“The effective management of people is even more important for organisational survival and success.” Mullins, 2007
Today the HR function plays a much wider role in business performance. It is no longer just about managing people: commercial awareness and the ability to make strategic business decisions is now an important requirement of the HR professional.
No organisation operates in isolation. There are both internal and external factors impacting on the business and in particular on the Human Resources (HR) function. Depending on the size and legal entity of an organisation the impacts could vary.
Four main factors impact on business and HR:
Organisational structure and strategy
The structure, leadership and strategy of the organisation is often impacted by the culture of the organisation, and vice versa. By studying an organisation’s culture, HR practitioners can understand why people behave as they do and attempts can then be made towards creating a more positive culture and in turn greater business performance.
Strategic objectives involving new product development, restructuring and relocation also impact across the business, with HR ensuring the correct processes are followed and that the right people with the right skills are in the right roles.
External environmental factors
“Increased business competitiveness and the dynamic external environment have placed importance emphasis on corporate strategy and the competencies of managers.” (Mullins 2007: p.530)
The external environmental factors may be beyond the control of the business but they need to be considered when strategic planning. The factors can impact in various ways.
Political/legal factors including: globalisation, the skills agenda and the Apprenticeship Levy all lead to changes in processes and skills requirements. For example, the Apprenticeship Levy has changed the way some organisations approach training and development as well as costing some businesses in financial terms.
Legal changes impact on the way people are treated and how processes are carried out i.e. the Working Time Directive, family friendly laws, regulatory roles.
Economic: employment rates are impacting on availability of people and pay and reward levels, taxation and interest rates effecting consumer spending and in turn demand for goods as well as business costs and government grants impacting on availability of funds.
Socio-cultural: the increase in demand for flexible working, demographics and the changing population, the media influencing career choices all need to be considered by the HR function.
Technological: Artificial intelligence, digitalisation, augmented reality are changing the way we recruit and in some cases job roles. Technology is also making easier to review companies thereby impacting on the talent you can attract.
Porter’s Five Forces: Barriers to entry, threat of substitutes, competitive rivalry, power of suppliers and customers determine the attractiveness of an industry. The state of the industry and the power of the players impacts on the performance of the organisation. Depending on the industry different skills are required. For example in some industries the nature of the customer power requires more face to face contact thus requiring specialist sales people working remotely.
Cost leadership, operational excellence and customer intimacy are all opportunities to gain competitive advantage. The business functions including HR are pivotal in the achievement of competitive advantage: ensuring cost efficiencies, trained staff and excellent customer service. The HR function contributes to competitive advantage by recruiting the right talent.
Don’t underestimate the importance of a skilled and commercially aware HR team. They can be crucial to the success of your organisation. Recruit the right people, retain talent, develop people for today and the future.