when he took the role in the close-season.
"I think he's been outstanding," he added. "The way they started the season with such confidence.
"It's never easy bringing players in, it's never easy for a new manager or his staff.
"It's just a happier place to be, recent weeks have tested that, but he's been outstanding."
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