Demographic Factor

7/29/2019 Demographic Factor

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Chapter 11: Social and technological factors

Chapter learning objectives

Upon completion of this chapter you will be able to:

explain, with examples, the effect social and demographic trends have on the economy explain the effect of changes in social structure, values, attitudes and tastes on the organisation state the measures government can take in response to demographic changes and explain their impact. explain ways in which a business can affect or be affected by the environment describe ways in which businesses can limit damage caused to the environment define sustainability and discuss its advantages for stakeholders describe the effect of technological change on the structure of the organisation explain the following terms: downsizing, delayering, outsourcing explain the ways in which information technology and information systems development is influencing

the business processes:o productso productiono marketing.

1 Demographic and social trends

1.1 Environmental analysis

Part of a firm's external PEST analysis will involve assessingthe social and demographic factors within theindustry environment. Asdiscussed above the key issue is to identify potential opportunities andthreats.

Key social and demographic issues include:

population size, location, density and composition wealth income, distribution education and training health social structure, attitudes, values and tastes.

1.2 Demographic trends

Population size

Many firms monitor forecasts for population size as a growing population often results in a growingmarket.


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Population growth (or decline) is the result of a combination of factors including birth rates, death rates,immigration and emigration

The world average fertility rate is 2.59 children per adult woman with 2.1 being seen as the replacementrate in most industrialised nations (i.e. to maintain a stable population)

Singapore has a fertility rate of 1.06 - one of the lowest in the world whereas many African countrieshave rates in excess of six.

Population composition

The relative sizes of birth and death rates will change the age composition of the population. In Ireland over 36% of the population is aged under 25 making it an attractive market for firms seeking a

large workforce.

On the other hand many countries face a pensions time bomb due to an ageing population. The percentage of the UK population aged over 65 has risen from 13% in 1971 to 16% in 2006 and is

predicted to reach 20% by 2021.

Population location

In 1950 30% of the world's population lived in cities. That figure has risen to 50% in 2006 and ispredicted to reach 60% by 2030.

Given that space is more at a premium in cities it is likely that people will be living in smaller houses andapartments, thus creating an opportunity for firms specialising in space-saving furniture.

Wealth

Economic growth often results in higher disposable incomes with the knock an effect of greater demandfor (most) products.

The four fastest growing economies in the world are the "BRIC" countries (Brazil, Russia, India andChina)

Education

An educated workforce is a key driver of economic growth, e.g. in China 99% of the youth population isnow literate compared with 70% in the 1980s.

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

Health

In many western countries the population is becoming increasingly overweight. This places greaterdemands on healthcare providers.

More than 12% of South Africans are infected by HIV. South Africa's declining life expectancy (currently51 years) is a major concern, especially as the population structure has changed with fewer people intheir middle ages. This is normally the most economically active and skilled group who support the

elderly and younger groups.

Test your understanding 1

Give three demographic changes of interest to a firm of funeral directors.


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A greater percentage of teenagers in the UK are going on touniversity than ever before with the governmentputting forward a targetfigure of 50% by 2010.

Give examples of three firms who will be affected by this and state whether they face an opportunity or a threat.

1.3 Social trends

Social structure

Many countries are finding the demand for housing growing faster than the population. The population of the UK grew by 7.7% between 1971 and 2006. Over the same period the number of

dwellings grew by 35%.

This is partly explained by increasing wealth but also by changes in social structure. For example, the

proportion of one person households may be increasing, due to a range of factors such as, e.g. higherdivorce rates.

Values

An increasing concern about greenhouse gases and the ozone layer, testing of products on animals andgenerally greater social awareness could spell disaster in the future for those firms unwilling to embracethis cultural shift.

Many women are choosing to pursue careers first before having children, so the average age of amother on the birth of their first child has risen in many countries. Such older mothers are often wealthierand more demanding of the baby products they buy resulting in an increase in demand for better-qualityclothing, prams, etc.

A widespread change in lifestyle has been the shift away from the historic '9 to 5' working day to a moreflexible form. Supermarkets are now open throughout the night and the internet and other forms of ITallow people to shop or bank in the middle of the night as a response to this trend.

Attitudes

A change in attitudes is taking place across the EU at present in relation to willingness to seekcompensation from organisations for alleged wrongs. The potential costs of this 'compensation culture'could be huge and may lead to some corporate casualties. The culture has, to a certain extent, beenimported from the United States.

Changes in public attitudes to recycling have resulted in opportunities for recycling firms. People are far more comfortable with computers and using the internet. In the UK the proportion of

households with a broadband connection rose from 8 per cent to 31 per cent between April 2003 andJuly 2005. This has created huge opportunities for online firms and many conventional retailers have setup websites to sell their products.

Tastes

Culturally, changes in tastes and fashions can have a damaging effect on organisations that fail toanticipate the changes. Clothing is an excellent case in point, and Marks & Spencer has in recent timesexperienced decline for this very reason. Even cars and furniture are susceptible to changes in trendsand tastes.


Give two examples of organisations for which the trend towards increased materialism is a threat.


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In 2001 it was announced that chicken tikka masala was the UK'sfavourite culinary dish, reflecting the hugeincrease in demand for suchproducts in the 1990s. Give three reasons why this growth has occurred.

Expandable text

According to Johnson and Scholes the social influences that should be monitored include the following.

Population demographics - a term used to describe thecomposition of the population in any given area,whether a region, acountry or an area within a country.

Income distribution - will provide the marketer with someindication of the size of the target markets. Mostdeveloped countries,like the UK, have a relatively even distribution spread. However, thisis not the case in othernations.

Social mobility - the marketer should be aware of socialclasses and the population distribution among them.The marketer can usethis knowledge to promote products to distinct social classes withinthe market.

Lifestyle changes - refer to our attitudes and opinionstowards things like social values, credit, health and

women. Ourattitudes have changed in recent years and this information is vital tothe marketer.

Consumerism - one of the social trends in recent years hasbeen the rise of consumerism. This trend hasincreased to such an extentthat governments have been pressured to design laws that protect therights of theconsumer.

Levels of education - the level of education has increaseddramatically over the last few years. There is now agreater proportionof the population in higher education than ever before.

1.4 Government policy

For many firms the impact of social and demographic change is primarily through government responses totrends. For example:

Population structure

Governments of countries with low birth rates often introduce tax advantages and other financialincentives to encourage women to have more children. This is the case in Singapore for example.Another common policy is to encourage immigration. Both Canada and Australia have been promotingthis for over a decade.

Governments in countries with rapidly rising populations often put in place policies to discourage largefamilies, e.g. the 'one child' policy adopted by China.

The increasing percentage of the population aged over 65 is creating a pensions crisis in manycountries. The main concern is that the taxes received from a smaller proportion of workers will beinsufficient to meet the pension demands of a growing retired population without huge increases in


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income tax rates. Typical government responses include raising the retirement age and encouragingprivate and occupational pension schemes.

Housing

Increasing demand for new housing, in many countries has resulted in governments setting out plans for

new developments, creating further demand for builders.

Employment

The percentage of single-parent families in the UK rose from 7% in 1971 to 23% in 2005. The UKgovernment has focused on enabling single parents to return to work through a mixture of childcarevouchers and tax credits. Among others this has created extra demand for childcare services and after-school clubs.

Health

Concerns over the effects of smoking has resulted in bans on tobacco advertising on television in manycountries. Concerns over obesity are giving rise to increasing pressure on government to legislate in asimilar way in the fast food industry.

In South Africa the government has put in place many initiatives to raise awareness of AIDs and sexualhealth. The global community is under great pressure to provide cheap drugs to help.

Some governments have also taken steps to improve the nutritional value of school meals with obviousimplications for the suppliers of those meals.


Given increasing health concerns there is pressure for somegovernments to legislate for more detailed food

labelling. Give anexample of a firm for whom this will be an opportunity and one for whomthis will be a threat.


The average price paid by first-time house buyers in the UK doubledbetween 1998 and 2004. This has led to ashortage of affordable housingresulting in shortages of key staff such as nurses and teachers in manyareas. Tocounter this, there have been national and local governmentinitiatives to ensure that new housing developments

include affordablehousing.

What implications does this have for a house building firm?

2 Environmental factors

This looks at how an organisation affects or is affected by theworld around it its physical environment. Thisanalysis may becarried out alongside analysis of an organisation's social factors, asdiscussed in the previoussection. This is because companies that failto look after their environment can often expect a strongnegativeresponse from their key stakeholders, such as governments and consumers.

2.1 How can a business affect or be affected by its physical environment?


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Before a company can decide on how to look after its environment,it needs to understand the possible impacts abusiness and itsenvironment may have on each other.

Some suggestions for these include:

Illustration 1

The number of bees has fallen dramatically over the last few years,with a 34% reduction in numbers in the USAbetween 2009 and 2010. Thishas widely been attributed to the use of pesticides by farmers andbusinessesacross the country.

This does not just affect the environment. The fall in the numberof bees is having a dramatic effect oncommercial crop production in theUSA, as they are vital for pollination of a range of commercial crops,includingthose used for animal feed.

The loss of bees worldwide would be directly expected to cost the global economy upwards of $41bn.

This illustrates that while businesses may have an impact on theenvironment, the environment can also directlyaffect the profitabilityof businesses.

2.2 The ways in which businesses can limit damage to the environment

If a business identifies that it is not acting responsiblytowards the environment, there are a number of things itmay do to tryand limit its impact on the world around it.

These include:

Redesign of products to use fewer raw materials The technology company Apple, hassignificantly reduced the amount of harmful materials, such as arsenic, in its product range over the lastfew years and made its units easier to recycle.

Reduction in packaging on products Some UK supermarkets have started charging customersfor plastic carrier bags in an attempt to reduce the amount of plastic finding its way into landfill sites.


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Recycling - A significant number of businesses have started looking for ways to recycle their wasteproducts, such as paper and glass.

Improving energy efficiency Businesses may have 'energy wardens' - members of staff who areresponsible for identifying ways of reducing energy consumption within the business.

Careful production planning If businesses only produce the number of units required bycustomers, wastage will be reduced.

2.3 Sustainability

Nowadays, businesses should look to be environmentally sustainable. Sustainability means thatorganisations should use resources in such a way that they do not compromise the needs of futuregenerations.

For example, a paper manufacturer may consider planting a tree forevery one it fells. This will ensure that futuregenerations will haveenough timber to meet their needs.

Taking this approach will benefit a range of stakeholders.

The benefits of being more environmentally friendly is evidenced by the large number of businesses adopting thispolicy.

3 Technological factors

3.1 Introduction

Technological changes can affect a firm in many different ways.

Organisational, e.g. employees working from home but still able to access files and systems at work. Product developments, e.g. turntables were effectively replaced by CD players which in turn are being

replaced by mp3 players. Production changes, e.g. computer-controlled machinery. Marketing, e.g. using the internet to sell the product.

3.2 Impact on organisational structure

Technological change has affected organisational structure in a number of key ways:

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 reduced the need for as many supervisors.

Improved communications (email, use of secure intranets, wireless networks) mean that employees canwork out of the office/at home allowing more flexible work arrangements.

These have resulted in downsizing and delayering in firms.


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Downsizing

Downsizing is a term used for reducing the number of employees in an organisation without necessarilyreducing the work or the output.

Downsizing has been a feature of the 1980s and 1990s and many organisations, large and small alike,believe that they have become 'leaner' and 'fitter' as a result.

Delayering

Often linked to downsizing, delayering is the process of removing layers of management. This is usually to change the organisation from one with a rigid hierarchical framework with numerous

layers of supervisory grades into a 'flatter' organisation with minimal layers of management. Suchorganisations tend to emphasise team working, with people taking on different roles in different teams.

Outsourcing

Outsourcing means contracting out aspects of the work of the organisation, previously done in-house, tospecialist providers.

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

Illustration 2 Impact on organisational structure

Wal-Mart, the US store chain, makes its sales data immediatelyavailable to its suppliers, through the internet.This sales data allowsthe suppliers to make their own forecasts of expected future demand fortheir productsthrough Wal-Mart and plan their production schedules onthe basis of these forecasts, rather than waiting for anactual purchaseorder from Wal-Mart before making any scheduling decisions.


An audit firm has decided to eliminate the role of supervisingsenior and split the workload between other existingstaff. What type ofchange is being described here?


Comment on why technological changes have resulted in an increase in outsourcing.

3.3 Impact of technological change on products

Technological advances allow many products to become increasingly more sophisticated, e.g. mobilephones are now smaller, can record images and video and be used to access the internet.


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New technology can lead to the emergence of substitutes, e.g. the cinema industry went into decline inthe early 1980s as a result of the emergence of the video.

Some industries have seen their business model completely transformed, e.g. online banking hasreduced barriers to entry allowing supermarkets, among others, to move into banking.

Customer support is often provided by call centres in countries where wage rates are lower. Howeversome firms have reinstated call centres into their home countries after concerns over customer care.

3.4 Impact of technological change on production processes

The most obvious way that technology has affected production is the use of robots and automatedproduction lines.

However, IT systems have also been used for more efficient scheduling and monitoring of production,resulting in lower inventory levels, higher quality, elimination of bottlenecks and lower costs.

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Two specific applications of IT to production are MRP and ERP.

Manufacturing resource planning (MRP)

MRP is a push-based system, pushing work through production. Thefocus of the computer based technology isto draw together theappropriate 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 include:

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.

MRPII systems provide a central database through which the planningprocess can extend to incorporate otherdepartments such asengineering, finance and marketing into a cohesive organisationalsystem.

Enterprise resource planning (ERP)

ERP is a management system that integrates all aspects of thebusiness into a single computer-based system tomeet the needs of allorganisational users. Its scope moves into HR applications, logistics,sales, marketing andcomprehensive management accounting as well as anExtranet to co-ordinate those outside of the organisation.

3.5 Impact of technological change on marketing

As well as the product issues mentioned above, technology has affected all parts of the marketing function.


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

Promotion the obvious issue here is the use of websites but promotional methods also include viraland banner advertisements.

Distribution, e.g. the internet has created a huge opportunity for many firms to sell direct to a widerrange of potential customers.

Market research, e.g. customer databases.


Comment on how technological changes have affected the demand for holiday travel agents.

3.6 Impact of technological change on society as a whole

Society is becoming more dependent upon computer andcommunications technology. Many would argue that wehave left theindustrial age behind, and the information age has taken over. Keyissues are:

E-commerce

(i) www advertising

(ii) www ordering of products

(iii)www financial transactions

(iv)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.

For example, sales staff and retail jobs could be reduced as homeshoppers order directly from centralisedwarehouses. The new skillsneeded, will be that of web authoring and new languages such as JAVA tocreateattractive and interactive interfaces for the customers.

Chapter summary


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Test your understanding answers


Demographic factors could include the following:

life expectancy death rates by age group, social group and geographic region number of people aged over 65 wealth distribution among older people could they afford more expensive funerals?


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Firms who rent out properties in university towns and cities opportunity. Providers of stationery and study aids opportunity. Student loan providers opportunity. Any firm which typically takes staff on after school threat as there will be fewer suitable candidates

available. The number of graduate applicants for jobs may rise, but they may expect higher startingsalaries.


Organisations for which the trend towards increased materialism is a threat could include:

sellers of basic goods, such as black and white televisions, as consumers will want more luxuriousalternatives

charities, as people prefer to spend their income on themselves.


A rise in the population of ethnic groups with Indian and Bangladeshi heritage, resulting in morerestaurants selling chicken tikka masala.

More diverse social tastes toward foods generally. A reduction in the number of parents staying at home, increasing demand for takeaway food generally.


Opportunity food labelling specialists (!), sellers of high quality unprocessed foods.

Threats smaller businesses which cannot afford expensive labelling technology.



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The initiatives will be viewed as threats to profitability as thefirm will have to rent out or sell properties at belowthe market rate.It may also have to reduce the prices on other houses in the developmentbecause of a perceivedfall in their exclusivity.

The trend may, however, present an opportunity. If competitors areunable or unwilling to meet the criteria set outfor new developments,then the firm which can will gain approval on more planningapplications.


Given that one level of management is being removed, this could be described as delayering.

(Note: It would also be downsizing if existing supervising seniors are made redundant.)


Firms have always had the option of outsourcing. Many chose tobring production in-house to ensure that supplymet demand and to avoidstock-outs. Advances in technology, such as allowing suppliers access tointranets,have allowed firms to outsource without losing thesescheduling advantages.


Demand for travel agents grew hugely when technology allowed agents to explore availability and bookflights from their premises in the 1970

More recently the internet has allowed customers to do this from the comfort of their own homes,reducing the demand for agents.

There has also been an increase in the number on online agents, such as Expedia.co.uk offering tobuild bespoke holidays.

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