The external environmental factors described in the following essay have a direct or indirect influence on HRM. To be effective, HR managers must monitor the environment on an ongoing basis; assess the impact of any changes; and be proactive in implementing policies and programs to deal with such challenges.
The economic environment has a major impact on business in general and the management of human resources in particular. Economic conditions affect supply and demand for products and services, which, in turn, have a dramatic impact on the labour 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.
In most organizations today, productivity improvement is essential for long-term success. Through productivity gains, managers can reduce costs, conserve scarce resources, and increase profits. This leads to a win-win situation, since higher profits often result in better compensation and improved working conditions, thereby enhancing the employees' quality of work life and their motivation to further improve productivity.
Australia's relatively low productivity growth rate and high labour costs are of grave concern, since competition with foreign companies has become increasingly important. Australia's economic success increasingly depends on the ability of Australian employers to meet international quality and productivity standards and become more cost-competitive. This applies to firms selling products and services in the domestic market, in which foreign competition is increasingly a factor, as well as those with international markets.
Labour Market Conditions
The labour 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 labour market is often different for various employee groups within an organization. While clerical and technical employees are generally recruited locally, the labour market for senior managers and highly specialized employees is often national or even international in scope.
One measure of an organization's effectiveness is its ability to compete successfully for high calibre 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.
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.
Recent population shifts to the coastal and small towns and rural areas can be attributed, at least in part, to the desire of many individuals to work and live in what they perceive to be a more desirable physical environment. Such shifts alter the demand for and supply of individuals in local labour markets, a factor that firms must always take into account when deciding where to establish a new venture, expand, or downsize.
Because the labour market is not controlled or influenced by any one factor, it is unstructured and often unpredictable. Nevertheless, organizations must constantly monitor and track trends affecting supply and demand...
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