Technological factors are one of many external factors that can affect businesses, and are an integral part of PESTLE analysis.
PESTLE analysis can be an extremely effective tool in business if used correctly. It falls under the category of business environmental analysis, which is to say that it revolves around identifying the various external variables that affect a business’s performance. Specifically, these are the Political, Economic, Social, Technological, Legal, and Environmental ones, hence the acronym ‘PESTLE’.
One of the handy things about PESTLE analysis in particular (as opposed to other business management/analysis tools) is that it is very easy to conduct, as long as you are familiar with the six categories. That’s why we are writing this set of articles about each of the categories, from P to E. We are providing definitions, in-depth explanations, and relatable examples.
In case you haven’t already seen our previous articles in this series, we’ve already covered:
- Political factors
- Economic factors
- Social factors
- Legal factors
- Environmental factors
What Are Technological Factors?
In PESTLE analysis, technological factors are variables that relate to the existence, availability, and development of technology. These could include software development pace, digital marketing innovations, sustainable tech practices, and new information management systems. In general, technological factors are technological advancements, innovation, and scientific breakthroughs that can influence the operations of a single business or a whole industry.
How Do Technological Factors Affect Businesses with Examples
It might be unclear how technological factors can directly affect business unless you take a step back and look at all of the technology that’s used in day-to-day life. Think about the machines that are used to print on the t-shirts you buy, the computer servers that are used to keep up the website(s) you own, or the fuel used to power the car(s) you drive. Technology hugely dictates how many things are done, in business or otherwise.
Let's now review our comprehensive list of technological factors that can affect businesses in all kinds of industries. I'll include examples for most of these factors to show how they apply and affect businesses in real life.
- Supply Chain Management Systems: These systems profoundly impact businesses by optimizing logistics, reducing costs, and enhancing transparency across the supply chain. They integrate advanced software tools that manage inventory, track shipments, and forecast demand effectively.
- Coca-Cola: Advanced supply chain management technologies help Coca-Cola maintain efficient operations, manage global logistics, and minimize disruptions, ensuring timely product delivery across vast networks.
- Automation & Robotics: The automation of many unskilled tasks can allow companies to replace human production lines with entirely machine ones. This can reduce costs for manufacturers, distributors, supermarkets, and many other different businesses. On the flip side, the gradual increase in job automation might not be such a great thing for job search firms.
- Food industry: automation in food processing, packaging, and even in restaurants for efficiency. We're seeing various types of automation more and more in the food industry. Perhaps the best example is the use of self-checkout screens at fast food venues such as McDonalds, but it's not the only one! Just recently, social media platforms went crazy as viral footage of a hotel's robot cooking up omelets began to spread. As we find more ways to use technology — including robots — in the food industry, there will be less need for laborers. Overall, this is a good thing for the industry, as it will allow businesses to improve profitability and reduce the likelihood of human error.
- Internet connectivity and Mobile technology: It’s undoubtable that in recent years global internet connectivity has been on the rise. This presents an even larger market for many companies who use the internet to connect with their customers. On the flip side though, a global rise in internet connectivity might mean less interest in traditional communication means, which is a negative consequence for some -- telephone service providers will have to change their offerings to stay relevant, while paper-and-ink printing companies might receive less business. Growing demand for mobile technology will make the personal computer a less attractive product, as well.
- Tesco: With smartphones becoming ubiquitous, Tesco’s mobile apps offer convenience at customers’ fingertips. Features like shopping lists, barcode scanning, and mobile payment options enhance the shopping experience, making it more efficient and enjoyable.
- Digital Marketing: This modern type of marketing significantly influences businesses by enabling targeted, cost-effective, and measurable marketing strategies that reach a broader audience across multiple digital platforms. By leveraging tools such as social media, email marketing, SEO, and content marketing, businesses can enhance their brand visibility and engage with customers more directly and personally.
- Hotel Industry: Social media and online marketing play a crucial role in attracting tourists. Hotels need robust strategies to engage potential customers online. Years ago, hotels only used traditional media (print and broadcast), but now there are new media brought forth via the internet to consider.
- Sustainability Technology: Sustainability technology is revolutionizing how businesses reduce environmental impact and promote sustainable practices. This broad category includes renewable energy technologies like solar and wind power, which help businesses reduce carbon emissions and energy costs. Advanced recycling systems and biodegradable materials are transforming waste management by minimizing waste and promoting circular economy principles. Smart building technologies optimize energy use and reduce operational costs by automating lighting, heating, and cooling systems based on occupancy and weather conditions. Additionally, water conservation technologies, such as efficient irrigation systems and water recycling, support sustainable water use. Collectively, these technologies enable businesses to meet environmental goals, enhance operational efficiency, and respond to increasing consumer demand for environmentally responsible products and practices.
- McDonald's: In response to environmental concerns, McDonald's invests in technologies that reduce waste and energy consumption. Examples include energy-efficient appliances, LED lighting, and systems to recycle water and heat.
- 3D Technology: 3D technology impacts businesses by revolutionizing product design, manufacturing, and marketing, enabling more innovation and customization. This technology, encompassing 3D printing, 3D modeling, and 3D visualization, allows companies to create prototypes quickly and cost-effectively, significantly reducing the time and expense involved in bringing new products to market.
- Nike: New technologies can be used to improve Nike's product design or features. Back in 2014, Nike combined 3D knitting with 3D printing in their Nike Vapor Ultimate Cleat American football boot, and on March 2024, they launched the Air Max Dn on March 2024, redefining what it feels like to walk on Air!
- Wearable Technology: It can significantly influence businesses across various sectors by enhancing operational efficiency, improving worker safety, and delivering richer customer experiences. By integrating devices like smartwatches, fitness trackers, and augmented reality glasses, businesses can streamline processes, monitor employee health and activity in real time, and facilitate hands-free operations.
- Adidas: The integration of technology into apparel and footwear, such as smart shoes that track performance metrics, is a growing trend that Adidas is exploring to enhance the functionality of its products.
- Blockchain Technology: Blockchain technology reshapes businesses by boosting transparency, security, and efficiency in transactions and data management. This decentralized ledger system ensures that transactions are immutable and verifiable across multiple parties, significantly reducing fraud and enhancing trust. Overall, blockchain not only improves operational efficiencies but also supports compliance with regulatory standards, making it a valuable technology across various industries, including finance, healthcare, and logistics.
- Banking Industry: Blockchain offers banks enhanced security and transparency for transactions. It can reduce fraud, streamline payment processes, and lower operational costs by eliminating intermediaries in processes such as international money transfers.
- Fintech industry: Blockchain technology enables the development of decentralized finance (DeFi) applications, which operate without traditional financial intermediaries, offering faster and cheaper transactions.
- Digital Payment Systems: New digital payment systems are transforming business transactions by offering faster, more secure, and convenient payment options. These systems, including mobile payments, cryptocurrencies, and contactless transactions, reduce the need for physical cash and traditional banking procedures, streamlining the checkout process and enhancing customer experiences.
- Apple: The evolution of digital payment technologies, such as Apple Pay, is transforming consumer payment habits and expanding Apple's presence in the financial services sector.
- Augmented Reality (AR) and Virtual Reality (VR): Augmented Reality and Virtual Reality are revolutionizing businesses by enhancing user engagement and creating immersive experiences. AR overlays digital information in the real world, enhancing tasks like training, maintenance, and product demonstrations by providing interactive and contextual data. VR offers a completely immersive environment ideal for simulations and training, providing employees in fields such as healthcare, engineering, and the military with a safe space to practice skills and procedures without real-world risks.
- Sephora: AR technology allows customers to virtually try on makeup and skincare products, significantly enhancing the online shopping experience. Investing in AR can help Sephora reduce the gap between online and in-store experiences.
- Energy-efficient technologies: Energy-efficient technologies are crucial for businesses aiming to reduce energy consumption, lower operational costs, and minimize their environmental impact. For businesses, investing in energy-efficient technologies not only aligns with global sustainability goals but also offers substantial financial savings and competitive advantages, as consumers increasingly favor companies with green credentials.
- Tesla: Tesla’s core business model revolves around energy efficiency, from their electric vehicles to their battery storage solutions and solar products. Innovations in energy-efficient technologies directly contribute to Tesla’s ability to enhance the performance and efficiency of its products. For instance, improvements in battery technology allow Tesla cars to achieve longer ranges and shorter charging times.
- Cybersecurity Measures: Cybersecurity is critical for businesses as they increasingly rely on digital platforms and data-driven operations. Strong cybersecurity measures protect sensitive business and customer data from unauthorized access, data breaches, and cyber-attacks, which are becoming more sophisticated and frequent.
- JPMorgan Chase: As one of the largest and most prominent financial institutions globally, JPMorgan Chase has prioritized cybersecurity to protect its extensive digital operations and vast amounts of sensitive financial data. In response to increasing cyber threats and a high-profile security breach in 2014, where hackers accessed the contact information of millions of customers, JPMorgan Chase has committed substantial resources to bolster its cybersecurity infrastructure.
- Cloud Computing Adoption: Cloud computing has transformed business operations by offering scalable and flexible IT resources over the internet. Adopting cloud services allows businesses to reduce costs associated with purchasing, maintaining, and upgrading IT infrastructure. It enables remote access to applications and data, enhancing collaboration among geographically dispersed teams and supporting a mobile workforce.
- Netflix: Originally a DVD rental service, Netflix has evolved into a leading streaming service globally, largely due to its strategic use of cloud computing technologies. Netflix moved its entire operations to the cloud, specifically Amazon Web Services (AWS), starting in 2008 and completed the transition by 2016. This move allowed Netflix to handle enormous amounts of data and streaming traffic with impressive scalability and reliability.
- E-commerce Platforms: E-commerce platforms have revolutionized the retail industry by allowing businesses to sell goods and services online. This technology expands market reach from local to global without the need for physical expansion, reducing the barriers to entering new markets. For businesses, e-commerce platforms provide a cost-effective way to reach a broader audience, collect customer data, and implement personalized marketing strategies.
- Walmart: Originally a traditional brick-and-mortar retailer, Walmart has aggressively adapted to the rise of e-commerce by developing its online platforms, integrating advanced technologies, and streamlining its fulfillment processes to compete with e-commerce giants like Amazon.
- Internet of Things (IoT): The Internet of Things (IoT) is a network of interconnected devices that collect and exchange data, offering businesses unprecedented insights into operations and customer behaviors. By embedding sensors and smart devices in equipment, products, and even buildings, businesses can gather real-time data on performance, usage patterns, and environmental conditions. This information can be used to optimize processes, reduce energy consumption, improve safety, and enhance product offerings.
- Manufacturing industry: IoT devices can predict maintenance needs and optimize production schedules, improving efficiency and reducing downtime.
- Retail industry: IoT can enhance customer experiences by integrating with mobile apps to provide personalized shopping recommendations based on in-store behavior.
Technological factors are external factors that influence the business environment
In conclusion, technological factors are one of many external factors that can affect businesses and are an integral part of PESTLE analysis. They can be defined as factors related to the presence and development of technology on either a local or global scale. As we saw in today's article, there are many different examples of technological factors that affect business.