CHAPTER TWO

ENVIRONMENTAL CHALLENGES OF HUMAN RESOURCE MANAGEMENT

Human resource management cannot take place in isolation from the external and internal
environment. The functions of Human resources are executed on permeable systems. These
environments affect the human resource functions, and shape the policies and practices of human
resource management. Today HRM is much more integrated into both the management and the
strategic planning process of the organization. The basic reason for this expanded role is that
organizational environment has become more diverse and complex.

2.1 EXTERNAL ENVIROMENT

External environment is the environment that exists outside the organization. They influence the
organizational performance but largely beyond management’s control. It provides opportunities
and threats to the organization and human resource management. It usually includes the
Political /Legal, Economic, Socio-Cultural and Technological (PEST) environments.
2.1.1 Political /Legal Factors
The Political system, such as, democratic or not, nature of the government and favoring the
employee over the employee, affects the human resource functions of an organization.
Government through the enforcement of different laws also has direct and immediate impact on
HRM function. Government made different laws that regulate relationship between employer
and employees including issues, such as equal employment opportunity (EEO), affirmative
action, safety and health, wages and salaries, hours of work, etc.
a) Equal Employment Opportunity: Government laws require providing applicants an equal
opportunity for employment with regard to race, religion, sex, disability, age or national
origin. There should not be discrimination during recruitment and selection of candidates
employees.
b) Affirmative Action: Affirmative Action is taken for the purpose of eliminating the
present effects of the past discrimination. It is the practice of recruiting, hiring or staffing
underrepresented groups or minorities, such as women, disability, and the disadvantaged
groups of the society.
c) Government passes legislations that will enforce the employee’s safety and health.

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 d) Government may set minimum level of wages and salaries, equal pay for equal work,
hours of work, holiday, leaves, etc. The deluge of government regulations and laws has
placed a tremendous burden on human resource managers.
2.1.2 Economic Factors
Economic parameter like GNP, per capital income, an employment rate, inflation rate, etc.
affects HRM.
If the economy is booming and unemployment rate is low, it may be harder to acquire and retain
the staff. In times of economic decline, unemployment rate increases and a greater choice of
labor is available to the employer. For example, when the economy expands, during recovery
and boom period demand for the product will be high; this makes production level high and
demands more employees. At this time hiring new employees and training programs may be
needed. Therefore, to retain competent employees, it is necessary to improve benefit packages
and working conditions. Higher wages /salaries, and better benefit become serious burden when
the business cycle turns downward. During recession and depression demand for the product will
decline or decrease and this leads to the reduction in the production level, and as a result it forces
to reduce the number of employees. Therefore, human resource manager should aware the
economic condition of the nation and the globe and manage the human resources accordingly.
2.1.3 Socio-Cultural Factors
These factors are created by the society on human resource management, such as demographic
factors and culture. Demographic factors describe the composition of the workforce, such as age,
sex, race, and language. Culture is the belief and custom (religion) of the society. It affects the
attitude and activities of workers. HR managers need to understand the culture and society from
which their employees are recruited.
2.1.4 Technological Factors
Technological factor refers to the technology available for the organization to use. Technologies
have an impact on HRM by changing the entire working methods and systems. Technological
change will continue to shift employment from some occupations to others, i.e., labor-intensive
and clerical jobs will decrease while technical, managerial, and professional jobs will increase.
Jobs and the skills of employees are changed by technology. For example, the introduction of
computer in an organization changes the skill requirement of the employee.

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 2.2 INTERNAL ENVIROMENT
An internal environment is the environment that exists inside the organization. It contributes to
the strength and weakness of the organization. Some of the internal factors include:
A) Strategy of an organization: Organizations have several strategies (goals and objectives),
such as growth strategy, survival strategy or exit strategy.
B) Leadership style of the organization: Leadership styles practiced by top management and
supervisors will affect the relationship between supervisors and subordinates. The style of
leadership might be autocratic, democratic or laissez-faire. Leadership styles adopted in
an organization influences human resource functions.
C) Nature of the task: The type of the task to be performed in an organization highly affects
human resource management. This is because some jobs can attract or retain workers,
while others might be the causes of high labor turnover. The elements of the nature of the
task include:
 Degree of physical exertion: Some of the tasks require more physical exertion while
others may require less physical exertion. In general, people like to work with less
physical exertion.
 Working environment: People, generally, prefer to work in a pleasant environment, i.e.,
enjoyable pleasing, attractive, and friendly work environments are the main elements of
the task which retain workers.
 Physical location: Some tasks are done far from the employee’s residence and other tasks
are performed near to the place of employee’s residence. Most employees prefer to work
near to their residence.
 Degree of human interaction: Some tasks provide opportunity to interact frequently with
other people and others do not. People prefer to work the tasks that provide interaction
with their workmates or peers.
Models of human resource managements
I. The matching model of HRM
One of the first explicit statements of the HRM concept was made by the Michigan
School (Fombrun et al, 1984). They 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’).

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 • They further explained that there is a human resource cycle which consists of four
generic processes or functions that are performed in all organizations.
• These are:
1. Selection – matching available human resources to jobs;
2. Appraisal – performance management;
3. Rewards – ‘the reward system is one of the most under-utilized and mishandled
managerial tools for driving organizational performance’; it must reward short as well
achievements, bearing in mind that ‘business must perform in the present to succeed in
the future’;
4. 4. development – developing high quality
The Michigan model is also known as the 'matching model' or 'best-fit' approach to human
resource management. In essence, it requires that human resource strategies have a tight fit to
the overall strategies of the business. As such, it limits the role of HR to a reactive,
organizational function and under-emphasizes the importance of societal and other external
factors. For example, it is difficult to see how the current concern for work life balance could be
integrated into this model.
II. The Harvard Model
• The other founding fathers of HRM were the Harvard School of Beer et al (1984) who
developed ‘Harvard framework’. This framework is
• based on the belief that the problems of historical personnel management can only be
solved:
• When general managers develop a viewpoint of how they wish to see employees
involved in and developed by the enterprise, and of what HRM policies and practices
may achieve those goals.
The Harvard school suggested that HRM had two characteristic features:
1) Line managers accept more responsibility for ensuring the alignment of competitive
strategy and HR policies, and
2) 2) HR has the mission of setting policies that govern how HR activities are developed
and implemented in ways that make them more mutually reinforcing
• The Harvard interpretation sees employees as resources.

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 • However, they are viewed as being fundamentally different from other resources –
• They cannot be managed in the same way. The stress is on people as human resources.
The Harvard approach recognizes an element of mutuality in all businesses, a concept with
parallels in Japanese people management,
• Employees are significant stakeholders in an organization.
• They have their own needs and concerns along with other groups such as shareholders
and customers.'
The Harvard map or model outlines four HR policy areas:
1. Human resource flows - recruitment, selection, placement, promotion, appraisal and
assessment, promotion, termination, etc.
2. Reward systems - pay systems, motivation, etc.
3. Employee influence - delegated levels of authority, responsibility, power
4. 4. Work systems - definition/design of work and alignment of people Which in turn lead
to the 'four C's' or HR policies that have to be achieved:
Commitment
Congruence
Competence
Cost effectiveness

[1] Which of the following statement is or are not true about significance of studying human
resource management?
[A]. It Facilitates healthy relationship among employees and creates opportunities for
their personal development
[B]. Enhances economic growth thereby improved standard of living and more job
opportunities
[C]. Ensures proper utilization of human resource so that employees are --------

Make sure that employees are reasonably compensated and

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