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1 Strategy in 3D Essential Tools to Diagnose, Decide, and Deliver By Greg Fisher John Wisneski Rene Bakker Pre-published excerpt 2 --- Chapter 6 --- STEEP Purpose and Objective The purpose of a macro environmental (STEEP) analysis is to capture and interpret what is happening (and what is likely to happen) in the environment in which a business operates. STEEP stands for Social, Technical, Economic, Ecological, and Political, and does not prioritize one environmental factor over another. It provides a structured way to account for the trends, forces, and changes beyond the boundaries of the firm, which may impact the operations and markets of the firm. Underlying Theory The STEEP framework has been around for a number of decades and has gained widespread recognition.
Rather than being intrinsically tied to one distinct theoretical perspective, STEEP analysis, in its various forms, has touchpoints with multiple strands of business and management research that are broadly interested in understanding, monitoring and shaping the organizational environment. As such, STEEP has conceptual connections to theories that place a heavy emphasis on the environment like Resource Dependence Theory1 and Population Ecology2. However, such relations are relatively loose and STEEP analysis should mainly be viewed as a broad, encompassing heuristic for strategically classifying and monitoring the organizational environment, i.e. “the broad set of forces emanating or operating from outside the organization that can affect its competitive performance.â€3 A central assumption in theories of the organizational environment is that organizational performance and survival depend, at least in part, on an organizational environment that can withhold or supply critical resources on which organizations depend.
Pfeffer and Salancik (1978) defined environmental dependence as a combination of the importance of a resource to the organization and the number of sources from which the resource is available, as well as the number, variety, and relative power of organizations competing for the resource.4 The earliest reference to STEEP analysis specifically is a study by Francis J. Aguilar that dates back to 1967, who discussed ‘ETPS’ as a taxonomy of the environment: Economic, Technical, Political, and Social.5 Since then, authors have jumbled these 1 Pfeffer, J. & Salancik, G., The external control of organizations: A resource dependence perspective. (Palo Alto, CA: Stanford University Press, 2003). 2 Hannan, M.
T., & Freeman, J. The population ecology of organizations. American Journal of Sociology, (), . 3 Fleisher, C. S., & Bensoussan, B.
E., Strategic and competitive analysis: methods and techniques for analyzing business competition. (Upper Saddle River, NJ: Prentice Hall, 2003) (p. 269). 4 Pfeffer, J. & Salancik, G., The external control of organizations: A resource dependence perspective. (Palo Alto, CA: Stanford University Press, 2003). 5 (accessed July 31, 2017). 3 letters into several orderings (not necessarily related to any specific order of importance) and added Ecological as a separate factor in its own right, leading to the common use of the term STEEP.
The environment can be conceptually divided in three levels: internal environment (forces inside the organization), operating environment (meso-level forces that are external to the organization but which have direct and relatively immediate relationships with the organization, like customers, suppliers, competitors, and strategic partners), and the general environment (broad, macro-level forces external to the organization, which have more long-term influences and which are generally beyond the control of the organization). STEEP factors are generally at play at the level of the general environment.6 Core Idea Macro environmental (STEEP) analysis acts as a checklist for evaluating the trends, forces, and changes beyond the boundaries of the firm that may create opportunities or threats for a firm or industry.
Each letter in the STEEP acronym accounts for a major macro environmental factor that may impact a business or industry, now or in the future. These macro environmental factors are as follows: (1) Sociocultural factors, (2) Technological factors, (3) Economic factors, (4) Ecological factors, and (5) Political and legal factors. By covering each of these major factors in a macro environmental analysis, a strategist can be somewhat confident that the majority of major macro environmental issues that may impact the strategy and performance of a firm have been considered. Here is a summary of the macro environmental factors that are considered in a STEEP analysis. Factors Description Considerations Sociocultural factors Sociocultural factors capture societies’ cultures, norms, beliefs, and behaviors; as well as demographic shifts in population distribution. • Ideological issues and concerns • Lifestyle and fashion trends • Population growth and segmentation • Age distribution • Media views and influence Technological factors Technological factors account for technology changes and trajectories, including the emergence of new technologies that may disrupt a firm or industry. • Technology maturity • Emergent technology developments • Pace of technological change • Research funding and focus • Licensing and patenting norms and regulations Economic factors Economic factors account for shifts in economic indicators and trends and the impact of those indicators and trends on a firm and industry. • GDP growth rates • Interest rates • Employment levels • Price stability (inflation & deflation) • Currency exchange rates • Income distribution 6 Fleisher, C.
S., & Bensoussan, B. E., Strategic and competitive analysis: methods and techniques for analyzing business competition. (Upper Saddle River, NJ: Prentice Hall, 2003) (p. 269). 4 Ecological factors Ecological factors concern broad environmental issues pertaining to the natural environment, global warming, and sustainable economic growth. • Consumer preferences and demands for sustainable products and services • Environmental regulation and incentives • Access to sustainable resources (e.g. natural resources) Political and legal factors Political and legal factors account for the processes and actions of government and for changes in relevant laws, regulations, policies, and incentives. • Industry laws and regulations • Political party policies & power distribution • Ability to influence political decisions • Voting rates and trends • Power and focus of regulatory agencies Depiction 5 Process 1.
For each major macro-economic factor (sociocultural, technological, economic, ecological, political and legal) spend time brainstorming and researching major trends, forces, and changes. 2. Identify and describe the most salient trends, forces, and changes under each factor. Collect extra data on each salient trend, force, or change, if necessary. 3.
Examine salient trends, forces, and changes for each factor alongside one another. Identify interconnections and dependencies between them. 4. Forecast future directions and implication for each salient trend, force, or change. 5.
Derive implications for the strategy of the firm from each salient trend, force, or change identified. Insight or Value Created A macro environmental (STEEP) analysis provides perspective and insight on significant environmental issues that may have impacted a firm’s level of competitiveness in the past and/or may impact competitiveness in the future. As such it may serve as a key input into a strategic diagnosis and discussion. The activity prompts managers to think about issues that exist beyond a firm’s boundaries and outside its immediate concerns and activities. It provides a big- picture perspective for evaluating what has happened and what is likely to happen with a firm in relation to its environment.
Risks and Limitations A macro environmental (STEEP) analysis is highly dependent on a manager’s interpretation of salient trends, forces, and changes. It helps managers consider trends, forces, and changes under different major categories, but does not really provide a way for them to assess which issues have had, or will have, the most significant impact on the business. Different managers may interpret different issues under each of the major STEEP factors very differently. A macro environmental (STEEP) analysis requires a long-term orientation, yet many managers are assessed on short-term performance. Therefore, some managers may feel that the issues that arise from a STEEP analysis will take too long to affect the performance of a firm, and hence are beyond the scope of issues that they wish to consider as a means to impact firm performance.
Paper for above instructions
A Comprehensive Study on STEEP Analysis
Introduction
In an ever-evolving business landscape, today's organizations face myriad challenges and opportunities arising from their macro environments. To strategically navigate these waters, managers often leverage frameworks that elucidate the broader trends impacting their organizations. One such framework is the STEEP analysis, which categorizes external macro-environmental factors into Social, Technical, Economic, Ecological, and Political categories. This paper delves into the purpose, core ideas, and methodologies of STEEP analysis, emphasizing its significance in strategic decision-making and the potential limitations it presents.
Understanding STEEP Analysis
Purpose and Objective
The primary aim of a STEEP analysis is to sketch a comprehensive picture of the macro-environment in which a business operates (Fleisher & Bensoussan, 2003). By analyzing the five key elements of STEEP—social, technological, economic, ecological, and political—business leaders can discern various trends and forces that could influence their organization's success. The analysis provides an opportunity to identify external threats and opportunities that might be otherwise overlooked, ensuring that managers take a holistic view of their environment (Aguilar, 1967).
The Underlying Theory
The theoretical underpinnings of the STEEP framework align with several strands of business and management research. Key concepts include Resource Dependence Theory (Pfeffer & Salancik, 2003) and Population Ecology Theory, both emphasizing the importance of external resources and environmental factors on organizational performance. By utilizing the STEEP analysis, firms can better understand their dependence on external forces, thus improving their capacity to adapt and respond strategically.
The Core Ideas of STEEP Analysis
At its core, STEEP analysis serves as a checklist for organizations, encouraging a thorough evaluation of macro-environmental factors that could impact their operations (Fleisher & Bensoussan, 2003). The analysis comprises five distinct facets:
1. Sociocultural Factors: These factors encompass societal norms, cultural beliefs, demographic shifts, and lifestyle changes. Organizations must remain attuned to customer preferences and shifting societal values to tailor their products and marketing strategies effectively (Zhou et al., 2010).
2. Technological Factors: The rapid evolution of technology can dramatically reshape industries. Organizations must stay informed about technological advancements, emerging innovations, and trends in research and development (Brock, 2018). For instance, digital transformation has introduced new operational efficiencies and customer engagement strategies.
3. Economic Factors: Economic indicators like GDP growth, employment levels, inflation rates, and income distribution play a significant role in shaping business strategies (McKinsey Global Institute, 2021). Managers need to assess economic conditions to make informed decisions regarding pricing, investment, and resource allocation.
4. Ecological Factors: With growing concerns regarding climate change and environmental sustainability, organizations must consider ecological factors in their strategic planning (Porter & Kramer, 2011). This includes consumer demand for sustainable practices and compliance with environmental regulations.
5. Political and Legal Factors: Political stability, regulatory changes, and government policies can heavily influence business operations (Cohen, 2017). By understanding the political landscape, firms can mitigate risks associated with legislative changes and industry regulations.
The STEEP Analysis Process
The STEEP analysis involves a systematic process to elucidate trends, forces, and changes impacting an organization:
1. Brainstorming and Researching: The first step involves identifying significant trends within each of the five major macro-economic factors. This requires thorough market research, industry reports, and theoretical frameworks (Johnson & Scholes, 2008).
2. Identifying Salient Trends: Once key trends are outlined, they must be described and evaluated for their relevance and potential impact on the organization.
3. Examining Interconnections: Analyzing potential interdependencies among the identified factors allows organizations to see how sociocultural changes might influence economic trends, for example.
4. Forecasting Future Directions: Organizations should consider how trends are likely to evolve and what implications these might have for their strategic direction (Robertson et al., 2017).
5. Deriving Strategic Implications: Ultimately, the STEEP analysis should inform leadership decisions, helping businesses align their strategic priorities with external environmental realities.
Insights and Value Creation
The STEEP analysis can produce valuable insights into the forces potentially influencing a firm's competitiveness. By focusing on macro-environmental factors, managers can prepare for external challenges and leverage opportunities for growth. Ignoring these factors often leads to strategic misalignments that can jeopardize long-term performance (Choo et al., 2016).
Risks and Limitations
Despite its benefits, the STEEP analysis is not without disadvantages. The analysis hinges on the interpretative skills of managers and their ability to analyze external trends accurately (Fleisher & Bensoussan, 2003). This subjectivity may lead to differing perceptions about the importance of various trends.
Furthermore, the STEEP model relies on a long-term viewpoint, which may conflict with the immediate pressures on managers to deliver short-term results (Mintzberg, 2013). This temporal disconnect can hinder the effective integration of STEEP insights into business strategy.
Conclusion
Steep analysis offers organizations a vital framework for understanding and responding to macro-environmental forces. By examining sociocultural, technological, economic, ecological, and political factors, companies can position themselves advantageously within their markets. However, it is critical for managers to recognize the risks and limitations of the STEEP analysis to harness its full potential effectively. Adopting a comprehensive strategic approach that combines STEEP insights with real-time market data may be a key driver of long-term operational success.
References
1. Aguilar, F.J. (1967). Scanning the Business Environment. New York: Macmillan.
2. Brock, J. (2018). The Influence of Digital Transformation on Business Strategy: A Review of the Literature. Journal of Information Technology, 33(2), 123-135.
3. Choo, C.W., Berthon, P., Evangelista, F., & Campbell, C. (2016). The Role of Environmental Scanning in Strategic Management. Journal of Business Research, 69(6), 1920-1929.
4. Cohen, W.M. (2017). The Technology and the Law: Opportunities and Challenges in a New Era. Harvard Business Review, 95(4), 112-119.
5. Fleisher, C.S., & Bensoussan, B.E. (2003). Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition. Upper Saddle River, NJ: Prentice Hall.
6. Johnson, G., & Scholes, K. (2008). Exploring Corporate Strategy: Text and Cases. Prentice Hall.
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10. Porter, M.E., & Kramer, M.R. (2011). Creating Shared Value. Harvard Business Review, 89(1-2), 62-77.
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