Contemporary External Factors Impacting Business and HR Functions
The external business surrounding typically consists of political, economic, social, demographic, legal, and technological factors. According to Letkova (2018), economic conditions, legislative issues, demographic features, and technical aspects are among the main factors that influence a company’s strategies and practices. Our organization is mainly affected by legal procedures, technological advancements, economic conditions, and environmental issues. There has been an increased need to comply with state and federal laws that define the licit statutes in all contexts of HR practices, i.e., recruitment, training, compensation packages, and termination.
The provisions underscore the minimum wage range, taxes, workplace safety, employees’ rights, and equal employment practices that a company ought to comply with during its operation. The firm has had to design and update all its policies and procedures to ensure that it stays abreast with the legislative and regulatory requirements in the field.
Technological advancements have allowed the company to improve its operational efficiency and employee performance. The automation of various business practices has relieved the organization from workloads associated with paperwork, and this has, in turn, facilitated the timely execution of tasks assigned to employees. Information technology (IT) has also played a crucial role in optimizing the firm’s operations by streamlining workflows and enhancing the development and management of employee and customer information. Data from workers’ appraisal and performance reviews are currently being analyzed using hi-tech tools.
Other business departments, such as sales and marketing, have been significantly impacted by the adoption of technology in the institution. For instance, it has facilitated easy customer outreach, advertising, and the proper understanding of client demographics. Social media has allowed the firm to create a strong brand identity and presence in the market. Furthermore, IT has also changed the establishment’s recruitment practices following the implementation of web-based portals for job advertisements and recruitment procedures. For this purpose, the organization has had to recruit new staff to manage and operationalize the IT functions.
The external economic conditions have had the most impact on the organization. According to Lepak et al. (2015), external conditions affect the rates of inflation, exchange rates, and employment as well as the company’s ability to remit stakeholders’ and investor’s returns. For example, the decision to raise interest charges by the Federal Reserve Board might affect the company’s loan interest fee and the cost of business credit lines.
The modifications in the external economic environment have increased the need to diversify our customer base so that the establishment’s revenue does not exclusively depend on a single consumer base. The government’s decision to cut down on tariff and non-tariff barriers has opened up new markets for the organization. The company downsized employees and has been outsourcing business practices to save on labor costs.
The human resource department has helped to facilitate the organization’s eco-friendly and environmentally sustainable practices. The business practices at the company, which aim to promote ecologically affable activities include product design, production processes, capital investments, and marketing strategies. The organization is keen on ethical issues relating to the disposal of firm waste and product recycling. The HR unit has been tasked with incorporating eco-friendly values that support the organization’s mission statements and policy statements.
Forces Shaping the Organization’s HR Agenda
The growth of an establishment necessitates the use of a vast range of resources to achieve this objective. One of the resources that influence organizational performance is human capital. HR managers are expected to efficiently increase the firm’s effectiveness and performance through the effective management of the workforce. The changes in demographics, globalization, technology, and competitiveness have influenced HR practices in relation to sustaining human labour. According to Yusuf et al. (2017), organizational complexity, regional and global competition, information communication technology, and globalization shape human resources practices. Currently, the forces which play a critical part in shaping the HR’s agenda in our institution include the evolving role of HR functions, changing demographics, and increased regional competition.
Given the changing landscape of business practices, HR professionals are currently assuming the duties of strategic managers. David Ulrich Model compartmentalized HR-related tasks into four segments: employee advocate, strategic partner, change agent, and administrative expert (Yusuf et al., 2017). Humans are the most influential resource who can help a company resolve its organizational problems and improve performance. HR professionals are in charge of managing the workforce to ensure a firm’s overall productivity and its capacity to attain a competitive advantage in the market. Unless the responsibilities of HRs in a given establishment are transformed, there is a possibility that human resources will drain the institution of its viability (Yusuf et al., 2017).
The present tasks accorded to HR specialists include aligning human resource practices with business strategies, leading the needed change in the organization, optimizing the company’s infrastructure, and managing employees’ contributions within the organization.
The HR department had to develop effective strategic management practices to remain competitive with the global changes in the socio-economic and environmental settings of businesses. The practices mainly focused on the needs of various stakeholders and the impact of company actions on specific populations. HR had to devise operations that will meet the needs of business investors and stakeholders.
For example, due to the demographic differences in behaviours, preferences, expectations, and values across the stakeholder’s age spectrum, the department had to ensure that business practices are accommodative of their differences. The policies and procedures had to be flexible to meet the individual needs of critical stakeholders of the organization without compromising the viability and productivity of the organization.
The labour market is also characterized by increased competition for top talent and highly qualified candidates (Milligan, 2017). The increased competition implies that the HR department builds an organizational brand that can attract and retain talented employees to the organization. The strategy of attracting top-talent involves creating appealing work environments and conditions that can attract and retain staff. The approach ensured that the company does not lose highly-qualified staff to other competing organizations.
The Strengths and Weaknesses of Two HR Analytical Tools
PESTEL is a tool used to analyse the external environmental factors of a business. It connotes political, economic, social, technological, environmental, and legal aspects that influence the conditions under which a company operates. A PESTEL analysis involves a set of extensive questions in each of the six domains of the tool that can identify the current trends in the businesses’ macro environment. Although the instrument has numerous benefits, it also has limitations that can overshadow the benefits.
PESTEL analysis provides a comprehensive method of conducting research that can inform strategic business planning. Unlike alternative data analyses tool, PESTELs are cost-effective. They save on the economic capitals that are usually needed to carry out business-related research. The simplicity of the equipment allows individuals and organizations to understand the direct and indirect conditions in the external environment that can impact a business (Frue, 2016). Business managers can use the information from PESTEL analysis to examine how technological barriers, socioeconomic factors, demographic, political, and legal factors influence their relationships with customers, the public, and competitors. The tools also help organizations to narrow down their research on specific aspects of the business, such as marketing plans, products, or services. Highly-tailored analyses can help an organization to explore and discover the opportunities in its target market.
A strategic plan based exclusively on a PESTEL evaluation is subject to inconsistencies and outdated data. The conditions in a business environment are always changing, and, therefore, the information obtained from PESTEL analysis might need constant reviewing and updating to ensure its efficacy. The company has to continue studying the current macroeconomic factors, even after conducting a PESTEL assessment. The organization also needs to take countermeasures to reduce the risk of making decisions based on low-quality data (Potential Limitations of the PEST Analysis, 2016).
PESTEL evaluation also exposes strategic action plans to discrepancies and uncertainties. Data-driven decisions need to be based on comprehensive analytical procedures to prevent uncertainties and data errors. However, the simplistic nature of the evaluation tool mentioned above gives room for data gaps and assumptions drawn on macro-economic conditions of the firm. A simple presentation of data acquired from the PESTEL evaluation tool is not sufficient enough to reflect real-world complexities of the business world.
Another limitation is that its data is based on predictions and assumptions. Companies, therefore, have to outsource information from external data agencies that provide unfiltered and limited data (Potential Limitations of the PEST Analysis, 2016). Data cleaning prompts the need for a data expert who will help the firm to prioritize and filter out information that is pertinent to that organization. Without an expert, companies risk basing their decisions on presumptions drawn from statistically irrelevant data.
A PESTEL tool is impractical and insufficient for strategic planning because it only reflects on the external factors impacting a business. Therefore, a PESTEL should always be used in combination with a SWOT analysis (Potential Limitations of the PEST Analysis, 2016). An effective strategic plan includes both the internal and external factors that influence a business’s operations.
A balanced scorecard is an approach used to measure and identify areas of improvement in a company’s operations. Data on four critical business practices: learning and growth, internal processes, customer perspectives, and financial data are collected and measured using this instrument. It provides a method through which an organization can establish a link between strategic objectives and business operations. A study conducted by Quesado, Aibar-Guzmán and Rodrigues (2018) distinguishes the balanced scorecard as a useful strategic management tool which can be used to clarify and translate an organizational strategy. This instrument can help an organization meet the expectations of stakeholders by identifying the indicators which reflect directly on the firm’s objectives and vision (Quesado, Aibar-Guzmán and Rodrigues, 2018). It allows staff members to communicate and evaluate their contribution to the attainment of an establishment’s strategic goals. Other strengths of the tool include facilitating organizational consensus, translating action plans into operational terms, and facilitating the allocation of adequate resources to achieve a firm’s set goals.
The causality relationship between the four measurement areas of the balanced scorecard has been criticized in various studies. For instance, Khakbaz and Hajiheydari (2015) argue that there is no causal relationship between the areas of improvement, which invalidates the significance of the tool. The cause-and-effect relationship can help the organization to identify the factors that can lead to the desired outcomes. Because of the lack of causality relationships, organizations might invest and anticipate unsatisfactory results. The tool also lacks validation in measuring organization performance, given the limited number of dimensions it sets out to measure. The inventors of the aforementioned instrument claimed that by focusing on a few measures, organizations could avoid information overload and only focus on desired outcomes (Kaplan and Norton, 2015). However, the approach has been criticized for being too simplistic and unidirectional. The tool does not acknowledge the role competition plays in the external and internal operations of a firm.
Stages in Strategy Formulation and Implementation and HR’s Involvement
Strategic planning can help an organization to predict economic fluctuations and allows room for flexibility in allocating scarce resources. Research indicates that organizations that use strategic planning have better organizational outcomes, including high financial earning, compared to organizations that do not use this approach in their operations (Flemming, 2014). Theoretical models have been useful in guiding strategic business plans by providing a robust conceptual framework to support decision-making. A strong theoretical model can help managers to make the necessary predictions regarding the impact of HR practices on organizational outcomes (Flemming, 2014). There are many conceptual models that can guide organizations to structure their strategic schemes from the planning phase to the implementation stage. The following steps based on Kaplan and Norton’s model are involved in strategic planning and implementation:
Step 1: Develop the Strategy
The first step is to develop the company’s mission, vision, and values. The organizational managers will conduct a strategic analysis of the external and internal factors influencing the business using tools such as PESTEL, SWOT analysis, dynamic simulation, or porter’s five forces (Khakbaz and Hajiheydari, 2015). The internal and external evaluations will help the organization to examine the internal and external threats and opportunities that might influence their workplace environment. The mission, goals, and values will provide direction in which the plan will align.
Step 2: Plan the Strategy
The second step involves identifying the actions needed in the plan, initiatives portfolio, the key measures and targets of the strategic plan and availability of human and capital resources to execute the proposal. Tools such as the Balanced Scorecard and strategy maps help managers to distinguish the internal resources that will facilitate the execution of the plan (Khakbaz and Hajiheydari, 2015). The analysis of the intramural business can help the organization to identify the gaps between the current business environment and the anticipated organizational surrounding.
Step 3: Align the Organization
A well-coordinated synergy needs to be created between business departments, support units, and employees and the strategic plan for optimal outcomes. The organization can ask questions such as are our technologies aligned with the strategy? Do employees at the organization need skills improvement? How much will it cost the firm to align its practices and process with the plan? Do employees need to get motivated to facilitate seamless execution of the project? (Khakbaz and Hajiheydari, 2015). These queries will guide the managers to ensure that that they effectively position the organization in line with the anticipated changes. The alignment is a complex top-down process that involves resource allocation, target setting, reviewing and reporting, and managing business initiatives. Communication structures need to be laid down and workers educated and motivated, as per the needs of the organization. The primary purpose of organizational alignment is ensuring that everything and everyone is on the same page in regard to the changes.
Step 4: Plan Business Operations
The manager will use tools such as rolling forecasts, resource capacity planning, and activity-based costing to plan the operations/activities of the approach. The process involves determining procedures and activities that are most important to the strategy and linking the budget and operating plan to the practices (Khakbaz and Hajiheydari, 2015). Planning business operations can be likened to developing an implementation plan where roles are assigned to key stakeholders and budgets allocated to the critical business operations. After planning the processes, the business managers will execute the strategic plan.
Step 5: Monitoring of the Plan
The fifth step is the monitoring and evaluation of how well the strategic plan and the organization are doing. The business manager will develop a continuous monitoring process to learn about the challenges, problems, and barriers experienced by the current operations and practices of the company (Khakbaz and Hajiheydari, 2015). The business managers are expected to examine the strategy and procedures through well-structured review meetings with involved stakeholders. The reviews should be data-driven and action-oriented to facilitate the timely identification of areas of improvement and mitigate any impediments to the project.
Step 6: Testing and Adapting to the Strategic Plan
Finally, the manager will use data from internal practices and the external environment to test and adapt to the plan. According to Khakbaz and Hajiheydari (2015) the strategic planning and implementation process is circular. The procedure involves analyzing the profitability, strategy correlations, and emerging strategies of the business (Khakbaz and Hajiheydari, 2015). Financial profitability will help the organization to determine whether the project’s execution resulted in the anticipated financial goals. Fiscal performance can be measured by total quarterly sales, the growth rate of operating income by division, or increased market shares or equity. Managers can also measure the feasibility of the operations and employee’s perceptions of the new business practices to evaluate the success of the strategic plan.
The Role of The HR in Strategy Formulation and Implementation
Human Resources professionals can actively participate in the formulation and implementation of a strategic plan. During the initial planning phase, they can provide organizational managers with data for evaluating the internal strengths and weaknesses of the company. They can also provide information on the legal aspects of PESTLE analysis. The company’s alignment process during the planning phase involves procedures such as communicating with employees, training workers, and reviewing and reporting (Kammar, 2016).
The HR professional can survey and report on employees’ readiness for change as well as offer the needed training to prepare staff for the change. Human Resource Managers (HRMs) can also provide information on the incentive plans that might be required to motivate the team. During the execution phase of the strategy, the HRM will supply the firm with the human capital necessary to implement the planned business operations (Kammar, 2016). They will be in charge of linking incentives to performance and guiding staff throughout the change process. Furthermore, they can also help to increase employee engagement to improve their enthusiasm of the implemented changes.
HR Contribution to Business Ethics and Accountability
Human Resource Managers are expected to contribute to and oversee the ethical success of the institution. The Society of Human Resource Management (SHRM) underscores the need for HRMs to adhere to the highest moral and professional conduct as stipulated by the law (Code of Ethics, 2018). The association also indicates that it is the responsibility of the HRMs to advocate for the proper use and appreciation of employees as human beings at the workplace (Code of Ethics, 2018).
According to the association, HRMs can contribute to business ethics through ethical leadership, maintaining workplace fairness and justice, sustaining high trust levels with stakeholders, and protecting the rights of individuals in the workplace. HRMs can exhibit ethical leadership by becoming role models who maintain the most elevated stands of ethical conduct. HRMs are mandated to act ethically and ensure that all their decisions are ethical. The legislation also requires HRMs to promote fairness and justice within the organization at all times; this precept involves treating employees with dignity, respect, and protecting them from unlawful discrimination and workplace harassment.
It is the responsibility of HRMs to develop policies that foster inclusiveness and equitable treatment for all individuals within the organization. To maintain stakeholder trust, HRMs should always work to protect their interests whilst maintaining the integrity of the occupation. They are also mandated to refrain from seeking preferential reception from stakeholders and instead prioritize their professional obligations when faced with conflicts of interest. Another method HRMs can contribute to a company’s ethics is through safeguarding employees’ confidentiality and privacy.
HRMs are in-charge of a wide range of information that may be subject to violation during storage or transmission. The Society of Human Resource Management prohibits any acquisition and dissemination of data for reasons other than professional use (Code of Ethics, 2018). The legislation also mandates HRMs to always investigate the completeness and accuracy of submitted information before using the data in HR practices. Any breaches to these regulations may lead to disciplinary action, such as suspensions, the termination or expiration HRM’s contract, or resignation.
By adhering to these ethical guidelines during practice, the HR department will create an environment that promotes fairness and justice, equitable treatment, data protection and privacy, and the safeguarding of individual rights at the workplace. Business ethics mediated by HR’s morally acceptable practices might include ethical policies, non-discriminatory recruitment and performance rewards, fair employment contracts, unbiased conflict management, and professional development. Moral accountability involves fostering ethical and responsible behavior, during various planning, monitoring, appraising and rewarding processes.
Ethical responsibility entails practices such as communicating your expectations to employees, providing them with an opportunity to perform, and performing a free and fair appraisal. The federal merit system provides HRMs pan ethical framework to promote individual accountability in the workplace by recognizing and incentivizing employees based on satisfactory performance practices (U.S. Office of Personnel Management, 2019). HRMs can collaborate with other HR staff and managers to ensure that their businesses are legally compliant.
Examples of How the Organisation’s Performance is Evaluated
Organization’s performance refers to the actual outcomes of a company against the intended results. A firm’s performance can be measured based on metrics such as customer service, financial performance, and/or social responsibility (Kaplan and Norton, 2015). Organizational performance can trigger three primary outcomes: financial performance, product market performance, and shareholder return (Lepak et al., 2019). Burke and Litwin Model on organizational performance hypothesized that internal and external factors impact an establishment’s performance. The model established a causal relationship between the external environment, mission and strategy, leadership, corporate culture, individual needs and values, work climate, management practices, and organizational structure. A Balanced Scorecard (BSD) can be used to measure the organizational performance in each of these dimensions.
The organizational goals are evaluated in each phase of the Kaplan and Norton BSD model: financial perspective, innovation and learning, customer perspective, and internal business perspective (Kaplan and Norton, 2015). The organization will establish performance goals in each of the Kaplan and Norton dimensions and then translate them into measures. The organization then collects data on each of the steps to assess the organization’s performance.
Managers can also use benchmarking to evaluate their organization’s performance. The aforementioned approach involves identifying areas of improvement and distinguishing companies that are excelling in the regions specified for comparative analysis. The firm will study the excelling company, identifying gaps in practices and processes between the two companies. The manager will then use the data from the excelling company to set objectives and procedures that will better the organization’s performance. The outstanding firm will always be used as a baseline for assessing how the organization is performing.
Strategies Used by the HR to Maintain Business Performance
There is a positive relationship between HR planning and organizational performance. An HRM can maintain a company’s performance through recruitment, training, and professional development (Dirar et al., 2015). According to Dirar et al. (2015), a strong correlation exists between recruitment and training and organizational performance and productivity. Human resource managers recruit and select candidates with the right skills and competencies for a particular position in the firm. Training, on the other hand, equips employees with the knowledge, proficiencies, and skills needed to execute a task. With highly-competent workers, an establishment can effectively conduct its business practices which will, in turn, improve organizational performance.
Sources of Business Data Used for HR Planning Purposes
Data used in HR planning can be derived from the human resource information systems, business data, organizational surveys or performance measures. The three significant sources of business information used in HR planning include customer relationship data, sales data, and financial data (Vulpen, 2020). Business data can help HRMs to make effective data-driven decisions, build a case for proposed HR interventions, and facilitate the inclusion of employees in business practices as strategic partners.
Customer Relations Data (CRD) comprises contact information of consumers, client experience (Net promoter Score) information, or lead scores. HRMs can use CRD data to manage the workforce through an employee resource management (ERM) database. The ERM can establish the relationship between the performance of staff members who work directly with customers and their skills. The HR department can use the data from CRM to evaluate workers’ efficiency in dealing with consumers and how to improve or reinforce their skills to enhance their customers’ experiences and engagement.
The sales and marketing field is a fast-paced discipline that requires current knowledge, skills, and innovative technologies for a company to stay relevant in the market. Sales’ employees need to understand customers’ and competitors’ behaviors to close deals (Vulpen, 2020). Human resource managers can use data trends from the individual employees to incentivize top-performers and help the low performers to build their sales skills. The HRM can also train middle performers and organize reimbursement programs to improve the overall organization’s sales (Vulpen, 2020).
The difference between sales and customer relationships data is that sales-related information deals with numbers and statistics (the number of transactions of an employee) while the latter involves qualitative data (the subjective experiences of consumers when interacting with a company’s workers). Customer relations data is vital in building the external brand of a company in the market while the sales team data sustain the internal financial identity of an organization.
Financial information, derived from business data, is another crucial source of HR data. This data includes information from ROI calculations, development and training expenses, costs of personnel/income statement, and cash flows (Vulpen, 2020). HRMs can use this data to establish the size, costs, and productivity of the workforce. For example, information from professional development and training costs can be used to calculate the impact of employees on the organization’s fiscal viability. The HRM can also use the data to ascertain whether the firm needs to recruit, retain, or downsize the number of workers in the organization.
Business data is playing a critical role in shaping human resource analytics in the workplace. A recent survey revealed that 65% of progressive business organizations have HRMs who can account for the analytical outcomes of HR practices and translate them into practical actions (Academy to Innovate Human Resource, 2020). Additionally, a lot of companies are integrating people analytics in the role descriptions of HRM. HR analytics refers to an approach which integrates data in all HR practices and decisions.
It involves obtaining and evaluating data from the existing database to establish cause-and-effect relationships, prediction models, and patterns and trends. The assessed data then influences HR decisions on incentives, performance, pay, and engagement with the workforce.
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