It is an STEEPLE Analisys enough?

An analysis of the political, economic, social/ethical, technological, legislative, and environmental factors in the external environment of an organization that can affect performance. This analysis often is used in conjunction with a SWOT (strengths, weaknesses, opportunities, threats) analysis. It aids organizations in determining the environment in which they operate.

Many organizations are starting to use the alternate STEEPLE analysis due to the need to understand the impact of ethics (which includes governance, sustainability, and social responsibility). While PESTLE also has a social/ethical area and therefore also considers ethics, separating out ethics adds weight to this category. Ethics is always important, but it can be particularly critical in industries such as healthcare, technology, and manufacturing.

STEEPLE factors are the assumptions, or “givens,” that a strategy must consider. The organization cannot change this reality, so it must become more resilient/agile in it to enable continuing its current business processes or otherwise adapt itself to the change (e.g., new strategy). However, not every STEEPLE event in the external environment is relevant. The organization must focus on those environmental factors that are strategically relevant to it, meaning that it should focus on elements likely to have a big impact on the organization and its strategy. In other words, a strategy needs a plan for how it will adapt to or leverage the things it cannot control. Some environmental forces are danger signs that may redirect strategic planning; some are risks or uncertain conditions that the strategy must plan to address; others represent opportunities that the strategy may be designed to capture.

Due to the significant overlap between STEEPLE and PESTLE, the discussion of each factor that follows could apply to PESTLE/PESTEL analysis just as easily as STEEPLE analysis.

                                                       Sociocultural Factors

The sociocultural (or social) dimension of a STEEPLE analysis includes data about demographics, values, and preferences. Demographic data include information such as age and gender distribution in a population, the geographic distribution of the population (e.g., urban versus rural), education level, disease rates, and the birth rate. Values and preferences capture information about a population’s behaviors and priorities—for example, a common desire to improve one’s condition through education or a growing aversion to certain types of unhealthy foods. The organization may need to evaluate its product portfolio.

Changing population demographics can drive macroeconomic changes. Depending on the region under examination, changes caused by aging populations and so on may have major and ongoing effects. Populations that are increasingly consolidating in urban areas also affect demand patterns, supply chain routing, and production capabilities for various goods and services. Work-from-home trends are another example of a sociocultural factor to consider.

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Importantly, these supply and demand variations hit different supply chains at different times. Some supply chains were resilient to the stress, while others failed to meet the challenges. In addition to highlighting the clear need to create resilient and responsive supply chains, the pandemic and subsequent challenges drew attention to the importance of visibility throughout all areas of a supply chain. They also highlighted the importance of having local manufacturing capability for high-importance products.

                                                 Technological Factors

A scan of technological factors includes identifying emerging and speculative technology that can have a significant impact on society and commerce. The printing press and the internet both changed culture in an exponential fashion. What impact will three-dimensional printing have? Or artificial intelligence? A technological scan also considers the scope and strength of support for research.

Technology can reinvigorate a declining industry (e.g., robotics in automotive manufacturing) or create entirely new ones (e.g., cell phone manufacture and services). Technology can also disrupt some businesses—for example, physical retailers, which are losing sales to online retailers, or hotels, which are facing competition from peer-to-peer networks (e.g., Airbnb). Businesses need to adapt.

Technology affects the available customer base and the capabilities of organizations to fulfill demand worldwide through better communication, and it enables faster and more efficient order fulfillment over a larger geographical area.

Technology also affects labor availability through the use of remote communication, allowing workers to continue the work-from-home trend and to also seek employment over a much larger area than was previously possible. As a result, organizations have encountered a much more competitive talent market, where they must meet or exceed the compensation levels of much more distant markets to employ quality candidates. The resulting increased labor cost affects supply chains worldwide and requires organizations to recalculate benefit-cost analyses that created the foundation for their labor strategies.

Technology has provided consumers with transparency in the product sourcing, labor, and environmental practices of organizations. Organizations that have outsourced work to foreign countries in an effort to reduce costs may have encountered criticism over both their decision to abandon domestic facilities (layoffs harm communities and regions) and the working conditions that foreign workers are subject to.

Cyber Threats

Technology has created a new category of risks: cyber threats. Cyber threats can also be considered political (state-sponsored) as well as sociocultural (social engineering) forces. The same technology that provides visibility and creates efficiencies throughout the supply chain also increases cyber risk. The larger and more complex a supply chain is, the higher the risk is. In many cases, the overall supply chain is only as resilient to attack as its weakest node. A hacker gaining access to one system can then potentially gain deeper access into the systems of other organizations that are networked together by posing as that trusted partner.

Threats are posed by hackers and their release of malware, ransomware, and other cyber threats. These threats may be from criminal organizations or national governments and/or their proxy agencies as part of their overall military capabilities.

Cyber threats don’t always rely on technology-driven intrusions. Many threats manifest through social engineering, whereby criminal entities try to steal required credentials for system access from employees through scams and other methods. Disgruntled employees pose another threat, as they may choose to sell data or access (or publicly release secret information) out of anger or for financial purposes.

Economic Factors

The economic conditions of an area can be read through indicators such as the gross domestic product, employment levels, family or disposable incomes, and interest or currency exchange rates. Macroeconomic conditions include trends, such as inflation and deflation or growth and recession. Macroeconomics is addressed more elsewhere.

The significance of economic data from a STEEPLE analysis can vary for different organizations. During an economic slowdown, for example, consumers may not feel confident enough to buy new cars. This may be bad news for the auto industry. However, their auto parts aftermarket may see growth as consumers postpone vehicle replacement.

Environmental Factors

Growing interest in sustainable practices underscores the importance of this dimension. Environmental forces include natural events and trends, such as the depletion of certain resources, changes in weather, severe storms, or droughts. This dimension also includes reactions to these events and trends—increases in insurance rates, changes in agricultural practices, changes in energy production methods, or increased popularity of energy-saving equipment among consumers.

Environmental forces can drive change in an organization’s operations (e.g., the need to develop alternatives for scarce resources), but they may also create strategic opportunities (e.g., the need for sensors to detect water or energy loss in a facility).

Consumers are increasingly attuned to environmental practices; this attention applies both to materials sourcing and pollution/waste generation associated with the entire product life cycle. In some areas such as the European Union, this even includes regulations for the environmentally safe disposal of certain products by the manufacturer at their end of life. The circular supply chain complicates supply chain operations and requires robust reverse supply chain operations.

Environmental Disasters

Environmental disasters are often sudden and unpredictable in terms of scale, location, and effect. They include things like earthquakes, volcanic eruptions, tsunamis, wildfires, hurricanes, droughts, floods, and blizzards. The effects may be relatively short in duration or have effects that last for years. With some exceptions (for example, the use of levees and dams to control the release of flood waters), the initial event is outside of human influence.

The same type of disaster may affect supply chains differently depending on their global location. Disasters that occur in upstream locations may drive changes worldwide due to loss of production and distribution capabilities, causing financial losses spread out over a large geographic area. Disasters in downstream locations may lead to more localized effects, with highly focused and acutely costly impacts.

With unpredictable locations and infrastructure effects, these threats drive the creation of robust, diversified, redundant, and/or agile supply chains to respond to disruptions while minimizing organizational risk and losses.

Political Factors

Political factors refer to an economy’s political, governmental, or institutional environment. “Political” could include attitudes toward certain topics that may present themselves in public policies. It could describe a government’s level of willingness to become involved in an issue—for example, to step in to end a labor strike. The political dimension can also consider the stability of the government and its institutions and the role of influence or corruption on official actions. At the extreme end of politics are actual wars, such as the war in Ukraine.

An international nonprofit relief organization can serve as example of setting strategy to account for political factors. The organization must consider the attitude of a government toward the presence of relief organizations in the country, the risks of a sudden change in government or a period of unrest, corruption risk, and the need to cultivate influence with key people in order to operate there.

Legal and Regulatory Factors

This dimension relates to the actions of political institutions—the laws and regulations that are enacted as a result of political attitudes.

International actions and national laws and regulations are not only a risk to supply chain operations; they are also an opportunity. Laws and regulations that may alter or change supply chain operations can help create a stable and predictable environment necessary for the creation and improvement of complex and stable supply chains. Organizations that navigate these forces the most efficiently can have an advantage.

Legal and regulatory external drivers are discussed here, starting with international drivers such as trade agreements, trade wars, and tariffs, followed by a discussion of the impact of national laws and regulations on specific industries.

International Drivers

Supply chain transformation drivers may take the form of international drivers that are partly political and partly legal/regulatory in nature. This includes the creation of, entrance into, withdrawal from, or termination of international trade agreements. Major changes to trade agreements may be infrequent compared to other drivers, but they may result in significant and wide-reaching changes to supply chains.

Trade wars involve a nation using or increasing tariffs (taxes) on specific imports from specific origins as a political tool, which is typically followed by an escalating pattern of similar responses from the other nations. Trade wars may significantly change the cost of materials, even to the point at which entire supply chains need to be rerouted.

Governments may create regulations or other restrictions that limit international trade. These non-tariff barriers may be created for many competitive/geopolitical reasons, including consumer safety or national interest. Governments may also provide subsidies to organizations operating within the country or protect industries from external interference through anti-dumping measures. For example, masks needed during the COVID-19 pandemic were no longer being exported from China and it took time for other countries to develop their own production. In another example, to gain tax-advantaged status, a government may require that a given percentage of a product be made up of parts from that country. A government may also require certain labeling and production, transportation, and storage standards related to product safety.

Governments may work to protect international trade using free trade zones (FTZs) or bonded logistics parks that help avoid or delay certain taxes. They also develop international agreements for protection against theft, smuggling, counterfeits, and terrorism, such as the U.S.-led Customs-Trade Partnership Against Terrorism (C-TPAT).

National Laws and Regulations

National laws and regulations influence and alter nearly every industry in one form or another. Changes in laws and regulations may significantly alter the environment in which a supply chain operates, affecting supply, demand, cost, profitability, or even the ability to operate in a given location.

Consider the case of a motorcycle manufacturer. Leaders will be alert to possible changes in regulations that affect engine emissions or engine fuel efficiency. These will directly affect the company’s products. Some products may need to be redesigned, but ones that already comply with the new regulations may offer a competitive advantage.

Supply chains rely on government-created, -maintained, and -owned infrastructure worldwide; these infrastructure assets are subject to regulation. Examples include environmental regulation limits on where and/or when a given type of transportation vehicle may operate in the form of gross weight limits and/or route and time-of-day restrictions for trucks.

Government responses to climate change, natural disasters, conflicts, trade wars, inflation, and so on may also have significant effects on a supply chain. Governments may alter laws or regulations or even seize assets or goods. (This is called sovereign risk.) In the immediate aftermath of major events, governments may also ask or require organizations to provide assistance with moving goods using their supply chain to reach affected areas.

Another legal driver pertains to avoiding abuses of worker classification (for example, self-employed/owner-operator/contractor without benefits versus employee with benefits) and rights regarding union membership and collective actions (for example, strikes and work stoppages). Strikes and work stoppages even in distant ports may cause major disruptions worldwide, leading to delays and product shortages. Switching to alternative routings may require advance planning and could still significantly increase cost and delivery time.

Regulations against corruption and bribery help create a stable environment for supply chains to develop and prosper. Though protections from these types of risk may be strong in some countries, it is important to note that as supply chains move into areas of the globe that are less developed, they may encounter increasing levels of risk.

Ethical Factors

Ethical factors include business ethics, good governance, ethical sourcing, social responsibility, moral standards, accountability, and sustainability.

Consider ethical sourcing. It has become increasingly important to consumers and regulators that materials are sourced in an ethical manner. For example, some areas that mine for important and protected materials (diamonds, rare metals used in electronics manufacture) are subject to armed conflict and human rights abuses. These materials may pass through various legal and illegal enterprises en route to manufacturing facilities, with the money earned through their sale directly or indirectly funding the groups.

Sustainability considerations apply differently across the entire supply chain and product life cycle. Examples include the following:

• Materials sourcing—safe mining practices, use of renewable packaging
• Product design—use of renewable/recyclable materials within the product or avoiding use of “forever” chemicals
• Production—use of renewable energy during the manufacturing process, reduction of emissions associated with production processes, or waste reduction
• Transportation—use of efficient transportation processes to reduce emissions and spills of hazardous materials
• Product end of life—safe recycling and/or disposal of products

External and internal pressure for socially responsible working conditions is another ethics factor to analyze.

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