External factors

Social changes

Customer lifestyles or preferences change → demand shifts towards different products → businesses that adapt can gain sales → market share may increase.

Technological change

Introduce new technology → automate tasks or improve communication → productivity rises and errors may fall → unit costs may decrease.

Environmental pressures

Reduce waste or emissions → environmental impact improves → reputation may strengthen → environmentally conscious customers may become more loyal.

Political or legal changes

New rules require changes to products or processes → compliance costs may increase → profit margins may fall unless prices or efficiency adjust.

Economic changes

A recession reduces consumer confidence → spending may fall → sales decrease → businesses may need to reduce costs to remain profitable.

Evaluation chains-External factors

Technology may improve productivity, but high purchase, maintenance and training costs can outweigh the savings for a small business.

Environmentally friendly production may increase costs initially, but it can improve brand reputation and reduce waste in the long run.

The impact of external change depends on how quickly the business adapts and how much control it has over its costs.