Human resource management is a fundamental element of management because
it involves recruiting and then harnessing productivity from the workforce. The
human resource function operationalises all of the other functions of the
business. Accordingly, this paper examines the element of human resource
management in a multi-contextual perspective which integrates both the internal
and the external environment.
Forces which shape the HR agenda
The theories of human resource management transcend the entire life
cycle of human resource management. From recruitment to termination or
resignation, there is a human resource theory for each of the stages.
Furthermore, in the current business environment, globalisation has increased
the importance strategic fit in recruitment, hence the improved importance of
theories such as those in the international human resource arena. In
international human resources, companies are faced with the question of whether
to employ home country nationals, host country nationals, or even third country
nationals. However, the ultimate choice is focused on both the cost and
efficacy of the human resources. Regarding performance, there is an increase in
the intensity of competition because of globalisation which has expedited
market liberalisation. Motivation is also a very important concept in the human
resource environment. Accordingly, there are various human resource theories
about motivation. In the current environment, there is an intersection of
different generations in the workplace, with different backgrounds, with millennials
being very susceptible to technology. Noteworthy, these differences call for a
customised approach to motivation. Consequently, a business is better off using
Vroom’s theory of motivation. This theory proposes that different people have
different motivational factors and therefore, the motivational factors should
be tailored towards their own needs (Hendry, 2012). Customising motivation in
the current workplace might therefore lead to greater success. This argument presents
the question therefore, of whether the other motivation theories have become obsolete
with the new workplace dynamics.
Owing to the aforementioned intensity of competition in the market
environment, it is imperative that the business should apply a human resource
approach which is relevant to its internal and external environment. For
example, in an organisation whose internal environment relies on low skill labour,
it is likely that the aforementioned business will set a human resource
strategy which requires low skills and low compensation.
Noteworthy, Stewart and Brown (2011) present four human resource
strategies. In the bargain labourer strategy, the business requires low cost
human resources and they even have generic skills which the organisation can
find anywhere (for example waitresses in fast food). Here, the training costs
are low, as illustrated in figure 1. With the loyal soldier strategy, an
organisation is a cost leader, but requires high quality labour, so it recruits
the human resources who share its vision and motivates them through
non-financial means. However, with the free agent strategy, the human resources
are so highly qualified that they are scarce, and they are conceivably
expensive. In fact, headhunting and human resource poaching is not uncommon in
companies which rely on this strategy. Accordingly, the business will use this
strategy if it is in a high-skill market where innovation is the primary driver
of competitive advantage, such as pharmaceuticals.
Figure 1: Human resource strategies
Source: Stewart and Brown (2011)
The committed expert strategy on the other hand, is used by companies
which hire expensive human resources, just as a competitive measure to attract
the best talent.
Diversity management is one of the fundamental human resource topics of
the 21st century. As mentioned prior, the increase in the rates of
globalisation mean that workforces are more diverse. Whereas diversity presents
challenges especially in management, several scholars (e.g. McMahon, 2010;
Armstrong et al., 2010) argue that diversity improves performance because this
diversity improves creativity.
Ethics and accountability
Ethics are an important aspect of any business. Moreover, in the current
business environment, the consumers are very aware of the back-end operations
of the business. Consequently, they reward the business which they perceive as
sustainable and socially responsible, with their patronage. However, they
boycott the businesses which they perceive as unethical (Sheth, Sethia and
Srinivas, 2011). Consequently, it is
imperative for businesses to cultivate a culture of ethics and accountability
in their employees. The aforementioned companies can achieve that by leading by
example, and drafting organisational charters, or even strongly penalizing the
unethical occurrences. According to the path goal theory of leadership, the
employees will do what the leaders permit or even endorse (Northouse, 2015).
This manifested itself in the case of News Corp, when the company was caught in
the fraud where the employees used to hack for stories. This was both illegal
and unethical, but then the company had consistently endorsed this behaviour so
it was normal.
Business environment tools
Literature presents various tools which organisations can use to study
the business environment of the organisation.
Internal environment analysis
In environmental analysis, there are multiple frameworks for examining
the internal environment. These frameworks include the balanced scorecard
method, and the resource based view framework. The balanced scorecard is an
approach by Kaplan (2012), to examine company performance on other parameters
than the financial parameter. It is true that the primary objective of business
is to maximise profits (Tirole, 2010), and it was therefore typical of
companies to measure their performance basing on the financial parameters. The
balanced scorecard examines the business environment on financial parameters,
but is also adds other metrics such as customer satisfaction, business
processes, as well as learning and growth.
Alternatively, the resource based view examines the internal environment
of the business basing on such factors as resources, competencies and
capabilities. For the organisation to achieve sustainable competitive advantage,
the resources or capabilities, must be valuable, rare, inimitable, and
non-substitutable (Rothaermel, 2015). Consequently, the strengths and
weaknesses of the business will be measured according to how they meet the
metrics for sustainable competitive advantage. The role of the human resource
function here, is to convert capabilities and resources into core competences
which in return are the source of the aforementioned competitive advantage.
External environment analysis
In the business environment, the appropriate tool to analyse the macro
environment is the PESTEL framework. The PESTEL acronym translates as the
political, economic, social, technological, environmental, and legal factors
which affect the organisation in the external environment. Noteworthy, with the
PESTEL analysis, the organisation can identify the opportunities and threats which
are inherent in its environment.
In the political environment, the political stability is one the factors
which might influence the success of the business. Political stability measures
the extent to which there is international or local upheaval in the
environment. The presence or possibility of political instability threatens the
assets of the business, as well as the financial interests of the same. The
pertinent data on this metric is available in international databases such as
the World Bank database.
Furthermore, the business should also examine aspects like free trade treaties
such as the number of political integration agreements like the EU and NAFTA.
Still in the political environment. the organisation should measure the levels
of corruption in the business environment because otherwise, it might be
adversely impacted by corruption.
The aim of any business, is to maximise profits. In the economic
environment, corporate taxes, per capita income, interest rates, and wage rates
should be considered. High corporate taxes would debilitate the capacity of the
business to keep sufficient retained earnings for investment, so the lower the
corporate tax rates, the better. This information can be found in the KPMG
database, which the company updates annually. Furthermore, the lower lending
interest rates give the organisations access to cheap investment money. Likewise,
the income per capita determines the disposable income of the consumers.
Countries with high per capita income and low income taxes are better for
investment, because the consumers will have more disposable income. Lastly, the
wage rates contribute to the operating costs of the business.
In the social environment, factors such as population growth rates
determine the customer volume, especially if the business intends to operate in
the aforementioned market in the long run. The culture of the country also
falls under the social environment. National culture has severally been studied
by scholars such as Hofstede, Trompenaars, and Gudykunst. The GLOBE probe also
studied national culture. However, it is only the Hofstede model which provides
free quantified data for the national cultures of the different countries.
Moreover, still in the social environment, the organisation must examine the
health outlook, norms and holidays, in order for the organisation to model its
marketing mix around the social and cultural environment of a given country.
In the technological environment, the company measures various aspects,
basing on the nature of its operations. The logistical environment is very
important in that any company will need to use infrastructure like roads and airports.
The logistical environment data is also available on the website of the World
Bank. Information technology is also fundamental for communication throughout
the supply chain of the organisation. The company on this score can look at the
internet penetration rates within the country, and the number of mobile phone
owners, to mention a few. Furthermore, the rate of technological change is also
an important metric to analyse, because in areas with high rates of
technological change, the organisation would be able to take advantage of the
In this aspect, businesses examine such things as the geographical
distance from the suppliers and the market, the weather, and the resources, or
even the environmental consciousness of the market. In a market with petroleum
for example, obviously the natural endowments will attract an oil refining
company. However, the distance from the rest of the supply chain is also an
important factor for the company to examine. High geographical distance will
translate into more transportation costs, which might affect the company’s
bottom line. Furthermore, the rates of environmental consciousness also affect
how sustainable the marketing mix of the company must be for it to succeed.
In the legal environment, the business is tasked with examining how the
laws of the country might influence how the business operates. In the legal environment, the company may
have to consider such things as the rule of law, the minimum wage rates in the
country, and the extent to which the country is a signatory to international
conventions, to mention a few.
The PESTEL tool is quite competent at examining the primary elements of
the external macro environment, but nevertheless, the tool is limited to a few
macro environmental factors. The macro environment is complex, and therefore,
it cannot be summarised in a few dimensions but nevertheless, the framework
gives the company a founding basis for analysis.