Role of External forces, Internal forces in Human Resource Management:

Human resource management is a subsystem of an organization as a system. However, when

a subsystem is taken for analysis, it is treated as a system because it has the features of a
system. A system works in the context of its environment. Environment of a system consists of
all those factors which lie outside the system but affects working of the system.

In the case of human resource management, there are two categories of environmental
factors-external and internal. External factors are all those factors which lie outside an
organization and affect its working, including human resource management. Internal factors
are all those factors which lie within the organization and affect human resource
management.

Learn about the various external factors affecting human resource management. They are: -
1. Economic Factors 2. Socio-Cultural Factors 3. Technological Factors 4. Political-Legal
Factors

Also, learn about the various internal factors affecting human resource management. They
are: 1. Organization’s Strategy 2. Organizational Culture 3. Trade Unions and 4.
Organization’s Financial Position.

External Internal
Factors Factors
Economic Organization’s
Factors Strategy

Socio-Cultural Organization’s
Factors Culture

Technological
Trade Unions
Factors

Organization’s
Political-Legal
Financial
Factors
Position
1. External Factors:
External factors affecting human resource management are economic, socio-cultural,
technological, political-legal, and professional association. These factors have different types
of influences on human resource management.
I. Economic Factors:
Economic factors are those factors which give shape and form to the development of
economic activities and include factors like nature of economic system, general economic
conditions, various economic policies, and various factors of production including human
resources.
Out of these, factors that influence human resource management practices are population and
workforce, workforce market conditions, national income, and inflationary pressures.
Influence of Economic factors on human resource management practices are as follows:
Population and Workforce:
Population and workforce influence human resource management because these forms the
basis for an organizations’ external supply of human resources. While considering
population and workforce as a means for supply of external human resources,
organizations should differentiate between workforce and population because only a part
of the population is eligible to work.
Further, eligible workforce can be divided into two groups- the workforce reserve (those
not working for economic gain, for example, homemakers, students, etc., and those who
constitute workforce. Out of this workforce, organizations can choose their employees.
Workforce Market Condition:
Workforce market condition shows demand and supply of workforce. It influences human
resource management practices relating to recruitment and selection. Exchanges between
employers and potential employees occur in the workforce market. Since workforce
market includes all types of workforce, only relevant workforce market is taken into
account for searching potential employees.
Three factors usually define the relevant workforce market- (a) occupation —
qualifications and skills required, (b) geography — potential employees are willing to
relocate or commute, and (c) other employers that compete with similar products and
services.
These three factors define the part of the workforce that is of interest to a particular
employer. In fact, human resource professionals consider workforce market in terms of all
three factors.
 National Income:
National income, particularly measured in terms of per capita income, affects wage/salary
structure at the macro level. Each employer has to align wage/salary structure with that
operating at the macro level. This is the reason for difference between wage/salary
structure of economically advanced countries and developing countries.
Inflationary Pressures:
Besides the national income, inflationary pressures in a country also affect the payment to
be made to employees. In most of the countries, payment to employees is linked to cost of
living either directly or indirectly. As a result, when a country faces inflationary pressures,
its cost of living index goes up forcing employers to pay more to employees.
For example, in India, dearness allowance, a part of the payment made to employees, is
linked with cost of living index. When this index goes up, there is proportionate increase
in the amount of dearness allowance.

II. Socio-Cultural Factors:

Socio-cultural factors are quite comprehensive and affect various aspects of organizational
operations, including human resource management. From human resource management point
of view, attitudes, beliefs, desires, expectations, and customs of the society at a given point of
time are important.
These factors determine- (i) expectations of the society from organizations, (ii) views towards
social status of jobs, (iii) views towards achievement of work, (iv) views towards authority
structure, responsibility, and organizational positions, (v) workforce mobility, and (vi) role of
unions in managing human resources. In the light of various socio- cultural factors,
organizations can do better if they follow human resource management practices in
accordance with the needs of these factors.
The socio-cultural factors affect human resource management practices in the following
ways:
Socio-cultural factors have direct impact on organizational culture. If the
organizational culture is not in accordance with socio-cultural characteristics, it will
not be effective even if organizations offer higher monetary benefits. Since human
resource management practices are one of the prime constituents of organizational
 culture, these practices have to be aligned to social expectations. In this context, the
role of human resource professionals is very important.
b. Socio-cultural factors determine what kind of role is to be, played by unions in
managing human resources. If the society views that unions are the champions of
employee cause, their bargaining position increases and their role in managing
human resources becomes more important. In alternative situation, the role of unions
in managing human resources decreases.
III. Technological Factors:
Technological factors consist of sum total of knowledge providing ways to do things. These
include inventions and techniques which affect the ways of doing things, that is, designing,
producing, and distributing products and services. Technology affects an organization in two
ways- (i) defining nature of jobs and (ii) affecting human resource management practices.
(i) Defining Nature of Jobs:
Technology is a major source of productivity increase. Various jobs in an organization being
performed by individuals are determined by the technology being used for conversion
process. Thus, technology determines the type of skills to be possessed by job performers.
As the level of technology improves in an organization, skill requirement also increases. For
example, in knowledge-based companies like in information technology, skill requirement is
quite different as compared to industrial companies. For knowledge-based companies,
knowledge workers are required.
Even in industrial companies, those opting for highly automated technology require human
resources with different skill set as compared to companies opting for non-automated
technology. HR professionals have to select and train human resources accordingly.
Technology not only affects the internal operations of organizations but it also affects how
human resource professionals work. By linking computers, fax machines, copiers, printers,
and the likes, information related to human resources can be disseminated more quickly.
With that information, human resource planning can be better facilitated, decisions can be
made faster, and communication with employees and external community can be enhanced.
(ii) Affecting Human Resource Management Practices:
Technology has changed human resource management practices in the following areas:
In recruitment and selection, the total process has been reduced to such an extent that
the entire process can be completed within a very short time. By posting jobs on the
Internet, required information is assimilated quickly; applications from prospective
 candidates can be received quickly; even interviews can be conducted through
telephone; result of selection process can be communicated electronically.
It may be mentioned that most of the IT companies and many of the forward-looking
companies in other sectors send appointment letters to the selected candidates through
the Internet.
In training and development, technology is dramatically changing how HR
professionals are training and developing employees. The Internet has provided
opportunities to deliver specific information to employees on demand; visual display
terminal (VDT) is being used to make training programmes more effective.
In fact, various training media are also making it possible to send employees for
training without having them to physically transport from one location to another.
In communication, technology has paved the way for open door policy, a policy
which is must in the present business environment. Open door policy implies that
anyone can communicate with anyone in the organization without being limited
because of hierarchical pressures.
Organization’s websites and the Internet have made open door system workable.
Human resource professionals use these media to share information with employees.
In the surveillance of employee behaviour, technology is playing crucial role. Instead
of monitoring employee behaviour physically, this can be done through technology
whether the employees are located at a single place or dispersed across the globe. In
fact, many multinational companies adopt this mode of monitoring the behaviour of
their employees.
In today’s environment, a major concern before HR professionals is to maintain
proper work-life balance for employees. Organizational jobs have become
demanding. This feature takes lot of employee time. If time taken in commuting to
and from office is added to this, employees have no time to their personal life.
Technology has paved the way for emergence of virtual office which is devoid of a
central place, known as office; no commuting of employees is required; they are
linked through information technology. Therefore, they can work from any place.
This helps them to maintain proper work-life balance.
IV. Political-Legal Factors:
Political-legal factors include political system, role of government in business, various
government policies related to business operations, laws formulated by governments, both
central and state levels.
Political-legal factors affect human resource management practices in the following
ways:
i. Governments prescribe policies from time to time related to management of
human resources. These policies have to be adhered by all the organizations
which are covered by these policies.
ii. There cannot be discrimination among employees on the basis of sex, caste,
religion, or place of origin.
iii. In certain sectors, at least prescribed percentage of total employees must be
selected from personnel belonging to backward classes, scheduled castes/tribes,
and physically handicapped.
iv. Employee remuneration, safety, working conditions, and industrial relations
systems must conform to various legal prescriptions. In India, there are various
Acts passed by Parliament and State legislatures, relevant to management of
human resources. Organizations have to adopt their human resource
management practices according to prescriptions of these Acts as these Acts
leave very little discretion for adopting different human resource management
practices.
Professional Association:
For every major profession, there is a professional association. A professional association
consists of organizations and individuals whose membership is based on common
professional, scientific, or technical aims. The representative body of professionals is needed
to regulate and develop the professional activities.
For this purpose, the association prescribes code of ethics to ensure adoption of ethical
practices of its members. For example, in India, there is National Institute of Personnel
Management which has provided a code of ethics to its members that aims at governing their
behaviour in performing their duties related to managing human resources.
2. Internal Factors:
Internal factors (also known as organizational factors) lie within the organization and affect
human resource management practices. In an organization, human resource management
works within the overall perspective provided by the organization.
Overall perspective for the functioning of human resource management is provided by
numerous organizational factors, the more relevant being the following- organization’s
strategy, organizational culture, trade unions, and organization’s financial position.
Besides the above organizational factors, organization’s technology also affects human
resource management practices by defining nature of jobs. Now let us see how the above
internal factors affect human resource management practices.
Organization’s Strategy:
Human resource management issues are not independent issues but these are derived; these
are derived from organization’s strategy. Every organization sets its strategy either explicitly
or implicitly. Strategy is a way in which an organization, reacting to its environment, deploys
its principal resources and marshals its main efforts in pursuit of its purpose.
Human resource is one of the principal resources of any organization. Therefore, it must be
deployed and utilized keeping in view the requirements of the strategy. Its implication is that
HR strategy should be chalked out in the light of organization strategy.
How strategy affects human resource management practices can be seen by analyzing how
strategy works in an organization. Strategy operates at three levels- corporate level, business
level, and functional level. At the corporate level, strategic decision involves deciding ‘what
business should we be in’.
Such a decision sets the long-term direction for the whole organization. Such a decision is
made by top management of the organization. Business level strategy is relevant to different
business areas, often called strategic business units (SBUs). Each SBU formulates its own
strategy within the overall framework provided by corporate level strategy.
Business level strategy primarily deals with the question- ‘how do we compete in the given
businesses’? Functional level strategy is relevant to each functional area like production,
marketing, finance, and, of course, human resource. Functional level strategy primarily deals
with the question- ‘how do we contribute to business unit and corporate objectives’?
Thus, HR strategy is formulated within the overall framework provided by corporate level
and business level strategy. Depending on the nature of corporate strategy, human resource
management practices are followed.
Organizational Culture:
Organizational culture is another factor that shapes human resource management practices.
Organizational culture is the set of assumptions, beliefs, values, and norms that are shared by
an organization’s members. There are two types of elements which define the culture of an
organization- abstract elements and material elements. Abstract elements are internally-
oriented and include values, beliefs, attitudes, and feelings.
Material elements are externally- focussed and include buildings, personnel dresses, products,
etc. Every organization, being a social entity, develops within it a cultural system with some
unique modes of behaviour. These unique modes distinguish an organization from others.
Organizational culture is very important factor which affects organizational processes and
practices including human resource management practices. To understand the differences in
human resource management practices in different types of organizational culture, it can be
divided into two groups- high-performing culture and low-performing culture.
Human resource management practices differ in these two cultures on the following
dimensions:
In high-performing culture, HR practices are intricately linked to the strategic
management of the organization. In low-performing culture, there is lack of such a
linkage.
In high-performing culture, human resource is treated as a strategic resource. In low-
performing culture, human resource is treated just like any other organizational
resource.
In high-performing culture, human resource function establishes business partnership
with line managers who have a direct interest and involvement in delivering human
resource.
Human resource functionaries become integral part of strategic business units and
customize human resource solutions to provide fast and efficient service. In low-
performing culture, human resource functionaries and line managers have
independent status and way of working.
In high performing culture, the focus is on growing new managers internally by
promotion from within. Therefore, training and development activities have very high
importance in HRM. In low-performing culture, training and development is not
accorded high importance.
In high-performing culture, performance management is based on the person rather
than the job. Assessment is done frequently and relies on multi-rater feedback. In low-
performing culture, performance management is based on job result. Assessment is
done after a fixed interval of time and assesses immediate superior plays significant
role in assessment.
Trade Unions:
Though a trade union in an organization is a separate entity, it has been treated as an internal
factor because organization’s employees (particularly operatives) are members of the trade
union. Trade union affects recruitment of employees, their development, compensation,
maintenance, and industrial relations.
Generally, agreement between management and labour is reached through collective
bargaining. Outcome of the collective bargaining depends on the relative bargaining position
of the management and labour. If trade union is in relatively better bargaining position,
outcome of the collective bargaining goes in its favour.
In such a situation, the organization has to adopt human resource management practices
according to wishes of the trade union though such practices may have adverse impact on the
organization. Bargaining position of a trade union depends on the strength of its members as
well as support of trade unions of other organizations at the same location and apex body of
trade unions at national level.
Organization’s Financial Position:
While the above factors are enduring in shaping human resource management practices,
organization’s financial position affects human resource management practices, particularly
those having substantial financial implications. The ability to pay the wages and salaries,
funds for retraining human resources, etc., are affected by an organization’s financial position
and its cash flow.
Generally, highly profitable periods bring higher bonus while unprofitable periods may not
result in any bonus (except the statutory bonus). Though many organizations tend to profess
that employees are their most important asset, they manage their human resources as if
employees are the most important expense.
Therefore, when financial difficulty is experienced, the axe falls first on the employees. This
is evident by substantial employee layoff during the economic slowdowns. On the other hand,
employee stock option, profit sharing, performance incentives, etc. are the result of sound
financial position.