Strategic Management and Environmental Analysis

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Macroenvironmental (STEEP/PEST) Analysis

Description and Purpose
This chapter focuses on the social, technological, economic, ecological, and political/legal (STEEP) aspects of the environment that can affect the competitiveness of industries and companies (also sometimes referred to as political, economic, social, technological (PEST) analysis). These factors are generally considered to be beyond the direct influence of an individual company. For the purposes of this chapter and for ease of understanding, we will refer to this technique as STEEP, although you can simplify the technique to PEST factors. Although many organizations recognize the importance of the environment, all too often this analysis ends up making a small or minimal contribution to strategy analysis and formulation. This can be because the organization views the environment as being too uncertain to do anything about or because many environmental factors have delayed or indirect effects on the organization and often escape the notice of managers who are more concerned with day-to-day operations. Analysts commonly segment the environment into three distinct levels: the general environment, the operating environment, and the internal environment.

Chapter 14 Macroenvironmental (STEEP/PEST) Analysis

Figure 10.1 illustrates the relationship of each of these levels with each other and the organization. This book as a whole provides techniques that allow you to understand things happening at all three levels. General Operating

Customers, Suppliers, Competitors, and Partners


Figure 10.1 The three levels of the environment

Managers must be aware of these environmental levels, know what factors they include, and try to understand how each factor and the relationships among the factors affect organizational performance. The STEEP technique described in this chapter will especially help you to understand the general environmental level. The general environment is broad in scope and has long-term implications for the organization and its strategies. These implications are usually understood to be beyond the direct influence of an organization—for example the role of government and government legislation on an industry. The general environment is broken down into sub-categories or segments. One effective segmentation is known as the STEEP categorization scheme. As described earlier, it also comes under different names, including things like PEST, PESTLE, SEPTember, STEEPLES, and so on. More important than which of these schemes is chosen, is to recognize that the primary purpose of these segments or subcategories is to avoid overlooking major aspects of the general environment in your overall analysis.

Chapter 14 Macroenvironmental (STEEP/PEST) Analysis

Table 10.1 shows several key variables that would be present under each individual STEEP factor as identified in Figure 10.2. The STEEP sectors are not mutually exclusive—the lines between the categories remain fluid. Issues, events, or stakeholders can actually traverse several sectors at once. Political/Legal Environment Economic Environment

Corporation and/or Industry

Social Environment

Ecological Environment

Technological Environment

Figure 10.2 The elements of STEEP analysis

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.

Chapter 14...
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