Why it is necessary for HR practitioners to monitor the external macro environment - Essay Example

? Why it is necessary for HR practitioners to monitor the external macro environment? Submission Why it is necessary for HR practitioners to monitor the external macro environment? Introduction: In the fast and dynamic world where changes occur in seconds it is essential that variable factors existing at any level of organization are closely monitored and studied in order to analyze their impact. The business environment is made up of many such factors that can affect the business in the shot and long term both. Therefore it is important to know and study about these factors and evaluate the changes and their impact on the organization. The external environment is made up of the all the forces present outside the organization that affects or has the ability to affect business’s ability to achieve its objectives. The external business environment is broadly categorized as the micro and macro external environment, the paper focuses on the external macro environment therefore we will discuss about that in detail. External Macro Environment: The external macro environment is made up of factors which are beyond the control of the organization. These include the PESTEL (political, economic, social, environmental and legal) factors. These factors are interlinked and cannot be distinct from each other easily. The effects these factors have on the businesses vary business to business and from time to time. The effect of changes in the macro environment over the business is indirect, that is it affects the business through some changes. However the change in business doesn’t affect the environment in return. (GHUMAN & ASWATHAPPA. 2010; WERNER & DESIMONE. 2006) The human resource function is a part of micro or decision making environment. This is the business itself and it consists of various interdependent function which forms an organization. The functions other than HR function include, general management, operations, purchasing, marketing, financial, public relations, administration etc. The macro environment includes the general environment in which the business operates. Predicting an environmental change often is a difficult task due to the frequency and speed of changes that take place or due to lack of information related to that change which makes it difficult to predict. However the changes in the environment that affects the business occur constantly and they are difficult to predict. (BATES. 2005; KROON. 1995) When we speak about environment and its relationship with human resource management it refers to the combination of factors that influence the working and execution of the HR department. Any function of the organization, as mentioned earlier, cannot work in isolation and are interdependent on a lot of factors internally within the organization and outside the organization too, therefore for smooth operations and decision making it is essential to take into account of these factors which can influence HR polices, procedures and practices. The best framework to study the external macro environment, its components and how they affect the functioning of HR department is by the PESTEL analysis. I will further discuss the possible factors that lie in the PESTEL analysis and influences the HR function. Economic Factors: Economic environment is composed of many economic factors like populations, fluctuation in economic and trade cycle, national income, labour market conditions, interest rates and globalization of economy. This is the most important of all the factors prevailing in the environment that affects an organization the most including the HRM function. This could be made evident by the scenario for e.g. when company’s performance in well due to the boom in the trade cycle, it will attract more business and due to increase in business it may need to hire more labour from the market and it might face difficulty in hiring the required labour from the market. To serve the purpose the organization may be willing to pay extra compensations and will hire the labour at any possible price which may cause issues for the HRM functions, the practitioners and the mangers regarding recruitment, retentions, compensations and may have to deal with the problems of lay-offs, retrenchment, difficulty in maintaining the high morale of other employees and other legal issues etc. (DURAI. 2010) The labour market exists outside the organization and is an important external factors for the HRM function as they choose the employees from outside the organization; therefore their demand and supply greatly influence the HRM function in an organization. Further there are players that affect the demand and supply of labor in the market and indirectly affect the HRM function. The major players in the supply side are recruitment agencies, HR consulting firms, educational institutes, proffered candidates and rival firms while the major players in the demand side are the organizations that approach the market to recruit their labor requirements. The trends in the labor market have great influence in HR decision making and it is required by the HR practitioner to scan the labor market and make plans to take advantages of favorable conditions prevailing in the market. (MATHIS & JACKSON. 2005; DURAI. 2010) Globalization has affected HR environment in many ways too. Globalization refers to the internationalization of operations of organizations and their expansion in overseas regions. The main reason why many organizations chose globalization is due to cost effective production setup and technological advancements available in other regions because of which the weapons of competitive advantage the cost and technology are no more considered to be the weapon, this led the organizations to discover other means to compete with their rivals and that was the Human Resources. Due to globalization the importance of work force and employees increased tremendously which forced the HRM to exploit the best candidate in the labor market. Further due to globalization diversity in the work force has been promoted which led to international recruitment and training and development practices. It has also led to an increase in demand of the skilled labor. (DURAI. 2010) Competition in the external environment greatly influences the HR decisions and policies for e.g. in the organizations where there is high competition and there are many rivals, the company adopts a low cost strategy for which it works on cost cutting and hiring of low paid employees. HR managers and practitioners will be required to achieve cost efficiencies in their area of activities too. Further in such a competitive environment the HRM function will be required to develop loyalty among the employees as the competitors will try to capture the employee of its competitors by lucrative offers. Therefore for the HR in the companies competing in the competitive environment needs to acquire, retain and develop competent people. (DURAI. 2010) Trade unions have been another influential outside force of environment which affects the HRM function. Trade unions provide the employees of the organization to gather on a common platform and exercise influence to fulfill their demands. In order to reduce trade union influence the HRM functions and managers have introduced effective HR practices that ensure high commitment, involvement and performance. These are achieved through HR practices of generous remunerations and excellent work conditions etc which reduces employee’s dissatisfaction. (DURAI. 2010) Social Factors: The social factors are found in the social environment which is made up of people’s attitudes, believes and values and educational levels of the masses residing in a particular region. This environment even covers the behaviors and beliefs of different stakeholders like customers, suppliers, shareholders etc who affects the organization. The social environment is composed of people from different values, beliefs, ethnicity way of thinking etc, and an employee being a member of society being in his societal values to the organization which influences the HRM function within the organization. (DURAI. 2010) The characteristics and demographics of the population also affect the HR function in an organization and it is important for HR practitioners to understand the affect of different demographics on HRM function. For example the HR policies and practices differ for women, disabled people, student workers etc. The number of people present in the population and their demographics affect the HR practices and create workforce diversity which needs to be managed by the HR plan. (DURAI. 2010) Education level in the population is another important factor crucial to the HR policy makers. The success of the training and development program depends upon the level of education prevailing in the population. Education greatly affects the employees and the employees can in turn affect the HR policies and practices, for example if the organization operates in a population where there are large number of educated well trained workers, this needs to be reflected in their HR policies and practices as they have to meet the expectations of the employees and may require dynamic HR policies. (KIRKBRIDE. 1994; BANFIELD & KAY. 2008; DURAI. 2010) Technological Factors: Technological environment refers to the environment where the scientific knowledge is applied and implemented in the practical use. The technological environment is changing worldwide with differing speed, rate and directions. Due to the changes in technology there are changes seen in the patterns and demand of employees and jobs which are now changing from clerical and manual ones to more knowledge based ones and require the same kind of labor to full fill these jobs. When ever there is an introduction of new technologies it affects the working and functioning of HR department and its employees. Development in technologies have affected many practices and policies of HR functions like most of the matters and processes of HR like recruitment, offering for employment, training programs, skill and knowledge tests, negotiation, grievance handling etc are all now handled through the internet and most of the processes are computerized. It is shown by a few studies recently that the technological changes in an environment affects the organizations HR practices. For e.g. due to advancement in technology, automation is introduced in most of the jobs which require highly skilled labor and knowledge workers. Due to this trend the work force will now mostly comprise of technical workers which on one hand needs to be paid higher than the non-knowledge worker and on the other hand they require high level of training and development, for which HRM function needs to alter their policies and practices according to the needs of these personnel. (WERNER & DESIMONE. 2006; DURAI. 2010) Political Factors: The political factors prevailing in an environment affects the functioning of HR department in many ways like the nature of political organization, its stability and ideologies etc. Political organization and its systems including the decision making of political authorities and their efficiencies can affect the HRM policies. On the other hand the organizations work best with the government in the times of political stability in the country making the chances of industrial peace better in the political stable environment and any mishap and instability in the political scenario in the environment adversely affects the organization and industry both. Political ideologies of the current government even affect the functioning of HR department, their beliefs and approach to the political institutions especially related to rights of employees, labor and workforce in the nations. This would provide the basis for government intervention in industrial matters, their approach towards legislative issues related to labor, treatment with trade unions and attitude towards foreign organizations etc. For e.g. the organization has to consider the implications of its decisions taken in HR function like the organization in case of retrenchment has to consider the likely implications and response of the government and political parties. Secondly there will be differing political ideologies of the ruling parties of the country on political issues that can affect the HR functions in an organization like collective bargaining, social security benefits, legislations and recruitment etc. (DURAI. 2010) Legal Factors: The legal environment is made up of very important factors that affect the activities of HRM function. The legal environment is made up of prevailing law and order in the environment. In every country of the world the issues of employment, treatment with the labor and their rights are covered in the law and many laws have been made up for the protection of their rights. It is important for the HRM function to consider the compliance of these laws in every policies and decisions that they take. These laws usually give protection to employee’s rights and govern the relationship between employee and employer. It covers HRM issues like minimum wage payments, working conditions, terms and conditions of employment, welfare facilities and dispute management, for which various laws have been made all over the world, broadly naming a few like Trade Union Act, Child Labour Act, Payment of wages Act, Holidays Act, Industrial disputes Act, Factories, industries and mines Act, Employee Provident funds and miscellaneous provisions, gratuity Acts and equal opportunity Act etc have affected the functioning of HRM and the organizations have to strictly adhere to the statuary requirements and ensure its compliance in all the HR actions without violating legal provisions. Considering all the factors and its implications, it is extremely essential for the HR function, managers and practitioners to consider legal environment in HR policy and decision making. (DURAI. 2010) Conclusion: The HR function is an important function of the organization which needs to execute properly in order for effective functioning of HR department. To make the execution effective the HR managers and practitioners should take into account all the internal and external factors that affect the HR policies, practices and decision making. Therefore it is extremely important for the HR managers to study the external factors and components of external macro environment that affects the organization and HRM department and analyze and evaluate their implications over the organizations. Bibliography GHUMAN, K., & ASWATHAPPA, K. (2010). Management: concept, practice and cases. New Delhi, Tata McGraw Hill. BATES, B. (2005). Business management: fresh perspectives. Cape Town, South Africa, Pearson Education. KROON, J. (1995). General management. Pretoria, Kagiso Tertiary. BANFIELD, P., & KAY, R. (2008). Introduction to human resource management. 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