The design of a HR system takes place within the context of the internal and external environments of the organization. In line with contingency theory, these exert considerable influence on the HR architecture.
The external environment
The external environment consists of social, political, legal and economic developments and competitive pressures. Global competition in mature production and service sectors is increasing. This is assisted by easily transferable technology and reductions in international trade barriers. Customers are demanding more as new standards are reached through international competition. Organizations are reacting to this competition by becoming ‘customer focused’, speeding up response times, emphasizing quality and continuous improvement, accelerating the introduction of new technology, operating more flexibly and ‘losing cost’. The pressure has been for businesses to become ‘lean and mean’, downsizing and cutting out layers of management and supervision. They reduce permanent staff to a core of essential workers, increase the use of peripheral workers (sub-contractors, temporary staff) and ‘outsource’ work to external service providers. These pressures can be considerable in an economic downturn such as the one that began in 2008.
The internal environment
The following aspects of the internal environment will affect HR policy and practice:
- the type of business or organization – private, public or voluntary sector; manufacturing or service;
- the size of the organization;
- the age or maturity of the organization;
- the technology or key activities of the business (this will determine how work is organized, managed and carried out);
- the type of people employed, eg professional staff, knowledge workers, technicians, administrators, production workers, sales and customer service staff;
- the financial circumstances of the organization, especially in economic downturns;
- the organization’s culture – the established pattern of values, norms, beliefs, attitudes and assumptions that shapes the ways in which people behave and things get done;
- the political and social climate within the organization.