External Factors Impacting HR Practices

Introduction

The external factors are enormous; it covers developments in the world of politics, economics, and technology at the global platform. It also encompasses megatrends in socio-cultural, demographics, ethical and government regulations. An organisation which fails to adopt new technologies can fall short of producing profitable outcomes. There are many contemporary developments in the labour market, which has a significant impact on the HR practice, for example, increasing cultural diversity, rising regulations and inequality in the UK labour market. HR needs to consider these contemporary developments in creating organisational policy. Moreover, in the function of HR, one of the critical responsibilities is active involvement in the management of change. The effectiveness of the organisational change demonstrates clearly that success or failure depends on large extent how people are managed.

The COVID-19 has significant impact on the business which is alarming, and the effect on the global economy is significant. The most severe difficulty is now likely to face in recovery that is getting back to work and restoring the new reality. Records suggest that the global economy after a major crisis like Covid-19 will likely be diverse in several critical ways. The SARS in 2003 is often recognised with the adoption of online purchasing among global customers resulted in accelerate the rise of online business. There are tremendous changes, we might see in working practices; for example, remote working is beneficial if you can restructure the processes for coordination and communications.

The first part of the report covers how strategic business plans are created and HR’s role in formulation and implementation. Porter’s Five forces and PESTLE are analytical tools for the organisation’s business environment (external & internal), which can be used to understand and asses the power of current and potential competitor. It is essential to assess business data like company strategy and government data to investigate the current business. An external factor like PESTLE helps to identify the strategic development for future sustainability. While working towards changing business, HR should ensure they have understood the complex legal labour, business ethics and the way business performance can be evaluated.

The HR function will need to focus on providing the clear communication on new workforce policies, and that should include a new way of working, technological transformation, and adaptation of strategic organisational change, and effectively to reach towards the new normal.

How strategic business plans are created and role of the HR in the process?

An overview of the process

Strategy formulation is the process of investigation, analysis and decision making, which provides the organisation with criteria for considering competitive advantages. It includes identifying internal and external factors that may impact organisation’s ability to grow, crafting the organisation vision and setting a policy and procedures guidelines. Below Figure 1.1 demonstrates the key stages of the process (Wheelen et al., 2017 pp.48-50).

Mission: The purpose of organisation’s existence. I.e. mission statement; it defines the fundamental purpose that sets a company apart from other organisations.

Objective: It is end results of the planned activity i.e., to make an action plan for profitability, ROI, growth and reputation.

Strategy: Organisational strategy forms a comprehensive approach, which states how business will achieve its mission and objective. Typically larger organisations have three type of strategy i.e. 1. Corporate strategy: overall direction of company and management of its businesses. 2. Business strategy: focuses on improving competitive position 3. Functional strategy: Maximum resource productivity.

Policies: It is broad guidelines for decision making. Company policies make sure employees are taking decision that supports organisation’s mission, objectives and strategies.

Strategy implementation is the process by which the organisation can effectively execute its plans and activity which will guide the organisation in the direction towards strategic objectives (Wheelen et al., 2017 pp.48-50).

Programme Tactics: Evaluation and development of the strategic plan. Activities needed to accomplish a plan.

Budget: Maintain costing and check balances to review budget allocation.

Procedures: Step by step actions required to achieve the mission and objectives. Also to check what technologies, systems, tools and resources are in place to facilitate the plan.

Role of a HR in business strategy

In modern era, HR have major role to play in ethical decision making and promoting, equality, diversity, work life balance and organisational effectiveness. HR can make significant different to the bottom line and generic performance by setting a long term strategic goal. Below Figure 1.2 describes “the legitimate interest of different groups and assumes that the creation of HRM strategies will have to reflect these interests into HR strategy and ultimately business strategy. Organisational strategy is made by recognition of differing interest group; the focus is also arguably more on horizontal integration as opposed to vertical” (Rees and Smith, 2017).

The final stage is to relate HR and organisational strategy as illustrate in Figure 1.3 by Torrington et al (2005) cited by (Rees and Smith, 2017). Provides a useful diagrammatic representation of the potential relationship between organisational and HR strategy.

Approaches to strategic Analysis

Porter’s five forces:

Michael Porter proposed three generic competitive strategic for outperforming other organisations in a particular industry. Overall cost leadership, differentiation and focus. The most significant advantage of these strategies is they can be pursued by any type or size of the business (Wheelen et al., 2017, pp. 208).

Shortcomings

The central focus of Porter's five forces is on existing and future threats rather than opportunities in the market. Besides, as a static model, it can be useful for short-term strategy, but not for the rapidly growing technological advancement. Although the threat of entry is high, it does not offer a tool to calculate the probability of new entrants. "Other analyst goes so far as to argue that the five forces model is incompatible with a globalised economy and the development of new technologies" (Michaux et al., 2015).

PESTLE Analysis

The PESTLE analysis enables a manager to identify the key macroeconomic factors that may influence the future development of the business. The identification of next macroeconomic variables of interest and the construction of different scenarios allows the manager to anticipate the strategic decision required for growth and sustainability (Michaux et al., 2015).

Shortcomings:

The external factors are usually dynamics and change occurs rapidly, so the data sampling of relevant information becomes difficult to conclude. As thinking critically, the data validation by the tool is on speculation so the result may not be valid. The business environment is changing rapidly; thus, it becomes difficult for the organisation to anticipate developments. The PESTLE analysis is a valuable tool; however, it cannot predict what the future brings; it helps an organisation to identify the major trends to prepare for future competition (Michaux et al., 2015).

An evaluation of three business data

Source 1 - Coronavirus and the economic impacts on the UK (ONS.GOV.UK, 2020)

The government survey report indicates the impacts of COVID-19 on UK economy. The indicators and analysis presented in this bulletin are based on responses from the new voluntary fortnightly business survey, which captures businesses responses on how their turnover, workforce prices, trade and business resilience have been affected in the two week reference period. These data relate to the period 6 April 2020 to 19 April 2020. While thinking critically the survey results are limited as they provide numerical descriptions rather than detailed narrative and this report data has not been used by government officials. Chart 1 demonstrated the sample for Business Impact of COVID-19 survey broken down by industry. The survey was sent to around 17,600 UK businesses, and results presented in this release are based on a limited number of responses, around 34.7% (6,114) of all businesses surveyed, who responded (ONS.GOV.UK, 2020).

Chart 2 shows which industries have applied for government schemes during crisis (ONS GOV, 2020).

Source 2 Beyond COVID-19: Five key strategic priorities for a post-crisis world (Anon, 2020)

The analysis beyond COVID-19 by PWC is presented in unique insights on critical priorities for a post-crisis world. The novel coronavirus continues to cast a long shadow on societies, economies and businesses worldwide. The central focus of this article is to provide five strategic planning to businesses, For example, realign your cost structure, digital transformation, prepare for a new word, strengthen capital efficiency, carve out new revenue streams to come out of every crisis and concluded with positive note to create an opportunity for competitive reinvention (Anon, 2020).

Source 3 -Lead your business through the COVID-19 crisis (Reeves, Lang and Szlezak, 2020)

The HBR qualitative data represents the economic impact and 12 lessons to respond the outbreak out of which 3 has been highlighted to inform business planning. The central focus of the article is to provide critical analysis to improve business through COVID-19 crisis. For example, beware of bureaucracy, use resilience in developing policies and constantly reframe your understanding of what’s happening. At the same time focus is also on aspacts like employees needs, travel, remote work, supply chain stabilisation and business forecasting. Furthermore, the research makes an important point that the world should prepare now for the next crisis, and while the crisis is unfolding, impacts should be documented to be later reviewed. In order to sum up, it is likely to boost business like online shopping, online education, and public health investments (Reeves, Lang and Szlezak, 2020).

An assessment of factors which might impact on organisation business

The PESTLE analysis tool helps the organisations to identify the major macroeconomic factors that may influence future development. Also, it enables to identify the strategic development for future sustainability. It helps to improve its competitive advantage in the marketplace (Marmol et al., 2016)

Political:

The political analysis would include government stability, political environment, trade, elections and regulations trends. Other elements, such as conflict, the level of corruption or degree of state Intervention should also be considered. The political ties can be financially beneficial for the organisation, and it has been argued that, their values in some political contexts can be enhanced by aligning them with the organisation’s corporate social efforts. Furthermore “an entrepreneur who launches a commercial business in a country with perpetual government conflict should ensure that they respond to the needs of the indigenous inhabitants, which will be different from those living in a country with stability and peace. There are bodies such as the European Commission and the World Trade organisation that govern international trade policies” (Marmol et al., 2016).

Environmental:

The organisation has a responsibility to treat environment well. This is usually defined as zero impact on the environment. Environmental scanning is the monitoring and evaluating process of external and internal environment within the corporation. Its purpose is to identify strategic factors of elements, which will assist in the analysis of the strategic decisions of the organisation for example recycling increased use of renewable resources and reduction of waste. The simplest way to represent the outcomes of environmental scanning is through SWOT that appears to be strategic factors for organisation. The external environmental consists of variables that are outside of the organisation and not typically within the short-run control of top management. Below Figure 1.5 show the basic elements if the strategic management process (Wheelen et al, 2017b, pp.46).

Socio-Cultural:

One of the most important factors affecting business is how the workforces have changed. The main reason is the pronounced changes in the age, gender, race and ethnic background. How these factors are managed can make a major difference in the success of the organisation. Organisations have a corporate social responsibility for the community, and social factors have a significant role in shaping the civilisation. For example, recent trends are showing that, more people want to work longer. Below figure 1.8 shows how workforce participation is shifting dramatically. “In 1992, 11.5 percent of the workforce was sixty-five and older. These will double by 2022 when 23 percent is sixty-five and older” (Phillips and Phillips, 2015). Figure 1.8 labour force participation rates for age sixty-five and older.

Technology:

Technological advancement can transform the organisations; it improves the standards by increasing productivity, reducing the cost, helping employees with flexibility. Several upcoming systems could be transformative in achieving development goals. United Nations has published a “The Technology and Innovation Report 2018” intended to encourage technology transfer; for example, Big data analysis can help to manage and resolve critical global issues. Artificial intelligence includes capabilities in image recognition, problem-solving, and logical reasoning that sometimes exceed those of humans (Sirimanne et al., 2018). Technology has enhanced communications and making the business profitable, however, the company might face issues like data security, digital manipulation and social disconnect. This technological advancement came as a surprise to many HR managers; therefore, it is essential for HR to question the product and processes involved in the acquisition by the organisation.

Legal:

Legal factors refer to regulations, health & safety, compliance and the labour market that may affect the business. Besides, with the rapid global outbreak of COVID-19, companies should focus on employee safety, as they are reviewing their strategies, policies, and procedures, many leaders are specifically wondering about their legal risk. Not having adequate communicable-illness policies and response plans could expose them to a laundry list of HR-related legal concerns (Susser and Tyson, 2020). The COVID-19 crisis will change businesses and society in many significant ways. HRM laws play an essential role in the implementation of organisational initiatives and then forms the strategy of legislation. These factors have an internal and external impact, so keeping well updated on regulations in the country, where the organisation is located is the best way to protect the company form legal constraint.

Economical:

An economic element has become a key factor for the business that could potentially impact its long term strategic goal. It is important for HR to assess the major economic factors such as inflation, taxes, finance and globalisation. As stated in a recent article “The COVID-19 Implications for business” by McKinsey, highlighted the current and future economic impact on the global market. “The financial system suffers significant distress, Large-scale quarantines, travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending until the end of Q2, producing a recession. The global economic impact is severe, approaching the global financial crisis of 2008–09. GDP contracts significantly in most major economies in 2020, and recovery begins only in Q2 2021” (Craven et al., 2020).

Figure 1.5 shows some of the examples of macroeconomic variables of PESTLE data source (Marmol, Feys and Probert, 2016).

Analysis of two forces

Ethical – Business ethics help organisation in maintaining brand value, organisational reputation and also helps in avoiding some legal, financial and operational issues. For example, In terms of ethical behaviour, Infosys has an unwavering commitment to best global practices and has been driven by its vision to become a global player. As stated by Infosys CEO and MD of “Infosys as a company has always believed in commitment to values, ethical conduct of business and making a clear distinction between personal and corporate funds. When we founded the company, we took a decision that we keep this line very clear” (Fernando, et al, 2018). It is important to execute fair dealings, corporate responsibility, discrimination, autonomy and justice for successful business.

Demographics - Demographic factors such as occupation, religion, birth and death rate, old-age population, gender, education, income level and experience has a considerable impact on business performance. One of the key finding in demographic impacts on old-age support described by (Liang, 2017) is a large portion of the fiscal revenue in developed countries is used to provide old-age support, including both direct pension payment as well as medical benefits. The public expenditure to support the elderly is financed via taxes collected from the younger, currently employed, generation. Therefore, in an aging society, as government expenditure to support the elderly increases, the tax burden and the fiscal deficit also rise. Figure 1.4 demonstrates the higher a country’s dependency ratio is, the higher its public expenditures are as a share of GDP. The author suggested several options to meet the growing demand i.e. Rise taxes, increase deficits, reduce benefits for elderly and delay the retirement age.

Figure 1.4 source – (World Bank, 2015) cited by (Liang, 2017).

An examination of the contribution HR can make to business ethics and accountability.

Business Ethics and Accountability

Business ethics is influence by policies and practices concerning controversial subjects. Communicating the organisation values and demonstrating long-term commitment helps in building an ethical culture. Strategic human resource management (SHRM) researchers have built a substantial body of evidence advising that HR practices have directly influenced an organisation’s competitive advantage. From an HR ethical perspective, being insightful to the decisions, policies and actions have on employees, and on organisational level has a significant impact on the business. Organisations have a responsibility to act in the public interest during emergencies like the current outbreak of COVID-19 and representing corporate social responsibility in areas of their influence.

The management of the Change

The organisation change refers to the strategic analysis conducted to decide why the organisation needs to change. To execute the change successfully, HR charged with the responsibility to handle these activities. For example, Figure 1.8 the management of change flow chart describes the steps to execute the process and also it guides the questions arise at different change process. Furthermore, rapid technological change is forcing the organisation to adopt latest technologies and change the way they work and interface with their supplier and customers. At the same time, the political agenda of the government is driving more change in the public sector so many organisation need to modify their strategy to remain competitive (Balogun, et al., 2015).

Performance measurement and reporting

A Balanced Scorecard is a tool that helps the manager to measures companies strategic goals. It was first proposed by Robert Kaplan and David Norton in 1996; they questioned as per below figure 1.9 that to succeed financially, how should we appear to our shareholders? The internal business process has to satisfy shareholders, customers, and what business processes must we excel at? Learning and growth are? how we sustain our ability to change and improve? And lastly, how should we appear to our customers? The measures are derived from top-down process driven by the mission and strategy of the organisation.(Rees, et al., 2017).

The relevance of Balance Scorecard: Based on the work of Kaplan and Notan, the HR balance scorecard can be applied to any organisation, whether private, public or non-profit firm. It is a strategic approach to value-adding through measurement. Figure 1.10 shows the HR function has to actively designate where it made a significant contribution (Rees, et.al., 2017).

(6) Case Study – Master Kong

The COVID-19 pandemic has changed lives and transformed the businesses and society in significant ways. In China, some of the fastest-recovering companies proactively looked ahead and anticipated such shifts. For example, Master Kong, a leading instant noodle and beverage producer, has analysed competitive position in the market, reviewed dynamics daily and reprioritised efforts based on desired for future need. It anticipated hoarding and stock-outs and implemented critical change features and tilted as a focus away from offline, large retail channels to O2O (online-to-offline), e-commerce, and smaller stores. By continuously tracking design transition process, retail outlets’ re-opening plans; it was also able to adapt its supply chain in a highly flexible manner (Reeves et al., 2020).

Finally the outcome was successful, supply chain had recovered by more than 50% just in a few weeks after the outbreak, and it was able to supply 60% of the stores that were re-opened during this period three times as many as some competitors (Reeves et al., 2020). The pandemic crises are incredibly dynamic, which requires a constant reframing of strategic plans. HR contribution gives direction to crisis planning, post-recovery strategy, and lastly, reflection and learning.

Conclusions

The importance of HR in business planning

The Covid-19 pandemic changed the global economy and disrupts the way we live, work, and conduct business. HR’s contribution to business planning is essential to the success of the organisation and factors like political, economic, technological and ethical needs to be considered in the process. When HR interventions are aligned with a business goal, competitive advantage can be achieved easily. As demonstrated in Figure 1.7, HR’s contribution is necessary in areas like the establishment of new policies in regards to COVID-19 outbreak, responsible work design for business sustainability and focus on employee’s wellbeing.

Review of main points

In the first section of this academic report, explained why HR practices in business are essential and described the strategy formulation, policies and implementation. It is important to note that these strategies may vary from SME’s, global, private and government organisations. In addition, the comparison of strategic tools like Porter’s five forces and PESTLE analysis help in increased competitive intensity in the market. Analysis of business data like company strategy plan, government data and recent articles are critical factors in HR’s contribution.

In recent years we have seen profound change in the external factors like environmental, technological and economic as these affects business majorly. For example, the outbreak of COVID-19 resulted in the economic slowdown and possibly a global recession. In the final section, the emphasis is on business ethics, management of change and performance measurement.

The significance of this report

The key findings of this report are to navigate the changing business environment and it’s time to rethink the way organisation does the business. The research covered by this paper suggests that, making the changes is necessary now to emerge from the present crisis positioned for future success. The principal aim of the HR strategy is to protect, improve and reinforce these key strengths.

Reference List:

Balogun, J., Hailey, V.H. and Gustafsson, S. (2015). Exploring Strategic Change.4th ed. Pearson Education Limited.pp – 17.

Fernando, A., Muraleedharan, K. and Satheesh, E., 2018. Corporate Governance. 3rd ed. Pearson India.

Michaux, S., Cadiat, A. and Probert, C., 2015. Porter's Five Forces. 50Minutes.com.

Marmol, T., Feys, B. and Probert, C., 2016. PESTLE Analysis. 50Minutes.com.

Phillips, J. and Phillips, P., 2015. High-Impact Human Capital Strategy. New York: AMACOM, p.Chapter - 7.

Rees, G. and Smith, P., 2017. Strategic Human Resource Management. 2nd ed. Sage Publications Ltd.

Reeves, M., Fæste, L. and Chen, C., 2020. CORONAVIRUS AND BUSINESS. HARVARD BUS REVIEW PRESS, .Chapter - 7.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E. (2017a). Strategic Management and Business Policy: Globalization, Innovation and Sustainability, Global Edition. 15th ed. [ebook] Pearson Education Limited. pp-200-208.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E. (2017b). Concepts in Strategic Management and Business Policy: Globalization, Innovation and Sustainability, Global Edition. 15th ed. Pearson Education Limited., pp-48-55.