Understanding the External
and Organizational
Environment.
Chapter 3
Learning objectives
Techniques for Scanning
External factors influencing HR planning
Internal and External Stakeholders influencing HR planning
Internal factors influencing HR planning
HRP & Environmental
Scanning
The systematic monitoring of the major
internal and external forces influencing
the organization
Why is it important?
❑ Anticipating talent needs
By scanning the environment, HR can identify emerging skills, changes in the labor market, shifts in industry trend.
❑ Adapting to regulatory changes
Environmental scanning helps HR stay updated on evolving employment laws, regulations and compliance.
❑ Identifying competitive challenges
Monitoring the external environment helps HR understand the strategies, practices of competitors
❑ Responding to demographic shifts
Changes in the workforce’s age, diversity and expectations.
❑ Nurturing a culture of innovation and adaptability
HR can facilitate the identification and development of competencies, encourage continuous learning and promote
an agile mindset among employees.
External factors influencing HR
planning
1. Economic Factors
▪ When assessing the human resource needs of an organization, it is
important to consider economic conditions such as profits, GDP, inflation,
and unemployment rates.
▪ Recession periods and economic downturns can lead to workforce
reductions and reorganizing the company to adjust workloads.
▪ The economic environment in which your business functions influences
the supply and demand of workers. When the economy is thriving, the
labor market tends to be more competitive, and there may be a shortage
of skilled workers.
▪ Impact of Globalization
▪ During periods of economic growth, organizations may experience increased demand
for their products or services. This may lead to expansion, requiring HR to plan for
additional staff recruitment, training, and development. Conversely, during economic
downturns, organizations may need to downsize or implement cost-saving measures,
resulting in layoffs or reduced hiring
▪ Higher inflation rates can lead to rising labor costs as employees demand higher
wages to keep up with the increasing cost of living.
▪ In a low unemployment environment, organizations may face challenges in recruiting
qualified candidates due to a limited pool of available talent.
2. Legal and Political Factors
❑Legal environment impacts business in terms of regulation, import duties
etc.
❑Political factors including immigration policies
❑New laws can affect benefit programs, minimum wage and record-keeping
that increase the cost of doing business.
3. Technological Factors
▪ Skill requirement
▪ Job posting, applicant tracking system, online assessments, video interviews, data
analytics
▪ HRIS to centralize employee data, automate administrative task and generate
accurate report
▪ Employee engagement and communication through collaborative platforms,
intranets, etc.
4. Demographic Factors
▪ Characteristics of the labor market -- age, education, ethnic mix and gender -- can affect HR's
ability to provide the manpower you need.
▪ As the average age in the labor market shifts downward, HR programs must accommodate the
values and expectations of a younger workforce through work-life balance, career
development and fringe benefits. Wider diversity across the labor pool may lead to the
introduction of training to build awareness and cohesive teams.
Generational Differences
• The baby boomers (those born between 1946 and 1964) often aim to work as long as it takes
to reach their goals and try to differentiate themselves by attaining the promotion, raise or
acknowledgment they want
• Gen X employees (those born between 1965 and 1980) have fewer expectations of
organizations and perceive themselves as independent agents.
• Members of Gen Y, also called Millennials, born after 1981, are completely comfortable with
technology and have a more global and tolerant outlook than people older than they. Gen Y
employees are not very interested in climbing a career ladder; indeed, they assume that
they will change jobs frequently.
• Generation Z or iGen (born after mid 90s) value family connections (including a sense of
order and predictability), have an ability to multi-task and use social media instead of face-
to-face interactions, and can manage both simultaneously.
5. Social Factors
• Social environmental factors in business include societal movements, changes in public
values and attitudes. If you operate a small casual dining restaurant, you must recognize
societal trends toward healthy lifestyles and food consumption habits.
• Maintaining a positive public image improves your ability to attract local workers as well.
With consumer's increasing desire to patronize companies that promote a "green" business
model and demonstrate diversity, HE manager considers adding these practices to their
business.
• Socio-cultural trends are closely related to demographic changes. For example:
❖Increased female participation in the workforce
❖Right to privacy
❖The desire for a better work–life balance
❖More part-time and fixed-term employment
❖Less loyalty from employers and employees
Internal and External Stakeholders influencing
HR planning
• Shareholders
• Customers
• Suppliers
• Government
• Unions
• Employees
• Top Management
Shareholders
• Financial Performance goals and Resource Allocation: Shareholders are primarily
concerned with the financial performance of the organization. They may have
expectations regarding cost management, efficiency, and return on investment.
• Long-Term Strategic Direction: Shareholders often play a role in setting the long-term
strategic direction of the organization. Their interests and priorities can shape HR planning
by influencing decisions related to organizational structure, workforce composition, and
talent development.
Customers
In certain industries, customers and clients can influence HR planning. For
example, if an organization operates in a service-oriented industry, HR
planning may need to consider customer expectations regarding employee
skills, customer service standards, and responsiveness. Understanding
customer requirements helps in aligning HR strategies with customer
satisfaction goals and delivering a positive customer experience.
Suppliers
Suppliers can impact HR planning by influencing the availability and quality
of talent. For example, if an organization relies on specific suppliers for
critical components or services, their performance, reliability, and ability to
meet delivery requirements can affect the organization's ability to attract
and retain talent. HR planners need to consider supplier relationships when
assessing workforce needs and designing recruitment strategies.
Government
Regulatory authorities and government agencies establish laws, regulations,
and compliance requirements that impact HR planning. HR planners need to
stay updated on legal obligations, labor regulations, and industry-specific
requirements to ensure HR practices align with these regulations.
Collaboration with regulatory authorities and proactive engagement with
compliance issues are essential to mitigate legal risks and maintain
regulatory compliance
Employees and Unions
Employees and their representatives, such as unions or employee councils,
are essential stakeholders in HR planning. Their input, concerns, and
feedback are crucial for designing HR policies and programs that foster
employee engagement, satisfaction, and productivity. HR planners need to
engage employees and unions through communication channels, feedback
mechanisms, and involvement in decision-making processes to gain their
support and address their needs effectively
Top Management
Senior management and executives are key stakeholders in HR planning.
They provide strategic direction, set organizational goals, and allocate
resources. HR planners need to collaborate closely with senior management
to understand their priorities, align HR strategies with organizational
objectives, and ensure that HR initiatives support the overall business
strategy
Internal factors influencing HR planning
1. Organizational Strategy and Goals: HR planning must be closely aligned with the organization's
overall strategy and goals. Understanding the strategic direction of the organization helps HR
professionals identify the skills, competencies, and workforce requirements necessary to achieve those
objectives.
2. Organizational Structure and Culture: The structure and culture of an organization impact HR
planning. The organizational structure determines reporting lines, spans of control, and decision-
making processes, which influence HR practices such as recruitment, promotions, and career
development.
3. Employee Engagement and Retention: Internal factors such as employee morale, satisfaction, and
retention rates impact HR planning. HR professionals need to assess and address factors that affect
employee engagement, such as communication, work-life balance, career development opportunities,
and recognition programs.
4. Budget and Resource Allocation: HR planning must consider the organization's budgetary constraints
and resource availability. HR initiatives such as recruitment, training, compensation, and benefits are
influenced by the financial resources allocated to HR activities
5. Technological Capabilities: The organization's technological infrastructure and capabilities impact HR
planning. HR professionals need to consider the technology platforms, software systems, and tools
available for HR processes, such as HRIS, employee self-service portals.
6. Leadership and Management Support: Strong leadership and management support are vital for
successful HR planning. HR planners need support from senior management to implement HR initiatives,
allocate resources, and drive change within the organization.
7. Workforce Diversity: The diversity of the workforce, including factors such as age, gender, ethnicity,
and cultural background, can influence HR planning. HR planners must consider diversity and inclusion
initiatives, such as recruiting practices that promote diversity, training programs that address
unconscious bias, and creating an inclusive work environment.
8. Employee Performance and Productivity: The performance and productivity levels of employee's
impact HR planning. HR planners need to assess and address factors that affect employee performance,
such as training and development needs, performance evaluation processes, and reward and recognition
programs.
9. Succession Planning and Career Development: Internal factors related to succession planning and
career development influence HR planning. Identifying high-potential employees, creating career
development paths, and establishing succession plans are essential to ensure a pipeline of talent for
critical positions within the organization.
10. Organizational Change and Restructuring: HR planning needs to adapt to organizational changes, such as
mergers, acquisitions, or restructuring. HR planners play a vital role in managing change, supporting
employees through transitions, and ensuring the organization has the necessary talent and skills to meet
the evolving needs
11. Employee Health and Well-being: The well-being and health of employees are internal factors that
influence HR planning. HR planners need to consider initiatives that promote work-life balance, mental
health support, wellness programs, and occupational health and safety measures.
12. Internal Communication and Employee Feedback: Effective internal communication channels and
mechanisms for employee feedback play a crucial role in HR planning. HR planners need to ensure clear and
transparent communication throughout the organization, disseminate HR policies, initiatives, and changes
effectively, and provide avenues for employees to voice their concerns and suggestions.
Challenges faced in environmental scanning
• Identifying relevant factors
It can be challenging to determine which external factors and trends
are most relevant to HR planning.
• Integrating external factors with internal strategies
HR professionals need to bridge the gap between internal trends and
the organization’s specific workforce needs, goals and values.
• Changing workforce expectations and rapidly changing regulations
Diversified need, expectations and changing compliance.