1.3 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.

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:

Basically, HRM professionals have to be aware of external factors, so they can develop policies that meet not only the needs of the company but also the needs of the employees. Any manager operating without considering outside forces will likely be out-of-step with their company and industry and alienate employees, resulting in unmotivated and unhappy workers. Not understanding the external factors can also result in breaking the law, which has a concerning set of implications as well. In this section, we list four broad categories of external factors faced by organizations today.

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%).^[1]

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-19 crisis had an impact on organizations in a major way. The COVID-19 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 article All the things COVID-19 will change forever, according to 30 top experts summarizes the views of top HR executives on how the COVID-19 pandemic has affected HRM.

Globalization 

In 2020, 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 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 2018, Canadian trade in goods and services reached CA$1.5 trillion. Canada’s exports totaled over CA$585 billion, while its imported goods were worth over CA$607 billion. The US is our most important trade partner with approximately CA$391 billion of these imports originating from the United States (CA$216 billion from non-U.S. sources). 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. Watch the video: Running a Global HR Team by LinkedIn Talent Solution [6:46] to learn about  how globalization has affected HR practices.

Cost Containment and Efficiency

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 the 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.^[2] Here is a short article how of HRM can help save costs for small businesses.

Technology 

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.

Today, a vast amount of information is collected about employees via Human Resource Information Systems (HRIS). This information, in turn, can be used to support management decisions using sophisticated analytical tools. For example, a financial institution can implement quarterly employee satisfaction surveys and investigate predictors of ‘dips’ and ‘jumps’ in satisfaction. It could uncover that those employees working on the investment side of the business tend to be very stressed during the preparation of end-of-quarter fund performance reporting. Knowing this, they could implement special communication efforts and improved processes or training for those employees during critical business cycles of the year.

“HRM and Business Challenges” in Human Resources Management – 2nd Ontario Edition by Elizabeth Cameron, which is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.