Technological factors refer to elements related to or using technology. It is the company’s external environment in addition to political, economic, sociodemographic, legal, and environmental factors.
The word ‘technology’ is usually associated with the techniques, tools, devices, and knowledge surrounding it. Technological developments and changes raise threats and opportunities for companies. And it usually happens quickly and dramatically, making the old obsolete and therefore abandoned and disrupting business.
Why is the technological environment important?
The technological environment influences business success in several ways. And in general, changes and developments create opportunities or threats to the business.
But, just like any other external factor. Companies cannot control technological factors. They can only respond to minimize threats and optimize opportunities. Thus, they must be able to adapt to new technological developments.
Flexibility and responsiveness in adapting to new technologies are essential. Early adopters often achieve a higher market share and earn higher returns. They scan trends and technological changes to map potential opportunities and threats, including their impact on the competitive landscape.
Threat and opportunity scanning is the first step before a company formulates a strategy. After understanding what threats and potential opportunities are coming, they try to utilize or build new resources to maximize internal strengths to optimize opportunities while minimizing threats to internal weaknesses. That way, the company can build a sustainable competitive advantage.
Several reasons explain why the technological factor is important. Let’s take three reasons.
First, technological changes have brought new business models and made old ones irrelevant. A good example is how e-commerce replaces the “brick-and-mortar” business model.
Second, new technologies contribute to changes in production processes. It is not only related to more advanced machines and equipment. But, it also stimulates companies to develop new, better techniques because technology often makes what was once impossible possible. Computer Aided Manufacturing (CAM) is an example.
Third, technological changes advance communication channels. Information technology contributes to reducing operating costs and time, operating efficiency, and becoming a critical managerial tool in business decision-making. For example, email allows companies to send messages to suppliers instantly without going through the mail. The Internet has made it possible for businesses to adopt the official business concept.
How technology factors impact the business
Technological changes not only affect products and how they are marketed. But, it also affects business in several ways.
For example, in a production process, technology can increase total output through increased productivity. Companies can produce more output per unit with the same inputs as before.
In addition, new technologies contribute to reducing operating costs. For example, adopting robotic technology reduces labor. In addition, it also reduces waste with higher precision and reduces human errors.
Increases in output and cost reductions ultimately contribute to increased supply, product variations, and reduced prices. Thus, consumers have more choices to match the money in their pockets.
The technology also allows companies to produce new products. For example, internet technology enables book publishers to launch e-books.
Although some have positive impacts, technological advances also pose risks and threats to business. It makes old products obsolete faster. For example, smartphones with high-resolution cameras reduce interest in conventional camera products, making them all-purpose.
Now, let’s break down how technological changes are affecting business.
Product selling techniques. For example, more stores are turning online. The change had a significant impact on their sales strategy.
Product manufacturing method. For example, automation through robotics and computer-assisted machines replaces human hands.
Market research. Advances in technology gave rise to what we call big data. Marketers find it easier and more accurate to analyze the market with database systems because they can access more data, enabling them to plan their marketing better.
Company management and operations. For example, the Internet and electronic devices have led to remote working, such as working from home, as a common practice today. So, employees do not need to come to the office to work. Instead, they can do it at home, as long as they are connected to the Internet.
Ways to communicate. Many new channels are emerging to facilitate companies in communicating with stakeholders. Websites, social media, and email are examples.
Need for new expertise. For example, companies increasingly need data analysts and programmers to collect, process, and interpret data and process digital information. They are increasingly required to develop data-driven decision-making.
Changing consumer needs and wants. For example, buying a data package for communication services is a new need for consumers because they must stay online daily.
Changing consumer behavior. For example, the Internet makes consumers more price-conscious because they can easily and inexpensively compare products without physically seeing them.
Bring up new competitors. Technology gives rise to competitors with new business models. E-Commerce is a good example.
Examples of how technological change is transforming business
Research and development (R&D) has driven innovation in various business areas, including those related to products, business processes, or production techniques. The results are 3D printers, smartphones, electric cars, and self-driving cars.
Big data allows companies to access more accurate data, which enables them to plan and make better decisions.
Technology allows companies to capture data from various sources, including internal networks, websites, and social media. Advances in analytical techniques, software, and computer processing capabilities have allowed them to extract deeper information from this data.
E-Commerce allows consumers to shop anywhere and anytime via their smartphone. It saves them cost and time.
For example, they no longer need to visit a retail store. In addition, they find it easier to compare prices between products, reducing switching costs and strengthening their bargaining power.
Robotics allows companies to design, construct, and operate production facilities with minimal human assistance. That enables them to produce on a mass scale. In addition, precision increases due to less human error.
3D printers allow us to quickly create models and product prototypes. We can also use them to make jewelry, tools, and toys.
Social media changes the way consumers interact with others. Moreover, it facilitates them to disseminate information more quickly, cheaply, and massively. For example, companies use it to stay connected with their consumers.
In addition, social media gave rise to viral marketing. Companies design engaging messages and encourage consumers to share them. The impact can be significant due to its wide exposure, making products popular quickly with low promotional costs.
