Environmental Influences on HRM

1. The Strategic Role of Human Resource Management

The strategic approach to HRM recognizes three key elements. First, as we just discussed, all managers are HR managers. For example, at IBM every manager is expected to pay atten- tion to the development and satisfaction of subordinates. Line managers use surveys, career planning,  performance appraisal, and compensation to encourage commitment to IBM.11

Second, employees are viewed  as assets. Employees,  not buildings  and machinery,  give a company its competitive advantage. How a company  manages its workforce  may be the single most important factor in sustained competitive success.12

Third, HRM  is a matching  process, integrating  the organization’s  strategy and goals with the correct approach to managing the firm’s human capital.13  Current strategic issues of particular concern to managers include the following:

  • Becoming more competitive on a global basis
  • Improving quality, innovation, and customer service
  • Managing mergers and acquisitions
  • Applying new information technology for e-business

All of these strategic decisions determine  a company’s need for skills and employees. This chapter examines the three primary goals of HRM as illustrated in Exhibit 9.1. HRM activities and goals do not take place inside  a vacuum but within the context of issues and factors affecting the entire organization,  such as globalization, changing technology and the shift to knowledge work, a growing  need for rapid innovation, quick shifts in markets and the external environment,  societal trends, government regulations, and changes in the organiza- tion’s culture, structure, strategy, and goals.

The three broad HRM activities outlined in Exhibit 9.1 are to attract an effective work- force, develop the workforce to its potential, and maintain the workforce over the long term.14   Achieving  these goals requires skills in planning, recruiting, training, performance appraisal, wage and salary administration, benefit programs, and even termination. Each of the activities in Exhibit 9.1 will be discussed in this chapter.

2. Environmental  Influences  on  HRM

“Our strength is the quality of our people.”

“Our people are our most important resource.”

These often-repeated statements by executives emphasize the importance of HRM. HR managers must find, recruit, train, nurture, and retain the best people.15 Without the right people, the brightest  idea or management trend—whether  virtual teams, e-business, or flexible compensation—is doomed to failure. In addition,  when employees don’t feel val- ued, usually they are not willing to give their best to the company and often leave to find a more supportive work environment. For these reasons, it is important that HR executives be involved  in competitive  strategy. HR managers also interpret  federal legislation  and respond to the changing nature of careers and work  relationships.


HRM  contributes directly to the bottom line, because it is the organization’s human assets—its people—that meet or fail to meet strategic goals. To keep companies competitive, HRM is changing in three primary ways: focusing on building human capital, developing global HR strategies, and using information technology.

Building Human Capital. Today, more than ever, strategic decisions are related to HR considerations. In many companies, especially those that rely more on employee information,  creativity, knowledge, and service rather than on production machinery, suc-cess depends  on the ability to manage human capital.16  Human  capital refers to the eco- nomic value of the combined knowledge, experience, skills, and capabilities of employees.17

To build human capital, HRM  develops strategies for finding the best talent, enhancing their skills and knowledge with training programs and opportunities for personal and pro- fessional development, and providing  compensation and benefits that enhance the sharing of knowledge and appropriately reward people for their contributions to the organization.

One organization that recognizes the strategic role of HRM in getting  employees mobi- lized to meet goals is The Home  Depot, the nation’s largest home improvement  retail chain.

Home Depot’s HRM  team often uses data-driven  research to develop human capital initiatives. For example, data showed that senior  workers  had fewer  absences and stayed with their jobs longer, so the company signed a recruiting  partnership with the American Association of Retired Persons (AARP). Surveys revealed that employees prefer semian- nual bonuses to annual ones, so the HRM department made the switch.18   These types of initiatives, combined with opportunities for personal and professional development, help create an environment  that gives highly  talented people compelling  reasons to stay.

Another  concern related to human capital for HRM managers is building  social capital, which refers to the quality of interactions among employees and whether they share  a common perspective.19 In organizations with a high degree of social capital, for example, relationships  are based on honesty, trust, and respect, and people cooperate smoothly  to achieve shared goals and outcomes.

Information Technology. Information technology is transforming HRM and helping to meet the challenges of today’s global environment.  A study of the transition from traditional HR to e-HR found that the Internet and information technology signifi- cantly affects every area of HRM, from recruiting, to training  and career development, to retention  strategies.21 A human resource information  system is an integrated com- puter system designed to provide data and information  used in HR planning and decision making. The most  basic use is the automation of administrative  duties such as handling pay, benefits, and retirement plans, which is convenient for employees and can lead to sig- nificant  cost savings for the organization.

Federal Legislation. Over the past 40 years, a number of federal laws have been passed to ensure equal employment opportunity  (EEO). Some of the most significant legislation and executive orders are summarized in Exhibit 9.2. The point of the laws is to stop discriminatory  practices that are unfair to specific groups and to define enforcement agencies for these laws. EEO legislation attempts to balance the pay given to men and women; provide employment opportunities without regard to race, religion,  national ori- gin, and gender; ensure fair treatment for employees of all ages; and avoid discrimination against disabled individuals.

The Equal Employment Opportunity Commission (EEOC)  created  by the Civil Rights Act of 1964 initiates investigations in response to complaints concerning discrimi- nation. The EEOC  is the major agency  involved with employment discrimination. Discrimination  occurs when some applicants are hired or promoted  based on criteria that are not job relevant. For example, refusing to hire a black applicant  for a job he is qualified to fill or paying  a woman  a lower  wage than a man for the same work are dis- criminatory acts. When discrimination is found, remedies include providing  back pay and taking affirmative  action. Affirmative action requires that an employer take positive steps to guarantee equal employment  opportunities  for people within protected groups. An affirmative action plan is a formal  document that can be reviewed by employees and enforcement agencies. The goal of organizational affirmative action is to reduce or elimi- nate internal inequities among affected employee groups.

Failure to comply with EEO legislation can result in substantial fines and penalties for employers.  Suits for discriminatory  practices can cover a  broad range of employee complaints.  One issue of growing concern is sexual harassment, which is also a violation  of Title VII  of the Civil Rights Act. The EEOC guidelines specify that behavior  such as unwelcome  advances, requests for sexual favors, and other verbal and physical conduct of a sexual nature becomes sexual harassment when submission to the conduct is tied to contin- ued employment or advancement or when the behavior creates an intimidating, hostile, or offensive work environment.22  Sexual harassment will be discussed in more detail later in the chapter.

Exhibit 9.2 also lists the major federal laws related to compensation and benefits and health  and safety issues. The scope of HR legislation is increasing at federal, state, and municipal  levels. The working rights and conditions of women, minorities, older employ- ees, and the disabled  will likely receive increasing legislative attention  in the future.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

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