1.12 - External Environment
The definition and purpose of STEEPLE analysis
STEEPLE analysis is a tool used to evaluate the external factors that can influence a business. It stands for social, technological, economic, ethical, political, legal, and environmental elements, helping firms understand the broader environment in which they operate.
This framework acts as a straightforward way to generate ideas about potential opportunities and threats from outside the business. It encourages managers to think objectively and plan ahead, making it easier to respond to shifts in the external setting.
Benefits of using STEEPLE analysis:
- Promotes a thorough review of external influences, leading to more informed strategies.
- Allows businesses to anticipate changes and adapt proactively, reducing surprises from the environment.
- Supports better decision-making by highlighting both positive and negative external forces.
Social and technological factors
Social factors involve changes in society and population that can shape business strategies, while technological factors focus on innovations that create new opportunities or challenges for firms.
Social factors
Examples of social factors:
- Shifts in population structure, which can affect hiring needs and product demand.
- Evolving tastes and lifestyles, guiding what businesses create and sell.
- Rise in smaller family units, opening up markets for products suited to individuals living alone.
- Later starts to family life because of work demands and higher costs of raising children, influencing sectors like childcare or housing.
- Movement of younger people from countryside to cities, altering where workers are available and changing local markets.
Technological factors
Examples of technological factors:
- Growth of online shopping through smartphones and web platforms, pushing businesses to build digital stores.
- Use of automation in factories to boost output and cut manual work, though this can reduce jobs in some areas.
- Social networks enabling worldwide customer interactions, helping firms market and communicate globally.
- Advances in production tools that make operations more efficient, allowing companies to compete better.
Economic and environmental factors
Economic factors relate to financial conditions that affect business performance, while environmental factors concern natural resources and sustainability issues that impact long-term operations.
Economic factors
Examples of economic factors:
- Levels of buyer optimism, which can boost or reduce spending on goods and services.
- Changes in input expenses, like higher material costs, forcing adjustments in prices or overseas sales strength.
- Swings in currency values; for instance, a stronger home currency can make exports pricier and less attractive abroad.
- Higher borrowing rates, which make loans more expensive and can slow down business expansion plans.
Phases of the economic cycle:
| Phase | Key characteristics |
|---|---|
| Trough (slump) | Low optimism, reduced buying, shrinking economy, high joblessness, possible price falls, many firm closures, little new spending on assets |
| Expansion (recovery) | Growing optimism, more buying, expanding economy, lower joblessness, rising prices, fewer closures, increasing spending on assets |
| Peak (boom) | Strong optimism, high buying, thriving economy, low joblessness, sharp price rises, rare closures, heavy spending on assets |
| Contraction (recession) | Falling optimism, less buying, shrinking economy, rising joblessness, dropping prices, more closures, reduced spending on assets |
Environmental factors
Examples of environmental factors:
- Focus on using resources wisely to ensure they last, affecting how businesses plan for the future.
- Risks from severe weather or global warming, which can interrupt daily operations or supply lines.
- Shift to eco-friendly options, such as solar power or green building methods, to meet customer and regulatory demands.
- Efforts to minimise harm to nature in production, helping maintain a positive image and avoid penalties.
Political, legal, and ethical factors
Political factors include government actions and global events that create uncertainty, legal factors cover rules that businesses must follow, and ethical factors deal with moral choices that affect reputation and practices.
Political factors
Examples of political factors:
- Disputes in regions that disrupt trade or create instability for businesses operating there.
- Differences in taxation across nations, influencing where firms choose to set up.
- Limits on what can be sold or advertised in some countries, restricting market entry.
- Barriers like taxes on imports or limits on import quantities, which affect international supply networks.
- Government support for specific sectors, giving some businesses an edge over others.
- Spending on public services, creating chances for firms in areas like schools, hospitals, or roads.
Legal factors
Examples of legal factors:
- Rules on protecting customer information, adding to the tasks businesses must handle.
- Laws on worker rights, including fair pay, safe workplaces, and equal treatment.
- Health-related restrictions, such as bans on certain activities, hitting industries like tobacco or hospitality.
- Standards for protecting the environment, shaping how goods are made and waste is managed.
Ethical factors
Examples of ethical factors:
- Considering the effects of decisions on people and the planet, building trust with customers and partners.
- Balancing profit goals with fair treatment, such as deciding how to share earnings between growth and owner payouts.
- Avoiding wrongdoing like offering bribes or misleading claims, which can lead to legal and image problems.
- Actions to support communities, enhancing how the public views the business.
The impact of STEEPLE changes on business
Changes in STEEPLE factors can significantly affect how businesses operate, from costs and sales to overall strategy. These shifts often require firms to adapt quickly to maintain success.
Examples of impacts from STEEPLE changes:
- Swings in raw material prices, which can raise expenses and force price adjustments.
- Major economic downturns, leading to widespread cutbacks and reduced activity.
- Evolving global markets, prompting businesses to refocus priorities or enter new areas.
- Events like floods or storms, which can halt production or delay deliveries.
- Cultural differences in regions, making it harder to sell products successfully.
- Risks from online attacks, which can expose sensitive data and disrupt services.
- Concerns over item safety, harming trust and leading to lost sales.
- Seasonal weather patterns, influencing demand in industries like tourism or farming.