Component 3: PEST factors – Technological — Eduqas A-Level Business
Test yourself on Component 3: PEST factors – Technological with EDUQAS A-Level practice questions.
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Component 3: PEST factors – Technological explained
Technology works on a firm from two directions at once, changing how things are made and how they are sold, coordinated and managed.
Read the full explanation
Robotics and computer aided manufacturing raise output per worker, so labour productivity, output divided by the number of employees over a period, rises and unit costs fall as heavy fixed investment is spread over more units. The catch is that variable labour cost becomes fixed capital cost, which lifts the break even output and makes any downturn more painful. Cloud systems, video conferencing, social media and online marketplaces cut the cost of reaching customers and coordinating suppliers, lower barriers to entry and raise rivalry, which is the shift Porter's five forces is built to expose, although the model says nothing about how fast the technology itself is moving.
Evaluate the impact of technological factors on businesses and their stakeholders
Technology here means the tools and systems a firm can buy into, from robotics and computer aided design to e-commerce platforms, data analytics and artificial intelligence. The exam almost never wants a list; it wants a decision about whether investing pays. Automation usually lifts labour productivity, output divided by the number of workers over a period, and raises capacity utilisation, actual output divided by maximum possible output times one hundred, which spreads fixed costs and cuts cost per unit. Against that sit the capital outlay, a payback period that may run for years, retraining and the redundancies that damage morale. Winners and losers differ by group: shareholders may see return on capital employed rise while shop floor staff lose hours and suppliers are forced onto new ordering systems. Judgement turns on how quickly the kit dates and whether rivals can copy it.
Your focus
- Explain how technological factors, including automation and communication technology affect business activity
- Evaluate the impact of technological factors on businesses and their stakeholders
Component 3: PEST factors – Technological exam tips
Marking Points
- Quantify the production effect using labour productivity, output divided by employees, or capacity utilisation, and state the units, for example units per worker per week.
- Explain the change in cost structure, since automation substitutes fixed capital cost for variable labour cost and so raises break even output, which is fixed costs divided by contribution per unit.
- Cover the human consequence of redundancy, retraining and resistance, using Kotter and Schlesinger's approaches such as education, participation and negotiation, while noting the model is blind to how long each approach takes when a rival is already automating.
- Show the market effect of communication technology, including lower barriers to entry, easier price comparison and greater buyer power within Porter's five forces.
- Names the specific technology in the case business and traces it to a cost line or a revenue line, rather than discussing technology in general.
- Quantifies where the data allows, using labour productivity as output divided by number of workers, or capacity utilisation as actual output divided by maximum output times one hundred, to show the size of the gain.
- Weighs the capital cost and the payback period, initial investment divided by annual net cash inflow, against the annual saving before judging.
- Separates the stakeholders explicitly, shareholders, employees, customers and suppliers, and states the direction of effect on each.
- Reaches a supported judgement that depends on something in the stimulus, such as the pace of obsolescence or whether competitors already hold the same technology.
Examiner Tips
- 💡Technology questions frequently carry an investment appraisal, so be ready to work out payback, the time taken to recover the initial outlay, or the average rate of return before you comment.
- 💡Link the technology to at least one function beyond operations, such as human resources or marketing, because mark schemes reward breadth of application.
- 💡In evaluation, set the capital cost and obsolescence risk against the competitive cost of standing still while rivals invest.
- 💡Technological factors usually arrive inside an external environment or PEST question with a long case study, so take the technology named in the stimulus rather than importing one from your own reading.
- 💡Evaluate wants a judgement plus a justification; two developed effects, one counter argument, then a conclusion naming which stakeholder matters most and why is a reliable shape.
- 💡If the case gives machine cost and annual savings, work out payback in years and months and build the judgement around that number.
Common Mistakes
- Listing the benefits of new technology with no mention of the capital outlay, the payback period or the risk of obsolescence.
- Assuming automation always cuts costs, when low volume or highly customised production may never recover the investment.
- Confusing productivity with production, so a rise in total output is wrongly reported as a rise in output per worker.
- Listing technologies such as apps, robots and social media with no link to the named firm costs, revenue or objectives, which caps the answer in the knowledge band.
- Assuming technology always cuts cost, forgetting training, downtime during installation, and that an underused machine leaves capacity utilisation low and cost per unit high.
- Treating stakeholders as a single group, so the conclusion says the change is good for everyone and the conflict that carries the evaluation marks never appears.