HR processes are designed to improve the effectiveness of an organization, for example, by ensuring that the right people are hired or motivating them with the right compensation package and work conditions. While HR processes are internal to the organization, these same processes need to have an external focus and help organizations overcome the challenges that they face. Thus, HRM is also heavily influenced by the external environment or the context of the business. The HR manager needs to consider the many outside forces that may affect HR processes and the organization as a whole. In this section, we describe how HR management has to be in tune with changes in the environment.

7. Business Challenges

Every organization must have the capacity to adjust to changes in its environment. Thus, it is important for organizations to be aware of outside forces, or external factors. These forces are beyond their control but could positively or negatively impact the organization and their human resources. External factors might include the following:

7.1. Pandemics

This one is fresh off the press and took most of us by surprise.  We now know that pandemics and the rapid spread of infectious diseases represents an external factor affecting organizations and HRM. It is an understatement to say that the COVID crisis that took us by storm in winter 2020 had an impact on organizations in a major way. Of course, organizations have had to deal with crises in the past, such as in 2008, where the economy was hit with a massive financial crisis. The relaxing of credit lending standards by investment banks and a significant increase in subprime lending was the cause of this crisis. This resulted in the collapse of the financial system. In just a few weeks, the S&P 500 lost half of its value and housing prices lost 20% of their value in the US. Companies, banks, and even countries, went bankrupt. The impact of this event on HRM was immediate: the economy slowed down considerably which led to massive layoffs (unemployment in the US shot up to 10%).

The COVID pandemic is unique, because at its very core, it is a ‘human’ crisis; it concerns HRM because it affects people. The COVID crisis made health and safety a priority for governments and organizations. It has brought to the fore a myriad of HR issues such as turnover, absenteeism, and burn-out. It has also accelerated the transformation of HR processes such as telework, remote training, and compensation (think of all of the controversy around the salary of nursing home staff).  As we write this chapter, these changes are unfolding and it’s hard to predict how they will evolve over time. This interesting article summarizes the views of top HR executives on how the COVID pandemic has affected HRM.

7.2. Globalization

In 2020, it would be almost impossible to find an organization that does not have some part of its activities outside of its national border. You can look at any local success story—-Saputo, Groupe Dynamite, Lightspeed, CAE, Hopper, Cirque du Soleil, Couche Tard—-and you will see how these organizations have deep international connections. The same is true of smaller businesses: your local coffee shop buys its coffee from an organic grower in Haiti and its paper cups from the US. For organizations, globalization is found in their supply chains, core activities, or customer base. Canada’s economy is one of the world’s top ten trading nations, with a highly globalized economy. In 2018, Canadian trade in goods and services reached CA$1.5 trillion. Canada’s exports totalled over CA$585 billion, while its imported goods were worth over CA$607 billion. The US is our most important trade partner with approximately CA$391 billion of these imports originating from the United States (CA$216 billion from non-U.S. sources).  The recently signed North American trade agreement, now called the United States-Mexico-Canada Agreement, updates the quarter-century-old NAFTA. It has stronger protections for workers and the digital economy, expanded markets for American farmers and new rules to encourage auto manufacturing in North America.

The implication of globalization is significant for HRM. For HRM professionals, globalization means dealing with people from different cultures and adjusting to different employment laws and business practices. This video from LinkedIn Talent Solution discusses how globalization has affected HR practices.

7.3. Technological Changes

According to an article in Fast Company, the ability to manage your personal brand (because of the increasing importance of social media), digital fluency, and resilience are some of the ‘super skills’ that are needed for the new world of work.

Factors such as global competition and increasing costs puts an enormous pressure on organizations to maximize their efficiency and productivity.  As profit margins become smaller, every department has to look for ways to maximize its contribution for the organization. For HRM, this means that the processes it manages contribute to the ‘bottom line’ in an objective and measurable way. For example, an HR manager who asks for $20,000 for a training budget will have to make their case, and show that this investment will lead to better employee performance and, ultimately, more profits (or less costs). If you consider employee compensation and benefits, HRM is responsible for a large budget, and optimization of resources is always a top priority for HRM managers. The impact of HRM on the business is often complex and the demonstration of the HRM impact on a business requires a solid understanding of business principles. Take the implementation of a wellness program as an example. Investments in a company gym, a healthy menu at the cafeteria, or ergonomically-sound workstations can make a serious dent in a company’s budget, but if designed wisely, this investment can lead to a significant decrease in health-related issues. In early 2000’s, Johnson & Johnson estimated that, for every dollar invested in their wellness program, they obtained a return of $2.71, for total savings of over $250 million in health care costs^[1]. Here is a short article how HRM can help save costs for small businesses.