1.5 THE EXTERNAL ENVIRONMENT
What is the external environment of the
business?
■ The external business environment consists of different factors such as economic,
political and legal, demographic, social, competitive, global, and technological
sectors. Managers must understand how the environment is changing and the
impact of those changes on the business.
■ The external environment are the factors outside a business that can affect its
operation by influencing its activities and choices and determine its opportunities
and risks.
■ All Businesses, no matter how big or small, operate in an environment;
even when a business manages to control its internal environment,
elements in the external to a business will still have an impact on it
and so any changes or factors influencing the surrounding
environment will influence the business.
■ Businesses have limited means to influence the elements of the
external environment. They can, however, plan and make contingency
plans for any of the changes in the elements of the external
environment.
■ One common tool for this type of planning process begins with a
STEEPLE analysis, which highlights and focuses on these external
elements.
STEEPLE, PESTLE or PEST Analysis
STEEPLE, PESTLE OR PEST Analysis is the analysis of the external uncontrollable factors in which can
have a positive or a negative impact on the business.
ETHICAL
ECONOMIC
TECHNOLOGICAL
SOCIAL
POLITICAL
LEGAL
STEEPLE
ECOLOGICAL
What is the difference between STEEPLE,
PESTLE and PEST analysis?
■ PEST – Political, Economic, Social and Technological.
■ PESTLE – Political, Economic, Social, Technological, Legal and Ecological.
■ STEEPLE - Political, Economic, Social, Technological, Legal, Ecological and Ethical.
The addition of the extra elements show the evolution in business practices and
thinking over the past years, as business have grown larger and operations has spread
wider by operating globally. So many years ago, the business would only focus on
making profits, whereas now, most businesses have broader concerns, including
striving towards sustainable practices and treating all stakeholders ethically.
The impact of each of the external factors
in the STEEPLE framework
The change in any of the external uncontrollable factors will result in changes and
impacts on the objectives and the strategies of the business.
- In a STEEPLE analysis;
■ The business must consider particular influences of each element on the business.
■ Then, the business conducts an analysis to determine the most important of these
influences.
■ Once the important influences are isolated, the business can develop a strategy to
take them into account and to construct contingency plans just in case.
The Social influence:
■ With the social factor, a business will be able to analyze the socio-cultural environment
of the market it operates in. This will help the business understand the needs and
wants of the customers and how they are shaped. These social factors include;
Lifestyles, demographics, education and fashion or tastes.
The social factors of the STEEPLE analysis consider the growth of the population, the
attitude of the consumer, age structure, lifestyle changes, falling rates, competition,
traditions, education level, cultural standards and diversity, health consciousness, and
safety emphasis.
These could also include wealth, religion, buying habits, education level, family size and
structure and population density
The Technological influence:
■ Technology plays a huge part in business, and it can impact it either negatively or
positively. With the introduction of new products, new technologies and services, a
certain marketplace can have a tough time adjusting so it's important to assess the
technology from all angles. The technological factors include; technological
improvements, ICT, infrastructure, R&D.
■ These include the rate of technological change, the evolution of infrastructure, and
any government or institutional research
The Economic Influence
■ The economic factor examines external economic issues that can play a role in an
organization’s failure or success. For this analysis; interest rates, the rate of
inflation, the rate of unemployment, gross domestic product and the rate of
economic growth.
■ The Economic factors included in the STEEPLE analysis are interest and exchange
rate, inflation rate, the growth rate of the GDP, stock quotes, and unemployment
level. The environmental aspects assess the positive and negative impact the
company is having on the environment.
The Ethical Influence
■ The ethical factor influences the behavior, practices and actions of an organization.
Adopting CSR through setting ethical objectives and strategies is now seen as a
must and a condition for every business. These include; corruption, transparency,
code of ethics/conduct/behavior and fair trade.
■ The common ethical factors for the STEEPLE analysis are the tendency of the
people, the value of the culture of the people, morality, integrity, duties, and
behavior of the employees towards the society.
The Political Influence
■ The political factor looks at the political stability or instability in the environment the
business is operating at. It also includes the regional policies and trade policies that
are set by the government as well as lobbying and electioneering (seeking to
influence on an issue).
■ Political factors in PESTLE Analysis. Political factors include tax policy, environmental
regulations, trade restrictions and reform, tariffs, and also political stability. These
factors determine the extent to which a government may influence an industry or a
company.
The Legal Influence
■ This involves all regulatory and law determinants that can negatively or positively
affect results of market actions and decisions of the business that is functioning in
particular country. International companies must analyze and identify those factors
(legal environment) independently for every state they function. This includes the
regulations, employment laws, health and safety legislations and competition laws.
The Ecological/Environmental Influence
■ This involves global warming, carbon footprints, organic farming, depletion of
renewable resources as well as waste management and control.
■ The environmental factors considered in the STEEPLE analysis are legislation for the
environmental protection, management of the wastes and their disposal, water, and
air pollution, energy-efficient technologies, and ecology in the society.
Not all businesses react to the influence or changes with the same degree of energy or
purpose. often, a business might not need to be concerned with changes in particular
factors which are seen to be irrelevant to the business, so how the business chooses to
react to a change in the external uncontrollable factor, will be a result of their relevance
to its objectives and strategies.
Businesses that are flexible and can adapt to change will be more successful than
those who are inflexible and do not adapt. Being an early adaptor and having first-mover
advantage will be very useful for the business, as they will be able to move fast enough
and quickly adapt to those changes with least damages to the business. When planning
the STEEPLE analysis framework, the business will be able to plan and determine
changes, which will give it the opportunity to respond and have a first mover advantage
over its competitors.
■ An early adapter is a trait where a business or an individual has quick
responsiveness to any of the changes that occur.
■ First mover advantage is the advantage a business or an individual gains over
competitors due to being the first one to implement or apply something.
Being first typically enables a business to have the advantage over its competitors.
SWOT Analysis
■ SWOT Analysis is a business tool in which was developed to help businesses set
“S.M.A.R.T” objectives. Many businesses rely on SWOT for planning purposes, it is
the first stage in the planning process and it helps managers to brainstorm the
perceived strengths, weaknesses, opportunities and threats that are faced by the
business.
Internal to the business
External to the business
■ The SWOT matrix is based on perception, the wider the sources and the more
reliable the data is, the stronger the analysis of the SWOT factors are. Like any other
business tool, it can actually mislead a business if done in a poor and uninformed
manner.
■ Strengths and weaknesses are internal to your company—things that you have some
control over and can change.
■ Opportunities and threats are external—things that are going on outside your
company, in the larger market. You can take advantage of opportunities and protect
against threats, but you can’t change them.
SWOT Analysis and Market Position
Strengths
Weaknesses
S-O
W-O
Growth strategies
Re-orientation strategies
S-T
W-T
Defusing strategies
Defensive strategies
Opportunities
Threats
A business can strengthen its SWOT matrix by pairing key factors from each quadrant and then adopting a relevant strategy.
■ Growth Strategies (S-O): Growth strategies are best achieved by combining the
strengths of a business with the market opportunities, which produces the most
positive short-term strategy available from the matrix. The business should pursue
growth strategies when it is confident and has no big issues in any other area.
■ Defensive Strategies (W-T): These strategies are adopted when a business is most
vulnerable. When threats and weaknesses exist in combination, the business needs
to act defensively and quickly. They are negative short-term strategies, but are
necessary to help the business survive.
■ Re-orientation Strategies (W-O): These strategies are used when a business focuses
on addressing its weaknesses in order to use them for the opportunities available in
the market. Re-orientation strategies are positive and long term. The adoption of
these strategies assumes that the business will first address its weaknesses and
then can re-orientate itself in a new direction.
■ Defusing Strategies (S-T): These strategies are designed to eliminate threats in the
market by focusing on the strengths of a business. Defusing strategies assume that
the business does not need to look for new market opportunities but can simply
defuse threats through a focus on core strengths. This is a neutral and medium to
short term strategy.