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External environmental influences Essay

The external environmental factors described in the following essay have a direct or indirect influence on HRM. To be effective, HR managers must monitor the environment on an ongoing basis; assess the impact of any changes; and be proactive in implementing policies and programs to deal with such challenges.

Economic Environment

The economic environment has a major impact on business in general and the management of human resources in particular. Economic conditions affect supply and demand for products and services, which, in turn, have a dramatic impact on the labour force by affecting the number and types of employees required, as well as an employer’s ability to pay wages and provide benefits.

When the economy is healthy, companies often hire more workers as demand for products and services increases. Consequently, unemployment rates fall, there is more competition for qualified employees, and training and retention strategies increase in importance. Conversely, during a downturn, some firms reduce pay and benefits in order to retain workers. Other employers are forced to downsize, by offering attractive early retirement and early leave programs or by laying off and terminating employees. Unemployment rates rise, and employers are often overwhelmed with applicants when vacancies are advertised.

In most organizations today, productivity improvement is essential for long-term success. Through productivity gains, managers can reduce costs, conserve scarce resources, and increase profits. This leads to a win-win situation, since higher profits often result in better compensation and improved working conditions, thereby enhancing the employees’ quality of work life and their motivation to further improve productivity.

Australia’s relatively low productivity growth rate and high labour costs are of grave concern, since competition with foreign companies has become increasingly important. Australia’s economic success increasingly depends on the ability of Australian employers to meet international quality and productivity standards and become more cost-competitive. This applies to firms selling products and services in the domestic market, in which foreign competition is increasingly a factor, as well as those with international markets.

Labour Market Conditions

The labour market is the geographic area from which an organization recruits employees and where individuals seek employment. In other words, it is the area in which the forces of supply and demand interact. The labour market is often different for various employee groups within an organization. While clerical and technical employees are generally recruited locally, the labour market for senior managers and highly specialized employees is often national or even international in scope.

One measure of an organization’s effectiveness is its ability to compete successfully for high calibre human resources. Many factors motivate candidates to seek employment with a particular organization, including type of business/industry, reputation, opportunities for advancement, compensation, job security, and working conditions.

Location and climate and other aspects of a firm’s physical surroundings, such as housing, commuting, and living costs, can help or hinder a firm’s ability to attract and retain employees.

Recent population shifts to the coastal and small towns and rural areas can be attributed, at least in part, to the desire of many individuals to work and live in what they perceive to be a more desirable physical environment. Such shifts alter the demand for and supply of individuals in local labour markets, a factor that firms must always take into account when deciding where to establish a new venture, expand, or downsize.

Because the labour market is not controlled or influenced by any one factor, it is unstructured and often unpredictable. Nevertheless, organizations must constantly monitor and track trends affecting supply and demand of human resources. By doing so, they can gather information about the prevailing pay rates for employees with particular talents or skills, and estimate how difficult it is likely to be to attract and recruit staff. Labour market conditions should also be monitored to determine present and emerging trends (such as the changing composition of the labour force) as well as changing values and expectations, so that policies and programs can be adapted and/or designed in order to recognize and take advantage of these trends.


Globalization refers to the tendency of firms to extend their sales or manufacturing to new markets abroad. For businesses everywhere, the rate of globalization in the past few years has been nothing short of phenomenal.

“The bottom line is that the growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a wide range of manufacturing and service industries.”

Production is becoming globalized, too, as firms around the world put manufacturing facilities where they will be most advantageous. Also, there are increasing numbers of multinational corporations–firms that conduct a large part of business outside the country in which they are headquartered and that locate a significant percentage of their physical facilities and human resources in other countries. Many organizations are locating new plants in areas where wages and other operating costs are lower. For example, Australia’s Hewlett Packard’s computers are assembled in Singapore.

While cheaper labour is one reason for transferring operations abroad, another is to tap into what Fortune magazine calls “a vast new supply of skilled labour around the world.” Many multinational firms set up manufacturing plants abroad, not only to establish beachheads in promising markets, but also to utilize that country’s professionals and engineers.

This globalization of markets and manufacturing has vastly increased international competition. Throughout the world, organizations that formerly competed only with local or national firms–from airlines to automobile makers to banks–are now facing an onslaught of foreign competitors. From boosting the productivity of a global labour force to formulating selection, training, and compensation policies for expatriate employees, managing globalization and its effects on competitiveness will thus continue to be a major HR challenge in the years to come.

Demographic Trends and Increasing Work-force Diversity

Demographics refers to the characteristics of the work force, which include age, sex, marital status, and education level. Demographic changes occur slowly and are well measured, which means that they are known in advance. The fact that Australia’s labour force is becoming increasingly diverse is one of the major challenges confronting HR managers today. Diversity refers to “… any attribute that humans are likely to use to tell themselves, ‘that person is different from me,'” and thus includes such factors as race, gender, age, values, and cultural norms.

Population Growth

The single most important factor governing the size and composition of the labour force is population growth. Currently, the fastest growing groups in the Australian work force are women, visible minorities, Aboriginal people, and persons with disabilities.


The baby boomers, born between 1946 and 1965, began crowding into the labour market in the late 1960s. The sheer number of “boomers” helped to expand the economy and made it easier for HR departments to focus on issues such as cost containment, since recruitment and selection, while important, were not the most critical problems. During the 1990s, individuals in this “population bulge” experienced a great deal of competition for advancement. This challenged managers to find new strategies for forging career paths, such as lateral moves, to keep this group motivated and satisfied. The oldest of the baby boomers are now in their mid-fifties.

Life expectancies have increased and fertility rates have declined, the average age of the population is increasing substantially.

Since some baby boomers have already taken advantage of generous early retirement programs and many more will be retiring over the 25 years, pension plan and social security benefits issues are starting to present a very serious concern for employers and governments, given the smaller labour force available to support the retirees.

Many organizations with a primary interest in the younger age group, such as retail establishments and fast-food chains, have already started to feel the impact of the fact that the population from which they have traditionally gained customers and part-time workers is starting to shrink dramatically. Some employers have undertaken initiatives to attract older workers, especially those who have taken early retirement, by offering job sharing and expanding the number of part-time hours available. For example, McDonald’s Restaurants of Australia is another organization that is actively recruiting seniors, as well as directing advertising efforts to appeal to the senior market.

HR specialists must remember that many HR policies, benefits plans, and reward systems that attract and motivate employees in one age group may not appeal to those in another due to differing values and priorities.


The level of education of the Australian labour force is increasing at a significant rate. more Australians are pursuing higher education, through a variety of institutions ranging from universities and colleges/TAFEs to trade schools, private-sector organizations, and professional associations. growth in the number of cooperative-education programs, designed to enable students to gain work experience while still attending school, and of distance-education opportunities, which mesh Internet technology with the fundamental need to continue learning.

Given the higher expectations of the better-educated labour force, managers are expected to try to ensure that the talents and capabilities of employees are fully utilized and that opportunities are provided for career growth. In today’s economic climate, doing so is not always possible.

Visible and Ethnic Minorities

The proportion of visible and ethnic minorities entering the Australian labour market is growing, in jobs ranging from general labour to technical, professional, and skilled trades.

Ethnic diversity is also increasing. Thus, HR specialists must ensure that policies and programs are developed in their organizations to accommodate and celebrate the diverse cultural characteristics of visible and ethnic minority employees, something that requires much more than ensuring compliance with human rights legislation.


The growing presence of women has been one of the dominant trends in Australia’s labour force since the 1950s. Factors contributing to the dramatic increase in female participation rate include smaller family size, increased divorce rate, the need and desire for dual family incomes, increased educational level, and the availability of more-flexible working hours and part-time jobs.

The employment rate for women has also continued to climb. Recent studies have shown that women have moved into occupations in which the unemployment rate is low, while men tend to be clustered in jobs in which the risk of unemployment is much higher.73 There is still strong evidence that women are underutilized in the Australian work force, however.

Aboriginal Peoples

Indigenous peoples are still facing considerable difficulty in obtaining jobs and advancing in the workplace.

Persons with Disabilities

Despite the fact that human rights legislation in every Australian jurisdiction prohibits discrimination against individuals with disabilities, Australians with disabilities continue to confront physical barriers to equality every day. Inaccessibility is still the rule, not the exception. Even though studies show that there are no performance differences in terms of productivity, attendance, and average tenure between employees who classify themselves as having a disability and those who do not, persons with disabilities continue on average to experience high rates of unemployment and underemployment, and lower pay.

Overall Impact of Increasing Diversity

Managers must be extremely aware that related to the work-force diversity described above are significant value differences about the overall importance of work, what aspects or characteristics of a job are most important, tolerance of discipline in terms of hours and pace of work, attitudes toward authority, and definition of loyalty. Employees increasingly expect to exercise more freedom from management control, and are more demanding and questioning. More people are seeking jobs

that are attuned to their personal values and provide the opportunity for them to bring their personalities to work with them,87 as well as flexible work arrangements and other programs that will enable them to balance their work and personal lives.88 Policies and practices must be adapted to embrace the diversity of the dominant values represented in an organization’s work force.

Trends in the Nature of Jobs and Work

Major changes have been occurring in the nature of jobs and work, in part as a response to a number of the environmental challenges already discussed.

Telecommuting, is the use of microcomputers, networks, and other communications technology (such as fax machines) to perform in the home work that is traditionally done in the workplace.

Many firms are using more contingent employees–defined as workers who do not have regular full-time or part-time employment status–to handle vacation and leave coverage, peak-period demands, extra workload, and specialized tasks or assignments. Included are contract workers, seasonal workers, casual and non-regular part-time employees, temporary employees, independent contractors (freelancers), consultants, and leased employees.108 Contingent workers currently account for about 12 percent of all jobs in Australia, a figure that is expected to reach 25 percent by 2010.109

There are more regular part-time employees in Australia than ever before. These are individuals who work fewer hours than fulltime core employees, typically during peak periods (such as evenings and weekends in retail stores and restaurants). Approximately 33 percent of all employed women work part-time: two-thirds of them by preference, and the other one third because they were unable to obtain full-time employment.112 The fact that part-time workers are often paid less than their full-time counterparts–and may not have benefits coverage–has raised some major equity concerns.

Small businesses, classified as firms with fewer than 50 employees, whether sole proprietorships, partnerships or corporations, are a large and increasingly important part of the Australian economy.

A Service Society

Employment trends in Australia have been experiencing dramatic change. The primary sector, which includes agriculture, fishing and trapping, forestry, and mining, now represents only 2.8 percent of jobs. While the secondary sector (manufacturing and construction) has grown In common with trends in Western Europe and the U.S., the sector of the Australian economy accounting for the greatest growth in recent decades is the tertiary or service sector, which includes public administration, personal and business services, finance, trade, public utilities, and transportation/communications.

While much of this growth is attributable to rapid technological change (initially in the form of automation and more recently in improvements in IT), part is due to an increase in outsourcing of particular activities by primary- and secondary-sector firms to decrease costs and increase efficiency. Subcontracted functions range from building maintenance to provision of security, cafeteria management and laundry services to payroll and training and development.

Since all jobs in this sector involve the provision of service, often in person but increasingly through the design, installation, and maintenance of service-providing technologies (such as automated banking machines and cable television), effectively managing and motivating human resources is critical. Although there are some lesser-skilled jobs (in housekeeping and food services, for example), many service-sector jobs demand knowledge workers, employees who transform information into a product or service, whose responsibilities include planning, problem solving, and decision making.

Knowledge Work and Human Capital

Management expert Peter Drucker has said that “the foundation of an organization is not money or capital or technology–it’s knowledge and education (human capital). By 2005, knowledge workers will be the single largest group in the labour force.”116 He is not alone in this belief. Many experts believe that the distinguishing characteristic of companies today and tomorrow is this growing emphasis on human capital. Jobs today in all sectors demand a level of expertise far beyond that required of most workers 20 or 30 years ago, which means that human capital is quickly replacing machines as the basis for most firms’ success. Furthermore, it is not unusual for more than one-quarter of sales to come from products less than five years old. As a result, “innovating–creating new products, new services, and new ways of turning out goods more cheaply–has become the most urgent concern of corporations everywhere.”11

For managers, the challenge of fostering intellectual or human capital lies in the fact that knowledge workers must be managed differently than workers of previous generations. New HRM systems and skills are required to select and train such employees, encourage self-discipline, win employee commitment, and spark creativity. Apple computers is one organization that has learned how to encourage creativity and access the skills and ideas of all of its employees:118


It is mainly through technological innovation that firms develop new products and services and/or improve existing ones in order to remain competitive, and gain the productivity and quality needed for competitive advantage. Manufacturing advances, such as robotics and computer-aided design / computer-aided manufacturing (CAD/CAM), have eliminated many blue-collar jobs, replacing them with fewer but more highly skilled jobs. When robots were introduced in the automobile industry, for instance, there was a major decrease in the demand for welders and painters, but a new demand for technicians who could program, install, and service automated equipment.89 Due to computer technology, similar changes have been occurring in the nature of office work. Optical scanners, computerized x-ray scanners, and Magnetic Resonance Imagery (MRI) are technological advances that have caused major occupational changes in the medical field over the past few decades, and such advances are being made every day.

Currently, for example, a few doctors are attempting to revolutionize heart surgery using computer assistance and robotic arms.90 The overall impact of the technological changes affecting almost every field is that labour-intensive blue-collar and clerical jobs have been decreasing, while technical, managerial, and professional jobs are on the increase. This shift in employment opportunities has many implications for organizations: jobs and organization structures are being redesigned; new incentive and compensation plans are being instituted; revised job descriptions are being written; and new programs are being instituted for employee selection, evaluation, and training/retraining–all with the help of HR specialists.

Unfortunately, the training of the Australian labour force has not kept pace with the rate of technological change and innovation. Consequently, there is a scarcity of skills in certain fields.

Many Australian firms, such as Telstra, inevitably have to look outside of Australia to fill their high-tech openings, which is rather disturbing given the fact that there are currently about 1.1 million Australians seeking employment.

While much of the impact of information technology has been positive, it has also led to some organizational problems. For many employees, it has created anxiety, tension, resentment, and alienation. Unions have consistently expressed concerns about job displacement and health hazards, such as those related to video display terminals. All of these issues must be addressed through effective HRM practices such as information sharing, counselling, ergonomic refitting, job redesign, and training.

Information technology has also hastened what experts call the “fall of hierarchy,” or promotion of egalitarianism. Power and authority are spread more evenly among all employees. For example, with “distributed computing,” every employee with a personal computer on his or her desk can tap into the firm’s computer network and obtain needed information. Expecting employees to make more decisions has implications for selection, training, and compensation.

Questions concerning data control, accuracy, right to privacy, and ethics are at the core of a growing controversy brought about by the new information technologies. Sophisticated computerized control systems are used to monitor employee speed, accuracy, and efficiency in some firms, including IBM Australia. More and more firms are also monitoring employee e-mail, voice mail, telephone conversations, and computer usage, and some now monitor employee behaviour using video surveillance.94 Reasons for such monitoring include eliminating time wastage, deterring abuse of company resources, protecting network security, preventing misappropriation of company resources, ensuring compliance with health and safety standards and regulations and other legislation, and monitoring employee behaviour and performance. Employers considering monitoring employees should be aware that doing so may present both practical and legal problems:

such monitoring may have counterproductive results such as increased job stress, decreased morale and productivity, lowered employee self-esteem, and decreased trust in and respect for the employer

Setting up and maintaining a monitoring system may involve significant economic costs surveillance of employees in the workplace raises the controversial legal issue of employee privacy rights.

Human Resources Information Systems

Changing technology has also had major implications for HR departments. Over the past few decades, many firms introduced a Human Resources Information System (HRIS) to store detailed information on employees, HR policies and procedures, government laws and regulations, collective agreements, etc. HRIS computer applications include: salary and benefits administration; tracking statistics on absenteeism, grievances, and health and safety; collecting data for government statistical reporting and employment equity purposes; advertising jobs and recruiting candidates; and communicating with employees.

Computers are now being used not only for storage, retrieval and analysis of information but for broader applications, including basic report production, long-range forecasting and strategic planning, and evaluation of HR policies and practices. Such systems can decrease time lost to comparatively non-productive work like data entry and employee scheduling, thereby providing time for HR department employees and managers throughout the firm to focus on more strategic issues.

Today, many Australian firms, are utilizing computer technology even more extensively by introducing a Human Resources Management System (HRMS), defined as an information management system accessible to staff at all levels, designed to ensure that the organization’s human resources are recruited, selected, developed, employed, deployed, and supported effectively. Functional applications include succession planning, pension plan projections and eligibility monitoring, interactive employee retirement training, and more. Self-service applications for employees and managers ensure that information reaches those who need it, with one-time data entry, less maintenance, and improved quality and accuracy.


Various laws enacted by governments have had and will continue to have a dramatic impact on the employer-employee relationship in Australia. In one recent survey, 70 percent of the HR specialists responding cited changing regulatory requirements as a major factor altering their work environment.

The legal framework for employment includes: constitutional law, particularly the Charter of Rights and Freedoms; acts of parliament; common law, which is the accumulation of judicial precedents that do not derive from specific pieces of legislation; and contract law, which governs collective agreements and individual employment contracts. Such laws impose specific requirements and constraints on management policies, procedures, and practices. Some of the employment-related legislation is aimed at prohibiting discrimination in various aspects and terms and conditions of employment, such as human rights, employment equity, and pay equity. Other laws require employers to meet certain obligations, such as occupational health and safety, employment standards, and labour relations. Still others make various payments mandatory, such as Workers’ Compensation, Employment Insurance, and the Australia Superannuation Plans.

All of the laws mentioned above and their regulations have important implications for all managers, since they must:

Stay abreast of legislative developments is a major ongoing responsibility. Often, the HR department staff members play a major role in helping other managers to remain current by circulating reading material or holding seminars.

Develop and administer policies and practices that ensure compliance to avoid loss of government contracts, suits by affected employees or regulatory bodies, fines, and bad publicity.

Try to ensure that compliance does not interfere with the efficient and effective accomplishment of their other responsibilities. This means finding ways to comply with regulatory requirements with as little cost and disruption as possible. For example, many firms have developed manuals, videotapes, and self-administered quizzes, such that employees can study independently at home or at work during off-peak times, and submit their completed quizzes for evaluation and verification of training completion.


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11. Young, S. (2000) ‘Outsourcing: Lessons From the Literature’ Labour and Industry, 10(3), pp.97-118.

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