The STEEP analysis is a tool used to map the external factors that impact an organization. STEEP stands for the five key areas on which the analysis focuses: socio-cultural, technological, economic, environmental/ecological, and political. Usually, the STEEP analysis is complementary or alternative to other methods such as SWOT or PESTEL analyses.
Understanding the STEEP analysis
Fundamentally, the STEEP analysis is an external environment evaluation strategy.
In business, the external environment is driven by multiple factors that an organization has no direct control over.
Thus, each factor has the potential to force decision-makers to act quickly without duly considering the consequences.
The STEEP analysis gives a business perspective on the market it operates in. It stimulates discussion on the various societal factors that may impede future growth, enabling the creation of reasoned and considered strategies.
Perhaps most importantly, the STEEP analysis allows key personnel to make decisions based on fact and not on their personal experiences or value systems.
The five elements of the STEEP analysis
The STEEP analysis is an acronym of the five key areas that each business must evaluate.
- Socio-cultural (S) – this encompasses a broad range of societal characteristics likely to affect the product offering or operations of a company. This includes factors such as health consciousness, population growth rate, religion, education, and distribution of income. For example, an aging population may result in a smaller workforce and in turn, increasing labor costs.
- Technological (T) – including research and development, automation, transport, patent regulation, the product life-cycle, and the rate of technological change. Here, companies that rely on advances in technology to generate new products are the most prone to rapid changes in the environment.
- Economic (E) – how much purchasing power does the consumer have under certain economic conditions? Factors that influence the economy include international trade, interest rates, job availability, inflation, innovation, and currency rate fluctuations. Tesla is benefitting from higher consumer purchasing power as electric cars becoming more mainstream and affordable.
- Environmental/ecological (E) – or factors such as weather, natural resources, and climate change. The latter in particular is creating new markets while simultaneously destroying others. Businesses also need to be aware of the ecological footprint of their operations in environmentally sensitive areas. To some extent, this involves an understanding of environmental laws and regulations.
- Political (P) – what is the legal and political environment of the country the business operates in? To what extent does the government intervene in business affairs? Governments may exert their influence with labor laws, trade restrictions, tariffs, or political instability. Despite the success of Tesla, the company continues to face opposition from established automakers who have longstanding relationships with Government lobbyists.
Conducting a STEEP analysis
To ensure that the STEEP analysis is effective, decision-makers should follow these steps:
- Understand the environmental factors. In other words, what are the current events or trends that prove the factor exists? How have these trends evolved from a historical point of view? How volatile are the trends? What are the short and long-term impacts?
- Determine trend interrelatedness. Next, assess the relationship between each trend and one of the five external areas. Do conflicts exist? If not, how is each related to the other?
- Relate trends to company issues. These are trends with the power to either help or hinder a business from carrying out its strategy. From this list, the business should identify the trends with the most potential impact.
- Forecast the future direction of issues. This step goes beyond information collation. What are the driving forces of the core issues? What are the causes or symptoms of trends? This is a laborious process but well worth the effort.
- Make conclusions. How will the external environment impact the present and future strategy? A robust conclusion should detail the potential implications for multiple environmental factors on company success.
- The STEEP analysis is an evaluative tool used to assess the impact of environmental factors on strategy implementation.
- The STEEP analysis is an acronym for five key environmental areas: socio-cultural, technological, environmental/ecological, economic, and political.
- The STEEP analysis is a somewhat laborious process, but the benefits to the organization in being able to executive strategy are significant.
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