HUMAN RESOURCE MANAGEMENT

Chapter-2 (ENVIRONMENTS OF HRM)

for MBA, III Semester

Instructor:
Isubalew Daba Ayana
(Msc, MBA, Ph.D. Candidate)
Great Land College,
Nekemte, Ethiopia
HRM Chapter Two 1
 What is ENVIRONMENT?
The term 'environment' here refers to the
"totality of all factors which influence both
the organization and personnel sub-system“
TWO types:
1) EXTERNAL Environment
2) INTERNAL Environment

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External Environment : external environment is
an environment which is also called as un
controllable environment. The elements of
this environment are as follows
 Political Environment
 Economical aspects/forces
 Socio Cultural Elements
 Technological Factors
 Legal Factors

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Internal Environment : Which is also called as
controllable Environment. The elements of this
environment are as follows
 Organizational Mission
 Organizational Strategy/Objectives
 Organizational Structure
 Past Practices of the Organization
 Top Management Priorities

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 THE EXTERNAL ENVIRONMENT
1)Laws and regulations
The government regulates and influences some aspects of personnel policies more
directly than others. The major areas of legislation and regulation include:
• Equal employment opportunity and human rights legislation, which indirectly
affects recruitment, selection, evaluation, and promotion directly, and
employment planning, orientation, career planning, training and development.
• Employment of illegal aliens.
• Sex and age discrimination.
• Compensation regulation, which affects pay, hours of work, unemployment, and
similar conditions.
• Benefits regulation, which affects pension and retirement.
• Workers’ compensation and safety laws, which affect health and safety.
• Labour relations laws and regulations, which affect the conduct of collective
bargaining.
• Privacy laws.

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 THE EXTERNAL ENVIRONMENT (Contd)
2)Economic forces
• Economic environment refers to all those economic
forces, which have a bearing on the HR functions. The
components of the economic environment are:-
• Growth strategy, Industrial production (productivity),
Agriculture,
• Population, National and per capita income,
• Money and capital markets,
• Suppliers, Competitors, Customers and Industrial labour.
• Besides those above, the following components of the
economic environment (i.e. productivity, suppliers,
competitors, customers and industrial labour) are highly
relevant to HR activities.
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 THE EXTERNAL ENVIRONMENT (Contd)
3)Customers
• Customers have their own influence on a company’s personnel
functions.
• Customers want high-quality products at reasonable prices. So,
everybody in the organization must endeavour to offer products that
give satisfaction for the money customers pay.
• Sales are often affected by product quality that is directly related to the
skills and qualification of the organization’s employees.

4)Industrial labour
• The industrial labour is characterized by increasing diversity. Workforce
of any factory comprises people from different countries. Within this
diversity of national origins, there is an even wider diversity of cultures,
religions, languages and dialects, educational attainment, skills, values,
ages, races, gender and other differentiating variables.

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 THE EXTERNAL ENVIRONMENT (Contd)
5)Geographic location
• The location of the organization influences the kinds of people it hires and
the HRM activities it conducts. A hospital, plant, university, or government
bureau located in a rural area confronts different conditions than one
located in an urban area.
For example,
• The work force in rural area might be more willing to accept a bureaucratic
organization style. Recruiting and selection in rural areas will be different in
that there may be fewer applicants or larger proportion of hireable workers.
• An urban location might be advantageous for recruiting and holding
professional workers. Urban locations provide a bigger labour force but
generally call for higher wages. The late shifts may be a problem here, too,
but for different reasons. Workers may not feel safe late at night in the
parking lots or going home.
Geographic location, therefore, influences the kinds of workers available to staff
the organization. The location or setting is extremely significant for
companies operating in other countries. The employees may speak a
different language, practice different religions, have different work
attitudes, and so on.
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 THE EXTERNAL ENVIRONMENT (Contd)
6)Technological changes
• Technological change alters jobs, creates new skills, makes
occupations obsolete and revises what employees need to learn and
to be trained to do.
• Sometimes new technologies require new job designs. For example,
work teams whose members share responsibility for tasks may be
more appropriate than individual workers with separate
responsibilities.
• At the other extreme, some technologies isolate workers. Computer
networks permit people’s living rooms to be their work sites. While
decentralization carried to this extreme may fit the needs of many
employees, it also decreases interaction with colleagues and may
diminish commitment to the organization.

So at the minimum, technological change creates uncertainty. It may

also create the need for new ways to manage employees.
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 THE EXTERNAL ENVIRONMENT (Contd)

7)Labour market conditions

• The labour market also directly affects HRM programs.

Exchanges between employers and potential employees occur
in the labour market. Information is exchanged about
opportunities, skills and requirements.

• When there are more workers than jobs, employers find

recruiting costs minimal. Employees apply readily, and selection
is less difficult; Work attitudes tend to be work-ethic oriented.
When the work ethic predominates in employee attitudes,
output increases and performance evaluation can be a
motivating experience. A surplus of labour can also reduce
employee pressures for compensation and benefits. Disciplinary
problems, absenteeism, and turnover are likely to decrease,
and equal employment opportunity
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goals may be easier to fill. 10
 THE EXTERNAL ENVIRONMENT (Contd)
8)Cultural Forces
Culture refers to the complex whole which includes knowledge, belief,
art, morals, laws, customs and other capabilities and habits
acquired by an individual as a member of a society.
• In the first place, culture creates the type of people who become
members of an organization. Culture trains people along particular
lines, tending to put a personality stamp upon them. It is not that all
people are alike in a particular culture.
• When people with different cultural backgrounds promote, own and
manage organizations, they themselves tend to acquire distinct
cultures. Thus, the culture of the certain X group of companies is
different from that of the enterprises owned and managed by the Y
group.
• Secondly, the attitude of workers towards work is the result of their
cultural background. For instance, if the culture of the society
promotes work, then tasks will be performed with interest,
dedication and pride. Ex: Japanese culture are very much work
oriented. HRM Chapter Two 11
 8)Cultural Forces

• Thirdly, time dimension, which influences HRM, has its

roots in culture. Time orientation refers to people’s
orientation – past, present or future. In some societies,
people are oriented towards the past.
• Finally, work ethics, achievement needs and effort-reward
expectations, which are significant inputs determining
individual behaviour are the results of culture. The word
ethics is associated with moral principles. In the context of
an organization, ethics implies hard work and commitment
to work. A strong work ethics ensures motivated
employees whereas the opposite is true when work ethics
is weak
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 THE INTERNAL ENVIRONMENT
Likewise, the internal environment has too an impact on HR activities.
Some of the internal factors include goals and policies, organizational
functioning style, nature of the task, work group, leadership style and
experience.
1)Labour Unions
• A trade union may be understood as an association of workers formed
to protect their own individual interests through collective bargaining.
Unions differ just as people differ. There are cooperative unions and
combative/aggressive unions, just as there are sensitive organizations
and socially irresponsible organizations.
• The presence of a union directly affects most aspects of HR activities -
recruiting, selection, performance evaluation, promotion,
compensation, and benefits, among others.
• Thus, most of the HR activities - recruitment, selection, training,
compensation and separation - are carried out in consultation with
union leaders. The role of unions becomes pronounced when a new
wage agreement needs to be signed. At last the presence of a union
means many HR decisions must be negotiated
HRM Chapter Two with a third party. 13
 THE INTERNAL ENVIRONMENT (contd)
2)Goals
• The goals of organizations differ within and between
departments. All departments probably have goals that include
employee satisfaction, survival, and adaptability to change. The
differences arise in the importance the decision makers place on
the different goals.
• In some organizations, profit is of such major importance that
other goals such as increased employee satisfaction are not well
developed. In these organizations where profits take precedent,
HRM goals involving the human resources are paid only minimal
attention. The result of such negligence is typically problems in
the effectiveness area of the diagnostics model (example, high
absenteeism, performance decrements, and high grievance rates)
• In other organizations, HRM-related goals are highly regarded by
decision makers. Thus, how much the HRM function is valued
and how it is implementedHRMis Chapter
affectedTwo
by these goals. 14
 THE INTERNAL ENVIRONMENT (contd)
3)Organizational style

• Modern organization theory provides many ways to organize. At one

extreme is bureaucratic approach. In this approach, the organization
usually centralizes decision-making, designs specialized jobs,
departmentalizes by function, has standardized policies, uses small
spans of control, has clearly defined objectives, and encourages
communication through the chain of command.
• On the other hand, the participative approach uses decentralized
decision-making. It enlarges jobs, departmentalizes by
product/process, uses few detailed policies, has large spans of
control, and encourages free-flowing multidirectional
communication.
• These two styles reflect fundamentally different managerial
philosophies about the nature of people, the role of work in life, and
the most effective ways to supervise. Basic beliefs about how
employees are to be treated translate into ideas about the kinds of
HRM programs that are made HRMavailable
Chapter Two to employees. 15
 THE INTERNAL ENVIRONMENT (contd

4)Nature of the task

• Many experts believe that the task to be performed is one

of the two most vital factors affecting HRM. They describe
HRM as the effective matching of the nature of the task
with the nature of the employee performing the task.
• There are perhaps unlimited similarities and differences
among jobs that attract or repel workers and influence the
meaning of work for them.
• The nature of the task affects recruitment and selection,
since employees will be more satisfied and productive if
their preferences are met. With jobs that are not attractive
(i.e. dirty, smoky, hot, etc.), managers must provide
additional incentives (more pay, shorter hours, or priority in
vacations) because few people prefer such jobs.
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 THE INTERNAL ENVIRONMENT (contd

5)Work Group
• Groups play a major role in the life of an individual. Once a person joins an
organization, his or her experiences are largely influenced by a work group.
• A work group consists of two or more people who consider themselves a
group who are interdependent with one another for achievement of a
purpose, and who communicate and interact with one another on a more
or less continuous basis. In many cases (but not always), they work next to
each other.
• If the work group is effective and works with management, the manager’s
job is easier, and objectives are more likely to be achieved. On the other
hand, if the group is working against the manager, an effort must be made
to change the group’s norms and behaviour by the use of the manager’s
leadership, discipline, and reward powers, or by the transfer of some group
members.
• Therefore, work groups are directly related to the success of HRM
activities. Examples of HRM activities in this regard are incentive
compensation, profit sharing, and safety and labour relations.

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 HRM Models
The following are the three models of HRM:

 Matching Model of HRM

 Guest Model of HRM
 Harvard Model of HRM

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 Matching Model of HRM
As per matching model of HRM:

HR systems & organization structure should be managed in a way that is

congruent with organizational strategy, there is a HR cycle, which consists
of 4 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 must be short & long-term, bearing in mind
that ‘business must perform in the present to succeed in the future’

Development – developing high

HRMquality employees
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 Guest Model of HRM
The six core values are:

Ategy: This will set the long term goals ;targets such as
profit in 5 or 10 Years
HRM policies need to be set, examples; ‘Attendance
policies’, ‘Leave policies’ or ‘Dress code policies’.
A set of outcomes must be set
The behavioral outcomes must be set
Performance outcomes must be set
Financial outcomes mustHRMbe setTwo
Chapter 20
 Harvard Model of HRM
Harvard model is based upon situational factors
and stakeholder interests. Situational factors are
not within the organization’s control, such as,
legal, environmental and trade unions.
Stakeholder interests are factors which are
influenced by any person or body with a vested
interest in the organization. The managers can
affect a number of factors by means of the policy
choices they make.
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 4 C’s of Harvard Model of HRM
Commitment: Commitment of employees to an organization will
lead to better loyalty and improved performance.
Competence: Competence is the skill and knowledge of the
employee, highly skilled & knowledgeable employee should be
retained & developed.
Costs Effectiveness: Cost effectiveness has impact on salaries,
benefits, and the reward system.
Congruence: Congruence is the quality of agreement between the
employees and the organization’s
HRM Chaptergoals.
Two 22
 End of the Chapter Two
Thank you for your attention

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