Human Resource Planning in a Changing and Dynamic Economic Environment

Introduction

Human resource planning (HRP) is an integrative part of human resource management. It involves strategic planning geared towards the achievement of organizational goals. There are many factors to be considered in doing human resource planning, and one of these is the economic environment.

The economic environment is another broad subject when referring to the organization. It involves change. But when we say there dynamic economic environment, environmental factors inside the organization are said to be conducive to planning; thus planning cannot be successful without considering the organization’s economic environment. Economic environment can also refer to the environmental factors outside of the organization.

Moreover, our focus for this paper is: is planning relevant to a changing and dynamic economic environment? Certainly, it is relevant in the sense that the environment is one factor to be considered in looking at the future needs of the organization.

Our literature review will focus on the many aspects of human resource planning, the advantages and disadvantage of HR planning, some aspects of HRM, and theories and concepts.

Literature Review

Human resource planning is a concept of strategic HRM. According to Armstrong (2006, p. 363), human resource planning is important to the organization’s achieving its strategic goals. Bulla and Scott (1994, cited in Armstrong, p. 363) define human resource planning as ‘the process for ensuring that the human resource requirements of an organization are identified and plans are made for satisfying those requirements.’

Human resource relates to people and planning involves people; thus it follows that people play a strategic role and are the most important asset in the organization.

Human resource planning is very important in business planning; it should be an integral part. It is concerned with identifying resources to the business needs of the organization. It meets human resources both in quantitative and qualitative approach by answering the questions: how many are needed in the organization and how many are needed for a particular project or business, and what particular skills and capabilities do the people (or employees) should have? (Armstrong, 2006, p. 363)

The strategic planning process defines projected changes in the scale and types of activities carried out by the organization. It should identify the core competencies the organization needs to achieve its goals and therefore its skill requirements.

Human resource core topics include the quest for excellence which means getting the right people in the right spots at the right time; this is known as staffing. Some staffing is lousy that they contribute to managers hoarding good people at the expense of the organization. It also fosters promotions from within a manager’s own department or network of acquaintances without consideration of organization-wide candidates. This is known as cronyism or parochialism within the organization.

The organization’s objective plays a critical role in the staffing process. One example is that if senior management plans to divest and withdraw from a particular business, this should have significant ramifications on the selection of managers responsible for managing that business during its last days.

Top management plays a role in staffing; it should be concerned with identifying and selecting persons capable of implementing the organization’s divestment plans. The working team composed of top managers may ask: What skills, experience, and personality attributes are required to successfully divest themselves of a losing business? The CEO should maintain employee morale and performance, nurture customer goodwill, and control costs. The assignment of managers considered to be organizational failures or who are superfluous to oversee the divestment of a business unit has been a common staffing decision when, in fact, the opposite approach should be taken.

Miller (1984, p. 68) says that ‘Approaching the staffing process from a strategic perspective requires an integrated interpretation of the relationships between the various levels of human resource concerns in the planning process. Identifying and choosing people who will best run the organization and its businesses, in the long run, requires a broad set of programs and activities required to find those people.’

The strategic process begins with identifying the business strategy; the strategic learning imperatives (strategic training and development goals) to support the strategy are identified. These learning imperatives are then translated into specific training and development activities, that may include formal and informal training. The final step involves evaluating whether training helped contribute to the goals of the organization utilizing appropriate metrics. Training should be carefully planned, designed, and evaluated in support of organizational goals and objectives. With respect to needs assessment, the emphasis is on aligning training systems with an organization’s business strategy and operating constraints.

Performance Management

Performance management strategy focuses on what is involved in managing the organization. This is managing within the context of the business. The organization has to let every employee know that performance management strategy concerns everyone in the business – not just managers. (Armstrong, 2000, p. 216)

Managers are not the only ones accountable for the performance but the responsibility is shared between managers and team members. The strategy should be to involve everyone in the team. Everyone is jointly accountable for results and if something goes wrong, all should be blamed for the fiasco.

Dynamic economic environment

A dynamic economic environment inside the organization is a prerequisite for strategic planning. The prevailing climate in a particular area or country can also be referred to as the external economic environment of an organization. It can refer to the external factor or characteristic that organizations have to deal with in doing strategic planning and implementing such a plan in the future. The dynamic and changing environment has to be understood whilst conducting human resource planning because this will affect the plans for the organization. The experience of work for the people in the organization is affected by this climate. The dynamism is also apparent with regard to emergent debates on the economic situation inside and outside the organization.

Still, on the economic environment, the point of discussion can lead us to environmental scanning which, like human resource planning, is an integral part of the strategic management process. The economic environment affects the organization directly or indirectly.

Okumus (2004, cited in Reichel, 2005, p. 209) defines “environmental scanning as the employment of systematic method by an organization to monitor, gather information and forecast external forces and developments, not under the direct control of the organization.”

However, in human resource planning, more emphasis is on the economic dynamism within the organization.

The Resource-based View

The resource-based view (RBV) is instrumental to the development of strategic human resource management (SHRM) which is likewise linked to human resource planning. The originator of this is the University of London Professor of Economics, Edith Penrose (1959, cited in Boxall, 1999, p. 79) who conceptualized the firm as ‘an administrative organization and a collection of productive resources.’ Boxall (1999, p. 79) cites Nelson (1991) in distinguishing ‘physical’ and ‘human’ resources. ‘Human’ includes the knowledge and experience of the management team. Penrose states that ‘firms are heterogeneous and there is money to be made from exploiting the differences…[and] the resource-based perspective works from the premise that competition does not eliminate all ‘differences among firms in the same line of business.’

The resource-based view model states that the firm is a collection of resources that are unique in its foundation. From the experience and constant contact with customers, employees, and competitors, the organization forms a new database of information which is a source of data and knowledge. The resource-based view assumes the uniqueness of the organization’s resources and capabilities, which are the basis for the firm’s strategies and planning. Resources are those acquired by the firm in its long operations and these may include equipment and skills and talents of the employees and managers. They can be classified into “physical, human, and organizational capital”.

The organization can accumulate diverse resources from the environmental forces, including that inside, such as from the employees, and outside (such as from the customers, competitors). These form the economic environment of the organization.

Resources are defined as sources of different types that enable the firm to implement strategies leading it to improve its efficiency and effectiveness, and generating an increase in its competitiveness (Rodriguez and De Pablos, p. 175). Nevertheless, individual resources may not be enough. In fact, resources have a greater likelihood of being a source of competitive advantage when they are formed into a capability. Organizational knowledge is one of these resources that present this type. These are rare and the firm can use them for competitive advantage. It is original and not to be commercialized, and can only be developed within the company. The origin of this kind of resource lies in organizational skill and learning, and is linked to the firm but cannot be moved.

Another characteristic in firms stated in this model is that the differences in firm’s performances across time are due primarily to their unique resources and capabilities rather than other causes. Firms acquire different resources and develop unique capabilities based on how they combine and use the resources. Prahalad and Hamel (1990, cited in Boxall, 1999, p. 80) argued that ‘competitive advantage stems, over the long run, from building core competencies in a firm which are superior to those of rivals.’ This is because the firm can have the ability to learn faster and apply its learning more effectively than its rivals, which gives it a competitive advantage.

The I/O Model

The external environment is explained in another model of HRM strategy – the Industrial Organization (I/O) model which states that the firm should focus on the external environment in order to gain a competitive advantage. From 1960 through the 1980s, the external environment was the main focus and believed to be the determinant of firms’ strategies in order to be ahead of the competition. The I/O model assumes that the external environment imposes pressures and constraints, thus the strategies should be based on them in order to attain above-average returns. The firm is assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. The resources are also presumed to be highly mobile across firms, and any difference should be short-lived. Furthermore, organizational decision-makers are assumed to be rational and committed to acting in the firm’s best interest.

The firm’s performance is believed to be determined primarily by a range of industrial properties, including economies of scale, barriers to market entry, diversification, product differentiation, and the degree of concentration of firms in the industry. The I/O model challenges firms to locate the most attractive industry in which to compete. Because most firms are assumed to have similar valuable resources that are mobile across companies, their performance generally can be increased only when they operate in the industry with the highest profit potential and learn how to use their resources to implement the strategy required by the industry’s structural characteristics. (Hitt et al., 2009, p. 13)

Traditional approach and Essential Elements

Hendry (1995, p. 94) cites Ulrich and Lake (1990) in defining the traditional approach as one that “assumes a rational process of strategic analysis, a static view of competitive advantage, neglects implementation of strategy, and treats the generation of commitment from employees as an afterthought of the financial, strategic, and technological planning process.” Ulrich and Lake proposed an alternative model which focuses on competencies and the employees’ commitment should be at the center of the strategic management.

The traditional approach is sometimes referred to as the bureaucratic approach.

Contemporary Approach and Essential Elements

“The contemporary approach to human resource planning establishes a link between the broad range of external and organizational factors on the one hand, and specific personnel programs on the other” (Patanayak, 2005, p. 34).

The definition above tells us that the contemporary approach focuses on the external environment and other factors in relation to human resources or the personnel in the organization. The personnel’s capabilities have to be identified and thereafter utilized for the attainment of these objectives. The identification of the number of appropriate personnel with their specified knowledge, skills, and work attitudes, is a major activity of this kind of approach and is one of the benefits of human resource planning. This also includes the development of a system that allows the workers to fit into their job and the capability of integrating the elements of personnel planning into the business strategy of the organization.

Human resource planning can best be effective if the personnel is best utilized and the future needs of the organization are met.

The contemporary approach is based on competence which “aims to provide an integrated system whereby those generic characteristics (whether they be generic to the organization or management in general) that distinguish competent managerial performance are identified, then existing and required levels of competency are assessed through appraisal and, finally, any resultant gaps are addressed through on-going assessment and training and development programs” (p. 50)

Woodruff (1992, cited in du Gay et al,) defines competency as that which refers to certain characteristics of a person that allows him/her to execute effective job performance. The characteristics are said to be innate in the person although they “receive different emphasis depending on a management level or on the sector within which the organization in question is located – i.e. public or private” (Boyatzis, 1982, cited in du Gay et al., p. 50).

The contemporary approach features the integrative process which states that there is a link between individual goals or the goals of the employees and those of the organization. The traditional approach focused on the goals of the organization, but the contemporary one balances organizational needs with the needs of employees and society at large. This is why the contemporary approach is more preferred for the organization because new concepts in HRM focus on the individuals or employees in the organization.

The people are the organization’s greatest asset, and human resource is to manage or maximize this special asset. This has a further link to HRM’s definition:

“HRM emphasizes that employees are critical to achieving sustainable competitive advantage; that human resources practices need to be integrated with the corporate strategy, and that human resource specialists help organizational controllers to meet both efficiency and equity objectives” (Bratton, 1999, p. 11).

Bratton’s definition stresses the objective of HRM in general and human resource planning in particular – to maximize the human resource potentials, including their talents, skills, training, or areas of expertise for the strategic advancement of the organization.

One of the first explicit statements of the HRM concept was made by the Michigan School (Fombrun et al, 1984, cited in Armstrong, 2006, p. 4), which held that HR systems and the organization structure should be managed in a way that is congruent with organizational strategy (hence the name ‘matching model’). They further explained that there is a human resource cycle that consists of four generic processes or functions that are performed in all organizations, which are: selection, appraisal, rewards and development, and managing people.

Legge (1995, p. 33) says that personnel management is giving way to human resource management or to strategic human resource management. The evolution of the term or function is that it originated from personnel management or personnel department in some cases. Changes occur because organizations are becoming larger and more complex to handle, human resource management entered the scene. Human resource policies should be integrated with strategic business planning (Legge, 1989, cited in Armstrong, 2006, p. 13). But Sisson (1990) suggests that a feature increasingly associated with HRM is a stress on the integration of HR policies both with one another and with business planning more generally. Storey (1989) states that a ‘characteristic of HRM is its internally coherent approach’ (Armstrong 2006, p. 13).

Human resource management is also defined as “a strategic and coherent approach to the management of an organization’s most valued assets – the people working there who individually and collectively contribute to the achievement of its objectives” (Armstrong, 2006, p. 3). But Storey (1989) believes that HRM can be regarded as a ‘set of interrelated policies with an ideological and philosophical underpinning’. Storey suggests these following aspects that constitute the meaningful version of HRM: it is ‘a particular constellation of beliefs and assumptions; a strategic thrust informing decisions about people management; the central involvement of line managers; and a reliance upon a set of ‘levers’ to shape the employment relationship’ (Armstrong, 2006, p. 4).

HRM and Human Resource Planning: Concepts and Theories

HRM definition includes paradigms: the universalist and the contextual.

The universalist paradigm is dominant in the United States but is also widely used in other countries. This paradigm assumes that the purpose of the study of HRM, and in particular strategic human resource management, is to improve the way human resources are managed strategically within organizations (Harris et al., 2003, p. 6).

On the other hand, the contextual paradigm searches for an overall understanding of what is contextually unique and why. Management researchers find the universalist paradigm ironically excludes much of the work of HR specialists in such areas as compliance, equal opportunities, trade union relationships and dealing with local government (Brewster et al, 1996, qtd. in Harris et al, 2003, p. 7).

Gold (1999, p. 167) distinguishes Human Resource Planning (HRP) from HRM. He says that HRP serves as the integrating link between strategic business planning and strategic HRM. HRP, therefore, is part of the HRM cycle. HRP specifies recruiting and selection goals, including the number and type of individuals to be employed. Appraisal affects HRP by giving information on individual performance and productivity, which can determine the number and type of employees needed to achieve strategic goals. HRP also specifies future job requirements.

In human resources, there are theories explained to us by a number of scholars.

McGregor’s Theory X and Theory Y are interesting topics for HRM and human resource planning. This explains the organizational change in the context of workers’ behavior in the workplace. Theory X assumes workers’ dislike for job or work: workers regard the job as distasteful. Managers in companies that accept Theory X build a top-heavy organization with many levels of managers who are planning, deciding, and policing what everyone is doing (Fournies, 1999, p. 33). Employees would work for the monetary reward, and the higher the better. With the way people felt about work, the workplace was somewhat not conducive for creativity and advancement.

In Theory Y, the people are motivated so that they accomplish goals and are productive. Workers work as a team and feel that they are part of management. Money is not an aim or an objective, and work becomes a part of life. Managers in organizations that accept Theory Y push information and responsibility downward, explaining to workers the reasons why things should be done, assuming they have an interest in doing them and a willingness to do them.

The Open System recognizes that humans are social actors with inherent strengths and weaknesses. This theory allows the individual to evolve according to the environmental forces. Other theories involve mathematical formulations such as that of Ludwig won Bertalanffy, which focused on cybernetics and the role of output-feedback-adjustment. Many believed the General Systems theory is the framework for other disciplines not just biology (Skyttner, 2001, p. 51).

Working in a global marketplace affects all Human Resources processes and requires that they be fully aligned. Access to talent across national boundaries using Internet-based job search sites vastly changes the recruitment process. (Ruddy and Anand, 2010, p. 550)

Human Resource Planning Scenario

Our example of an HRP scenario is that of Tesco, a retail giant in the British grocery market (Tesco, 2009).

Tesco wanted to learn much about its employees. A recent survey revealed stated that while 82 percent of employees agreed that Tesco put customers first, only 64 percent felt valued by Tesco. The management felt it had to correct this considering the correlation between how employees feel positively about the company and how satisfied customers are. There was a change in the workforce which was now becoming ethnically diverse. It was becoming difficult to hire young employees such as those from the twenty-six to forty-four-year-olds. Many of them wanted to work only part-time, while there were more women working in management, and more employees working remotely from stores and offices. (Dychtwald et al, 2006, p. 218)

Tesco management developed the Employee Insight Unit (EIU) to deepen its understanding of attitudes toward employees. EIU interviewed more than one thousand people outside Tesco, held focus groups with representative employees, and further made studies and surveys inside and outside the organization. Tesco wanted to know what was the employees’ value of work, what they perceived Tesco as an offering and the trade-offs. EIU also incorporated the results of the company’s other ongoing employee surveys (Dychtwald et al, 2006, p. 218).

The surveys found some motivators for commitment at Tesco. Employees want to feel a sense of belongingness; they value their colleagues and are more committed when they have colleagues and a manager with whom they enjoy working. They also value the opportunity associated with a pay and benefits package and career advancement. Uninteresting job content was one of the major reasons people leave Tesco. The EIU recommended that continuous work analysis should be incorporated in the operations of the organization to ‘ensure adequate talent supply, and to communicate with an organization’s leadership in concrete terms what they should know and do about the workforce situation (Dychtwald et al, 2006, p. 219-220).

Through the survey, Tesco formulated human resource planning in the prevailing economic situation for the benefit of its employees.

Discussion

The traditional approach of human resource planning focused on the organization and environmental factors – almost all activities and events were geared towards the advancement of the business organization. There was less advancement on the part of the personnel. The alternative motive focused on competencies and the employees’ commitment to the organization.

In contrast, the contemporary approach is more focused on the employees or the workforce. If the employees are happy, so to speak, the organization progresses too. There is a link between the needs of the employees and the organization. Capabilities, to include talent or skill, of the employees are maximized and linked to the goals of the organization. The contemporary approach is also based on the competence of the individual employees who are integrated into the organization. It is also based on the principle that the people are the organization’s greatest asset.

Human Resource Planning serves as the link between the strategic business planning and strategic HRM of the organization. HRP is part of the HRM cycle; thus it cannot be separated from business strategies. HRP specifies recruiting and selection goals, including the number and type of individuals to be employed. It also includes an appraisal of performance and productivity. (Gold, 1999, p. 167)

Conclusion

The objective and question to be answered are: Is human resource planning relevant in a changing and dynamic environment? Our initial hypothesis is that it is relevant. Human resource planning involves the future plans of the organization; that’s why it is a plan. The prevailing economic environment – changing and dynamic – has to be carefully analyzed so that nothing goes wrong in the long run. The future of the organization is involved here.

The economic environment reflects how the organization is successfully pursuing its objectives. To put it in another way: how is the business going on? Is it successful? Human resource planning looks at the success or the future of the organization. If it’s not doing well, the economic environment is not good and the human resource planning is a failure.

Therefore, human resource planning is necessary for the dynamic and changing economic environment of an organization.

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