Chapter Two

Human Resource Management

Environment
After completing this part,
participants will be able to
understand:
1.HRM Environment
2.The External Environment
3. The Internal Environment

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 1. Human Resource Management Environment
Human Resource management as a system is affected by several
factors including external and internal environment.
• External Environment are those factors that are outside
the organization, they are largely uncontrollable and provide
opportunities and threats (OT) to the organization. The
analysis of external environment is some times called PEST
analysis
• Internal environment are factors within the organization,
they constitute the strengths and weaknesses (SW) of the
organization.
• The analysis of the environment (internal and external) all
together is called SWOT analysis
2.The External Environment

External Environment
• Political/legal
• Economic
• Social
• Technological
 2.The External Environment
2.1 Political/Legal-
Governments make different laws that affect human
resource management. Some of the laws include:
• Equal employment opportunities,
• Affirmative actions
• Compensation and benefits
• Safety and health,
• Hours of work, holidays,
• Industrial relations etc.
 Political/Legal
Equal Employment Opportunity (EEO)
Discrimination
• Forbids discrimination in all areas of the
employment relationship.
• Employment based on age, sex, disabilities,
national origins (ethnicity), religion,
compensation (payment on similar jobs) etc.
• The law sets requirements on selection
instruments such as tests and interviews.
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 Political/Legal
Equal Employment Opportunity
Affirmative Action (AA)
• Governments encourage Affirmative action the
commitment of employers to proactively seek
out, assist in developing, and hire employees
from groups that are underrepresented in the
organization.
• Various executive orders, require employers to
develop affirmative action plans and engage in
affirmative action in hiring veterans and the
disabled.
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 Political/Legal

Compensation and Benefits

– Fair Labor Standards Acts
 Sets a minimum wage and requires overtime
pay for work in excess of 40 hours per week.
For non exempt employees
 Salaried professional, executive, and
administrative employees are exempt
employees who are not paid overtime
provisions

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 Political/Legal

Compensation and Benefits

Employee Retirement Income Security
• Sets standards for pension plan management
and provides federal insurance if pension plans
go bankrupt.
Family and Medical Leave Act
• Requires employers to provide up to 12
weeks of unpaid leave for family and
medical emergencies.

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 Political/Legal

Health and Safety

Occupational Safety and Health Act (OSHA)
requires that employers:
• Provide a place of employment that is free from
hazards that may cause death or serious
physical harm.
• Obey the safety and health standards
established by Occupational Safety and Health
Administration
(OSHA).
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 Political/Legal
Labor Relations
Sets Laws (labor Law) on how employers
and employees relationship is
governed by:
• Right to join union
• Establishing union
• Rights and obligations employees
and employers
• Bargaining in good faith etc. 11
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 2.2 The Economic Environment of
HRM

Economic Environment-Such as
the business cycle, inflation,
income level, etc.

Read
 The Social Environment of HRM

Social Environment-such
as demographic factors,
culture, religion, belief on
work etc.
 The Technological Environment of
HRM
Technological
environment-such as
the introduction of new
technology
3. Internal Environment
• Vision, mission, Values, Culture
• Organizational Structure
• Leadership Styles
• Policies Procedures
• Nature of the Task
• Work Groups
• Etc,
 3. The Internal Environment
• Vision mission objectives and strategies- HRM require
to align its activities to these requirements.
• Styles of Management- the styles of management
whether it is autocratic, democratic or laissez fair
• Nature of the task- whether the job is attractive or
repulsive
• Organizational Structure- Number of positions and
relationships
• The work group- Whether the work group is
committed, supportive or collaborative
What do you know about Michael
Porter’s Models of Environmental
:Analysis
• Industry Competition (Five
Forces)
• Value Chain (Internal)
Application to human resource
management
 Michael Porter’s Models
Porter’s Model of Industry Michael Porter has
develop two models for analyzing:
1. The Industry Competitive Environment
Analysis (commonly known as Porter’s Five
Forces): External
2. The Value Chin Analysis: Internal
The two models are used as framework for
analyzing the influence of the competitive
forces on the industry, and the process
involved in creating value to determine the
industry’s profitability and competitiveness
 Elements of Industry – The Five Forces Model
New
Entrants

Threat of New Entrants

Industry Bargaining
Bargaining
Competitors Power of
Power of
Buyers
Suppliers
Suppliers Buyers

Intensity of
Rivalry

Threat of Substitutes

Substitutes
 Intensity of Rivalry
The industry is less attractive if:
Industry • Stable or declining market
Competitors • High investment/large capacity increments
• Low product differentiation
• Low switching costs
Intensity of
Rivalry • Competing for small pie
 1. Potential New Market Entrants
The easier to jump in, the less
attractive. Less barrier to enter. Conditions
that make the industry less attractive include:
Threat of New Entrants

• Low economies of scale and learning

effects
Entrants
New

• Low capital intensity

• Low product differentiation
• Gaining distribution outlets is easy
 Supplier Power
The industry is less attractive if:
• Suppliers are concentrated or
organized
Bargaining • Substitute prices are high
Power of
Suppliers • Providing critical
Suppliers
component/large value added
• High switching costs exist
 Buyer Power
The industry is less attractive if:
• Buyers are few or organized
• Your product is undifferentiated
Bargaining • Switching costs are low
Power of
buyers
• Buyer profits are low & your product is
Buyers a large percentage of buyer’s total costs
• Your product isn’t all that critical to
buyer
 Threat of Substitutes
The industry is less attractive if:
Threat of Substitutes

Numerous potential substitutes

• Numerous current substitutes
Substitutes

• Buyer propensity to substitute

• Relative price performance of

substitutes
• Switching cost
The Internal Environment: Value Chain
Successful organization create values that satisfy and
delight customers more than competitors. Michael Porter
(1985) suggested that the activities of a business can be
grouped under two headings.
1.Primary activities: those that are directly
involved with the physical creation and delivery of
the product or service.
2.The support activities: which feed both into
primary activities and into each other. Support
activities are not directly involved in production, but
have the potential to increase effectiveness and
efficiency.
 Value Chain Support Activities
V

Firm infrastructure ( financing, planning, )

A
ACTIVITIES
SUPPORT

Human Resource Management L

Technology development U

E
Procurement
Support Activities
1.Organizational infrastructure: which is
concerned with a wide range of support
systems and functions, such as planning ,
external relations, finance, quality control
and coordinating ability.
2.Human resource management, dealing
with those activities concerned with
recruiting, developing, motivating, and
rewarding the workforce of the
organization and employee relations.
Support activities
3. Technology development, managing
information, R&D, meeting deadlines,
innovation and protection of
"knowledge" in the organization.
4. Procurement, which deals with how
resources are acquired for the
organization (e.g., sourcing and
negotiating with)
 Value Chain Primary Activities

V
A
Inbound outbound Marketing After-sales
Operations L
logistics logistics And sales service

PRIMARY ACTIVITIES
 Primary Activities
Inbound logistics: involves preparations
for operations, including production and
operation planning; acquiring and
ordering inputs and materials, receiving
and storing and supplying to operations.
Operations: involve the actual conversion
process. The transformation of inputs
into outputs.
 Primary Activities
Outbound logistics: concerns the packaging and
warehousing of the processed materials and
physical distribution to customers
Marketing and Sales: involves in the satisfaction of
customer needs and wants and creating demand
and revenue to the company’s product.
After Sales service: Creating enduring relationship
by monitoring and guarantying customers the best
use of the product they have bought
 Value Chain
Firm infrastructure ( financing, planning, )
ACTIVITIES

Human Resource Management

SUPPORT

M
Technology development
A
R
Procurement
G

I
Inbound Operations outbound Marketing After-sales
logistics logistics And sales service N

PRIMARY ACTIVITIES
 5. Managing the Environment and Interaction

Some of the most common techniques for

interaction with the environment in order to
lesson the threat and take advantage of
opportunities, include:
• Research and intelligence,
• Public relations,
• Boundary spanning,
• Lobbying,
• Negotiation,
• Strategic alliance
• Organizational design and restructuring.
 Managing the Environment and Interaction

• Research and Intelligence: Obtain

information about developments in the
environment.
• Public Relations: Creating good image of the
company in the environment
• Boundary spanning: Regularly meet with
stakeholders to explain the current and future
status of the organization
 Managing the Environment and Interaction

• Lobbying: Meeting with government officials,

representatives to attempt to influence their votes on
some policies that affect organization
• Strategic Planning: developing vision, mission,
objectives and strategies
• Organizational Restructuring: changing the
organization’s structure and work arrangement to
make the organization competitive, (continuous
change, BPR).
• Creating Strategic Alliance: With competitors
and suppliers
 Objectives
Chapter Four
Human Resource Planning
(HRP)
After completing this part,
participants will be able to
understand:
1. HRP Meaning (Definition)
2. HRP Importance
3. HRP Steps
4. Succession Planning

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 1. HRP: Meaning & Definition
Human resource planning (HRP) is the
process of analyzing and identifying the
need for and availability of human
resources so that the organization can
meet its objectives.
The organizational strategy of the firm as
whole becomes the basis for human
resource planning

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 2. Human Resource Planning: Importance

If you don’t plan you will end up ether with famine or

overwhelm!
• Helps to determine future human
resource needs
• Coping with change
• Foundation for personnel functions
• Provides information on the status of the
human resource
• Reduces cost and budget of human
resource management
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3. Human Resource Planning Steps

Strategic Plan

Total Human Total Human

Resource Resource
Demand Forecast Supply Forecast

Policies Net Human

Resource
Requirement

Environment
Job Analysis
Action Plan

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 3.1. Total Human Resource Demand
Forecast

• Demand for total work force requirement is

made through the analysis of organization's
operations
• Organizational operations is determined from
the forecast of the demand for goods and
services
• The number and skills of employees required
are determined from the demand of goods or
services forecasted
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 Human Resource Demand Forecast
The following table indicate the demand for human
resource over last five years for three companies
based on their sales. Forecast the demand over the
coming year?
Company A Company B Company C

Year Sales Demand Year Sales Demand Year Sales Demand

2008 50 5 2008 100 10 2008 100 10

2009 50 5 2009 200 20 2009 60 15

2010 50 5 2010 300 30 2010 81 10

2011 50 5 2011 400 40 2011 120 20

2012 50 5 2012 500 50 2012 70 12

2013 50 ? 2013 600 ? 2013 150 ?

 The Relationship of Sales Volume to Number of
Employees

Number of
Employees

500

400

300

200

100

0 10 20 30 40 50 60
Sales (thousands)
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 Demand Forecast for company C

Yt = a + bx
Where:
x = A specified number of time from x = 0
Yt = the forecast for the period
a = Value of Yt at t=0
b = slope of the line
Where:
a  y  bx

b  xy  nxy
 x  nx
2 2
 Human Resource Demand Forecast

New organizations
• Require the study of other similar organizations
(benchmarking)
• Utilizing a range of qualitative or quantitative
forecasting methods.
• Quantitative methods use a range of statistical and
mathematical techniques such as regression,
productivity ratio and Staff ratio
• Qualitative methods use mainly judgmental
methods, rule of thumb, feedback from people
who provide analysis and predictions.
• Tools such as brainstorming, NGT & Delphi are used
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3.2. Human Resource Supply Forecast
Forecasting Availability of Human Resources (SUPPLY)  
External Supply Forecast
Potential employees available to the organization needs include:
• Individuals entering and leaving the workforce
• Individuals graduating from schools and colleges
• Changing workforce composition and patterns
• Economic forecasts for the next few years
• Technological developments and shifts
• Actions of competing employers
• Government regulations and pressures
• Factors affecting persons entering and leaving the
workforce.

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Internal Supply Forecast

Internal supply refers to the

manpower inventory available within
the organization. Internal supply
information which include:
• Skill Audit-employees on non-managerial jobs
• Management Audit-employees in managerial
jobs
• Human Recourse Information System (HRIS)

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Human Resource Information Systems
 Human resource information systems (HRIS)
– An integrated system of hardware, software, and
databases designed to provide information used in HR
decision making.
– Benefits of HRIS
 Administrative and operational efficiency in compiling HR data
 Availability of data for effective HR strategic planning
– Uses of HRIS
 Providing information about human resource in organizations
(employment, skill, tracking affirmative actions etc.)
 Automation of payroll and benefit activities
 Uses of an HR Information System (HRIS)

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Designing and Implementing an HRIS
 HRIS Design Issues
– What information available and what is
information needed?
– To what uses will the information be put?
– What output format compatibility with other
systems is required?
– Who will be allowed to access to the
information?
– When and how often will the information be
needed?

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3.3. Net Human Resource Requirement
The net human resource requirement is the
difference between the total human resource
demand and the human resource supply
forecast taking into account the anticipated
change.
Anticipated change include turnover analysis
Turnover analysis is the analysis of the
employees for several reasons including
retirement, disabilities, resignation, quite,
disabilities and deaths.
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 Net Human Resource Requirement
After estimating human resource demand
and supply for a future period the net
requirement situation can be one of:
• Shortages
• Surplus
• Balanced.
Each situation requires a different set of
responses.

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Surplus of human resource

Supply exceeds the labor demand.

The reasons for surplus human resource
can be:
• Company contraction,
• Over employment
• Poor human resource planning.

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 3.4. Action Plan
Action Plan involves managing the net manpower
requirement- the surpluses or shortages
Action plan for surplus include:
• Freeze hiring
• Reducing the number of hours worked
• Do not replace those who
• Reduce overtime work
• Offer early retirement incentives
• Reduce outsourced work
• Expand operations
• Layoffs
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 Action Plan
Shortage of human resource

In this scenario, the firm will need more

workers than will be available.
The reasons for shortages can be:
• Expansion of the company and its
jobs
• Poor human resource planning
(Underemployment)
• Turnover
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Action Plan for shortages include:
• Training or retraining existing
• Workers, grooming current employees to take over vacant
positions (succession planning), promoting, transferring
from within,
• Recruiting and hiring new permanent employees,
• Subcontracting part of the work to other firms,
• Hiring part-timers or temporary workers,
• Paying overtime to existing employees
• Offer incentives to postpone retirement
• Rehire retirees part-time
• Work current staff overtime
• Redesign job processes so fewer employees are needed
• Reduce operation

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 4. Succession Plan
• It is a human resource planning that determines
who will replace who at the time of vacancy of
managerial/executive positions
• It is a career development activity prepares people
to fill management/executive positions
• Preparing successors is useful because people
leave organizations for various reasons such as
retirement, disability, death, resignation, quit etc.
• Succession plan uses a replacement analysis with
a replacement chart

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 Succession Plan
The replacement chart is much like organizational chart
which depicts the current job holder, and the potential
candidates with two dimensions, Promote ability and
Current performance. Candidates are placed in ranking
order based on promote ability
Promote ability candidate can be rated as
A: Ready now
B: Needs Training
C: Questionable
Current Performance of candidates can be rated as
1.Outstanding
2.Satisfactory
3.Needs improvement
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 President VIC PLC
MECO Lema (53)
A Judi Lema (42) 1
B Betu Hala (45) 2
C Kusa Duda (52) 1

Vice President HRM Vice President OPER Vice President Fin Vice President Mark
Mulu Bekele (62) Judi Lema (42) Kusa dudu (52) Betu Hala (45)
A Askale Yirgu 1 A Yared Guma 1 A Nopa Tutu 1 A Batu Suratu 1
(42) (53) (54) (46)
B Yilma Adem 2 B Nuru butu (45) 2 B Kosso chun 2 B Etu Tuba 2
(30) (43) (41)
C Udu Musie 1
C Musie Jat (64) 1 (34) C Muka mul 35) 1 C Kuku lete (61) 1