Internal and External Environment on Human Resource Management

1. ASSIGNMENT
Human Recourses
G.PIG College of Science
Name: Muhammad Waqas
Department: Computer Science
Submitted To: Mam Anam
Roll No: 2645

2. Impact of Internal and External Environment on Human Resource
Management
Introduction
Human resource management is a practice that manages people in
an organization. Human resource practices have evolved and
developed over a long time into what it is today. This evolution has
been attributed to environmental factors and the need to utilize
labor, as a factor of production. Dynamic organizational
environment has resulted into the improvement of delivery
processes to increase the ability to manage people. The more
advanced the personnel management techniques are, the more
effective the production process will be. This helps maintain a competent staff to improve service
delivery.
Guest model
This model was developed in 1989 and has dimensions of human resource management which
include strategies, practices, behavior, performance and financial outcomes. It uses strategic
management to assume that human resource management is different from personnel management.
Fundamentals of human resource management relate directly to valued consequences of the
organization. Guest admits that it is actually difficult to prove the assumption that commitment
leads to high performance. This model explains that employee behavior is directly related to
commitment into achieving strategic goals. A healthy relationship between an individual and the
organization is an advantage to the performance of the organization.
Warwick model
This model was developed by Pettigrew and Hendry in 1990 to focus on the European management
systems. It constitutes of five interconnected elements that analyses the impact of external factors
on organizational operations focusing on organizational thinking. This model determines how
external and internal environments of an organization contribute to an increase in organizational
performance. Human resource management is an umbrella under which several tasks fall

3. emphasizing on strategic function. Developers of this model were of the opinion that proper
structuring and strategic policing in larger organizations are some of HRM essentials. Pettigrew
and Hendry added that human resource management was an umbrella that covered changes to
provide a reaction to challenges based on attitudes, direction and coherence of personnel.
HRM need to examine its environment in order to know what is trending and how changes will
impact on their organization. HRM should change with rapid business changes in order to have an
edge. Today’s businesses are surrounded by macro and micro environment that demand them to
rethink their strategies. Organizations are making efforts to survive in the current decentralized
structure. It is always evident that the surrounding environment impacts on the organization and
for this reason, there is need to critically analyze both the external and internal environments in
order to make proper adjustments and operate effectively.
The Internal Environment
According to Kotler and Armstrong the internal environment that affect human resource
practitioners comprises of customers, consumers, suppliers, compensation, new entrants and
competitors. HRM professionals should analyze their internal environments for the following
reasons:
 Compensation
The amount of compensation a business offers draws employees to an organization or keeps them
away. In an economy characterized by high unemployment rate and many qualified individuals,
compensation should be low. When there is a small number of a candidate, HRM should attract
them by increasing compensation in order for the company not to lose them to competitors. A
survey of compensation structure of an industry will help a company have competitive offers in
order to gain a competitive advantage over others in terms of attracting and retaining employees.
However, the offer should not be too high in such a way that they bring losses to the company.
Experienced staff should be given more compensation than recently recruited graduates in the
same job category.

4.  Employees Relations
Human resource activities must consider several factors like training their staff before promoting
them when their recruitment policies are based on internal promotion. They should monitor retiring
employees so that replacement arrangements are made in time. According to Purcell and Box all
human resource department should be able to manage employee relations within the firm.
 Customers’ satisfaction
Change in customer preferences need to be taken into account since this affects service delivery.
HRM should hire employees who have the consumers’ interest at heart. Continuous training and
retraining is important in order to increase performance hence satisfaction.
 New entrants
These are businesses entering into an industry. New entrants offer competitive salaries that attract
employees. HRM should analyze their industry in order to know new entrants. This will help them
have strategies aimed at retaining in order prevent them from being poached by the new entrants.
 Competition
The degree of competition affects HRM’s power to recruit workers who can meet a company’s
standards. Experienced workers always want to work in reputable organizations. Small
organizations with a lower brand image have to invest their resources in getting qualified people
to work for the organization. In this case, HRM will have to advance its recruitment procedures
and attend trade union fairs in order to advertise the company and draw applicants closer. It is also
important to have structures put in place to retain employees in a business environment
characterized with cut throat competition
The External Environment
The external environment that can affect any business operation can be summarized as PESTEL
(political, economic, social, technological, environmental and legislative factors). PESTEL
changes are continuously impacting on human resource policies. These factors affect the internal
operations regardless of the fact that they are outside the organization. The reasons why these
factors should be understood by the HR practitioners are:

5. The intensity of intervention by the government will alter how a company operates. Political
factors include government funding, initiatives and grants. Political instability, taxation and
relationship with other governments, impact directly on human resource practices. Therefore, it is
important to check this factor prior to establishing an operation.
Economic factor are such as inflation, unemployment, exchange rates, interest rates, rate of
economic development, government and consumer spending. Higher interest rates hinder
investment as this raises the cost of borrowing. Inflation in commodity prices may make employees
demand more money as salaries and this will in turn raise operational cost of the company. An
increase in disposable income will as well create a broad market for the products manufactured by
the company.
Religion, lifestyle, ethics, demographics, education and culture are some of the social factors that
affect the business operations. Any change in these factors will have a greater influence in demand
for products and the availability of workforce willing to labor for the company. Understanding the
surrounding culture helps HRM put in place a culture that blends with its environment. An aging
population will demand pension benefits from related firms. An example is in the UK, where staffs
live longer due to their longer lifespan. Societal changes have made more women be involved in
the workforce as there is less physical power involvement. Social changes affect organizational
culture and have enabled organizations embrace cultural differences. HR practitioners need to keep
abreast of social changes in order to fully understand their employees.
Technologically, research, purchasing power, technological innovation and intellectual capacity
affect HR operations. Any change in technology creates a need to restructure human resource
structure and policies. Technology has found its way into business operations such as marketing
and selling through online shopping and computer designs to alter how business functions are
carried out. Today, recruitment and selection processes can easily be done on an online platform.
Human resource management creates online portal to increase efficiency in these processes. This
has eliminated the cost of advertising vacancies as candidates visit websites to find vacancies.

6. Environmental factors include climate change, pollution and recycling. Global warming
experienced in today’s world has greatly affected companies. Climatic factors should be
considered before making international business expansion.
Legal factors like health, trading, competition and regulations from legal firms directly affect a
business. In the recent past, United Kingdom has witnessed noticeable legal changes in relation to
age and disability discrimination. HRM must operate within the law and stay updated on legal
changes. Legislative factors determine the grievances HRM has to address.
Conclusion
A successful strategy in the human resource department should conform to the goals and missions
of the organizations in which they operate. Different human resource strategies work efficiently
for differently sized organizations. Whatever is applicable in large organizations may not
necessarily achieve the same success in smaller organizations. Factors that affect human resource
operations are ever dynamic. In order to enhance employee retention and maximize employee
recruitment, employee concerns must be addressed through continuously tracking and overseeing
both factors within and outside the organizational environment.