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.
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 facts and not on their personal experiences or value systems.
The five elements of the STEEP analysis
The STEEP analysis is an acronym for the five key areas that each business must evaluate.
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.
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.
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 become more mainstream and affordable.
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.
What is the legal and political environment of the country the business operates? To what extent does the government intervene in business affairs?
Governments may exert their influence on 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.
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.
STEEP analysis case example: PepsiCo
In the final section of this article, we will conduct a STEEP analysis of PepsiCo.
Like its main rival The Coca-Cola Company, PepsiCo is impacted by the consumer preference for healthier beverage options over traditional soft drinks.
While soda sales have declined, the health-consciousness trend represents an opportunity for the company to enter a growing market.
PepsiCo has taken this chance with both hands, developing a range of lower-calorie food and beverage options that contain less salt and, in the case of food products, no harmful trans fats.
The company now uses a set of science-based nutrition criteria based on recommendations from the World Health Organization (WHO) and the U.S. Department of Agriculture (USDA).
PepsiCo also launched Nutrition Greenhouse in 2017, an incubator for budding food and beverage entrepreneurs in Europe.
PepsiCo uses artificial intelligence technology in a diverse range of applications. In one example, the company partnered with football star Lionel Messi to raise brand awareness of its Lays range of potato chips.
The innovation, which was called Lay’s Messi Messages, allowed fans to create a personalized message that appeared to come straight from the mouth of Messi himself.
The campaign was a success, with the technology used to send over 4 million messages in 10 languages.
Another customer-facing example of technology is the so-called “snackbot”, an AI-powered robot with a 20-mile range that roams around universities and sells Pepsi food and drinks to students.
At the University of the Pacific, for example, students can have orders delivered to more than 50 locations around the campus.
Considering that most sales are concentrated in the North American market, PepsiCo is vulnerable to rising inflation and unemployment in the United States.
The same can also be said for rising minimum wage mandates and increases in the cost of raw materials such as water.
The company is also, to some extent, reliant on a weak U.S. Dollar to drive sales.
For example, in 2016, sales fell 3% to $11.86 billion as a result of a strong dollar combined with market weakness in Europe and Latin America.
Environmental factors pose a significant risk to PepsiCo.
These include damage from extreme weather events, sea-level rise and associated water inundation, and the impact of higher temperatures and drought on crop growing cycles.
The company is also a significant source of plastic bottle pollution around the world.
As a globally recognized company, PepsiCo recognizes it has an important role in mitigating these impacts and wants to achieve net-zero emissions by 2040.
The company has also raised the stakes on its interim climate-based objectives, intending to reduce direct operation emissions by 75% and indirect value chain emissions by 40% before 2030.
PepsiCo spent $3.69 million lobbying its interests in 2020, with only The Coca-Cola Company and InBev spending more over the same period.
While the company did not disclose its exact reasons for doing so, it can be assumed some of the funds were used in opposition to government initiatives against sweetened carbonated beverages.
- 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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