Chapter 11 Social and technological factors
Chapter Outline SOCIAL, DEMOGRAPHIC AND TECHNOLOGICAL FACTORS Part of PEST analysis to identify opportunities and threats TECHNOLOGICAL FACTORS - Organisational structure- Product- Production- Marketing SOCIAL AND DEMOGRAPHIC FACTORS
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 • Marketresearch, 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 Summary SOCIAL, 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)