CHAPTER TWO

2. Human Resource Management Environments

2.1. Introduction
We understand the word "environment" the surrounding or conditions in which a particular
activity is carried on.
The term 'environment' refers to the "totality of all factors which influence both the
organization and personnel sub-system". Environment is an important variable in the HRM
model. It may be understood as all those forces which have their bearing on the functioning of
the HR department. The factors influencing HR activities aren't static.

HR program in an organization does not operate in a vacuum. It is influenced by and has

influence on the external (outside the organization) and the internal (inside the organization)
environments. These environments affect the human resource functions, and shape the policies
and practices of human resource management.

Since HR manager works in a varied environment, he/she can only do his/her duties well if
he/she is updated with the changing needs of the employees. And for this he/she has to keep
him/herself abreast (well-informed) with the environment in which the organization exists, and
with the environment from which the employees are coming to work. Moreover, analysis of
the environment is useful for the HR manager to become proactive and other than
reactive to the environment.
Every organization exists in an environment that has both external and internal components. As
such, a human resource management program functions in a complex environment both outside
and inside the organization. Human resource managers therefore should be aware that
rapid changes are occurring within the environment in which organizations operate.
There are two main categories of HRM environment, such as
1. External Environment
2. Internal Environment

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 1. The External Environment
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.
In a simple way factors outside to the organization are the elements of external environment.
Organization has no control of how the external environment elements will shape up. The
external environment can be subdivided in 2 layers: the general environment and the task
environment.

A. General Environment
B. Task/ specific/ Environment

A. General Environment of Organization

It usually includes the following factors.

Political /Legal Factors
The political-legal environment is also made up of the laws and regulations within which an
organization conducts its affairs.
Government has a significant impact on human resources management. Business laws of a
country also set the do’s and don’ts of an organization. Each of the functions performed in
the management of human resources, from employee recruitment to termination, is in some
way affected by laws and regulations established by the government. Human resource
managers must follow all laws and government regulations.
Government through the enforcement of different laws also has an immediate impact on HRM
functions.
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 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.

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 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.
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.

Economic Factors
Economic conditions are a major external factor that is pretty much outside of the control of
HRM but that can have a huge impact on the company. The economic environment has a major
impact on business in general and the management of human resources in particular. Differen t
conditions in economic aspect affect HRM in different ways. Here below some of economic
factors and their impact on HRM activities are presented.
Regarding business cycle, if the economy is booming 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.
Another huge economic factor is the unemployment rate, which affects the market rate for
wages and salaries.

Globalization also has a dramatic effect on HRM. It creates a more competitive environment
requiring increases in productivity and more efficient employees.

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 Economic conditions affect supply and demand for products and services, which, in turn,
have a dramatic impact on the labor force by affecting the number and types of employees
required, as well as an employer’s ability to pay wages and provide benefits. When the economy
is healthy, companies often hire more workers as demand for products and services increases.
Consequently, unemployment rates fall, there is more competition for qualified employees, and
training and retention strategies increase in importance. Conversely, during a downturn, some
firms reduce pay and benefits in order to retain workers. Other employers are forced to
downsize, by offering attractive early retirement and early leave programs or by laying off and
terminating employees. Unemployment rates rise, and employers are often overwhelmed with
applicants when vacancies are advertised. Economic conditions influence financial “health” of
the organization. Under favorable economic condition, expansion of existing programs and
creation of new program are very likely. With less favorable or deteriorating condition,
contraction or cancellation of some program may be necessary. During inflation, company pays
more for its resources and to cover the higher costs for it, they raise commodity prices.
When interest rates are high, customers are less willing to borrow money and the company itself
must pay more when it borrows. When unemployment is high, the company is able to be very
selective about whom it hires, but customers' buying power is low as fewer people are working.

Socio-Cultural Factors

These include demographic and cultural characteristics of the society. Demographic factors
describe the composition of the workforce, such as age, sex, race, and language which have a
bearing on HR functions. Culture refers to the complex whole which includes knowledge, belief,
art, morals, laws, and customs, believes and other capabilities and habits acquired by an
individual as a member of a society. Culture affects HR function because; it creates the type of
people who become members of an organization. Culture trains people along particular lines,
tending to put a personality stamp upon them. Moreover, the attitude of workers towards work is
the result of their cultural background. For instance, if the culture of the society promotes work,
then tasks will be performed with interest, dedication and pride. Therefore, HR managers need to
understand the culture and society from which their employees are recruited.

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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.
Geographical factors
The location of the organization influences the kinds of people it hires and the HRM activities
it conducts. An organization located in a rural area confronts different conditions than one
located in an urban area. For example, recruiting and selection in rural areas may be different
in that there may be fewer applicants or larger proportion of hirable workers. An urban location
might be advantageous for recruiting and holding professional workers. Urban locations
provide a bigger labor force but generally call for higher wages.
Labor market conditions
The labor market is the geographic area from which an organization recruits employees and
where individuals seek employment. In other words, it is the area in which the forces of supply
and demand interact. The labor market is often different for various employee groups within an
organization.
The labor market also directly affects HRM programs. Exchanges between employers and
potential employees occur in the labor market. Information is exchanged about opportunities,
skills and requirements.

When there are more workers than jobs, employers find recruiting costs minimal. Employees
apply readily, and selection is less difficult; the employer may be able to choose from large
number of qualified applicants for each position. A surplus of labor can also reduce employee
pressures for compensation and benefit increase. Disciplinary problems, absenteeism, and
turnover are likely to decrease, and equal employment opportunity goals may be easier to fill.
While clerical and technical employees are generally recruited locally, the labor market for
senior managers and highly specialized employees is often national or even international in

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scope. One measure of an organization’s effectiveness is its ability to compete successfully for
high-caliber human resources.
Many factors motivate candidates to seek employment with a particular organization, including
type of business/industry, reputation, opportunities for advancement, compensation, job security,
and working conditions. In recent years, for example, lower compensation and higher income tax
rates have been cited as causes of an alleged “brain drain”—the loss of highly educated workers
from the organization. Location and climate and other aspects of a firm’s physical surroundings,
such as housing, commuting, and living costs, can help or hinder a firm’s ability to attract and
retain employees

B. Task Environment of an Organization

The task environment consists of factors that directly/indirectly affect and are affected by the
organization’s operations. These factors include suppliers, customers, competitors, regulators
and so on. The different elements of task environment may be discussed as under:

Competitors: policies of the organization are often influenced by the competitors. A competitive
market place companies are always trying to stay and go further ahead of the competitors. In the
current world economy, the competition and competitors in all respects has increased
tremendously. The positive effect of this is that the customers always have options and the
overall quality of products goes high.

Customers: “satisfaction of customer” is primary goal of every organization. Customer is who

pays money for organization's product or services. They are the peoples who hands them the
profit that the companies are targeting. Managers should pay close attention to the customers'
dimension of the task environment because its customers purchase that keeps a company alive
and sound.

Suppliers: suppliers are the providers of production or service materials. Dealing with suppliers
is an important task of management. A good relationship between the organization and the
suppliers is important for organization to keep a steady flow of quality input materials.

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Strategic Partners: they are the organization and individuals with whom the organization is in
an agreement or understanding for the benefit of the organization. These strategic partners in
some way influence the organizations activities in various ways.

Labor unions
Labor unions are a group of people who represent workers in different occupations, and work to
protect the rights of the workers, such as working conditions, and wages. When workers at a
local business were maltreated by their managers, they went to their labor union for help, who
suggested for them to go on strike.
Unions differ just as people differ. There are cooperative unions and combative/aggressive
unions, just as there are sensitive organizations and socially irresponsible organizations.
The presence of a union directly affects most aspects of HR activities - recruitment, selection,
performance evaluation, promotion, compensation, and benefits, among others. These activities
are carried out in consultation with union leaders. The role of unions becomes pronounced
when a new wage agreement needs to be signed. At last the presence of a union means many
HR decisions must be negotiated with a third party.

1. The Internal Environment

Forces or conditions or surroundings within the boundary of the organization are the elements of
internal environment of organization. Those factors contribute to the strength and weakness of
the organization. Some of the internal factors include:
Mission
Mission is the organization's continuing purpose or reason for its existence. Each management
level should operate with a clear understanding of the firm's mission. The specific organizational
mission must be regarded as a major internal factor that affects the tasks of human resource
management.

Policy
A policy is a predetermined guide established to provide direction in decision making. As
guides, rather than hard and fast rules, policies are somewhat flexible, requiring interpretation
and judgment in their use. They can exert significant influence on how human resource
managers accomplish their jobs.

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Although policies are established for marketing, production, and finance, the largest number of
policies often relate to human resource management. Some potential policy statements that affect
human resource management are:
- To provide employees with a safe place to work
- To encourage all employees to achieve as much of their human potential as possible
- To provide compensation that will encourage a high level productivity in both quality and
quantity.
- To ensure that current employees are considered first for any vacant position for which
they may be qualified.

Organizational climate
Refers to the prevailing atmosphere that exists in an organization and its impact on employees;
Organizations have personalities just like people. They can be friendly or unfriendly, open or
secretive, rigid or flexible, innovative or stagnant. The type of climate that exists is generally
reflected in the level of employee motivation, job satisfaction, performance, and productivity,
and thus has a direct impact on organizational profits and/or ongoing viability. HR department
staff members play a key role in helping managers throughout the firm to establish and maintain
a positive organizational climate. They can help to develop policies and practices, for example
that encourage a spirit of teamwork and build employee commitment, which can have very
positive consequences.

Organizational Culture

Organizational culture is the collective behavior of members of an organization and the values,
visions, beliefs, habits that they attach to their actions. An organization’s culture plays a major
role in shaping its success, because culture is an important determinant of how well their
organization will perform. As the foundation of the organization's internal environment, it plays
a major role in shaping managerial behavior.

Organizational culture consists of the core values, beliefs, and assumptions that are widely
shared by members of an organization. It serves a variety of purposes:

 Communicating what the organization “believes in” and “stands for”

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  Providing employees with a sense of direction and expected behavior (norms)
 Shaping employees’ attitudes about themselves, the organization, and their roles
 Creating a sense of identity, orderliness, and consistency
 Fostering employee loyalty and commitment. Etc.

Owners: Owners are people who invested in company and have property rights and claims on
the organization. Owners can be an individual or group of person who started the company; or
who bought a share of the company in the share market. They have the right to change the
company’s policy at any time.

Board of Directors: The board of directors is the governing body of the company who are
elected by stockholders, and they are given the responsibility of overseeing a firm's top managers
such as general manager.

Employees: Employees or the workforce, the most important element of organizations internal
environment, who performs the tasks of the administration. Individual employees and also the
labor unions they join are important parts of the internal environment. If managed properly they
can positively change the organizations policy. But ill-management of the workforce could lead
to a catastrophic situation for the company.

Goals and Strategies of an organization: Organizations have several strategies such as growth
strategy, survival strategy or exit strategy. Decision makers in an organizational setting provide
different importance on different goals. In some organizations, profit would be the first priority
while the emphasis given to employee satisfaction would be less. And giving less attention to HR
has an impact on HR outcomes (high absenteeism, grievance rates etc).
Leadership style of the organization: Leadership styles (autocratic, democratic or laissez-
faire) practiced by top management and supervisors will affect the relationship between
supervisors and subordinates. Leaders must demonstrate distinctive skills, experiences,
personalities and motives of individuals. They must also facilitate the intra group interactions
that occur within work groups. In his/her role a leader provides direction, encouragement, and
authority to evoke desired employee behavior.

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Nature of the task: Many experts believe that the task to be performed is one of the most vital
factors affecting HRM. They describe HRM as the effective matching of the nature of the task
with the nature of the employee performing 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.
Generally the environment irrespective of its external or internal nature, a manager must have a
clear understanding about them. Normally, you would not go for a walk in the rain without an
umbrella, because you understand the environment and you know when it rains you can get wet.

Similarly if a manager does not know and understand the environment of organization, he or she
will definitively get wet or dry and the organization also in today’s fast and hyper moving
organizational environment.

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