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.
Fig. 1 - PESTLE Analysis
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.
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