Mtm9 white paper macro-environmental (steep) analysis

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Macro-Environmental (STEEP) AnalysisIntelligence Collaborative - Mastering the Methods Series

Macro-Environmental (STEEP) Analysis

This White Paper is #9 in a series of intelligence methods being offered to members of the Intelligence Collaborative. It was developed by Dr. Craig S. Fleisher to provide a concise overview of how to apply key intelligence methods to support analysis. Although every effort is made to ensure that the information is accurate and fit for its purpose, the author and Aurora WDC make no implied or explicit warranties as to its applicability or use in your particular work context.

Please direct any questions about this paper to its author at the following:Craig S. Fleisher, Ph.D.

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Other White Papers are available on a regular basis from http://IntelCollab.com. Related Methods in the series are:

SWOT Analysis

Value Chain Analysis

Win/Loss Analysis


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Abstract

Macro-environmental (STEEP) analysis is a scan and examination of the external macro-environment in which an organization exists. It is a useful tool for understanding the socio-cultural, technological, economic, environmental, and political-/legal environment that surrounds the industry in which your organization competes. It can be used for evaluating opportunities and threats, market growth or decline, and as such the position, potential and direction for an industry, market and company.

The Method’s Primary Value

A key question that executives must address in evaluating their company business prospects is “What’s the company’s present situation?” Two facets of a company’s situation are especially pertinent:

a. The competitive, industry and market environment (-s) in which the company operates. This is the area in which macro-environmental and STEEP analysis apply.

b. The company’s collection of resources and capabilities, its strengths and weaknesses as com-pared to its rivals, and its windows of opportunities.

Senior managers must be able to insightfully analyze a company’s external and internal environments to succeed in developing strategies that is align comfortably and easily with the organization’s company’s situation, is capable of generating competitive advantage, and has the potential for raising the company’s financial and strategic performance.



Overview of the Method

STEEP analysis is a simple and effective tool used in situation analysis to identify the key external forces (i.e., those present in the organization’s macro-environment) that are and might affect an organization. These forces can create both opportunities and threats for an organization. Therefore, the purpose of doing this analysis is to determine the current factors affecting the company, what changes are going to happen in the external environment and to exploit those changes or defend against them better than competitors would do. The outcome of a STEEP analysis is insights of the overall picture surrounding the industry and impacting your company.

Social factors encompass the culture of the society (-ies) that an organization operates within. These factors affect some industries more than others, particularly those that aim to market and sell directly to consumers or have recurring models or cycles (i.e., the fashion industry, cinema, etc.). It is important here to assess demographics, living conditions, religion and its impacts, wealth distribution, class factors, population growth rates, education levels, and lifestyle trends, among others.

Technological factors refer to the nature and rate of new inventions and progress in their absorption by the marketplace and consumers, changes in information technology, mobile commerce, and government spending on research, among other things. Expenditures on research and development, innovation types and processes, patents, expansion in knowledge around scientific subject matter areas, changes in process and product technology, patent regulation, and the life-cycle of products are all assessed in this category.

Economic factors include phenomena that occur in the wider economy. This can include economic growth rates, unemployment trends, prices and costs of productive inputs such as energy, fuel and wages, fiscal and monetary changes, exchange rates and inflation rates. These may also vary from one country to another and all change over time. Tracking them over designated periods (e.g., quarters, months, years, etc.) is critical in doing this analysis.

Political factors refer to the impact that occurs in the public policy institutions surrounding the industry and company. As such, it includes governmental, political and legal forms of activity. It is often seen in government influence on tax policies or government involvement in trading agreements. Political factors are always interrelated with legal and regulatory factors such as employment laws, trade regulations and restrictions, competition rules, advertising and packaging policies, and consumer protection. Environmental factors occur in the ecological or natural environment within which our organizations interact. The analyst needs to examine the state and evolution of natural resources, the cost to acquire and process these resources, pollution levels, carbon impacts, measures taken for protecting the environment and overlapping with the political factors, are environmental regulations.



Where the Method Fits in Planning and Strategy

Developing an effective strategy typically begins with a strategic appraisal of the company’s external and internal situations to form a strategic vision of where the company needs to head, then moves toward an assessment of the highest potential market options and business models, and finally culminates in a choice of strategy. As such, STEEP analysis is a key component in strategy development and usually is done in advance of the organization’s annual or regular planning process.

Environmental conditions affect the entire strategic management process. Organizations do not operate in a vacuum, and a key to effective strategic management is to make decisions that will enable actions to correspond positively with the context in which those actions will ultimately take place. To some degree, an organization’s internal conditions, in particular its strengths, weaknesses, resources, or capabilities, will determine the action. On the other hand, the action is often largely dictated by external factors. To some extent, the company can shape the environment to its advantage or react in ways that disadvantage it less than its competitors.

Cautions with Applying this Method

Problems in conducting macro-environmental analysis tend to fall within several categories:

• Interpretation. Organizational decision makers often have difficulties in conceptualizing or defining what their environment is, making it difficult to interpret the specific kinds of impact the environmental variables will have and the nature of effective responses that the organization may choose to pursue. Weaknesses in interpreting environmental factors include being able to structure meaningful studies, showing financial impact, synthesizing short and long-term implications, a lack of senior management involvement in the analysis, difficulties in translating potential opportunities into action plans, and appropriating the time and resources required to do accurate analysis.

• Inaccuracy and uncertainty. Problems experienced here include inaccuracies in analytical output in STEEP analysis and lack of faith in the results due to the presence of too many ambiguities and uncertainties or a combination of both. This can be a result of difficulties in depicting environmental events and trends and properly characterizing uncertainties in meaningful terms as well as difficulties in accurately forecasting the effects of STEEP forces and the social and technological evolution and trends.

• Short-term orientation. Many decision makers dislike spending “real” money today for speculative results tomorrow and are primarily concerned with short-term matters. Many of the variables in the STEEP segments take numerous years to evolve, frequently far outlasting the analysts and decision makers in the organizations who need to understand them.

• Lack of acceptance. Not accepting the value of environmental analysis can be due to management’s lack of understanding of its value, difficulties in encouraging line managers to



utilize its outputs, resistance to changing forecasting methods, and presumptions among managers that they are already experts in the implementation and management of this process. Another related issue is the failure to link the STEEP analysis to competitive implications. A key goal of using this technique should always be the identification of competitive implications for the organization based on the environment analysis.

• Diversified businesses. Human limitations, prior experience, and bias affect environmental analysis. This is especially true in multinational environments where home-country biases and attitudes often lead organizations to superimpose their own experiences, views, and understanding on variables that do not act in ways suggested or supported by the STEEP factors.

Applying the Method

In order to perform STEEP, the analyst has to gather as much relevant information as possible about the firm’s external environment. Nowadays, most information can be found on the internet relatively easy, quickly and with minimal costs. When the analysis is done for the first time the process may take a little longer and as a beginner you may find yourself asking “What changes do I exactly look for in the 5 categories?” We always recommend that you employ a template for gathering and organizing the data. We provider these for you as part of the Mastering Intelligence methods series here in the IntelCollab.

The environmental boundaries you define will establish the breadth, depth, and forecasting horizon of the analysis. Breadth refers to the topical coverage of the environmental data collected; depth determines the level of detail in the STEEP data being sought and analyzed; and forecasting horizons will usually span the short, medium, and longer terms of time, as dictated by the relevant organization’s specific environment.

To establish environmental boundaries, examine the organization’s strategic plans with respect to its geographic reach (where it does and does not compete), its product or service scope (segments, categories), its time horizon for returns on fixed resource commitments, technology and innovation, sources of its resources (human, capital, other financial and raw materials), regulatory issues, and flexibility. Note that the process will be constrained by the resources available and dedicated to performing the task.

Once the environmental boundaries have been defined, the five STEEP segments can be analyzed by addressing the following five-step process:

1. Understand the segment of the environment being analyzed.2. Understand interrelationships between trends.3. Relate trends to issues.4. Forecast the future direction of issues.5. Derive implications.

Upon completion of these steps, the analyst should generate a table or grid that captures this effort. It will look something like the following:



Category Factors ImpactsSocial 1.

2.3n.

1.2.3.n.

Technological 1.2.3.n.

1.2.3.n.

Economic 1.2.3.n.

1.2.3.n.

Environmental/Ecological 1.2.3.n.

1.2.3.n.

Political/Legal/Regulatory 1.2.3.n.

1.2.3.n.

Complementary Methods

• Competitive Profiling• Driving Forces Analysis• Forecasting• Functional Capability and Resource Analysis• Industry Analysis• Issue Analysis• Scenario Analysis• Stakeholder Analysis• Strategic Group Analysis• SWOT Analysis

Additional Resources

See chapter 11 (pg. 187-198) on Scenario Analysis in the (2013) book Analysis without Paralysis: 12 Tools to Make Better Strategic Decisions, 2nd Ed., by Babette E. Bensoussan and Craig S. Fleisher, Upper Saddle River, NJ: FT Press.



Business and Competitive Analysis: Effective Application of New and Classic Methods by Craig S. Fleisher and Babette Bensoussan, 2007, Upper Saddle River, NJ: FT Press.

Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition by Craig S. Fleisher and Babette Bensoussan, 2003, Upper Saddle River, NJ: Pearson/Prentice Hall.

Fahey, L. and V.K. Narayanan, Macro-Environmental Analysis for Strategic Analysis, 1986, St. Paul, MN: West Publishing Company.

Ginter, PM and W.J. Duncan, “Macroenvironmental analysis for strategic management,” Long Range Planning, 1990, 23(6), pp. 91-100.



Business and Competitive Analysis: Effective Application of New and Classic Methods by Craig S. Fleisher and Babette Bensoussan, 2007, Upper Saddle River, NJ: FT Press.

Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition by Craig S. Fleisher and Babette Bensoussan, 2003, Upper Saddle River, NJ: Pearson/Prentice Hall.

Fahey, L. and V.K. Narayanan, Macro-Environmental Analysis for Strategic Analysis, 1986, St. Paul, MN: West Publishing Company.

Ginter, PM and W.J. Duncan, “Macroenvironmental analysis for strategic management,” Long Range Planning, 1990, 23(6), pp. 91-100.


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