STEP Analysis: What it is and how to do it

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STEP analysis is a strategic method corporations use to understand four major external environmental factors of the business landscape. The information derived from this analytical report helps the specific party to organize new internal decisions. More so, it allows decision-makers to focus on four of the most important factors that will influence business decisions, purchasing habits, and other necessary functions of a successful business.

The STEP analysis can be as thorough or simple as you like and the information gathered can be helpful in current or future decision making. It’s helpful to conduct this information regularly, as the information can change quickly during volatile times.

You may also decide to focus on only a couple of the STEP factors — or all four. Whichever ones are most important to the corporation should take priority at the moment. With that said, doing a full analysis can be helpful in the future, because certain factors that aren’t as relevant now may take priority in the future.

Who can conduct STEP analysis?

STEP analysis is often used by business analysts, but that’s not the only group. Any person in the organization who influences business decisions will benefit from conducting the analysis themself. This includes managers, district managers, even the CEO of the corporation too. Just know that it can take several days to months to complete your STEP analysis, depending on the complexity.

What are the factors included in STEP analysis?

STEP analysis an acronym. The letters stand for:

Each section looks at specific factors that affect all businesses. Meaning, you’d look at the key factors associated with society, technology, the economy, and politicals/regulations in relation to your company or industry. Rather than just looking at recent developments of each factor, you should also look at trends — it’s these trends and relationships that will gleam the most important and usable data.

STEP analytical trends and relationships

When conducting your STEP analysis, discover the relationship between the past and current data to determine trends. By recognizing a trend based on previous information, you may be able to determine a tentative future result. For example, a decline or jump in recent trends may suggest continued growth in the future. Or seeing a decline in recent data may suggest this decline will continue in the near future. This information will help decision-makers decide whether to launch a new product, pull back on older projects, or change marketing directions, for example.

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How should you look at trends for the future?

It may be easier to determine a trend when you know what to look for. For example, consider how the trends have changed over the last three, five, and ten years. Once the change is recognized, quantify it as positive or negative, and try to determine the cause of this change. Then look at what effects the change has had on the industry and related companies. The change may affect large companies and startups differently — depending on the size of your business, you may only focus on the data most useful for yours.

To put it simply: You’re looking for trends, determining what the direction of the change is, and finding out what the outcome of trends have had on companies and industries. You (or the analyst) will do this for each section of the STEP analysis — so at least four times.

Deducing future trends on STEP analytical information

The next step — and potentially the most important for strategic decision making — is determining the future of this trend. Of course, this can’t be 100% determined based on the information discovered in your STEP analysis, but it can shed light on the potential future of the trend. Once you can determine the possible future of the trend, then companies can start making strategic decisions.

How often should you do STEP analysis?

This is up to you. Although past data won’t change, the information of the current landscape may. If you were to conduct a STEP analysis annually, the information gathered may be outdated. For that reason, it may be beneficial to do a STEP analysis quarterly. You can compare the information gathered in each quarter and determine subtle trend changes more effectively in this way.

Are there other versions of STEP analysis?

There are more enhanced versions, such as STEEP analysis and DESTEP analysis.

STEEP analysis adds another macro-environmental factor — “environmental” (or “ecological”). This factor may be more important for eco-friendly businesses or companies looking to expand into the environmental industry.

DESTEP adds “demographics” factor as well as “environmental”. In this case, the trends related to geographic location and the population are factored into the analysis. If “demographics” or “environmental” factors aren’t as essential to your business, you can stick with the more simplified version, STEP analysis. If at a later date, these additional factors do become relevant, you can add them to your STEP analysis as needed.

Make smarter business decisions with STEP analysis

STEP analysis is a relatively simple analysis that any business decision-makers can conduct. The point is to identify trends related to social, technological, economic, and political factors in relation to a business or industry. The analytical data of past, present, and future trends will help corporations make smart decisions related to production, manufacturing, marketing, and more.

It’s recommended to do a full analysis — meaning filling out information for all four categories — even if only a few are relevant to your situation. Because, as trends change and a corporation develops, the other categories of the STEP analysis may be important later on.

The analysis can be as thorough or shallow as you’d like, so long as you identify trends to make business decisions. You can also do the analysis as often or as little as you like, but since the data can quickly become redundant, it may be beneficial to conduct a new STEP analysis at least every quarter. You can decide the best time frame, depending on your needs.

Overall STEP analysis is a beneficial method to focus on four primary macro-environmental factors.

Image by Gerd Altmann