You are on page 1of 15

HRM822 Individual Assignment 1

(20%)

Cheryl Ellis
ELLISc_asgn1
February 19, 2016

In the following pages I will explain the significance of the term


derived demand as it applies to HR planning. I will also explain
derived demand as it applies to Stonewall industries.
I will then describe the environmental factors and how they are
impacting the HR planning activities at Stonewall Industries.
I will then follow with identifying and explaining various techniques for
forecasting labour supply and demand. AND what can be done when a
gap is recognized in which the supply far exceeds demand. I will then
speak of Stonewall Industries and what they could do in this situation.

Individual Assignment 1 (20%) | Cheryl


Ellis

Page 2 of 12

1. Define and explain the significance of the term derived demand as it applies to
Strategic Human Resources Planning. (5 marks)
Derived demand is defined as the demand for a product or service
that is created due to the demand for another product or service. It
occurs for consumers who purchase goods for further production,
because their purchases are based on the demand for their final
product. For example, consumers demand for fresh vegetables leads to
the farmer demands for fertilizer to grow the vegetables. Season ends,
the demand for fresh vegetables and fertilizer ends.
Derived demand applies particularly to strategic human resources
planning in relation to labour. Demand and supply of labour directly
determines the wages and dictates where the labour resources are
needed. It involves anticipating both the need for labour and the labour
supply and HR ensures the planning programs are working to the
organizations benefit. The demand for labour is a derived from the
demand for the goods and services that the labour is used to produce.
Additionally, the demand for labour is influenced by the level of
economic activity, the productivity of labour and relative cost of labour
compared to capital.
Macroeconomic and microeconomic factors both have a connection
to supply and demand of labour. Macroeconomics refer to conditions in
the entire economy affecting the general labour market.
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 3 of 12

Microeconomic factors include specific industry and company


conditions that influence the demand and supply of labour for
particular occupations and labour skills. These are the factors that are
industry or company specific, which include the nature and the size of
the industry, the pattern of consumer demand and output, the rate of
capital or labour substitution, as well as the rate of structural change
and entrepreneurial expectations and lastly the wage rate and
conditions of employment offered.
2. Explain derived demand as it applies specifically to Stonewall
Industries. (5 marks)
As demonstrated in 1982 when the construction materials industry in
Canada was in a slump Stonewall also experienced a slump in their sales.
In that case the housing construction had slowed and the interest rates
were too high to stimulate investment. Consumer demand was at a stand
still because inflation levels and unemployment was high.
Demand for labour can also be considered as derived demand. During
downturns, Stonewall found themselves in a position of labour overcapacity and were laying off workers at all of their operating plants,
however during good times labour demand increases as well as was
evident through the 1990s and into the early part of the twenty first
century.
When the housing and construction industry experiences a downturn so
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 4 of 12

too does the demand for the raw gypsum additionally the gypsum
wallboard and the plastics products that provides materials for the
construction industry. Derived demand in this case tends to depend on
two major environmental factors, the number of houses being constructed
in a given year which is the number of privately owned new houses on
which construction has been started in a given period and interest rates.
Interest rate levels are a factor of the supply and demand of credit, an
increase in the demand for credit will raise interest rates, while a
decrease in the demand for credit will decrease them. Conversely, an
increase in the supply of credit will reduce interest rates while a decrease
in the supply of credit will increase them. (Forces Behind Interest
Rateshttp://www.investopedia.com/articles/03/111203.asp) As housing
construction increases, demand for Stonewalls products will increase and
as interest rates increase, funds available for investment decrease and
demand for Stonewalls products decreases. A small change in price
makes a huge difference in demand.

3.The Senior Executive Team at Stonewall has to consider a


number of environmental factors that impact on its Human
Resources Planning activities. Describe these environmental
factors and explain their impact. (10 marks)

Individual Assignment 1 (20%) | Cheryl


Ellis

Page 5 of 12

There are several environmental factors that the senior executive team
has to consider when performing HR planning activities, they are
economic, political and legislative, technological, social and cultural and
demographic factors.
(1) Economic factors
Economic factors are variables that affect the macro-economy and
create a huge impact to the entire society as well as factors that affect
individuals and business entities. On the monetary policy standpoint,
interest rates will be a key factor that affects Stonewalls HR planning
activities. Since the company's major operation is based on the
production and the sales of gypsum wallboard an increase in interest rate
will reduce amount of investment and construction projects, which will
reduce the overall demand for gypsum wallboard. For this reason,
Stonewall has to adjust the amount of workforce in the production of
wallboard to minimize the lost. Such as relocating part of the workers to
the plastic division, or invest on another profitable segment to minimize
the cost attributes to the fluctuation of the interest rate. An important
component of HR planning is to "forecast the number of people and skills
required by the organization during a given period of time, and look for
the best option to obtain these individual when they are required."
(MacKellar, 2012). When the Bank of Canada announced there will be
some adjustment in the interest rate, Stonewall should already have
contingency plans. For example, if interest rate has dropped, the
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 6 of 12

company will have to expand its gypsum wallboard production and vice
versa. Fiscal policy also serves as an important role in affecting HR
planning. Business cycle fluctuates with the economy with growth, peak,
trough and recession. During the growth and peak period, business is
more willing to spend money in expanding their business and consumers
will have a higher purchasing power. Similarly, during recession and
trough, business will be reducing their investment and cost significantly
to prevent themselves from going out of business, since consumers have
a lower purchasing power and are less likely to spend. In 1982, Stonewall
experienced a difficult time due to high inflation rate in which consumers
are not willing to spend on constructions. With the adoption of the
contractionary fiscal policy, government attempts to increase tax, which
reduce consumers likelihood in purchasing house and reduce housing
demand. Stonewall subsequently decided to lay off workers due to
overcapacity in order to stay with the business. Housing market
experience a growth in late 1991 since the interest rate began to
stabilized. However, in 2008 the economy suffered a huge recession and
the demand for gypsum wallboard dropped again. If Stonewall knows
about the business cycle fluctuates and there are always "ups and
downs" in the business due to the external economic environment which
beyond the company's control, it is suggested that the company can
have a clear long-term planning with regards to recession and growth and
try to look for other opportunities to diversify business investment.
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 7 of 12

Another possible human resources impact would be to have a work


redesign and cross-training the workers in the gypsum wallboard
production plants and the plastic division, so that employees will possess
better skill sets and it's easier to transfer to a new position if the
company significant a loss of business due to reduce of consumer
demand in gypsum wallboard.
(2) Business Organizational Factors
Business organizational factors are the factors that affect the internal
functions and development of the company. Since the company has 3540% market share in the Canadian market, it is believed that Stonewall is
a market leader in the gypsum wallboard production industry. Even
though the company has expanded its business by having a brand new
division in producing vinyl siding and tried to penetrates in an existing
market and to become a key player in this sector, Stonewall did not
support the development with increasing the amount of employees even
when this line shows improvement in later years. By using defender
strategy did not support with the growth and development, thus it is
important to develop these employees, analyze the workforce
competencies in order to support the corporate values. In 2008 when
Stonewall merge with Canadian Wallboard Company, human resources
has to ensure people with the appropriate knowledge, skills and abilities
will be displace to the right position to prevent losing the best candidates
in the company. Company should also appoint a transition team to
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 8 of 12

minimize culture shock employees encounter during the merger (Belcourt


and McBey, p.329). It is a systematic change to the company, so it is
important to utilize the employees at the best optimal outcome in order to
allow the company to achieve the best possible outcome.

(3) Social and Legal Factors


Legal factors are laws and regulations that the company has to abide
with. Since all of the production employees are members of the United
Gypsum and Allied Workers International Union (UGAWIU), human
resources department must plan ahead for the terms and conditions in
the collective agreement. For instance, it has to comply with the
Employment Standard Act for the maximum number of work hours per
day, unionized workers' job classifications and wage rates, vacations and
vacation pay, statutory holiday pay and working on a statutory holiday,
and seniority. If the collective agreement did not draft appropriately or
the terms were unfavorable to the unions, there would be an outbreak of
strike which can costs a severe loss of productivity and revenue. For the
plan on closing down the Vancouver plant, the HR planning needs to be
very precise and accurate calculation of the severance package and has
to follow the conditions under common law precedent. If the severance
package were miscalculated or did not fulfill the contract requirement,
the company may face significant litigation cost.
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 9 of 12

(4) Demographic/ Labor Factors


Demographic factors are the characteristics of the employees which
includes the age, gender, deaths and diseases, and other variables to
predict how long the employee will spend with the company. Other
considerations would include their retirement age and possible promotion
and training opportunity. Employee age is an important component that
influences Stonewalls HR planning. In 1981, employees in the Vancouver
plant have been employed over 25 years and managers have been
working for more than 30 years. This implies that the company will have
to pay a significantly high wages and benefit expense if the company has
a 2-3% increase in salary per year. Since most of the employees are the
baby boomers, the company will expect a substantial retirement wave
when all these employees reach 65 years old, the traditional retirement
age. Human resources has to ensure sufficient succession management
and replacement planning. Adequate leadership training and bridging
program has to given to the younger employees so they can adjust to the
management position when the baby boomers supervisors retire from
their position. Also, human resources must make sure the company will
have sufficient funding for severance package payment. In case most
employees leave the company at the same time, company may have to
face a decision of closing down the business or look for other business
alternatives to rejuvenate the company. (Belcourt and McBey, p.61- 73).

Individual Assignment 1 (20%) | Cheryl


Ellis

Page 10 of 12

4. Identify and explain the various techniques for forecasting


labour supply and labour demand. What can organizations do in
the short run when they recognize a gap in which supply far
exceeds demand. What could Stonewall do in this situation? (20
marks)
Matching human resources with planned organizational activities for
the present and the future is one of the main problems faced by an
organization. It takes several months to properly select and train the
average employee, therefore it is critical that management must forecast
the demand and supply of labour as part of the organizations business
and functional planning processes. Techniques used to perform demand
and supply forecasts fall into two broad categories, qualitative techniques
and quantitative techniques. These techniques are the trend analysis,
delphi technique, nominal group, scenario planning, regression analysis
and expert opinion.
The trend analysis attempts to forecast future personnel needs based on
extrapolating data from historical organizational indexes such as product
sales, consumer demand and interest rate changes. A trend forecast
calculates past performance based on a time series that maps specific
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 11 of 12

points within a past trend. Trend forecasting may examine one or more
areas, or variables, at a time. When more than one variable is involved,
the use of cause and effect factors can help better determine the
likelihood of future performance. A more accurate indicator of future
performance would be to determining product sales trends from both
consumer demand and employment rates.(Belcourt, McBey, p. 103)
The delphi technique calls for a facilitator to solicit and collate written,
expert opinions on labor forecasts. After answers are received, a
summary of the information is developed and distributed the experts,
who are then requested to submitted revised forecasts. The technique
does not employ face to face interactions which is advantageous if you
want complete and honest answers. .(Belcourt, McBey, p. 117)
The nominal group technique (NGT) is similar to the delphi technique
except that participants meet face to face, but only after individual
written preparatory work has been done. The process is conducted in
three steps: First, group members work independently and generate
individual estimates on a problem. Then, the group enters unstructured
discussion to deliberate on the problem. Finally, group members again
independently revise their individual estimates. The group result is the
aggregated outcome of these final individual estimates.(Belcourt, McBey,
p. 120)
Scenario planning is a method of creating future scenarios that differ
radically from those created by extrapolating of present trends. It
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 12 of 12

requires radical thinking outside the box by trying to anticipate a variety


of large-scale changes that could affect an organization. It goes beyond
the simple, straight-line extrapolation of a company's projected
performance to show how different factors can interact to produce
powerful change scenarios. When employed correctly, this technique
forces management teams to develop business plans that can
accommodate a variety of interacting change factors. It also provides a
valuable tool for HR planning and operational budgets.(Belcourt, McBey,
p. 115)
Regression analysis presupposes that a linear relationship exists
between one or more independent variables which are predicted to affect
the dependent variable, like future HR demand for personnel. Regression
projects into the future based on the past historical relationship between
the independent and dependent variables. Expert forecast uses direct
managerial input and expert opinion to arrive at a numerical estimate of
future labour demand is considered to be a qualitative process to
determine future labour requirements. (Belcourt, McBey, p.106)

In the event of labour surpluses and organization can implement the


following strategies. Hiring freezes can be implemented. But
consideration must be taken that hiring freezes compel managers to align
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 13 of 12

its workforce more efficiently, and this often has a negative impact by
dumping additional work on employees who already feel overburdened.
Attrition and reducing work hours can save on labor costs.
Labor costs can be further reduced as the high paid aging workforce
retires the pay rate can be reduced for younger labour force.
Encouraging and giving incentives for voluntary severance and leaves of
absence.
Desperate measures could be used which would be pay cuts and layoffs,
this is a strategy that when used its effects would be felt immediately.
The obvious is the short-term labor cost savings, but it can decrease the
sense of loyalty to the organization and lowered morale, which can
negatively impact worker productivity. Loosing skilled employees can put
a business at a competitive disadvantage once the company rebounds.
I think Stonewall should implement a hiring freeze, do not replace
workers who leave and reduce work hours. As the workforce is older they
should encourage early retirement with incentives to lower the surplus.
Because this surplus labour is a result of a downturn in the economy,
Stonewall should ensure that when things pick up again, they have the
work force that is trained and up to date so further retraining of their
present employees would be beneficial. In addition, because they have a
loyal long term workforce layoff's should be discouraged. Instead they
should look into expanding their operations in the Calgary market. This
Individual Assignment 1 (20%) | Cheryl
Ellis

Page 14 of 12

surplus strategy has the primary advantage of gaining economies of


scale. The organization would reduce unit costs as the size of the facility
increases.
Stonewall should close their Vancouver operations and have the
Calgary operations cater to the Vancouver market. They should sell their
land in Vancouver which has a high real estate value and put that capital
towards expanding their Calgary plant. Employee relocation from
Vancouver to Calgary should be offered to current employees.

Individual Assignment 1 (20%) | Cheryl


Ellis

Page 15 of 12