Human Resource Management (MGT501)
HRM IN A CHANGING ENVIRONMENT
After studying this chapter, students should be able to understand the following concepts:
A. HRM in a Changing Environment
B. New trends at work place
This lecture will primarily help students who intend to be managers, deal effectively with the challenges of
managing people. Firms that deal with these challenges effectively are likely to outperform those that do
not. These challenges may be categorized according to their primary focus: the environment, the
organization, or the individual.
A. HRM in a Changing Environment: The Challenges
Today's organizations are facing challenges upon following levels:
i. Environmental Challenges
ii. Organizational Challenges
iii. Individual Challenges
Environmental challenges refer to forces external to the firm that are largely beyond management's control
but influence organizational performance. They include: rapid change, the internet revolution, workforce
diversity, globalization, legislation, evolving work and family roles, and skill shortages and the rise of the
Six important environmental challenges today are:
a) Rapid change,
b) Work force diversity,
f) Evolving work and family roles,
g) Skill shortages and the rise of the service sector
a) Rapid Change
Many organizations face a volatile environment in which change is nearly constant. If they are to survive
and prosper, they need to adapt to change quickly and effectively. Human resources are almost always at the
heart of an effective response system. Here are a few examples of how HR policies can help or hinder a
firm grappling with external change:
b) Work Force Diversity.
All these trends present both a significant challenge and a real opportunity for managers. Firms that
formulate and implement HR strategies that capitalize on employee diversity are more likely to survive and
One of the most dramatic challenges facing as they enter the twenty-first century is how to compete against
foreign firms, both domestically and abroad. Many companies are already being compelled to think globally,
something that doesn't come easily to firms long accustomed to doing business in a large and expanding
domestic market with minimal foreign competition.
Weak response to international competition may be resulting in upwards layoffs in every year. Human
resources can play a critical role in a business's ability to compete head-to-head with foreign producers. The
implications of a global economy on human resource management are many. Here are a few examples:
Worldwide company culture
Some firms try to develop a global company identity to smooth over cultural differences between domestic
employees and those in international operations. Minimizing these differences increases cooperation and
Human Resource Management (MGT501)
can have a strong impact on the bottom line. For instance, the head of human resources at the European
division of Colgate Palmolive notes, "We try to build a common corporate culture. We want them all to be
Some firms actively engage in international alliances with foreign firms or acquire companies overseas to
take advantage of global markets. Making such alliances work requires a highly trained and devoted staff.
For instance, Phillips (a Netherlands lighting and electronics firm) became the largest lighting manufacturer
in the world by establishing a joint venture with AT&T and making several key acquisitions.
These illustrations show how firms can use HR strategies to gain a worldwide competitive advantage.
Much of the growth in the HR function over the past three decades may be attributed to its crucial role in
keeping the company out of trouble with the law. Most firms are deeply concerned with potential liability
resulting from personnel decisions that may violate laws enacted by the state legislatures, and/or local
governments. These laws are constantly interpreted in thousands of cases brought before government
agencies, federal courts, state courts, and t Supreme Court.
How successfully a firm manages its human resources depends to a large extent on its ability to deal
effectively with government regulations. Operating within the legal framework requires keeping track of the
external legal environment and developing internal systems (for example, supervisory training and grievance
procedures) to ensure compliance and minimize complaints. Many firms are now developing formal policies
on sexual harassment and establishing internal administrative channels to deal with alleged incidents before
employees feel the need to file a lawsuit.
Legislation often has a differential impact on public- and private sector organizations. (Public sector is
another term for governmental agencies; private sector refers to all other types of organizations.) Some
legislation applies only to public-sector organizations. For instance, affirmative action requirements are
typically limited to public organizations and to organizations that do contract work for them. However,
much legislation applies to both public- and private sector organizations. In fact, it's difficult to think of any
HR practices that are not influenced by government regulations.
The world has never before seen such rapid technological changes as are presently occurring in the
computer and telecommunications industries. One estimate is that technological change is occurring so
rapidly that individuals may have to change their entire skills three or four times in their career. The
advances being made, affect every area of a business including human resource management.
f) Evolving Work and Family Roles
The proportion of dual-career families, in which both wife and husband (or both members of a couple)
work, is increasing every year. Unfortunately, women face the double burden of working at home and on
the job, devoting 42 hours per week on average to the office and an additional 30 hours at home to
children. This compares to 43 hours spent working in the office and only 12 hours at home for men.
More and more companies are introducing "family-friendly" programs that give them a competitive
advantage in the labor market. These programs are HR tactics that companies use to hire and retain the
best-qualified employees, male or female, and they are very likely to payoff. For instance, among the well
known organizations / firms, half of all recruits are women, but only 5% of partners are women. Major
talent is being wasted as many women drop out after lengthy training because they have decided that the
demanding 10- to 12-year partner track requires a total sacrifice of family life. These firms have started to
change their policies and are already seeing gains as a result. Different companies have recently begun
offering child-care and eldercare referral services as well to facilitate women workers as well as are
introducing alternative scheduling to allow employees some flexibility in their work hours.
g) Skill Shortages and the Rise of the Service Sector.
Expansion of service-sector employment is linked to a number of factors, including changes in consumer
tastes and preferences, legal and regulatory changes, advances in science and technology that have
eliminated many manufacturing jobs, and changes in the way businesses are organized and managed.
Service, technical, and managerial positions that require college degrees will make up half of all
Human Resource Management (MGT501)
manufacturing and service jobs by 2000. Unfortunately, most available workers will be too unskilled to fill
those jobs. Even now, many companies complain that the supply of skilled labor is dwindling and that they
must provide their employees with basic training to make up for the shortcomings of the public education
system. To rectify these shortcomings, companies currently spend large amount year on a wide variety of
Organizational challenges refer to concerns that are internal to the firm. However, they are often a
byproduct of environmental forces because no firm operates in a vacuum. These issues include:
competitive position (cost, quality, and distinctive capability), decentralization, downsizing, organizational
restructuring, self-managed work teams, small businesses, organizational culture, technology, and
Organizational challenges are concerns or problems internal to a firm. They are often a byproduct of
environmental forces because no firm operates in a vacuum. Still, managers can usually exert much more
control over organizational challenges than over environmental challenges. Effective managers spot
organizational issues and deal with them before they become major problems. One of the themes of this
text is proactively: the need for firms to take action before problems get out of hand. Only managers who
are well informed about important HR issues and organizational challenges can do this. These challenges
include the need for a competitive position and flexibility, the problems of downsizing and organizational
restructuring, the use of self-managed work teams, the rise of small businesses, the need to create a strong
organizational culture, the role of technology, and the rise of outsourcing.
An organization will outperform its competitors if it effectively utilizes its work force's unique combination
of skills and abilities to exploit environmental opportunities and neutralize threats. HR policies can
influence an organization's competitive position by
a) Controlling costs,
b) Improving quality, and
c) Creating distinctive capabilities
a) Controlling costs
One way for a firm to gain a competitive advantage is to maintain low costs and a strong cash flow. A
compensation system that uses innovative reward strategies to control labor costs can help the organization
grow. A well-designed compensation system rewards employees for behaviors that benefit the company.
Other factors besides compensation policies can enhance a firm's competitiveness by keeping labor costs
under control. These include: better employee selection so that workers are more likely to stay with the
company and to perform better while they are there, training employees to make them more efficient and
productive; attaining harmonious labor relations); effectively managing health and safety issues in the
workplace and structuring work to reduce the time and resources needed to design, produce, and deliver
products or services
b) Improving quality.
The second way to gain a competitive advantage is to engage in continuous quality improvement. Many
companies are implementing total quality management (TQM) initiatives, which are programs designed to
improve the quality of all the processes that lead to a final product or service. In a TQM program, every
aspect of the organization is oriented toward providing a quality product or service.
c) Creating Distinctive Capabilities
The third way to gain a competitive advantage is to utilize people with distinctive capabilities to create
unsurpassed competence in a particular area (for example, 3M's competence in adhesives, Carlson
Corporation's leading presence in the travel business, and Xerox's dominance of the photocopier market).
A number of firms are changing the way the functions are performed. For example, some companies are
restructuring HR for reasons such as time pressures, financial considerations, and market pressures. This
Human Resource Management (MGT501)
restructuring often results in a shift in terms of who performs each function. Organizations still perform the
majority of a firm's HR functions inside the firm.
Adjusting to HR restructuring trends--who performs the human resource management tasks? The
traditional human resource manager continues to be in place in most organizations, but some organizations
are also using shared service centers, outsourcing, and line managers to assist in the delivery of human
resources to better accomplish organizational objectives. Additionally, the size of some HR departments is
getting smaller because certain functions are now being accomplished by others. This shift permits the HR
managers to focus on more strategic and mission-oriented activities.
The Human Resource Manager--An individual who normally acts in an
advisory or staff capacity, working with other managers to help them deal with
human resource matters. One general trend is that HR personnel are servicing an
increasing number of employees. The human resource manager is primarily
responsible for coordinating the management of human resources to help the
organization achieve its goals. There is a shared responsibility between line
managers and human resource professionals.
ii. Shared Service Centers--Take routine, transaction-based activities that are
dispersed throughout the organization and consolidate them in one place.
iii. Outsourcing Firms--The process of transferring responsibility for an area of
service and its objectives to an external provider. The main reason for this
movement was to reduce transaction time, but other benefits include cost
reductions and quality improvements. Companies found that administrative,
repetitive tasks are often performed in a more cost-effective manner by external
iv. Line Managers--Line managers, by the nature of their jobs, are involved with
human resources. Line managers in certain firms are being used more to deliver
HR services. When implemented, this change reduces the size of the HR
v. Decentralization: In the traditional organizational structure, most major
decisions are made at the top and implemented at lower levels. It is not
uncommon for these organizations to centralize major functions, such as human
resources, marketing, and production, in a single location (typically corporate
headquarters) that serves as the firm's command center. Multiple layers of
management are generally used to execute orders issued at the top and to control
the lower ranks from above. Employees who are committed to the firm tend to
move up the ranks over time in what some have called the internal labor market.
However, the traditional top-down form of organization is quickly becoming
obsolete, both because it is costly to operate and because it is too inflexible to
compete effectively. It is being replaced by decentralization, which transfers
responsibility and decision-making authority from a central office to people and
locations closer to the situation that demands attention. HR strategies can play a
crucial role in enhancing organizational flexibility by improving decision-making
processes within the firm. The need for maintaining or creating organizational
flexibility in HR strategies is addressed in several chapters of this book, including
those dealing with work flows, compensation and training.
vi. Downsizing Periodic reductions in a company's work force to improve its
bottom line-often called downsizing-are becoming standard business practice,
even among firms that were once legendary for their "no layoff' policies, such as
AT&T, IBM, Kodak, and Xerox. In addition to fostering a lack of emotional
commitment, transient employment relationships create a new set of challenges
Human Resource Management (MGT501)
for firms and people competing in the labor market, as well as for government
agencies that must deal with the social problems associated with employment
insecurity (including loss of health insurance and mental illness). However, the
good news for laid-off employees is that the poor-performance stigma traditionally
attached to being fired or laid off is fading.
Human resource issues at the individual level address concerns that are most pertinent to decisions
involving specific employees. These issues almost always reflect what is happening in the larger
organization. How individuals are treated also is likely to have an effect on organizational issues. For
instance, if many key employees leave a firm to join its competitor, it will affect the competitive posture of
the firm. The individual issues include matching people and organization, ethics and social responsibility,
productivity, empowerment, brain drain, and job insecurity.
Human resource issues at the individual level address the decisions most pertinent to specific employees.
These individual challenges almost always reflect what is happening in the larger organization. For instance,
technology affects individual productivity; it also has ethical ramifications in terms of how information is
used to make HR decisions (for example, use of credit or medical history data to decide whom to hire).
How the company treats its individual employees is also likely to affect the organizational challenges we
discussed earlier. For example, if many key employees leave the firm to join competitors, the organization's
competitive position is likely to be affected. In other words, there is a two-way relationship between
organizational and individual challenges. This is unlike the relationship between environmental and
organizational challenges, in which the relationship goes only one way few organizations can have much
impact on the environment. The most important individual challenges today involve, productivity, ethics
and social responsibility, productivity, empowerment, brain drain, job security and matching people and
organizations. Here we discuss each of them...
a. Productivity is a measure of how much value individual employees add to the goods or services
that the organization produces. The greater the output per individual, the higher the organization's
productivity. Two important factors that affect individual productivity are ability and motivation.
Employee ability, competence in performing a job, can be improved through a hiring and placement
process that selects the best individuals for the job. It can also be improved through training and
career development programs designed to sharpen employees' skills and prepare them for additional
responsibilities. Motivation refers to a person's desire to do the best possible job or to exert the
maximum effort to perform assigned tasks. Motivation energizes, directs, and sustains human
behavior. A growing number of companies recognize that employees are more likely to choose a
firm and stay there if they believe that it offers a high quality of work life (QWL).
b. Ethics and Social Responsibility Corporate social responsibility refers to the extent to which
companies should and do channel resources toward improving one or more segments of society
other than the firm's owners or stockholders. Ethics is the bedrock of socially responsible behavior.
People's expectations that their employers will behave ethically are increasing, so much that many
firms and professional organizations have created codes of ethics outlining principles and standards
of personal conduct for their members. Unfortunately, these codes often do not meet employees'
expectations of ethical employer behavior. These negative perceptions have worsened over the
years. In a recent poll of Harvard Business Review readers, almost half the respondents indicated their
belief that managers do not consistently make ethical decisions. The widespread perceptions of
unethical behavior may be attributed to the fact that managerial decisions are rarely clear-cut. Except
in a few blatant cases (such as willful misrepresentation), what is ethical or unethical is open to
debate. Even the most detailed codes of ethics are still general enough to allow much room for
managerial discretion. In other words, many specific decisions related to the management of human
resources are subject to judgment calls. A company that exercises social responsibility attempts to
balance its commitments-not only to its investors, but also to its employees, its customers, other
businesses, and the community or communities in which it operates. For example, McDonald's
established Ronald McDonald houses several years ago to provide lodging for families of sick
Human Resource Management (MGT501)
children hospitalized away from home. Sears and General Electric support artists and performers,
and many local merchants support local children's sports teams.
c. Empowerment In recent years many firms have reduced employee dependence on superiors and
placed more emphasis on individual control over (and responsibility for) the work that needs to be
done. This process has been labeled empowerment because it transfers direction from an external
source (normally the immediate supervisor) to an internal source (the individual's own desire to do
well). In essence, the process of empowerment entails providing workers with the skills and
authority to make decisions that would traditionally be made by managers. The goal of
empowerment is an organization consisting of enthusiastic, committed people who perform their
work ably because they believe in it and enjoys doing it (internal control). This situation is in stark
contrast to an organization that gets people to work as an act of compliance to avoid punishment
(for example, being fired) or to qualify for a paycheck (external control).
d. Brain Drain - With organizational success more and more dependent on knowledge held by
specific employees, companies are becoming more susceptible to brain drain-the loss of intellectual
property that results when competitors lure away key employees. High-Tec firms are particularly
vulnerable to this problem. Such important industries as semiconductors and electronics suffer from
high employee turnover as key employees, inspired by the potential for huge profits, leave
established firms to start their own businesses. This brain drain can negatively affect innovation and
cause major delays in the introduction of new products. To make matters worse, departing
employees, particularly those in upper management, can wreak considerable havoc by taking other
talent with them when they leave. To combat the problem of defection to competitors, some firms
are crafting elaborate ant defection devices. For example, Compaq computer has introduced a policy
that revokes bonuses and other benefits to key executives if they take other employees with them
when they quit. Micron Technology staggers key employees' bonuses; they lose un-awarded portions
when they leave.
e. Job Insecurity In this era of downsizing and restructuring, many employees fear for their jobs.
For most workers, being able to count on a steady job and regular promotions is a thing of the past.
Even the most profitable companies have laid off workers. Companies argue that regardless of how
well the firm is doing, layoffs have become essential in an age of cutthroat competition. In addition,
the stock market often looks favorably on layoffs. For employees, however, chronic job insecurity is
a major source of stress and can lead to lower performance and productivity. Though union
membership has been declining in recent years, many workers still belong to unions, and job security
is now a top union priority. In return for job security, though, many union leaders have had to make
major concessions regarding pay and benefits.
f. Matching People and Organizations Research suggests that HR strategies contribute to firm
performance most when the firm uses these strategies to attract and retain the type of employee
who best fits the firm's culture and overall business objectives. For example, one study showed that
the competencies and personality characteristics of top executives could hamper or improve firm
performance, depending on what the firm's business strategies are. Fast-growth firms perform better
with managers who have a strong marketing and sales background, who are willing to take risks, and
who have a high tolerance for ambiguity. However, these managerial traits actually reduce the
performance of mature firms that have an established product and are more interested in
maintaining (rather than expanding) their market share. Other research has shown that small high-
tech firms benefit by hiring employees who are willing to work in an atmosphere of high
uncertainty, low pay, and rapid change in exchange for greater intrinsic satisfaction and the financial
opportunities associated with a risky but potentially very lucrative product launch
B. New Trends at Work Place:
b. Work time
c. Standard of living
Human Resource Management (MGT501)
Expectations & demand
Diversity and gender issues at work place
The past two decades have witnessed a dramatic transformation in how firms are structured. Tall
organizations that had many management levels are becoming flatter as companies reduce the number of
people between the chief executive officer (CEO) and the lowest-ranking production employee in an effort
to become more competitive. This transformation has had enormous implications for the effective
utilization of human resources. Since the late 1980s, many companies have instituted massive layoffs of
middle managers, whose traditional role of planning, organizing, implementing, and controlling has come to
be equated with the kind of cumbersome bureaucracy that prevents businesses from responding to market
forces. It is estimated that two thirds of the jobs eliminated in the 1990s were supervisory/middle
management jobs. New relationships among firms are also fostering hybrid organizational structures and
the blending of firms with diverse histories and labor forces. Mergers and acquisitions, in which formerly
independent organizations come together as a single entity, represent two important sources of
restructuring. A newer and rapidly growing form of inter organizational bonding comes in the form of joint
ventures, alliances, and collaborations among firms that remain independent, yet work together on specific
products to spread costs and risks. To be successful, organizational restructuring requires effective
management of human resources. For instance, flattening the organization requires careful examination of
staffing demands, workflows, communication channels, training needs, and so on. Likewise, mergers and
other forms of inter organizational relations require the successful blending of dissimilar organizational
structures, management practices, technical expertise, and so forth...
Education: Now a day organizations are available with the opportunity of having more
knowledge and skilled workers, increase in the education level of society's continuously
providing the highly educated work force in the organizations.
b. Work time: Flextime--the practice of permitting employees to choose, with certain
limitations, their own working hours. Compressed Workweek--any arrangement of work hours
that permits employees to fulfill their work obligation in fewer days than the typical five-day
workweek. This approach adds many highly qualified individuals to the labor market by
permitting both employment and family needs to be addressed.
Standard of living: High employment rate, low inflation and Steady economic growth provide
opportunity and rising living standards. Technological advance has enabled the world's
population to grow with improved living standards for most.
d. Expectations & demand: People's expectations that their employers will behave ethically are
increasing, so much that many firms and professional organizations have created codes of ethics
outlining principles and standards of personal conduct for their members. Figure 1-5 shows the
code of ethics for members of the American Marketing Association. Unfortunately, these codes
often do not meet employees' expectations of ethical employer behavior. These negative
perceptions have worsened over the years.
Diversity and gender issues at work place: Managing diversity means planning and
implementing organizational systems and practices to manage people so that the potential
advantages of diversity are maximized while its potential disadvantages are minimized. Managers
are striving for racial, ethnic, and sexual workplace balance as a matter of economic self-interest.
A study found that cultural diversity contributes to improved productivity, return on equity, and
QWL: High quality of work life is related to job satisfaction, which in turn is a strong predictor
of absenteeism and turnover. A firm's investments in improving the quality of work life also
payoff in the form of better customer service. We discuss issues covering job design and their
Human Resource Management (MGT501)
effects on employee attitudes and behavior.
g. TQM: Many companies are implementing total quality management (TQM) initiatives, which
are programs designed to improve the quality of all the processes that lead to a final product or
service. In a TQM program, every aspect of the organization is oriented toward providing a
quality product or service
Brain Drain: the loss of intellectual property that results when competitors lure away key employees.
Downsizing: Periodic reductions in a company's work force to improve its bottom line-often called
Ethics and Social Responsibility: Corporate social responsibility refers to the extent to which companies
should and do channel resources toward improving one or more segments of society other than the firm's
owners or stockholders. Ethics is the bedrock of socially responsible behavior.
Outsourcing Firms: The process of transferring responsibility for an area of service and its objectives to
an external provider
Restructuring: A number of firms are changing the way the functions are performed. OR
Restructuring is the corporate management term for the act of partially dismantling and reorganizing a
company for the purpose of making it more efficient and therefore more profitable. It generally involves
selling off portions of the company and making severe staff reductions
Re-engineering is the radical redesign of an organization's processes, especially its business processes.
Rather than organizing a firm into functional specialties (like production, accounting, marketing, etc.) and
looking at the tasks that each function performs, we should, according to the reengineering theory, be
looking at complete processes from materials acquisition, to production, to marketing and distribution. The
firm should be re-engineered into a series of processes.
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