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Social and Technological Environment

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Business Studies

Social and technological environments impact business decision-making. These are the 'S' and 'T' elements of the PESTLE analysis (see Figure 1 below). The social environment includes factors like lifestyle and consumer trends. The technological environment includes factors like artificial intelligence and machine learning. These external factors all have the ability to influence business strategy and objectives. Let's take a look.

Social and technological environment, PESTLE analysis, StudySmarterFigure 1. PESTLE Analysis, StudySmarter

Meaning of technological environment

The technological environment is one of the external factors that influence a business.

The 'T' in PESTLE stands for the technological environment.

The technological environment can have a huge impact on a business and includes all external technological innovations and developments like disruptive technologies, Big Data and AI, new production processes, etc. A technological change or advancement can:

  • Have a sudden and substantial impact on the firm's environment,

  • Advance the way an industry operates,

  • Destroy industries altogether,

  • Impact the demand for certain products and services,

  • Shift the demand from one product or service to another.

Technological change can be very rapid in certain industries like the science or technology industries and, on the other hand, it can be very slow in other industries like leather goods or furniture manufacturing.

Examples of technological environment

Some of the technological factors which can be part of the PESTLE analysis include:

  • Disruptive technologies

  • Artificial Intelligence

  • IoT

  • New production processes

  • Machine learning

A new production process developed by an organization could act as a huge threat for competitors in the same industry if they cannot easily imitate the new technology.

Impact of technological changes on strategy

The technological environment has a great influence on strategy.

One important thing to note is that technology might not be a source of competitive advantage if the technological innovation is external to the business. However, technology can provide a huge opportunity for strategic change.

New production processes and disruptive technologies have the power to change the entire operational process or even the business model of a firm.

As a result, the technological environment is directly related to Porter's Five Forces. Technological advancements can, for example, create substitute products or services making old ones obsolete (think Netflix, Prime Video, HBO Max, etc. replacing DVDs). Rivalry among existing firms may decrease if the technology becomes available to everyone, however, rivalry could also increase if firms are innovating new technologies rapidly. Technological improvements can also impact barriers to entry. It can either increase the barrier to entry if the technology is hard to access or imitate by inexperienced firms, or it can make an industry easier to enter by reducing economies of scale. The bargaining power of buyers is likely to increase, as technology brings them access to more information.

Nowadays, with the technological environment changing rapidly in several industries, the firm should ideally have a technological strategy. This is because in certain industries technological changes can be seen as a threat rather than an opportunity.

Meaning of social environment

The social environment is another external factor that influences a business.

What is the Social Environment?

The social environment is an important factor for companies to consider, especially for marketing analytics and strategy decisions.

The 'S' in PESTLE stands for the social environment.

Changes in society and lifestyle are key determinants of many markets. Changes in society can dictate key market trends and are an essential part of segmentation. Often times customer segments are created based on social or demographic factors. The social environment is also essential for marketers, as it helps them understand and target certain customers. The social environment can also give managers an insight into current workforce and workplace trends, which can help them with effective management strategy and decision making.

Examples of the social environment

Some of the social factors which can be part of the PESTLE analysis include:

  • Demographic factors like age distribution or education levels

  • Lifestyle and lifestyle changes

  • Cultural norms and expectations

  • Health consciousness

Knowing that there is a trend towards changes in lifestyle or attitudes towards health could provide essential insight into segmentation and help shape market strategy.

Impact of technological and social change in the business environment

The social and technological environments both have unique ways of impacting strategy. The social environment has a large impact on marketing activities like new product development, pricing and other marketing mix factors.

An ageing population, increasing birth rates or larger family sizes will impact how you segment your market, position your product and the types of new product developments you explore.

Lifestyle changes can also have a huge impact on strategy. For example, due to digitalization consumers have more access to information and use digital media daily. These changes present significant opportunities for businesses to reach customers through new digital channels and cater their advertisements exactly to the specific segment they wish to target with their promotions.

If you know that your target segment is young and more invested in digital media (as opposed to traditional media) you would advertise to them on Instagram or TikTok as opposed to a television or newspaper advertisement.

Social media marketing also creates great opportunities for firms as they can target very specific segments with their advertisements, which is often not possible with traditional media.

Social and Technological Environment - Key takeaways

  • The technological environment is one of the external factors that influence a business.

  • A technological change or advancement can have a sudden and substantial impact on the firm's environment.

  • This is why the technological environment is an essential consideration for strategy - it impacts all aspects of Porter's Five Forces.

  • The social environment is another external factor that influences a business.

  • Changes in society and lifestyle are often key determinants of markets.

  • Changes in society can dictate key market trends and are an essential part of segmentation.

Social and Technological Environment

The technological environment is an important external factor that can influence a business. The technological environment includes any recent technological developments and innovations that are relevant to the industry the business is operating in. Some examples of the technological environment that can be used for a PESTLE analysis include disruptive technologies, machine learning or artificial intelligence.  

The PESTLE analysis is used to examine the external environment of a business. The external environment includes all factors outside the reach of the business, that can impact the operations of the business. PESTLE is an inclusive analysis of the political, economic, social, technological, legal and environmental aspects. The PESTLE allows a company to get a comprehensive image of all external factors that might impact strategy and competitiveness. 

Social technology is a way of using human and digital tools to impact society. An example of social technology could be the implementation of certain software or computer technology to help automate certain tasks in agriculture. 

When it comes to external analysis, the main features of the technological environment include the innovation and development of technology. A technological change or advancement can have a sudden and substantial impact on the firm's environment. It can alter the way an industry operates or even destroy certain industries altogether. Technological changes can also impact the demand for certain products and services, or shift the demand from certain products to others. 

Technology can have various social impacts. Technological innovations and developments have led to digitalization. Due to digitalization, consumers now have a lot more access to information and digital media. For example, consumers can now look at customer reviews, compare prices and look at different distribution options before purchasing a product online. Consumers tend to also use social media frequently, which presents a huge opportunity for businesses to market and sell their products through digital channels. 

Final Social and Technological Environment Quiz

Question

What is an example of the technological environment?

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Answer

  • Artificial Intelligence 

  • IoT

  • Disruptive technologies 

Show question

Question

What is a PESTLE analysis used for? 


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Answer

The PESTLE analysis is used to examine the external environment of a business.

Show question

Question

How is the technological environment related to the PESTLE analysis? 


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Answer

The 'T' in PESTLE stands for the technological environment.

Show question

Question

How is the technological environment related to product substitution (Porter's Five Forces)? 


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Answer

Technological advancements can, for example, create substitute products or services making old ones obsolete (think Netflix, Prime Video, HBO Max, etc. replacing DVDs)

Show question

Question

How is the technological environment related to barriers to entry?


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Answer

Barriers to entry may increase if new technology is complicated to imitate.

Show question

Question

Why is it important to have a technological strategy?


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Answer

Nowadays, with the technological environment changing rapidly in several industries, the firm should ideally have a technological strategy. This is because in certain industries technological changes can be seen as a threat rather than an opportunity.

Show question

Question

Which of the following is not an example of the social environment? 

Show answer

Answer

Disruptive technologies

Show question

Question

How is the social environment related to the PESTLE analysis?

Show answer

Answer

The 'S' in PESTLE stands for the social environment.

Show question

Question

Why is the social environment important for strategy? 


Show answer

Answer

Changes in society and lifestyle are often key determinants of markets. Changes in society can dictate key market trends and are an essential part of segmentation. Often times customer segments are created based on social or demographic factors.

Show question

Question

Insight into the social environment can help managers with: 

Show answer

Answer

All of the above.

Show question

Question

What is digitization?


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Answer

Digitalization is the process of incorporating digital technologies into society and business.

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Question

How has the social environment changed since digitalization?


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Answer

  • Consumers have a lot more access to information 
  • Consumers have access to more channels (online and in-person purchases)
  • Social media

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Question

How can businesses benefit from digitalization?


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Answer

It can become easier to reach consumers through digital media and target each segment with advertisements that are specifically aimed at them. It is also easier to interact directly with your customer base.

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Question

What are the impacts of social change?

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Answer

Social change can have a huge impact on businesses. It can lead to consumers demanding different products and services. Social change can also influence the way businesses operate and produce goods.

Show question

Question

Name two examples of demographic changes. 


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Answer


  • A growing population 

  • An aging population

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Question

Other than demographic changes, what are two other important societal changes taking place right now? 


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Answer


  • Urbanization 

  • migration 

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Question

What is the difference between urbanization and migration? 


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Answer

Urbanization is the movement of people from the countryside or rural areas to cities and towns. Migration is the movement of people from one country to another.

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Question

Name one of the benefits of migration.


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Answer

Higher rates of migration could help a country's economy by increasing the workforce - an increased supply of labor could grow the economy.

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Question

Name one of the disadvantages of urbanization.


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Answer

  • Densely populated areas

  • Unaffordable housing prices 

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Question

Name two examples of changes in consumer lifestyle. 


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Answer

  • Digitization 

  • Increased social concern. 

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Question

Name two examples of changes in buying behavior. 


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Answer

  • Increased access to information (reviews, price comparisons, etc.) 
  • Changes in distribution (consumers have control over where and how they buy their products)

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Question

Which of the following is not an example of a change in lifestyle? 

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Answer

Ageing population

Show question

Question

Which of the following statements is correct? 


I. Consumers generally have more access to information. 

II. Consumers have less control over how they buy their products.

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Answer

Only statement I. is correct. 


Show question

Question

Name two advantages of technological change. 


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Answer

  • Lower costs 

  • Higher profit margins

  • Learning new skills 

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Question

Name two disadvantages of technological changes in the business environment. 


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Answer


  • High R&D costs 

  • Potential unemployment

Show question

Question

Which of the following statements is correct? 


I. Technology has made it easier for businesses to advertise their products. 

II. Technology has made it harder for businesses to distribute their products. 

Show answer

Answer

Only statement I. is correct. 


Show question

Question

Which of the following is not an advantage of technological change? 

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Answer

Increased sales

Show question

Question

What is corporate social responsibility?

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Answer

Corporate social responsibility is a set of practices a business undertakes to contribute to society in a positive way

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Question

Name an example of a social objective a company could have. 


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Answer

  • Giving back to local communities 

  • Following ethical practices 

Show question

Question

Which of the following statements is correct? 


I. CSR is a set of practices a business tries to undertake to impact society positively. 

II. CSR is about increasing profits.

Show answer

Answer

Only statement I. is correct 

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Question

The base layer of the CSR pyramid is _________.

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Answer

Economic responsibilities 

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Question

The top layer of the CSR pyramid is __________. 

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Answer

Philanthropic responsibilities 

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Question

Which of the following responsibilities is not part of the CSR pyramid?

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Answer

Political responsibilities. 

Show question

Question

Why would a company want to implement CSR into their business practices? 


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Answer

To become a good corporate citizen by being transparent in their business practices.

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Question

What kind of internal benefits does CSR bring to a company? 


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Answer

A company that is known to consider social responsibilities is not only attractive to customers but also to employees. CSR also takes internal governance into account, meaning that the company also has set practices on internal policies (ex. Ethical management or flexible working hours). This can be attractive to new employees and helps to motivate and retain current employees.

Show question

Question

Name an example of a cost CSR can lower. 


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Answer

  • Production costs. 

Show question

Question

What are two of the advantages of CSR? 


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Answer

  • Attracting more customers 

  • Internal benefits 

  • Lower production costs

Show question

Question

Which of the following statements is correct? 


I. CSR could be used as a tool for risk management. 

II. CSR could attract more customers to the business. 

Show answer

Answer

Both statements are correct.

Show question

Question

Name two disadvantages of CSR. 


Show answer

Answer

  • Can be quite expensive to implement 

  • Could conflict with the interest of shareholders 

Show question

Question

Name an industry in which technological change tends to be rapid.

Show answer

Answer

Science

Show question

Question

How can a new production process act as a threat to competitors?

Show answer

Answer

It could be a threat to competitors if they cannot easily imitate the new technology.

Show question

Question

What is digitalization?

Show answer

Answer

Digitalization refers to the way in which social life (including business) has become restructured based on digital communication.

Show question

Question

What are the four layers of the CSR pyramid?

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Answer

Economic, legal, ethical and philanthropic responsibilities. 

Show question

Question

Name an example of a company implementing CSR.

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Answer

The Body Shop

Show question

Question

Outline an example of how a clothing retailer could implement CSR.

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Answer

A clothing retailer can set out that they will only use sustainable, environmentally friendly materials for production (environmental goal), pay all of their workers a fair wage and guarantee a high-quality working environment (social goal).

Show question

Question

___ change implies a change in the population, such as the size and structure of the population.

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Answer

Demographic

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Question

What do we call a movement of people from one place to another?

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Answer

migration

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Question

A ___ is a measure of the percentage of the population living in urban areas (cities or towns). 

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Answer

degree of urbanisation 

Show question

Question

As a result of __, consumers are better informed and it has also become much easier for them to access information.

Show answer

Answer

digital technology 

Show question

Question

Not only do demographics play a huge role in marketing (segmentation, targeting) they are also significant for the ___ positioning of a business.


Show answer

Answer

strategic 

Show question

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