CHAPTER TWO

HUMAN RESOURCE MANAGEMENT

ENVIRONMENTS
Human Resource Management
Environment
HRM as a system is affected by several factors
including external & internal environment.
• External Environment are those factors that are
outside the organization, they are largely
uncontrollable and provide opportunities and
threats (OT) to the organization.
• Internal environment are factors within the
organization, they constitute the strengths and
weaknesses (SW) of the organization.
• The analysis of the internal and external
environment together is called SWOT analysis
2.1. External Environmental factors affecting HRM
External Environmental challenges refer to forces
external to the firm that are largely beyond
management’s control but influence
organizational performance
A. Economic conditions
Economic conditions also influence employees.
For example, high unemployment rates make
many employees to quiet their present jobs,
because they are afraid they won’t find another
one.
As a generalization, when the economy is
booming, recruiting qualified workers is more
difficult than in less prosperous times.
1. The population and the labor force
The qualification, attitude, career interest and motivations
of people in the available workforce
Percent of minorities and women in the workforce
influences equal employment opportunity
decisions. (large no of minority and women – emphasize
on CEO)
Qualifications and skills in the workforce influence need
of training programs, design of jobs, etc (high quality
labor force- less training, challenging job, autonomous
job, less supervision, less development opportunity )
Availability of various skills and demand for these skills
by employers influence salary and compensation
decisions.
2. Labor market conditions:
 Labor market : buyers (The job opportunities and
compensation offered by employers) and sellers(the skills
and contributions offered by employees.)
The scope for each organization depends on:
1. Occupation: The skills and qualifications required in an
occupation.
This refers to required training, education, or even licensing
requirement to perform a given type of job.
Example, supply of qualified human resource is very limited in
some regions of Ethiopia.
 3. Geographical location of the organization:

• Distance employees are willing to relocate or

commute.
• Supply of labor force could be limited to a specific
geographic area or region.
• Example, supply of qualified human resource is
very limited in some regions of Ethiopia
4. Industry: The industry in which the organization
competes for labor.
The more competition an organization faces in the
industry the more it is expected to offer
employees better compensation for their
contribution.
3. Product /service market:
• Demands for products and services:
For instance,
 in times of market growth, organizations increase
employment levels while
 in times of market decline, organizations economize their
use of HRs.
• Inflation: it is the rate of change in prices we pay for
goods and service. (Affect pay and salary decisions,
increase cost of different HRM activities )
• Technology: changes in technology will influence the
nature of jobs to be performed and consequently the
qualifications of people required to perform them.
(training and development need)
 B. Government influences
 Government regulations have direct impact on HRM decisions by
regulating terms and conditions of employment.
 Some of the involvement and intervention areas of government via
legislation and regulation includes:
 Equal employment opportunity:
 Sex and age discrimination.
 Compensation regulation: specifying the minimum pay for any
job, for employees with a certain educational level, etc.
 Hours of work, national holidays, etc.
 Benefit regulations: affect pension and retirement plans.
 Workers’ safety laws: affects health and safety programs in
organizations.
 Privacy laws protecting employees’ personal information.
 Labor relations laws and regulations affect the conduct of
collective bargaining.
 C. Union Expectations and Power (Labor Union)

A union is a group of employees who have

joined together for the purpose of dealing
with their employer.
Wage levels, benefits, and working
conditions for millions of employees now
reflect decisions made jointly by unions and
management.
 D other external factors
• Competitors: The weakness and strength of competitors also
affect HRM practice
• Customers: Seek high-quality products at reasonable prices
responsibility of every employee. HR should ensure that their
work is of the highest standard.
• Globalization: HR practices are guided by global perspective
– Globalization means more competition – more pressure to lower
costs, to make employees more productive, and to do things better
and less expensively.
• Technology: With the advent of technology, jobs tend to
become more intellectual or upgraded.
– Decline of illiterate and unskilled workers’ jobs.
– Reduces requirements for much of human interactions in
organizations
• HRIS – HR information system
 2.2. Internal Environmental Conditions

This Organizational challenges refer to concerns that are internal to the

firm.
• Mission: The organization’s continuing purpose or
reason for being.
• Policies: A predetermined guide established to
provide direction in decision making.
• Corporate Culture: The system of shared values,
beliefs, and habits within an organization
• Management Style of Upper Managers: Closely
related to corporate culture is the way in which the
attitudes and preferences of one’s superiors affect
how a job is done.
• Employees: Employees differ in many ways including
their capabilities, attitudes, personal goals, and
personalities.
• Informal Organization: The informal organization is the
set of evolving relationships and patterns of human
interaction within an organization that are not officially
prescribed.
• Other Units of the Organization: Managers must be
keenly aware of interrelationships that exist among
divisions or departments and should use such
relationships to their best advantage.
• Labor-Management Agreement: Upper management
typically negotiates labor-management agreements, but
managers throughout the organization must implement
2.3. HUMAN RESOURCE
MANAGEMENT MODELS

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 1. The Matching Model (Fombrun et al. 1984)
 It demands that available human resources must be matched with
jobs in the organization.
 Holds that HR systems and the organization structure should be
managed in a way that is congruent with organizational strategy.
 Emphasises the efficient utilization of HR to meet organisational
objectives
 That to gain high profits labour must be obtained cheaply, used
sparingly, developed and exploited fully.

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 Emphasizes the interrelatedness and the coherence of HRM
activities.
 The HRM cycle consists of four key components:

 Selection: matching available human resources to

jobs
 Appraisal: performance management

 Development: developing high quality employees

 Rewards aimed at increasing organizational performance

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2. The 'Harvard model of HRM‘ (Beer et al., 1984)
 Acknowledges the existence of multiple stakeholders
within the organization:- government, shareholders, d/t employees ,the
society, union
Consists of six basic components:
1. Situational factors: work force characteristics, business
strategy and condition, management philosophy, task
technology
2. Stakeholder interests
3. HRM policy choices: The actual content of HRM policy
choices described in relation to four areas,
• Human resource flows – recruitment, selection, appraisal…..
• Reward systems – pay system, motivation…..
• Employee influence – delegation level of authority,
responsibility, power
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 4. HR outcomes: Which intern leads to the four Outcomes that HR policies
need to achieve
• Commitment
• Competence
• Congruence,
• Cost effectiveness
5. Long - term consequences: individual well- being,
organizational effectiveness, societal well being
6. A feedback loop
• Harvard model is premised on the belief that it is
the organization’s human resources that give
competitive advantage through treating them as
assets and not costs
The Harvard framework as modelled by Beer et al is
shown in Figure 2.2
3. Guest’s Model (David Guest, 1997)
• Proposes 4 crucial components that underpin
organizational effectiveness
 Strategic Integration:- maintain a fit between the
HRM strategy and the business strategy.
Flexibility:- the ability of the organization and its
people to adapt to the changing business
High Commitment:- the ability to go an extra mile,
& a strong identification with the organization.
Quality:- high quality goods and services results
from a quality way of managing people.
• A core set of integrated HRM practices achieve superior
individual and organizational performance.
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 Guest’s Model
• Has six components:
• An HRM strategy,
• A set of HRM policies,
• A set of HRM outcomes,
• Behavioral outcomes,
• A number of performance outcomes,
• Financial outcomes.
• Acknowledges the close links between HRM strategy and general
business strategies
• HRM strategy related with Recruitment & selection, Performance
mgt, Training & development, Reward management and Career mgt
• A business strategy is an organizational strategy
focused on how the organization will compete in
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each of its businesses unit.
4. Storey’s Model
• HRM is a holistic approach with a set of interrelated policies with
an ideological and philosophical underpinning
• Has four parts:
– Beliefs and assumptions – the prevailing beliefs of
HRM are unitary.
– Strategic aspect - HRM is central to corporate
planning
– Line management - gives HRM specialists a
'transformational leadership' role
– Key levers - culture management is important than
managing Procedures and systems.

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END OF CHAPTER TWO