STEEPLE analysis

• The focus of this BMT is to allow managers to brainstorm the external business environment and its impacts on the organization. 

• External threats and opportunities either restrict or aid the performance of a business but are beyond its control. The external business environment refers to the factors that are beyond the control of an individual organization, i.e. the external environment affects all businesses in the economy.

• Businesses need to consider the external environment in which they operate, in order to make the most effective decisions by minimizing threats and making the most of opportunities. However, most businesses are unlikely to have much, if any, control over the external business environment - just look at what happened during the coronavirus pandemic as an example.

• Therefore, businesses need to continually monitor their the market in which they operate and how the external environment can affect their operations and profits. 

• Planning ahead will help them to react more appropriately and effectively to any changes in the STEEPLE factors that might occur. The most competitive businesses are those that anticipate change, rather than react to it.

• Changes in any of the STEEPLE factors can have positive or negative impacts on businesses. Successful organizations are the ones that can adapt to changes in the external business environment.

SOCIAL FACTORS IN A STEEPLE ANALYSIS

Social factors in a STEEPLE analysis are those related to people, their lifestyles and their beliefs (or values). Social factors that affect the level of economic activity in a country include cultural influences, demographics of the population, religious beliefs, society's views on ethical behaviour, and social attitudes towards discrimination (against women, ethnic minorities and other possibly disadvantaged groups). Examples of social factors in a STEEPLE analysis include (although these will vary from country to country):

• An ageing population, i.e. the average age of the population increases. This has implications for recruitment and different spending patterns.

• Many more women are choosing to have children at an older age. This is partly so that they can pursue their professional careers and also because of the increasing costs of raising children.

• Changes in the net migration rate – this measures the difference between immigration (when people enter a country to live and to work) and emigration (when people leave a country to work and live abroad), i.e. it indicates changes in the physical movement of people in and out of a country.

• An increase in the retirement age – this has an impact on staffing costs, recruitment and retention, and different spending habits. Retirement age, selected countries

TECHNOLOGICAL  FACTORS IN A STEEPLE ANALYSIS

• In the context of the corporate world, the technological environment refers to the changes and developments in machinery and equipment developed for business operations and their growth and evolution. 

• Changing technology has always played an important role in the external business environment. Personal computers become popular in the 1980s. Mobile (cell) phones become popular in the 1990s. Smartphones were launched to the mass market in the 2000s. The last decade has seen an increase in the use of 3-D printed products and wearable technologies, such as smartwatches. The advancements in Internet technologies have created many opportunities for businesses involved in e-commerce. Other examples include:

• Lean production technologies that improve operation efficiency, quality and productivity in the manufacturing sector.

• Technological advances have led to increased use of automation in car manufacturing.

• Unemployment in certain industries as technology and automation create opportunities for capital-intensive production methods.

• By contrast, employment opportunities have also been created, such as the need for coders and app developers.

• The increasing use and reliance on social media for marketing purposes. For example, almost all large companies use Facebook, LinkedIn and Twitter as part of their marketing. TripAdvisor is used by marketers in the travel and tourism industry. OpenRice is a popular website used to promote food and restaurants in many South East Asian countries. Instagram is used by businesses to showcase their product range and other aspects of their marketing.

• Social media has also revolutionised recruitment for many organizations, such as the popularity of LinkedIn to headhunt workers for specific jobs.

• Technological factors are not necessarily or always positive. They can create huge barriers to entry into certain industries, thereby limiting the degree of competition on the market. This limits choice for customers, who are likely to be charged a higher price as a result. However, by far the largest threat of technological factors is technological failure, caused by power cuts or due to fraudulent hacking.

ECONOMIC  FACTORS IN A STEEPLE ANALYSIS

Economic factors in a STEEPLE analysis refer to the determinants of an economy's performance. Changes in economic factors that affect the external business environment can be explained by the business cycle (also known as the trade cycle). 

The level of economic activity is measured by gross domestic product (GDP) in an economy. GDP measures the total value of national output, per time period (usually one year).

The different phases in the business cycle include:

• Boom (expansion) – when spending, employment and prices rise due to an increase in economic activity in the economy.

• Peak – a high point in the business cycle, before a recession sets in as booms are not sustainable in the long run; prices are high, thus causing a fall in the economy’s competitiveness.

• Recession – a decline in economic activity, leading to lower employment and falling business and consumer confidence levels.

• Slump (or trough) – the bottom/lowest point in the business cycle, with mass-scale unemployment and falling prices; government intervention is likely to occur to rectify the situation. 

• Recovery – when economic activity and employment start to rise following a slump.

Interrelated factors that cause fluctuations in the level of economic activity* in an economy include changes in:

• The level of consumer and business confidence – improved confidence levels will have a positive impact on economic activity in the economy.

• Costs of production – higher costs will typically cause prices to increase. This is likely to deteriorate the economy’s international competitiveness and level of economic activity.

• The exchange rate – a currency appreciation means that export prices rise relative to import prices. This will tend to reduce the international competitiveness of the economy as exporters will generally find it more difficult to sell their products due to the higher prices.

• The interest rate – higher interest rates make borrowing more expensive for households, so they tend to spend less. In addition, higher interest rates reduce the incentive to invest in the economy due to the higher costs of borrowing money. Hence, higher interest rates tend to constrain economic activity.

• The inflation rate – the higher the inflation rate, the higher prices are in general. Hence, higher rates of inflation in the economy tend to reduce its international competitiveness, thereby reducing the level of economic activity.

Economic growth

• Economic growth refers to an increase in the level of economic activity over time, as illustrated in a business cycle diagram. It can be achievedby enhancing the quality of factors of production, which normally requires an investment in any combination of the following:

• Capital goods - the greater the level of investment, the higher economic growth tends to be in the long run, e.g. developing an economy’s infrastructure to aid economic activity and competitiveness.

• Education and training - a better educated and trained workforce becomes a more productive and internationally competitive labour force.

• Health technology - advances in health care help to ensure workers are healthy and therefore more productive. It can also prevent workers having to take time off work or retire early due to illness.

• Economists also attribute economic growth to an increase in the quantity of resources. For example, discovering new sources of raw materialswill increase the productive capacity of an economy. 

ETHICAL  FACTORS IN A STEEPLE ANALYSIS

Ethics refers to the moral values and beliefs that apply to businesses and how they operate. There is an increasing expectation for businesses to consider the impact of their operations on all stakeholder groups, society as a whole and the environment. Essentially, it is about doing the right or moral things as part of their corporate social responsibilities (CSR). Examples include:

• The fair treatment of workers

• Fair trade deals with suppliers

• Ethical marketing practices

• Observing intellectual property rights

• Principled accounting procedures

• Operations that are sustainable and protect the environment.

POLITICAL  FACTORS IN A STEEPLE ANALYSIS

The political environment in a STEEPLE analysis refers to the role that governments play in business operations. It affects business operations in an array of facets. Examples include, but are not confined to, the following:

• The degree of political stability in a country has a large impact on business and consumer confidence levels. For example, prolonged political conflict within a country is likely to threaten prospects of foreign direct investment. The UK’s decision in 2016 to pull out of the European Union (the decision known as “Brexit”) has caused huge instabilities to British businesses and the UK economy.

• Restrictions on international trade, such as the use of quotas (quantitative limits) on the number of imported goods that can be sold in the domestic economy. The government might also impose tariffs (import taxes) in order to protect domestic jobs. Another example is the use of subsidies to help domestic firms be more competitive. For example, the governments of the European Union provide subsidies to their farmers. The Hong Kong and Chinese governments provide subsidies to protect their domestic film industries. However, this makes it more difficult for MNCs trying to sell their goods in overseas markets.

• Different tax laws or changes in the tax system have a significant impact on business operations. For example, many MNCs are attracted to countries where migrant workers do not pay any income tax, such as in Bahrain, Brunei and Kuwait. Similarly, MNCs can be attracted to countries that do not impose sales taxes, such as in Saudi Arabia, Gibraltar and Hong Kong SAR.

• Governments are huge establishments that also function as an organization. They are major consumers of goods and services in domestic and international markets. This can provide many opportunities for businesses.

LEGAL  FACTORS IN A STEEPLE ANALYSIS

Legal factors in a STEEPLE analysis refer to the laws that affect the way in which businesses operate as well as how customers behave. Changes in the legal systems or laws have a direct impact on business operations, including the production and sale of certain goods and services. Examples of legal factors in a STEEPLE analysis include:

• Legal procedures for the growth and expansion of businesses, such as laws about setting up a sole trader business or share issues on a stock exchange.

• Minimum quality standards must be met in order to protect consumers and the general public. The Volkwagen Scandal is an example of how quality standards can have major implications on a firm’s operations, corporate image and profits.

• Consumer protection laws safeguard the interests of consumers. These laws include trade descriptions (such as rules in labels and packaging), and weights and measures.

• Employment laws*, such as changes to the National Minimum Wage, maternity and paternity leave, maximum working hours, statutory sick leave, health and safety at work, and anti-discrimination laws.

• Intellectual property rights (IPRs) help to protect the intellectual ideas and creations of businesses. These laws cover copyrights, trademarks and patents.

• Laws on environmental protection and climate change can change the way in which a business operates and on foreign direct investment.

• Some products are deemed so harmful that they are banned or have age limits imposed (such as the purchase of alcohol or tobacco). In some countries, such as Australia, cigarette advertising is totally banned, including on cigarette packets.

ENVIRONMENTAL FACTORS IN A STEEPLE ANALYSIS

• Environmental factors in a STEEPLE analysis refer to the ecological aspects of business activity that can have positive as well as negative impacts on organizations. Green technologies and environmental aspects of business are increasingly important for businesses. 

• There is a growing expectation from customers, employees, and other stakeholder groups for businesses to act in the best interest of the environment. For example, depletion of the world’s scarce resources, especially non-renewable resources, is not a sustainable business practice. An increasing number of businesses are adapting renewable energy sources for their operations, such as solar power.

• The ecological environment has direct impacts on the operations of a business. For example:

• Global warming and climate change have led to more stringent government policies to protect the environment. For example, in 2017, car manufacturers were informed that that British government would ban all diesel and unleaded petrol cars from 2040.

• Adverse weather conditions can cause huge disruptions to businesses. For example, businesses tend to struggle when there are floods, tsunamis, torrential rainstorms, droughts, heat waves, hurricanes or heavy snowfalls. Hand car wash businesses really struggle when it rains!

 Top tip!

• I've often heard that STEEPLE analysis is easy! Like SWOT analysis, many students often underestimate the applications of this business management tool, thinking that is it easy to construct and use. In reality, and once students attempt to conduct a full STEEPLE analysis for an organization, they soon realise the level of knowledge required is rather immense. Hence, it will pay dividends for you to spend time reviewing the contents and applications of this specific business management tool.

 Top tip!

• In the external exams, it is quite common for students to have to explain the context of a case study using aspects STEEPLE analysis. A typical example is a question like this:

Outline two STEEPLE factors that influence Company A’s decision about XX.  [4 marks]

 Top tip!

• Many teachers and students often ask about the use of STEEPLE analysis in the Internal Assessment. As the IA focuses on the use of supporting documents (be they from primary or secondary market research), the key question to ask about inclusion of STEEPLE analysis as a BMT is whether this would add any value to the IA. Also, consider whether you are able to include a STEEPLE analysis within the word count limit (of 1,800 words).

• In any case, a potentially suitable resource to help SL and HL student is https://pestleanalysis.com/ This website includes ready-made STEEPLE analyses (and some SWOT analyses too) for numerous well-known companies that may be applicable to the Internal Assessment, if not to help consolidate understanding of this business management tool. 

 Top tip!

• Students must not make the classic mistake of using STEEPLE analysis to consider a firm’s internal strengths and weaknesses. After all, this tool is used only to examine the potential threats and opportunities based on changes in the external business environment.