group 1 ubaid, angel, saba
TRANSCRIPT
Graduate Diploma In Hotel Management
IMPACT OF EXTERNAL FACTORS ON FAST FOODBUSINESS IN LAHORE
SUBMITTED TO
SIR MUHAMMAD ASHAR
SUBMITTED BY
UBAID ULLAH
SABA ZAFAR
ANGEL EDWARD
BATCH-GDHM 46
FINAL PROJECT
1
IMPACT OF EXTERNAL FACTORS ON FAST FOODBUSINESS IN LAHORE
Graduate Diploma in Hotel Management
BATCH: GDHM 46
SESSION 2013 - 15
SUBMITTED TO
SIR MUHAMMAD ASHAR
2
3
Acknowledgements
Researcher has taken deliberations in this project. In any case, it might not have been
Conceivable without the kind backing and help of numerous people and
Conglomerations. I might want to augment my genuine because of every last one of
Them.
Researcher is truly grateful to Sir Ashar for their direction andsteady supervision and in
Addition for furnishing fundamental qualified data with respect to the project & likewise
For their backing in finishing the project. I might want to express my appreciation
Towards my folks & working part of COTHM for their kind co-operation and
4
Consolation which help me in finishing of this project.
I might want to express my exceptional appreciation and on account of industry persons
For giving me such consideration and time.
My much obliged and acknowledgement additionally head off to my colleagues in
Improving the project and individuals who have readily bailed me out with their
Capabilities.
5
Dedication
The project is dedicated to the people who had helped me
throughout the project. My parents who are always there to
help me and support me.
My teacher and supervisor who were always there to listen to our
problems regarding the project, this project would never
have been possible without him.
AbstractThis paper investigates the impact of external factors on the
fast food business. The major objective of this paper is to
analyze Political, Economical, Social and Technological factors
which affect the performance of fast food business. Qualitative
method of study is used. Data was collected from different
researches. The results show that external factors (political,
economical, social and technological) have impact on the fast
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food business. To improve administrative performance and make you
business prosper organizations should focus on the factors which
effect their business by doing repeated examination.
Key words:
Impact of external factors, political, economical, social,
technological, administrative performance, fast food.
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ContentsAcknowledgements.....................................................4Dedication...........................................................5
Abstract.............................................................6Key words:..........................................................6
INTRODUCTION.........................................................9Aims & Objective....................................................10
LITERATURE REVIEW...................................................12METHODOLOGY.........................................................14
Political factors:..................................................17Economical Factors:.................................................18
Social Factors:.....................................................19Technological Factors:..............................................20
Administrative Performance:.........................................21CONCLUSION..........................................................26
Recommendations.....................................................27PEST Analysis:.....................................................29
REFRENCES...........................................................45
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CHAPTER 1
Introduction
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INTRODUCTIONFast food is defined as, the food prepared and served very
quickly. Fast food was first disseminating in the 1950s in the
United States. The meal required less preparation time also
considered as fast food. The term fast food also determined as
the food sold in a restaurant or store with preheated or
precooked ingredients, and delivered or served to the customer in
a form of take away. The restaurants delivering fast food are
generally divided by the ability of food serving.
Economic fluctuation is complicated and has great effect on the
fast food business in Lahore. Users and clients have been showing
complex behaviors in local and international markets (kennerly&
nelly, 2003). The modernized business manager serves in more
influential (dynamic) environment. The change in the environment
is uncertain and quick. The most breathtaking concern was the
pressure of your competitor s. Competitors are using one or
the other strategy to modify the dynamic and unpredictable nature
of the business environment (Chaganti et al., 1983,
Venkatraman&Prescott, 1990; Beal, 2000).
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Organizations or foundations work willfully to attain and win
certain goals. The most important thing in an organization is its
policy and strategy regarding inside and outside environment of
organization (Duncan, 1972 and Grant 1999). Presently business
environment is anticipated to overcome complexity and
disturbance. All Pakistani organizations must pay attention to
their environment. Prepare policies and strategies that how to
survive (otokiti&awodun, 2003).
It is commonly admitted that the order and outcome in a
foundation is determined by environmental complexity, dryness and
volatility (Miles &Snow, 1978; May et al, 2000). Furthermore,
business organization has perceived the environment as
opportunities and threats presented by external environment.
Aims & Objective
The aim of our study is to analyze the effect of PEST forces on
the performance of fast food industry in Lahore Pakistan. The
company which have better understanding with the PEST factor can
generally raise higher revenue, rather than others who did not
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update themselves with PEST factors of their country (white lock&
jobber, 2004).
One of the objectives of our study is to find a solution against
these problem which is being forced in the environment to improve
the quality of fast food and made part of the policy (Taster,
Stephanie Estevez et.al.2010), we should be able to achieve a
positive co-relation between customer and the restaurant and also
use technology to grow our fast food industry, e.g. McDonald’s
increased their budget by TV advertisement (Harris, Schwartz
et.al.2010).
CHAPTER # 212
LITERATURE REVIEW
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LITERATURE REVIEWIn the literatures, there had been different opinions about the
factors, through addition of different authors and scholars. Fast
food industry is expanding briskly; it is again producing ensuing
effect on the social, political, economical forms of life
(DeMaria 2003). Fast food has a great social impact on the life
of people; it being one of the most crucial aspect in the rising
of fatness or chubbiness in the young generation (Bowman,
Gortmarker et al., 2004). In general opinion it is found that in
a country, the government is responsible for the consciousness in
the public, that what kind of food should be used or evade.
Two views have been perceived from opinion of different
people .The first is inter-organizational view, which looks at
the environment as number of people, groups and new organization,
for that they give recommendations. The second consideration is
that the environment is a set of political, social economical and
technological circumstances (Okoh and munene; 1986). Environment
as a whole is the sum of tangible and social pressure .Business
as a whole is related to the organizational aim settings and aim
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achievement. That is seized straightly into the examination by
the members of the organization when making decisions and plan
for the business (Obasan; 2001).Environment is always seen as the
sum of the factors that affects, controls or decides the
performance of a business.
Any business in the international or local market is directly
affected by the political (P), Economical (E), Social(S) and
Technological (T) factors (White lock & Jobber; 2004) .The
advancement in fast food industry directly depends upon
employment and per capital income. The customers pay out at fast
food outlets shows the better life style of people according to
economic condition (Deane; 1987).According to Deane, these
factors affect the advancement of fast food industry and with a
better management to these circumstances managers can raise
profit and remain up-to-date with time.
A positive correlation was built between per capital income of
customers and visit of customers to different type of restaurants
.Customers with higher incomes go to restaurants more frequently
in comparison with customers with lower incomes. Fast food
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business has pessimistic effect on social practices of the
general public, as the gain in the mass (weight) is found to be
directly proportional to the fast food especially in women
(Jeffery &French; 1998).
Hazard analysis and critical control point (HACCP) is considered
to be one of the best technology which improves the speed, safety
performance and the quality of food in the industry especially in
fast food outlets (Sweet, Balakrishnan et al; 2010).The increase
in technology has increased the growth of the fast food industry,
as the Burger King and the MacDonald’s raised their budget from
the T.V advertisement, which in response increased their sale
(Harris, Schwartz et el .2010). Chicken (one of the key
ingredients used in the fast food industry) quality is one the
very important and main issue of the fast food industry, so for
this reason, PRP is introduced to manage the meat requirement and
supply efficiently (Manning &Chad ; 2006).
On the basis of literature review we are proposing the following
conclusion: Performance of fast food industry is related to
political condition of the country, economical condition of the
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country, socio_cultural factor of the country, technological
factor of the country.
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CHAPTER # 3METHODOLOGY
METHODOLOGYIn this study the approach used for the analysis have following
steps;
A. Sample Identification
B. Data collection
A. Sample Identification:
The sample used in this study was the researches of different
authors in different years. The samples used in this research
will analyze:
1. Political factors
2. Economical factors
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3. Social factors
4. Technological factors
B. Data Collection:
To have better result the Qualitative methods have been used. The
secondary data was collected on the basis of PEST analysis; with
the help of qualitative data we will analyze those factors which
affect the performance of fast food business.
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CHAPTER # 4
RESULTSPolitical factors:
A politically balanced environment is also of great importance
for the productive and decisive operation of the business. The
political surrounding is seen through the legal framework in
which the system works and this is done via the rules and
regulations that lead the operations of business in question. The
authority of the system must take cognizance of these
constraints, actual and potential and seek out the implications
for the business organization from legal advisers Ogundele,
2005).
The political environment in a country affects its business
environment. The political environment, in turn, affects the
performance of a business organization. In Pakistan, for
instance, there are significant differences in Democratic and20
Republican policies. Government could change their rules and
regulations, and this could have an effect on a business. For
example, after the accounting scandals of the early twenty-first
century, the United States Securities and Exchange Commission
became more focused on corporate compliance and the government
introduced the Sarbanes-Oxley compliance regulations of 2002.
This was a response to the political environment that called for
such change to make public companies more accountable. If
businesses that operate internationally, a lack of political
stability in any country has an effect on its operations. A
hostile takeover could overthrow a government, for instance. This
could lead to rioting and looting and general disorder in the
environment. All this disrupts the operations of a business. For
example Such disruptions have occurred in Sri Lanka, which went
through a protracted civil war, and in Egypt and Syria, which
have been subject to disturbances as people agitate for certain
rights.
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Economical Factors:
A failure of a system has many reasons and a time of down turn is
one of the reasons that can bring about failures to a system.
According to the “Economist” magazine, in a poor economy,
customers with an inflexible budget shift to cheap priced meals
at fast food chains. Nonetheless, if the customers prefer to save
their money by eating at home, the magazine outlines that a long-
term reduction of business activity can expose fast food chains
to profit losses. Ogundele (2005) concluded that the economic
surrounding goes a great way to wind up. He describes the freedom
for a system as a growing economy which gives operational scope
for the systematic presence and also for the building of new
ones. Hence, as mentioned by Ogundele, the economic surrounding
is a vital concern to a system. In cases like the one mentioned
in the Economist, to bring customers back to their restaurants,
large restaurant chains may decrease their prices in addition and
increase their advertising, whereas comparatively, small fast
food restaurant chains may not have the allowance to do the same
to protect their profits. It is of superior value that the
administration should be able to differentiate between short-run
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phenomena and more fundamental changes in its judgment of the
overall economy. Thus, fast food restaurants tend to fare better
during an economic downturn than pricier restaurants do.
Social Factors:
The systems’ incapability to predict its environment or foresee
the elements that define its environment, results in
environmental unpredictability according to Milliken (1987).
These elements are normally classified into two groups
(Bourgeois, 1980) i.e. “ordinary” and “task” external business
environmental elements.
The factors that are an element of the normal environment have an
indirect impact on the system and it is a comparatively obscure
environment. This environment is commonly composed of elements
such as social values, educational, political, economic, legal,
behavioral, demographic, natural environment, natural resources
and technological (Asheghian&Ebrahimi, 1990; Grant, 1999).
Asheghian&Ebrahimi (1990) and Grant (1999) concluded that the
factors that made the task environment have a direct impact on
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the system and more over that it is the nearest environment of
the system. This surrounding comprises of elements such as
consumers, competitors, suppliers, labor market, industry and
financial resources. Elements in the general environment create
less and unperceived uncertainty to the system than the elements
in the task environment, concluded by Daft et al.(1988) and
Auster&Choo (1993). The answer to this being, the task
environment joined with the short run, is more elusive than the
general environment that is joined with the long-run.
When the outer business surrounding shows any changes, it is
classified as balanced and when it shows relative changes it is
classified as not balanced. Also when it shows changes
continuously, is it classified as vigorous (Aguilar, 1967).
Duncan (1972) considered the outer business environment as the
collectivity of elements outside a system that are examined by a
system in its decision making. These elements confide greatly on
the dynamism and the complexity of the surrounding (Duncan, 1972;
Desks& Beard, 1984). Thus the viewpoint of a system about the
category of the outer business environment is largely dependent
on their size and industry which it runs.24
Technological Factors:
Technology is constantly changing .this means the business must
change in order to keep up. This affects business in three ways:
1. Production
2. Workers
3. Marketing
New technology can be used to improve production .New technology
has positive and negative affects upon workers. Jobs should be
less boring because of new technology .Due to upgrading of
technology safer work environment was provided to workers. On the
other hand some worker may lose their job because their place
was taken by machinery .Staff that don’t like technology will
become de motivated. Staff may need to cope up with new
technology for this purpose they have to do training regarding
the technology. New technology has changed the way that firms
market their Product Price Placement and Promotion.
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Hypothesis: Economic and Political environments have no influence
on systematic accomplishment.
Administrative Performance:
Administrative performance has been directed with countless
opposing explanations. It is not an advanced fact or reality in
between the scholar, managers, owners as well as general
organizations . Administrative performance has been origin of
control or dominations to the behavior by associations. The point
to which an administration recognize or understand its ambitions
as well as the declared target of the association through the
action of the designed plan and the procedure of the company.
(Folan & browne ,2005 ; Etzioni 1964) .
The concept of association performance was stayed on the location
or basis of its consolidation of beneficial or advantageous
belongings. Capital made up of personal, substantial and origin
of capital for the primary logic or sense of achieving a dream,
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idea, vision or winning a common and mutual aspiration (Barney,
2002; Carton & Hoffer , 2006 ).
Association performance was also seen or observes as the part of
how manager handle the basics of the company conveniently and
sharply to achieve the aims of the company .Also fulfilling by
satisfying all the stakeholders (Jones & George, 2009).
Association performance as the actual yield deliberates in
comparison to the calculated or proposed yield. They overlook
association performance as a concept of three primary operations
of company conclusion and those three major parts are:
Economic and monetary conduct that consist of profits,
return on assets (ROA) .return on investments (ROI) etc.
Stock market performance which could be sales, market
share, etc.
Partnership return such as total shareholder return
(TSR) ,economical value added (EVA).etc. (Richard et
al .2009)
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Associations as they were construct or designed to understand
that organizations has to achieve convinced aims that are
identified basically and essentially (Seldon&Sowa ;2004 ).
Differentiates between two types of association’s aims,
authoritative aims which are the basic ambitions of association’s
founders and leaders. The other association aim is the
operational aims designed the desired target by the original
operational policies .The adjustments and undermining of these
end decisions by people having posts and by the strength of the
outside environment (Per row 1961).
The achievements are exercise or action of capability, strength
and chances or opportunities. The ability of capability depends
upon the information, talent and technological abilities that
give us sings of scope of achievable goals. Strength and effort
is a purpose of essentials, expected aims and returns which
relies on the quality to which an individual or groups inspired
to applicant effort. Chances should be provided by the managers
according to the ability and strength of each employee that is
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used in different ways which results in the accomplishment of
designed goal (Kast &Rosenzwing 1985)
Associations performance can be concluded to assess the growth
made in achieving targets, point out and accommodating factors
that stops the growth of association in competing and tough
environment.
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CHAPTER # 5
CONCLUSION
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CONCLUSION
It is of great value that a system keeps up its performance
evaluation order to make sure it stays relevant and gives
information that is only related to the issues of present
significance. Knowledge of the flow of external business
environment and power that outlines the opposition will help a
system choose the right plan of action that fits the direction in
external business environment and help a company that wants to
succeed.
The verdict of analysis mirror that external business environment
has an influence on systematical performance. The analysis also
shows that the controlling of external business environment can
be done to an extent if all things are equivalent. The main goal
of this paper was to determine the influence of external business
environment on the administrative performance on the industry.
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There were a number of limitations in this analysis, for instance
time limit, lack of resources in analyzing PEST factors. As our
research paper is based on qualitative study of PEST related to
validitiy and reliability because qualitative study occur in the
everyday environment and it is very much difficult to reproduce
or simulate this study (wiersma , 2000, p.211).when we select
such type of methodologies and designs for example intentionally
then these methodologies and designs come with more limitations
on which we have little control.
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RecommendationsThe PEST analysis has an effective mean for sympathizing
growth and decline of business in market. Such as standing of
business, possibilities and the ways to run a business in an
effective way. The fluctuating variables of the research are
political status, economic status, social status and
technological status and administrative performance. A business
could be analyzed by means of PEST .PEST analysis can be used
while making business strategies, marketing planning and also for
the development of business product. Hence with the help of PEST
we have proved that political, economical, social and
technological factors have an impact on the business if these
factors are analyzed properly then the administrative performance
can easily be improved.
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35
ANXURE
PEST Analysis:
PEST analysis (Political, Economic, Social and Technological
analysis) describes a framework of macro-environmental factors
used in the environmental scanning component of strategic
management. Some analysts added Legal and rearranged the mnemonic
to SLEPT; inserting Environmental factors expanded it to PESTEL
or PESTLE, which is popular in the United Kingdom. The model has
recently been further extended to STEEPLE and STEEPLED, adding
Ethics and Demographic factors. It is a part of the external
analysis when conducting a strategic analysis or doing market
research, and gives an overview of the different macro
environmental factors that the company has to take into
consideration. It is a useful strategic tool for understanding
market growth or decline, business position, potential and
direction for operations. The growing importance of environmental
or ecological factors in the first decade of the 21st century
have given rise to green business and encouraged widespread use36
of an updated version of the PEST framework. STEER analysis
systematically considers Socio-cultural, Technological, Economic,
Ecological, and Regulatory factors.
The basic PEST analysis includes four factors:
Political factors:
Definition of Political Factors:
An activity related to government policy and its administrative
practices that can have an effect on something. Most business
operators will keep a watchful eye on any political factor, such
as new legislation or regulatory shifts, which could have a
substantial impact on how their company operates and its bottom
line.
The definition sounds much more complicated than the concept
really is. Let's break this down a bit. The first thing to
recognize is that political factors constitute an external
constraint on a business, which just means that the political
factors that affect a business are often completely out of the
company's control. For example, if war breaks out in a developing
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country where you just built a factory, there's not much you can
do about the war, even though it is killing your business.
The second thing to recognize is this type of external constraint
is political in nature rather than economic, even though the
political can certainly affect the economic and vice versa. The
most prevalent political factors relate to government activity
and administrative practices of government. For example,
legislation and regulations can force businesses to act in a
certain manner or prohibit them from acting in a certain manner.
Examples of laws that require a business to act in a certain way
include the federal minimum wage law and occupational health and
safety laws. An example of federal laws and regulations that
prohibit certain business activities are environmental laws and
regulations that limit the amount of pollution a business can
generate at its factories.
As you probably know, there are exceptions to every general rule.
Sometimes you can affect these political factors through lobbying
the legislatures and regulators. In fact, some scholars claim
that federal and state regulatory agencies are subject to
38
regulatory capture. According to the theory, regulatory capture
is a process where regulatory agencies become dominated and
controlled by the very industries they are to regulate. For
example, banking regulations are heavily influenced by the
banking industry and often favor the banks rather than the
consumers.
If you are engaged in international business transactions, you
must deal with additional political factors that are even more
out of your control. You may be denied access to markets through
embargoes where a country refuses to permit your products to be
imported or the country may subject your products to such high
tariffs (taxes) that they cannot compete with domestic products.
Some governments may not allow you to enter a market unless you
partner with a local company. Governments have even nationalized
industries and seized foreign assets in the past. Finally, civil
unrest and war can make business activities nearly impossible.
Political factors are basically to what degree the government
intervenes in the economy. Specifically, political factors
include areas such as tax policy, labor law, environmental law,
39
trade restrictions, tariffs, and political stability. Political
factors may also include goods and services which the government
wants to provide or be provided (merit goods) and those that the
government does not want to be provided (demerit goods or merit
bads). Furthermore, governments have great influence on the
health, education, and infrastructure of a nation.
Businesses can be affected by many aspects of government policy.
In particular, all businesses must comply with the law. They must
also consider the impact of any forthcoming legislation on their
operations. This may require taking action before the legislation
comes into effect. Business activity tends to grow and thrive
when a nation is politically stable. Although multinational firms
can still conduct business profitably, political instability
within countries negatively affects marketing strategies.
The exchange rate of a particular nation's currency represents
the value of that currency in relation to that of another
country. Governments set some exchange rates independently of the
forces of supply and demand. If a country's exchange rate is low
compared to other countries, that country's consumers must pay
40
higher prices on imported goods. Exchange rates fluctuate widely
and often create high risks for exporters and importers.
Economic
Factors :
Definition of
Economic
Factors
The set of fundamental information that affects a business or an
investment's value. Various economic factors need to be taken
into account when determining the current and expected future
value of a business or investment portfolio. For a business, key
41
economic factors include labor costs, interest rates, government
policy, taxes and management.
Economic factors are variables that influence a company's
capacity to successfully do business. They may be beneficial or
detrimental, and the same factor can have either a positive or
negative impact depending on its current status or the type of
business it is affecting. Although economic factors create the
climate in which a business operates, the success or failure of
any company also strongly depends on its own resourcefulness and
ability to adapt to these external economic factors.
Economic factors include economic growth, interest rates,
exchange rates and the inflation rate. These factors have major
impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands. Exchange
rates affect the costs of exporting goods and the supply and
price of imported goods in an economy.
Economic factors change rapidly and are sometimes difficult to
predict. The global economic recession has affected how most
42
firms conduct business, perhaps by looking for cost-savings or
reducing waste. As businesses focus on areas where efficiencies
can be made, some might choose to outsource functions to reduce
costs, rather than employing people with specialist skills. This
has created increased demand for outsourced services such as
those Logical offers. Loggia’s employees have the specialist IT
skills required to offer businesses of all types efficient and
effective ways to manage systems and processes.
Taxes are an economic factor that affects the financial well
being of a business by cutting into its profit or by providing
incentives in the form of tax breaks for certain types of
business activities. State and local governments with high taxes
discourage business activity by raising operating costs and
making business less profitable. High employment taxes can
discourage businesses from hiring new employees, and tax breaks
for activities such as investment in business infrastructure can
make a business more likely to purchase equipment.
Interest rates determine the cost of borrowing money. It costs
more to borrow at a high interest rate than at a lower one.
43
Because most businesses borrow money in order to expand, and even
to finance day-to-day business activities, high interest rates
can slow the growth of business activity. But low interest rates
can increase the risk of inflation by making capital so easily
available that it isn't worth as much. Shrewd monetary policy
involves keeping interest rates low when it is more important to
stimulate economic growth, and raising them when there is danger
of inflation.
Unemployment is an economic factor that affects business activity
by influencing the amount of disposable income that consumers
have available, and also by affecting wage scales. Because
unemployed people subsist on less than a full income, they spend
less money than if they were fully employed. A high unemployment
rate slows business activity by cutting into consumer spending.
In addition, a high unemployment rate creates market conditions
where the supply of labor is greater than the demand of
businesses for labor, enabling businesses to pay lower wages.
Other examples of Economic Factors that Influence Businesses:
Demand and Supply
44
The demand and supply are two principal factors that affect the
working of any business model. The demand is the will and ability
of consumers to purchase a particular commodity, while supply is
the ability of the business to provide for the demand of
consumers. Suppose, a mobile phone infused with latest technology
is introduced in the market, it will have a higher price because
of its demand in the market. Its prices will continue to increase
if the supply does not meet the demand.
For instance, in the year 2000, weather played havoc with the
sugar crops of Brazil, which is the largest sugar producer in the
world. This led to a decrease in the supply of sugar, which in
turn resulted in a steep rise in the sugar prices. However, after
the initial price rise, the market forces came into play and the
demand for sugar became equal to the supplied sugar.
Marginal and Total Utility
Utility is the amount of satisfaction, which is derived by
consumers from the consumption of goods. It so happens that after
continuous and successive consumption of units of the same goods,
the satisfaction that is experienced by a consumer starts
45
decreasing. This often results in short-term or long-term fall in
sales. Some organizations prepare for the launch of another
brand, before the fall in utility and sales is experienced. The
launch of new brand ensures that the revenue trend of the
business does not fall. Diminishing utility is among the external
factors affecting business.
For example, when we buy a pizza, the first few slices give us
immense satisfaction. However, there is a fall in the
satisfaction levels, when we are eating the rest. Let's assume,
the marginal utility derived on the consumption of the first
slice was 90. However, due to diminishing utility, the second
slice had the score of 80 and the third slice was just 70. The
satisfaction derived on consumption will be in a decreasing
order.
Money and Banking
Banking facilitates monetary and fiscal policies that affect
business and also the customers of the business. Money in
circulation dictates the purchasing power or rather the demand of
the consumers. On the other hand, the banking facility dictates
46
the borrowing capacity of individuals as well as the business.
The banking policies play a decisive role in affecting the prices
of goods and interest rates along with investment and asset
prices. The monetary polices of countries also influence the
economic activities and inflation. This whole dynamic process is
also known as monetary policy transmission mechanism.
Economic Growth and Development
Economic growth dictates the amount of finances that the society
at large is earning and development indicates the volume of money
that is being invested into channels of long-term upgradation.
Among all the economic factors, development is the most important
one, as a business has to cater to the demands of an economically
dynamic society. For example, the luxury brands perform well
during an economic upturn, much more than the companies which
produce essential offerings.
General Price Level
Another very important aspect of the economy that plays a part in
the growth of business is the general price levels of
commodities. Costs of raw materials, paying power of people, cost
47
of production, and cost of transportation are some of the most
important components that determine the general price levels and
in turn, lower the profit margin of a business.
For example, an increase in the price will reduce the total
revenue generated as there might be a dip in the demand. Let us
assume that we have bought 16 pizzas for the price of $4.
However, after an increase in the price of pizzas, we may get to
buy only 8 pizzas even after shelling out $6.
Trade Cycles
A trade cycle plays a part in fluctuating the costs of goods and
commodities in an economy. Prosperity, recession, depression, and
recovery are the phases of a business cycle that affect the
demand and supply of all goods. Also, trade cycles often affect
the general price levels of essential and non-essential
commodities.
48
Social Factors:
A social factor is an aspect in life that affects and influences
the human behavior in the society. It dictates that everyone in
the society should behave in a diligent manner and should obey
all the rules of the society. Social factors are factors that
affect or direct peoples lifestyles in a given society. Example
include: religion, ethnicity, family, economic status and
education. These factors are present in a multi-cultural society.
Social factors include the cultural aspects and include health
consciousness, population growth rate, age distribution, career
attitudes and emphasis on safety. Trends in social factors affect
the demand for a company's products and how that company
operates. For example, an aging population may imply a smaller
and less-willing workforce (thus increasing the cost of labor).
Furthermore, companies may change various management strategies
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to adapt to these social trends (such as recruiting older
workers).
Society is continually changing. For example, tastes and fashions
constantly change. As an example, consider the growing popularity
of social media such as Facebook, especially among younger
people. Unlike their parents, young consumers have been brought
up in an age where mobile phones and computers are used every
day.
Young customers are more likely to use digital technology, to
shop online and to prefer online methods to print images. Older
generations are more likely to stick to traditional methods. For
example, they are more likely to want to have their photos
developed and printed in-store.
Meeting different customer needs
Jessops must meet the needs of all customer types. It is
important that Jessops caters for more traditional
img_1153customers, as 65% of the photo business is still
associated with producing standard prints. However, the company
is responding to the younger demographic by delivering its multi-
50
channel strategy using modern technologies. For example, iphone,
android and ipad apps which allow customers to order and print
gifts directly from their phone/Tablet.
Customers can upload and download images from Facebook to use in
a single-image premium product, such as a high-quality print or
wall art. They can produce photo books – a collection of their
images presented in a personal book. A challenge for Jessops is
to increase customer awareness of this product. Its research
shows that 80% of people in the UK have not come across the idea
of a photo book.
As well as meeting the needs of the different generations,
Jessops is also developing products for niche markets. It offers:
1 ) Services for students who need to produce portfolios,
including art and design work.
2) Short print runs of personalised products such as headed
notepaper, business cards and calendars.
3) Products designed specifically for professional and amateur
photographers.
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Creating loyal customers
Consumers’ expectations are higher than ever. Today’s customers
want products and services on demand. They are not prepared to
wait.
To respond to this social change, Jessops now offers a 25-minute
service for prints or a one-hour imaging gift service for
products such as photographic wall art, posters, banners and
photo books. It has also introduced an in store photo portrait
service where customers can have their portrait transformed into
gifts on the same day. It is refurbishing many of its stores to
improve customer service.
Many consumers like to try a product before they make a purchase,
so customer interaction with products is a key feature of the new
stores.
Jessops-3To underpin the new focus on multi-channel delivery and
gift products, Jessops has invested heavily in staff training and
development. Staff are trained to be experts in their field. They
are given the knowledge and skills to provide a high level of
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customer service. This is increasingly important in a competitive
retail environment.
As a specialist retailer, Jessops seeks to provide the best
possible service to its customers. This is a total process
involving three key stages. High levels of customer service will
help to provide competitive advantage and create loyal customers.
Technological factors:
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Definition of Technological factors
Influences that have an impact on how an organization operates
that are related to the equipment used within the organization's
environment. Due to increased reliance on equipment,
technological factors currently exert a considerably more
important effect on the success of a business than they did only
a hundred and fifty years ago.
Technological factors include technological aspects such as R&D
activity, automation, technology incentives and the rate of
technological change. They can determine barriers to entry,
minimum efficient production level and influence outsourcing
decisions. Furthermore, technological shifts can affect costs,
quality, and lead to innovation.
You can break technology down into two broad categories: products
and processes. Technological products are meant for consumer
consumption, while technological processes are a means to make
and improve products and services. An example of a technological
product is a new innovative game console with technological
features not seen on the market before, while an example of a
54
technological process is a new way to manufacture faster
microchips. You also need to understand that technology is not
science but rather the practical application of science.
Technological change is advancement in the 'art' of making
products or in the development of processes. Technological change
can be either incremental or radical. Incremental change can be
thought of as an evolutionary process where you change, modify,
refine, or improve a product or process. Radical change can be
thought of as revolutionary, where completely new products and
processes are designed. Radical technological change can rock the
foundation of the world. Probably the most important radical
technological change in the world was the invention of
agriculture. A more recent radical change is the development of
the Internet.
Technological Effects on Business
Advances in technological processes provide many advantages.
Technological innovations in processes can improve productivity
and efficiencies that will reduce costs and improve profit
margins. It can make a business more competitive. Innovation in
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technological processes can also make products possible that were
otherwise impossible with older technology. One only needs to
look at the computer industry and compare processing abilities
from a few years ago to what's available today to see evidence of
this. Thus, technology permits the development of new products
and markets that can lead to economic growth. For example, the
rise of the Internet and smart phones has launched entire new
industries.
A Cautionary Tale & Creative Destruction
Once upon a time there was a very profitable company that
produced buggy whips. It made lots and lots of money for its
owners. Then one day, a technological innovation known as the
internal combustion engine was developed, and not soon after came
a contraption called a horseless carriage. This technological
marvel rendered horse-drawn carriages obsolete for most consumers
over the next few decades.
Our successful buggy whip company suffered ever-declining sales.
It was, of course, the best darn buggy-whip company in the
country and survived even after all of its competitors were
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assigned to the dustbin of history. Unfortunately, the tale does
not end well for our buggy whip company, which eventually went
out of business for lack of consumer demand. Our noble buggy whip
company is a victim of creative destruction, which occurs when a
technological innovation creates a new product or process, but
also destroys an older process or product in the process due to
obsolescence.
Technology is a means by which we adapt to, change, or control
our environment. Technological change is any advancement in of
the art creating consumer products or business processes.
Incremental technological change is evolutionary, while radical
technological change is revolutionary. Technological innovations
in business processes can improve productivity, efficiencies and
profitability. Technological innovations can also enable the
development of entire new products and services, opening up new
markets and contributing to economic growth. Technological change
doesn't always work out well for everyone because of creative
destruction, where technological change creates new processes and
products that end up destroying older ones.
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Expanding the analysis to PESTLE or PESTEL adds:
Legal factors include discrimination law, consumer law, antitrust
law, employment law, and health and safety law. These factors can
affect how a company operates, its costs, and the demand for its
products.
Environmental factors include ecological and environmental
aspects such as weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and
insurance. Furthermore, growing awareness of the potential
impacts of climate change is affecting how companies operate and
58
the products they offer, both creating new markets and
diminishing or destroying existing ones.
Other factors for the various offshoots include:
Demographic factors include gender, age, ethnicity, knowledge of
languages, disabilities, mobility, home ownership, employment
status, religious belief or practice, culture and tradition,
living standards and income level.
Regulatory factors include acts of parliament and associated
regulations, international and national standards, local
government by-laws, and mechanisms to monitor and ensure
compliance with these.
The model's factors will vary in importance to a given company
based on its industry and the goods it produces. For example,
consumer and B2B companies tend to be more affected by the social
factors, while a global defense contractor would tend to be more
affected by political factors. Additionally, factors that are
more likely to change in the future or more relevant to a given
company will carry greater importance. For example, a company
59
which has borrowed heavily will need to focus more on the
economic factors (especially interest rates).
Furthermore, conglomerate companies who produce a wide range of
products (such as Sony, Disney, or BP) may find it more useful to
analyze one department of its company at a time with the PESTEL
model, thus focusing on the specific factors relevant to that one
department. A company may also wish to divide factors into
geographical relevance, such as local, national, and global.
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