CHAPTER TWO

HUMAN RESOURCE MANAGEMENT ENVIRONMENTAL CHALLENGES

Objectives of the chapter:

At the end of the chapter you would be able to:
• Identify major external factors affecting practices of HRM
• Describe major internal factors affecting HRM
• Explain different models of HRM

2.1. THE ENVIRONMENT OF HRM

The environment of an organization consists of the conditions that affect the organization’s
ability to achieve its objectives. Every organization exists in an environment that has both
external and internal components. As such, HRM program functions in a complex environment
both outside and inside the organization. HR managers, therefore, should be aware that rapid
changes are occurring within the environment in which the organization operates.

2.1.1. External environments

These are conditions outside the organization influence actions an organization can take. These
can be explained in detail below:

a. Legal Considerations:
Among other significant external forces affecting HRM relates to federal, state, & local
legislation & the many court decisions interpreting this legislation. Governments make different
laws that require human resource management to respect. Laws include:
 Equal employment opportunities,
 Affirmative actions
 Compensation and benefits
 Safety and health,
 Hours of work, holidays,
 Industrial relations etc.

 Equal Employment Opportunity

 Discrimination
Law forbids discrimination in all areas of the employment relationship. Employment based on
age, sex, disabilities, national origins (ethnicity), religion, etc. are not allowed.

 Affirmative Action
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Governments encourage affirmative action, the commitment of employers, to proactively seek
out, assist in developing, and hire employees from groups that are underrepresented in the
organization.

Various executive orders require employers to develop affirmative action plans and engage in
affirmative action in hiring protected groups.

 Compensation and Benefits

Government:
 Sets a minimum wage and requires overtime pay for work in excess of 40 hours per
week.
 Sets standards for pension plan management and provides federal insurance if pension
plans go bankrupt.
 Requires employers to provide leave for family and
medical emergencies.

 Health and Safety

Government requires that employers:
 Provide a place of employment that is free from hazards that may cause death or serious
physical harm.
 Obey the established safety and health standards established

 Labor Relations
Government sets rules on how employers and employees relationship is governed
 Joining union
 Establishing union
 Bargaining in good faith etc.

b. Society:
Demographic factors, culture, religion, belief on work etc affect HRM. If a firm is to remain
acceptable to the general public, it must be capable of accomplishing its purpose in line with
societal norms. Social responsibility is an implied, enforced, or felt obligation of managers,
acting in their official capacities, to serve or protect the interests of groups other than themselves.

c. Unions:
Union is a group of employees who have joined together for the purpose of dealing collectively
with their employer.

d. Shareholders:

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The owners of a corporation are shareholders. Because shareholders have invested money in a
firm, they may at times challenge programs considered by management to be beneficial to the
organization.

e. Competition:
For a firm to succeed, grow, and prosper, it must be able to maintain a supply of competent
employees. Other organizations are also striving toward that objective.

f. Customers:
Because sales are critical to the firm’s survival, management has the task of ensuring that its
employment practices do not antagonize the members of the market it serves.

g. Technology:
As technological changes occur, certain skills are no longer required. This necessitates some
retraining of the current workforce.

Computerized information systems are now being used to maintain easily accessible employee
data that are valuable in job placement and labor utilization. Also being used in employee
training, succession planning, and compensation management, and to track and report affirmative
action activity. Many organizations have implemented Web-based human resource systems that
allow employees to complete many HR-related tasks online. Referred to as electronic human
resources (e-HR)

In recent years, the practice of telecommuting (also known as teleworking) has been growing in
popularity. This is the practice of using communications technology to enable work to be
performed from remote locations, such as the home. Most telecommuters like the arrangement,
reporting that it gives them the kind of flexibility they need to balance work & family matters.
Not surprisingly, the vast majorities of telecommuters are highly committed to their employers &
plan on staying at their companies. Despite these benefits, as you might imagine, telecommuting
is not for everyone; It works best on jobs that require concentration, have well-defined beginning
and end points, are easily portable, call for minimal amounts of special equipment, & can be
done with little supervision.

h. The Economy:
The economy of the nation is a major environmental factor affecting HRM. As a generalization,
when the economy is booming, it is often more difficult to recruit qualified workers. On the other
hand, when a downturn is experienced, more applicants are typically available.

i. Globalization

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Growing internationalization of business has its impact on HRM in terms of problems of
unfamiliar laws, languages, practices, competitions, attitudes, management styles, work ethics &
more.

2.1.2. The internal environment

These are factors within an organization itself which have an impact on how the organization
uses its human resources. These also include:
a. Mission: the organization’s continuing purpose or reason for being. Each management
level should operate with a clear understanding of the firm’s mission.
b. Policies: A predetermined guide established to provide direction in decision making. As
guides, policies are somewhat flexible, requiring interpretation and judgment in their use.
They can exert significant influence on how managers accomplish their jobs.
c. Corporate Culture: The system of shared values, beliefs & habits within an
organization that interacts with the formal structure to produce behavioral norms, is
known as corporate culture.
d. Other Units of the Organization: Managers must be keenly aware of interrelationships
that exist among departments & should use such relationships to their best advantage.
e. Labor-Management Agreement: Upper management typically negotiates labor-
management agreements, but managers throughout the organization must implement the
terms of the agreements. In most instances, agreements place restrictions on the
manager’s actions.
f. Management Style of Upper Managers: Closely related to corporate culture is the way
in which attitudes & preferences of one’s superiors affect how a job is done. This
situation deserves special emphasis here because of the problems that can result if the
managerial style of upper-level managers differs from that of lower-level managers.
g. Employees: Employees differ in capabilities, attitudes, personal goals, & personalities.
As a result, behavior that a manager finds effective with one worker may not be effective
with another.
Changes in workforce are largely reflected by
 Significantly aging workforce & age discrimination
 Working mothers, & more women in the workforce
 Increasing racial/ethnic diversity
 More educated and aware workers etc.

These dynamic workforces have their own implications for HR managers & from HRM point of
view is a true challenge to handle.

j. Structural Changes

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Technology has made it possible for fewer people to do more work than ever before.
Automation, the process of replacing people with machines, is not new, of course; it has gone on,
slowly and steadily, for centuries. Unlike the gradual process of automation, advances in
information technology are occurring so rapidly today that the very nature of work is changing as
fast as we can keep up. With this, many jobs are disappearing. Indeed, organizations have been
rapidly reducing the number of employees needed to operate effectively and this process is
known as downsizing. It is directed at adjusting the number of employees needed to work in
newly designed organizations and is, therefore, also known as rightsizing. Whatever you call it,
the bottom line is clear: Many organizations need fewer people to operate today than in the past
—sometimes far fewer.

Another way organizations are restructuring is by completely eliminating those departments that
focus on noncore sectors of the business & hiring outside firms to perform these functions
instead—a practice known as outsourcing. By outsourcing secondary activities an organization
can focus on what it does best, its key capability—what is known as its core competency. As
more companies are outsourcing various organizational functions & are paring down to their
core competencies, they might not be able to perform all the tasks required to complete a project.
However, they can perform their own highly specialized part of it very well. Now, if you put
together several organizations whose competencies complement each other and have them work
together on a special project, you’d have a very strong group of collaborators. This is the idea
behind an organizational arrangement that is growing in popularity—the virtual corporation.
Virtual Corporation is a highly flexible, temporary organization formed by companies that join
forces to exploit a specific opportunity.

Although virtual corporations are not yet common, experts expect them to grow in popularity in
the years ahead.

2.2. MODELS OF HRM

1. The matching model of HRM
One of the first explicit statements of the HRM concept was made by the Michigan School
(Fombrun et al, 1984). They held that HR systems and the organization structure should be
managed in a way that is congruent with organizational strategy (hence the name ‘matching
model’). They further explained that there is a human resource cycle (an adaptation of which is
illustrated in Figure 2.1), which consists of four generic processes or functions that are
performed in all organizations. These are:
 Selection – matching available human resources to jobs;
 Appraisal – performance management;
 Rewards – ‘the reward system is one of the most under-utilized and mishandled
managerial tools for driving organizational performance’; it must reward short as well as
long-term achievements, bearing in mind that ‘business must perform in the present to
succeed in the future’;
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  Development – developing high quality employees.

Fig. 2.1: The Human Resource Cycle (adapted from Fombrun et al, 1984)

The strength of the model is that it expresses the coherence of internal HRM policies and
practices. The limitation was, the notion of the environment was ignored for it ignored situational
factors, stakeholder interests and the notion of strategic choice.

2. The Harvard framework

The Harvard model, demonstrated below, was postulated by Beer et al. (1984) at Harvard
University. The map of the HRM territory described in the model is associated with soft HRM,
as its primary focus is on outcomes for people, their well-being and organizational commitment.

The model defines the link between internal and external factors affecting HRM. The external
factors outlined by the model include stakeholders’ interest and situational factors. The model
recognizes that there are a variety of stakeholders and assumes that the creation of HRM
strategies will have to reflect the legitimate interests of different groups:
 Shareholders have a financial interest and want assurance that business will grow.
 Management wants to ensure all the objectives goals are met. For example, the company
makes a profit, expands its market and boosts sales.
 Employees are also stakeholders in the organization and have their own interests. For
example, they seek job security, better working condition and good work–life balance.

In the figure, situation factors refer to the context in which the business operates. The factors
include inflation rates, the rate of interest, globalization, unemployment rate, workforce
characteristics, union representation, laws and technology requirements.

These external factors are directly linked with internal choices such as HRM policy, which needs
to accommodate the external factors. In this model, it is a focus on developing policies that take
into account such factors that lead to improved HR outcomes such as a high-commitment and
high-performance workforce.

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The model focuses on gaining employees’ commitment, loyalty and their co-operation.
Employees are encouraged through incentive schemes and through motivational methods to
complete their tasks and to enable the organization to grow and flourish.

Compared with the matching model, the Harvard model focuses on gaining employee
commitment and co-operation to get win-win situation. While the first focuses on business
strategies and goal achievements, the second believes that employees are the important assets for
the organization and therefore developing and motivating employees and improving employees’
loyalty is key for the business. The Harvard framework as modeled by Beer et al is shown in Fig
2.2.

Stakeholders’
interests:
 Shareholders
 Management HRM policy HR out comes: Long term
 Employees choices:  Commitment Consequences:
 Government  Congruence  Individual
 Employee
 Unions  Cost effectiveness wellbeing
influence
 Human  Organizational
Situational factors: resource flow effectiveness
 Reward  Societal
 work force
systems wellbeing
characteristics  Work
 business strategy systems
and conditions
 management
philosophy
 labor market
 Unions

Fig. 2.2: The Harvard Framework for Human Resource Management (Source: Beer et al, 1984)

The Harvard model has exerted considerable influence over the theory and practice of HRM,
particularly in its emphasis on the fact that HRM is the concern of management in general rather
than the personnel function in particular.