1.6 HRM and Business Challenges

HR processes are designed to improve the effectiveness of an organization through professional human resource management, for example, by ensuring that the right people are hired, trained, and fairly evaluated and compensated. While HR processes are internal to the organization, these same processes need to have an external focus and help organizations overcome the challenges that they face. The HR manager needs to consider the many external forces that may affect HR processes and the organization as a whole. In this section, we describe how HR management has to be in tune with changes in the environment.

Business Challenges

Every organization must have the capacity to adjust to changes in its environment. Thus, it is important for organizations to be aware of outside factors, or external factors. These factors are beyond their control but could positively or negatively impact the organization and their human resources. External factors might include the following:

Crisis Management

Of course, organizations have had to deal with crises in the past, such as in 2008, where the economy was hit with a massive financial crisis. The relaxing of credit lending standards by investment banks and a significant increase in subprime lending was the cause of this crisis. This resulted in the collapse of the financial system. In just a few weeks, the S&P 500 lost half of its value and housing prices lost 20% of their value in the US. Companies, banks, and even countries, went bankrupt. The impact of this event on HRM was immediate: the economy slowed down considerably which led to massive layoffs (unemployment in the US shot up to 10%) (Kosakowski, 2021). This one is fresh off the press and took most of us by surprise.  We now know that pandemics and the rapid spread of infectious diseases represents an external factor affecting organizations and HRM. It is an understatement to say that the COVID crisis that took us by storm in winter 2020 had an impact on organizations in a major way.

The COVID crisis made health and safety a priority for governments and organizations. It has brought to the fore a myriad of HR issues such as turnover, absenteeism, and burn-out. It has also accelerated the transformation of HR processes such as telework, remote training, and fair compensation (consider all of the controversy around the salaries of nursing home staff).

As we write this chapter, these changes are unfolding and it’s hard to predict how they will evolve over time. This interesting article, All the Things COVID-19 Will Change Forever, summarizes the views of top HR executives on how the COVID pandemic has affected HRM.

Globalization 

It would be almost impossible to find an organization that does not have some part of its activities outside of its national border. You can look at any local success story – Saputo, Groupe Dynamite, Lightspeed, CAE, Hopper, Cirque du Soleil, Couche Tard, and you will see how these organizations have deep international connections. The same is true of smaller businesses: your local coffee shop buys its coffee from an organic grower in Haiti and its paper cups from the US. For organizations, globalization is found in their supply chains, core activities, or customer base. Canada’s economy is one of the world’s top ten trading nations, with a highly globalized economy. In 2022, exports of goods from Canada was $777 billion, and imports of goods reached $757 billion, resulting in a significant trade surplus (Government of Canada, 2023).  The recently signed North American Free Trade Agreement (NAFTA), now called the United States-Mexico-Canada Agreement, updates the original NAFTA (1994). It has stronger protections for workers and the digital economy, expanded markets for American farmers and new rules to encourage auto manufacturing in North America.

The implication of globalization is significant for HRM. For HRM professionals, globalization means dealing with people from different cultures and adjusting to different employment laws and business practices. This video: Running a Global HR Team from LinkedIn Talent Solutions [6:46] discusses how globalization has affected HR practices.

Technology

Technology has greatly impacted human resources and will continue to do so as advanced technologies are developed. Technology impacts HRM in many ways.

From an employee perspective it eliminates jobs, changes job requirements, and alters the demands on the employee and employee expectations. It influences skills and competencies that employees need to perform their job.  Technology also creates a workforce that expects to be mobile. Due to the ability to work from home or anywhere else, many employees may request and even demand a flexible schedule to meet their own family and personal needs. Productivity can be a concern for all managers in the area of flextime, and another challenge is the fairness to other workers when one person is offered a flexible schedule. Technology also creates the need for HR policies related to employee privacy and the protection of a company’s data. The major challenge with technology is the rapid pace at which it evolves and the need to continuously up-date employees’ knowledge. Technology also creates additional stress for workers. Increased job demands, constant change, constant e-mailing and texting, and the physical aspects of sitting in front of a computer can be not only stressful but also physically harmful to employees.

According to an article in Fast Company, the ability to manage your personal brand (because of the increasing importance of social media), digital fluency, and resilience are some of the ‘super skills’ that are needed for the new world of work (Vozza, 2018).

From an HRM perspective technology impacts how HRM is delivered. Increasingly, jobs are being replaced by robots or artificial intelligence. Most companies now use social media platforms for recruiting employees. Interviewing and training are being done on Zoom or other specialized platforms. More and more organizations now use virtual reality (VR) technology to onboard and train their employees. This is especially useful for jobs that are particularly dangerous or high-stress. Here is a short article on how VR can be used for onboarding employees. Payroll and benefits management are now fully automated. All of these processes are centralized in Human Resource Information Systems (HRIS), and as a result, the large variety of databases available to perform HR tasks is mind boggling. These systems can be very useful to track recruiting and hiring processes, compensation, and training.

Factors such as global competition and increasing costs puts an enormous pressure on organizations to maximize their efficiency and productivity and remain viable. All departments of the organization must be focused on operational efficiencies and costs. For HRM, this means that the processes it manages contribute to the ‘bottom line’ in an objective and measurable way. For example, an HR manager who asks for $20,000 for a training budget will have to make their business case, and show that this investment will lead to better employee performance and productivity and, ultimately, more profits (or less costs). The role of HRM is complex and impactful when you consider that human capital typically represents 60% to 65% of an organizations total annual budget. Consider the implementation of a wellness program as an example. Investments in a company gym, a healthy menu at the cafeteria, or ergonomically-sound workstations can make a serious financial commitment, but if designed wisely, this investment can lead to a significant decrease in health-related issues. In early 2000’s, Johnson & Johnson estimated that, for every dollar invested in their wellness program, they obtained a return of $2.71, for total savings of over $250 million in health care costs (Berry et al., 2014). Here is a short article how of HRM can help save costs for small businesses.

Talent Acquisition

The dynamics of today’s business world and constant challenges ultimately equate to increasing demands on recruiting, selecting, training and retaining the necessary talent to compete. This is where HRM plays a critical role. There is no shortage of business challenges – these are forever changing and so to must the strategies, capabilities, processes and skills of HRM to keep pace.

The nature of work has changed dramatically in the past couple of decades. The ‘full-time one employer career’ of the past has given way to a ‘gig’ economy supported by a myriad of employment configurations – permanent part-time, fractional, contract, casual, on-call. As the business world and challenges evolve, so must HRM.

Hiring challenges persist in North America. Many employers continue to face a skills gap with a core focus on dependability and flexibility. It seems clear that employers need to focus both on attracting the right people and then keeping them in the organization. The COVID-19 situation placed even more stress and focus on employers as they struggled to fill positions and retain employees. Lockdowns, wage subsidies, and vaccination mandates are some examples of the issues during the COVID-19 pandemic that made employment more challenging for organizations.

“1.6 HRM and Business Challenges” from Human Resources Management – 3rd Edition by Debra Patterson is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.