Chapter 11Social and technological factors

Chapter Outline

SOCIAL, DEMOGRAPHIC AND TECHNOLOGICAL

FACTORS

Part of PEST analysis to identify opportunities and

threats

SOCIAL AND DEMOGRAPHIC

FACTORS

TECHNOLOGICAL FACTORS

- Organisational structure- Product

- Production- Marketing

Demographic and social trends

Part of environmental analysis

Key social and demographic issues include: Population – size, location, density, composition Wealth – income, distribution Education and training Health Social structure, attitudes, values and tastes

Demographic trends

Population size Many firms monitor forecasts for population size as a

growing population often results in a growing market. Population growth (or decline) is the result of a

combination of factors including birth rates, death rates, immigration and emigration.

World average fertility rate is 2.59 (2.1 is seen as replacement rate in most industrialised nations, i.e. to maintain a stable population)

Singapore’s fertility rate is 1.06; in many African countries over 6

Demographic trends

Population composition Relative sizes of birth and death rates will change the

age composition Ireland: over 36% of the population is under 25 =>

very attractive for firms seeking a large workforce Many countries face a pensions time bomb due to an

ageing population, f. ex. UK population aged over 65 – 13% in 1971, 16% in 2006, 20% in 2021

Demographic trends

Population location World’s population living in cities

30% in 1950 50% in 2006 60% in 2030

Implications for certain industries, e.g. space in cities is scarce, people will be living in smaller houses, thus creating an opportunity for firms specialising in space-saving furniture

Demographic trends Wealth

Economic growth often results in higher disposable incomes => also greater demand for products

4 greatest growing economies: BRIC (Brazil, Russia, India, China)

Education Educated workforce is key driver of economic growth,

e.g. in China 99% of youth population is now literate compared with 70% in the 1980s

Increasing standards of education generally and greater access to IT have made the Internet a major channel for selling and advertising.

Demographic trends

Health Problem of obesity in western countries =>

healthcare providers HIV (SA: 12% are infected, declining life expectancy

(currently 51 yrs), change of population structure is problematic (fewer people in their middle ages, which is normally the most economically active and skilled group who support the elderly and younger groups)

Social trends

Social structure Many countries are finding the demand for housing

growing faster than the population, e.g. UK population grew by 7.7% between 1971 – 2006; number of dwellings grew by 35%

Reasons: increasing wealth as well as changes in social structure (increased proportion of one person households, e.g. due to higher divorce rates)

Social trends Values

Cultural shifts: greater social awareness and more environmentally concerned (greenhouse gases, ozone layer, animal testing…) => organisations have to embrace this shift

Age of women on the birth of their first child has risen in many countries => older mothers are often wealthier and more demanding of baby products (quality of clothing, prams…)

Changed lifestyle; more flexibility than historic ‘9 to 5’ working day => supermarkets, internet banking/ shopping 24/24

Social trends Attitudes

Change in attitudes is taking place across the EU at present in relation to seek compensation from organisations for alleged wrongs => may lead to huge costs

Changes in public attitudes to recycling (opp. for recycling firms)

More comfortable with computers and internet; use of broadband internet connection => opp. for online shopping

Social trends

Tastes Damaging effects for companies that fail to anticipate

changes in tastes and fashions (clothing but also cars and furniture)

Johnson & Scholes: Social influences

Population demographics Income distribution Social mobility Lifestyle changes Consumerism Levels of education

Government policy For many firms the impact of social and demographic

change is primarily through govt responses to trends, e.g.

Population structure Countries with low birth rates often introduce tax adv

and other financial incentives to encourage women to have more children – Singapore; or encouragement of immigration – Canada, Australia

‘One child’ policy adopted by China Countries with ‘pensions crisis’ – raising retirement

age/encouraging private and occupational pension schemes

Government policy Housing

Increasing demand for new housing, in many countries has resulted in govt setting out plans for new developments, creating further demand for builders.

Employment Increasing single-parent families, UK govt has

focused on enabling single parents to return to work through a mixture of childcare vouchers and tax credits => extra demand for childcare services and after-school clubs

Government policy

Health Bans on tobacco advertising on TV (same pressures

re fast food industry) SA: raise awareness of AIDS and sexual health;

pressure on global community to provide cheap drugs to help

Steps to improve nutritional value of school meals with obvious implications for suppliers of these meals

Technological factors

Technological changes can affect a firm in many different ways. Organisational, e.g. teleworking Product development, e.g. CD players – mp3 players Production changes, e.g. computer-controlled

machinery Marketing, e.g. using the internet to sell the product

Impact of technological change on organisational structure

Some administrative and managerial roles have been replaced by more effective IT systems.

Some production roles have been replaced by the use of robots and automated production lines. This has also reduce the need for as many supervisors.

Improved communications (email, secure intranet, wireless networks) – allowing more flexible work arrangements

=> downsizing, delayering, outsourcing

Impact of technological change on organisational structure

Downsizing Term used for reducing the number of employees in

an organisation without necessarily reducing the work or the output

Downsizing has been a feature of the 1980s and 1990s.

Many organisations (large and small) believe that they have become ‘leaner’ and ‘fitter’ as a result.

Impact of technological change on organisational structure

Delayering Process of removing layers of management Often linked to downsizing Change organisation from one with a rigid

hierarchical framework with numerous layers of supervisory grades into ‘flatter’ organisation with minimal layers of management

Emphasis on team work, with people taking on different roles in different teams

Impact of technological change on organisational structure

Outsourcing Means contracting-out aspects of the work of the

organisation, previously done in-house, to specialist providers

In some cases suppliers are given access to the firm’s records so they can review production schedules and stock records to ensure that supplies are delivered before they run out.

E.g. Walmart makes its sales data immediately available to its suppliers, through the internet.

Impact of technological change on products

Products become increasingly more sophisticated, e.g. mobile phones

Emergence of substitutes, e.g. cinema industry went into decline in early 1980s as a result of the emergence of the video

Business model of some industries has been completely transformed, e.g. supermarkets moving into online banking

Customer support is often provided by call centres in low-wage countries. Some have reinstated call centres into their home countries after concerns over customer care.

Impact of technological change on production processes

Use of robots and automated production lines Also IT systems have been used for more efficient

scheduling and monitoring of production, resulting in lower inventory levels, higher quality, elimination of bottlenecks and lower costs

E.g. 2 specific applications of IT production Manufacturing resource planning (MRP) Enterprise resource planning (ERP)

Impact of technological change on production processes MRP: push-based system, pushing work through production.

Focus of the computer based technology is to draw together the appropriate resources to meet demand. Functions include: Identifying firm orders and forecasting future orders with

confidence Translating these into capacity requirements Determining the timing of material requirements Calculating purchase orders based on stock levels Automatically placing purchase orders Scheduling labour and materials for future production

Benefits of MRP: reduced stock holding, improved ability to meet orders, reliable quotations of delivery times, improved facilities utilisation, less time spent on emergency orders, better supplier relationships

Impact of technological change on production processes

ERP (Enterprise resource planning): Management system that integrates all aspects of the

business into a single computer-based system to meet the needs of all organisational users.

Scope: HR application, logistics, sales, marketing, management accounting as well as Extranet to co-ordinate those outside of the organisation

Impact of technological change on marketing

Pricing – many retailers monitor competitors’ prices to ensure that they are not being undercut. Most ‘price watch’ schemes are IT-based.

Promotion – use of websites but also promotional methods such as viral and banner advertisements

Distribution – internet has created a huge opportunity for many firms to sell direct to a wider range of potential customers

Market research, e.g. customer databases

Impact of technological change on society as a whole

Society is becoming more dependent upon computer and communications technology

Move from industrial age to information age Key issues

E-commerce (www advertising, www ordering of products, www financial transactions, Electronic data interchange)

Home shopping, Home banking, Home learning, Home entertainment, Teleworking/telecommuting

Some industries may disappear, but new ones are emerging. Employment patterns will change.

Chapter SummarySOCIAL, DEMOGRAPHIC AND TECHNOLOGICAL

FACTORS

Part of PEST analysis to identify opportunities and

threats

Demographic factors- Population size, composition and location- Wealth- Education- Health

Social factors- Social structure- Values- Tastes

Government responses

Technological factors- Organisational structure (downsizing, delayering, outsourcing)

- Product (more sophisticated, replaced, change in business model)

- Production (robotics, automation, scheduling, planning)

- Marketing (price watch, internet selling, Websites, viral, banner ads)