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The external environment is the world in which the business operates, it is a large ever changing place made up of:

• Organisations
• Employers
• Suppliers
• Customers
• Other Stakeholders

A business can’t operate with being influenced by and impacting upon the external environment. A key success factor for any business is an accurate understanding of the external environment. A long-term analysis of what is happening in all areas of a business can be monitored, anticipated and dealt with accordingly. The external environment can be defined & analysed using on of the following:

• STEEP – Sociological, Technological, Economic, Environmental, Political
• STEP – Sociological, Technological, Economic, Political
• PEST – Political, Economic, Sociological, Technological
• PESTLE – Political, Economic, Sociological, Technological, Legal, Environmental
• STEEPLE – Sociological, Technological, Economic, Environmental, Political, Legal, Ethical
The idea is the same for all of the models; that there are several main external influences on a business.
The STEEP model uses the 5 headings listed above.

Sociological Factors:

These include demographic changes in:
• Age
• Structure of the population
• Patterns of work
• Gender roles
• Patterns of consumption
• Changes in culture

Technological Factors:

• ICT is lowering the barriers of time and place
• ICT creates new industries
• Many individual jobs and internal service functions have been transformed and are now largely or solely based on ICT systems.

Economic Factors:

• Rate of economic growth
• Interest rates
• Inflation rates
• Energy prices
• Exchange rates
• Levels of employment

The state of a country’s economy pervades all aspects of business life as it affects demand for goods and services, the availability and cost of resources (land, labour, materials & buildings). Both individuals’ and businesses’ behaviour reflects their expectations of economic trends. Governments use changes in the interest rate to try to achieve short-term in levels of demand, investment and spending. Global communication technology has resulted in very high levels of currency trading, which leads to a great volatility in exchange rates.

Environmental Factors:

These are of growing importance as people all over the world are very concerned about the impact of businesses on the natural environment. The following are factors that businesses need to consider:

• Legalisation – Environmental Legalisation is increasing, with the emphasis on pollution control and waste disposal. However there are regulations affecting packaging, transport and distribution and sourcing materials.
• Information – Businesses report regularly on their environmental performance.
• Employees – Employees are interested &concerned about the environmental credentials of their employers.
• Shareholders – Most shareholders of larger businesses are financial institutions who are driven by financial performance. However in several countries a category of ethical investors is emerging.
• Pressure Groups –In the late 20th Century there was a massive growth in pressure groups, most of which were established to deal with particular issues. Many of them broadened their membership bases and became a permanent part of the political scene; these groups include groups such as Greenpeace and Stonewall.
• Customers – There are opportunities for businesses that are operating to high environmental standards to gain market advantage.

Political factors

Political influences affect/most of what we all do. Here are only a few political factors for businesses:
• Legislation – This affects a lot of different aspects of business life. The CIPD (Chartered Institute of Personnel and Development).
• Trading Relationships – Examples of this are the World Trade Organisation and the European Union.
• Government- In many cases the Government is either the largest employer or purchaser of goods and services or in some cases the only customer.
• Public Services – Health Services, Education and the Police Force are all determined on political grounds.
• Taxation – This is a pretty big one for businesses.

The distinction between the factors defined in the STEEP model are rather artificial, this is because in reality the factors are often interlinked.