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.
|1. Socio-cultural (S)||Socio-cultural factors encompass societal characteristics that can impact a company’s product offering and operations.||– Examine health consciousness, population growth, religion, education, income distribution, and societal trends. – Understand how these factors influence consumer behavior and market demand.||– Guides product design, marketing strategies, and customer engagement based on societal characteristics. – Anticipates shifts in consumer preferences and cultural influences on business.||– Developing health-focused product lines in response to health-conscious trends. – Tailoring marketing campaigns to match cultural values and preferences.||Socio-cultural Example: “An aging population may lead to increased labor costs and changes in workforce dynamics.”|
|2. Technological (T)||Technological factors include research and development, automation, patent regulation, and the pace of technological change.||– Assess the impact of technology on business operations, product life cycles, and the need for innovation. – Recognize the importance of adapting to rapid technological advancements.||– Drives innovation, research investments, and adaptation to new technologies. – Shapes product development and production processes.||– Investing in R&D to develop cutting-edge technology products. – Adapting manufacturing processes to automation and Industry 4.0 standards.||Technological Example: “Companies reliant on technological advancements face rapid changes in the competitive landscape.”|
|3. Economic (E)||Economic factors consider consumer purchasing power under various economic conditions, including international trade, interest rates, job availability, inflation, and currency fluctuations.||– Analyze economic indicators, trade dynamics, inflation rates, and currency exchange rates affecting consumer behavior and market conditions. – Assess the implications of economic fluctuations on business operations and strategies.||– Informs pricing strategies, market expansion decisions, and risk management strategies based on economic forecasts. – Anticipates shifts in demand and consumer behavior under different economic scenarios.||– Adjusting pricing strategies in response to inflation. – Evaluating the impact of currency fluctuations on international sales.||Economic Example: “Tesla benefits from higher consumer purchasing power as electric cars become more affordable.”|
|4. Environmental/Ecological (E)||Environmental/ecological factors encompass natural resources, climate change, weather patterns, and ecological impact assessments.||– Consider environmental sustainability, resource availability, climate change effects, and compliance with environmental laws and regulations. – Assess the ecological footprint of business operations.||– Drives sustainability initiatives, environmentally responsible practices, and adherence to environmental regulations. – Influences product design and resource management to reduce environmental impact.||– Implementing energy-efficient practices in manufacturing. – Developing eco-friendly packaging to address environmental concerns.||Environmental Example: “Understanding climate change effects and environmental regulations is crucial for sustainable business practices.”|
|5. Political (P)||Political factors involve the legal and political environment in which a business operates, including government intervention in business affairs.||– Assess the legal and political landscape, labor laws, trade regulations, tariffs, and political stability impacting business operations. – Recognize government influence on industry and trade policies.||– Ensures compliance with local and international laws and regulations. – Informs government relations efforts and strategies for navigating political influences.||– Adapting business operations to comply with changing trade regulations. – Engaging in lobbying efforts to influence favorable government policies.||Political Example: “Tesla faces opposition from established automakers with government lobbying relationships.”|
Understanding the STEEP analysis
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.
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.
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.
Additional Case Studies
Socio-cultural (S): As consumer preferences shift towards healthier and organic beverage options, Starbucks has introduced a variety of teas, smoothies, and vegan options in its menu. The global preference for local coffee flavors also drives Starbucks to introduce local beverages in different countries.
Technological (T): Starbucks has embraced technology by launching a mobile app that allows for online orders and payments. The company has also introduced wireless charging stations in select stores and uses data analytics to predict consumer buying patterns.
Economic (E): Fluctuations in coffee bean prices directly impact Starbucks’ bottom line. Additionally, global economic downturns or recessions could lead to reduced consumer spending on premium beverages.
Environmental/ecological (E): Starbucks has launched initiatives to reduce its carbon footprint, including the introduction of straw-less lids. They have also committed to sourcing 100% ethically sourced coffee.
Political (P): Changes in trade policies, especially in countries where Starbucks sources its coffee, can impact the company. Additionally, local regulations related to health and sanitation can influence store operations.
Socio-cultural (S): Athleisure has become a significant trend, with more consumers opting for comfortable athletic wear even outside the gym. Nike has capitalized on this by expanding its range of sportswear suitable for daily wear.
Technological (T): Nike has ventured into wearable technology by introducing self-lacing shoes and integrating its products with fitness apps to enhance the user experience.
Economic (E): Global economic conditions can affect consumers’ purchasing power, which in turn can impact Nike’s sales. Currency fluctuations can also influence the company’s international revenues.
Environmental/ecological (E): There’s a growing demand for sustainable and ethically produced products. Nike has responded by introducing a line of shoes made from recycled materials and committing to more sustainable production processes.
Political (P): Trade tensions, especially between the US and China, can affect Nike’s production since a significant portion of its products are manufactured in Asia. Labor laws and regulations in production countries can also influence operations.
Socio-cultural (S): Consumers today prioritize not only the functionality of their gadgets but also design and aesthetics. Apple’s emphasis on sleek designs and a premium feel caters to this preference.
Technological (T): Rapid technological advancements mean that Apple must continually innovate to stay ahead. Features like Face ID, augmented reality, and advanced chip technology are examples of Apple’s innovation in response to technological trends.
Economic (E): Economic downturns can reduce consumers’ ability to purchase premium-priced products like those of Apple. Additionally, currency fluctuations can affect Apple’s international revenues.
Environmental/ecological (E): Apple has made commitments towards sustainability, including the goal to make its products using only recycled or renewable materials and achieving a net-zero carbon footprint by 2030.
Political (P): Regulatory challenges, especially in international markets like Europe and China, can affect Apple’s operations. Issues like data privacy and antitrust concerns are particularly relevant for the company.
- 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.
- Understanding STEEP Analysis: The STEEP analysis is a tool used to evaluate external factors that impact an organization. It stands for socio-cultural, technological, economic, environmental/ecological, and political, focusing on these key areas in the analysis.
- Purpose of STEEP Analysis: The STEEP analysis provides a business perspective on the market and external factors that can influence future growth. It helps decision-makers consider facts rather than personal experiences or values when making strategic choices.
- The Five Elements of STEEP Analysis:
- Socio-cultural (S): Considers societal characteristics such as health consciousness, population growth, religion, education, and income distribution.
- Technological (T): Evaluates research and development, automation, patent regulation, technological changes, and product life-cycle.
- Economic (E): Examines factors like international trade, interest rates, job availability, inflation, innovation, and currency rate fluctuations.
- Environmental/Ecological (E): Considers weather, natural resources, climate change, and environmental laws and regulations.
- Political (P): Analyzes legal and political environments, government intervention in business affairs, labor laws, trade restrictions, tariffs, and political instability.
- Conducting a STEEP Analysis:
- Understand the environmental factors and their historical evolution.
- Determine interrelatedness between trends and external areas.
- Relate trends to company issues and identify those with significant impact.
- Forecast the future direction of issues and their driving forces.
- Draw conclusions on how the external environment impacts present and future strategies.
- STEEP Analysis Case Example: PepsiCo:
- Socio-Cultural: Health-conscious consumer preference for healthier beverages leads PepsiCo to develop lower-calorie options.
- Technological: PepsiCo utilizes AI technology in marketing campaigns and uses AI-powered robots for snack delivery.
- Economic: Concentrated sales in North America make PepsiCo vulnerable to inflation, unemployment, and currency fluctuations.
- Environmental: Climate change, extreme weather, and plastic pollution pose risks to PepsiCo; they aim to achieve net-zero emissions by 2040.
- Political: PepsiCo spends on lobbying, possibly in opposition to government initiatives against sweetened carbonated beverages.
Connected Analysis Frameworks
Related Strategy Concepts: Go-To-Market Strategy, Marketing Strategy, Business Models, Tech Business Models, Jobs-To-Be Done, Design Thinking, Lean Startup Canvas, Value Chain, Value Proposition Canvas, Balanced Scorecard, Business Model Canvas, SWOT Analysis, Growth Hacking, Bundling, Unbundling, Bootstrapping, Venture Capital, Porter’s Five Forces, Porter’s Generic Strategies, Porter’s Five Forces, PESTEL Analysis, SWOT, Porter’s Diamond Model, Ansoff, Technology Adoption Curve, TOWS, SOAR, Balanced Scorecard, OKR, Agile Methodology, Value Proposition, VTDF Framework, BCG Matrix, GE McKinsey Matrix, Kotter’s 8-Step Change Model.