What are the external environmental factors that most directly affect the HRM process?

A successful human resources strategy complements a company's mission and goals – so what works for an industry giant won't necessarily be suitable for your small business. The factors influencing HR activities aren't static: To maximize recruitment and retention, and to minimize employee issues, small business managers must continually monitor internal and external environmental factors and adjust HR strategy accordingly. To do that, it's important to know what the internal and external factors can consist of.

Effect of Competition on Recruiting

The extent of competition in your industry affects your company's ability to recruit qualified workers. Industry giants find that candidates seek them out. There is no need to spend money advertising each recruitment in such a case, because candidates will visit the company website of their own accord.

Small businesses typically don't have the same branding power or company reputation, though, and need to actively seek qualified candidates for critical positions. In such a scenario, a human resources department will need to focus on developing recruitment materials and attending job fairs to promote the company and attract applicants. Similarly, HR should develop programs and incentives to retain key employees.

Labor Supply and Compensation

Labor supply drives the amount of compensation a business must offer to attract employees. In an oversaturated market, when unemployment is high and many more qualified candidates exist than job opportunities, the amount of compensation you must provide is less than when a shortage of candidates exists and you are competing against multiple other companies to recruit employees.

HR must continually evaluate the compensation structure by conducting industry- and location-specific salary surveys to ensure wages remain competitive enough to attract and retain key staff members but low enough that the business remains financially competitive. HR must also ensure that the internal compensation structure is fair – for example, experienced workers with specialized qualifications should earn more than recent college graduates performing the same tasks.

Impact of Legislation

Legislation impacts all HR activities. Federal and state legislation typically dictate how long a business must retain personnel records and other employee data, what can be stored, and how. For example, the Health Insurance Portability and Accountability Act, Americans with Disabilities Act and the Genetic Information Nondiscrimination Act all place obligations on employers to safeguard the confidentiality of employee medical information and to make sure company managers operate within the confines of law. HR professionals must stay abreast of legislation and train managers on their responsibilities.

Internal Policies and Employee Relations

Internal policies and procedures impact HR activities. For example, if the company is committed to promoting from within, HR must ensure employees receive appropriate training and development to be ready for promotion when the time comes. HR should monitor the number of employees eligible for retirement and ensure potential replacements or other staff members are trained to avoid a sudden departure of business knowledge.

If the company is unionized, HR must engage in collective bargaining with the union on matters of representation. External influences, political factors and organizational culture all influence the amount of grievances and complaints HR must respond to.

Internal and external factors that influence human resource (HR) planning (AO3)

Human resource (HR) planning supports the future direction of the organisation. It is important that the firm includes the costs of recruitment, training and appraisal in its operating budget.

The supply of labour is the number of workers willing and able to work in a given occupation for a given wage. It varies between countries – and in regions within those countries – and is affected by demographic change. Workforce planning is constrained by labour availability.

Internal factors influencing HR planning

The internal environment impacts on the firm’s employment policies.

• The firm’s strategic plan will include a workforce assessment in terms of numbers and skills.

• As firms grow, they are likely to recruit more employees, although there may be substitution of labour through automation.

• Changes to the nature of the firm’s operations will affect the types and skill levels of its workforce, e.g. new international operations.

• Increasing or falling profitability will affect the level of the required workforce and terms and conditions.

• New management may lead to higher staff turnover.

External factors influencing HR planning

The external environment impacts on the supply of labour available to potential employers.

1. 1.

   Demographic change influences the supply of labour. Demography is the study of the size, growth, age and geographical distribution of human populations, e.g.

   • increases in the world population

   • changes in birth and death rates

2. 2.

   Socio-cultural trends are closely related to demographic changes. For example:

   • increased female participation in the workforce

   • the desire for a better work–life balance

   • more part-time and fixed-term employment

   • less loyalty from employers and employees

3. 3.

   Technological change has impacted on the required employment skills and the nature of the employment. For example, new information and communication technologies (ICT) allow more people to telework (work from home or from a remote location).

4. 4.

   • Occupational mobility (movement between occupations) is influenced by the level of education and training.

   • Geographical mobility (movement between locations) is influenced by the attractiveness of regions in terms of environment, climate, infrastructure, communications and wage rates.

5. 5.

   The state of the economy has a significant impact related to the economic cycle. In a recession, wages fall and labour availability increases. In boom periods, higher wages boost the number of people willing and able to work.

6. 6.

   Employment laws and regulations impact on the structure of a workforce, e.g. laws on maximum working hours.

The role of the HR department

The purpose of human resources is to recruit, develop and utilise an organisation’s personnel to meet the firm’s objectives. There are four key roles:

• recruitment and selection

Internal factors influencing HR planning

External factors influencing HR planning

The role of the HR department

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