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To operate successfully the organisation needs to ask itself the following questions. What business are we in? How can we carry out our business to be as effective as possible and to meet out stakeholders’ needs? The organisational context is also influenced by the external context; it interacts with its environment and this in turn impacts on HR. For this reason, HR practices need to be designed to reflect the organisational context. However, in a fast-changing working environment this is often difficult to achieve: new technologies are developed, governments and attitudes change. Policies should inform practice, but these need to be flexible enough to respond to the influences of the external environment. For example, changes in working hours have meant changes in policies, which in turn have led to changes in practice, which in theory should have meant a reduction in working hours for some workers.
The external context (STEP analysis)
The external environment influences the external context of the organisation. An organisation would not be effective if it ignored the external context of politics, economics, society and technology. In London and the south-east of England, there is a shortage of key workers, such as nurses and teachers and many workers have been employed from abroad to fill the vacancies.
For organisations, this means a review of policies to ensure that new workers’ needs are consideredOn the practical side, new aspects of training may have to be delivered to meet language needs. To do this an organisation needs to operate as an open system, which can change to meet the needs of its external environment. Katz and Kahn (1966) identify open systems as those that interact with the environment; this makes them complex and difficult to control.
First: The political context
The political context not only refers to the type of government in power at the time, but also whether the country is democratic or not. In the UK the political context changes depending on which political party is in power. In the past, the Conservative Government has tended to favour the employer over the employee; an example of this was the removal of the minimum wage. Traditional Labour Governments have focused on the employee and have had close links with the unions. With New Labour the lines have become somewhat blurred: although they have reintroduced the minimum wage, they have also formed close links with industry by encouraging public/private partnerships. With every change of government the HR practitioner needs to identify the impact on the organisation and the HR department.
Second: The economic context
The economic context refers to the health of the nation. If business is booming and unemployment is low, it may be harder to find and retain staff. In times of economic decline, unemployment increases and a greater choice of labour is available to the employer. However, economic decline may also mean that your organisation has to ‘downsize’ and the HR department will then face the dilemma of dealing with redundancies. An organisation may also need to answer to shareholders, who expect to see a healthy return on their investment. For the HR professional this could mean developing operations overseas where labour is cheaper, such as Prudential moving its call centres to India. It may also mean outsourcing some or all of the functions of HR, as the organisation pursues its competitive advantage.
Third: The social context
The social context refers to the culture, politics, leadership and management style that influence the organisation. The example of Enron in the opening vignette is an example of how culture, politics, leadership and management style can influence an organisation. An HR manager must be able to identify the culture within which the organisation operates. This means she or he needs to recognise and understand the values the organisation is trying to promote. However, they also need to understand the culture and society from which their employees are recruited. Schein (1985) offers the following as a definition of culture as:
a pattern of basic assumptions – invented, discovered or developed by a given group as it learns to cope with its problems of external adaption and internal integration that has worked well enough to be considered valuable and therefore, to be taught to new members as the correct way to perceive, think and feel in relation to those problems.
Many industries in the past have grown up in particular regions. For example, coal mining in the north-east of England, steelworks in Wales, pottery in the Midlands, financial services in London. Even though many of these industries have now gone, society often clings to the past tradition. As new industries move in, the HR manager needs to adapt and change the culture to match the new organisation.
An HR manager should not underestimate the importance of the societal context of business as, in many instances, businesses have foundered due to a lack of understanding of the culture. Examples are EuroDisney Paris, whose lack of understanding of European culture and its failure to embrace all things American, had a serious impact on business, or Wal-Mart in Argentina, which failed to understand how the Argentines liked to shop, and could not understand why business was not booming in its bright and shiny new supermarkets.
Fourth: The technological context
The technological context refers to the technology available for the organisation to use. In today’s world, technology has a major impact in ensuring an organisation can maintain competitive advantage. For the HR manager it means keeping up to date with the technology available and the implications for using that technology. Thirty years ago the HR manager would have kept paper records, probably with the minimum of information. Today, the HR manager is expected to collect tax and national insurance, administer pensions and keepthe information secure to comply with legislation such as the Data Protection Act. The HR manager also needs to ensure that staff are trained and developed to allow the company to embrace a fast-changing technological environment. Then there are the implications of technology replacing people or using technology to relocate sectors of the organisation such as customer services. There are also the new ways of working made possible through the use of email, videoconferencing and the Internet, where organisations can exist virtually. The HR manager needs to understand how to manage in the context of technology.
When it comes to human resource management there are several factors that affect day-to-day operations. Adapting in this field is important because at a moments notice new legislation can be passed with an immediate effective date or corporate polices are changed where human resources feels the brunt. A well-developed strategy for your human resources department takes into consider external factors that might affect your department.
4 EXTERNAL FACTORS THAT AFFECT HUMAN RESOURCE MANAGEMENTGovernment Regulations – With the introduction of new workplace compliance standards your human resources department is constantly under pressure to stay within the law. These types of regulations influence every process of the HR department, including hiring, training, compensation, termination, and much more. Without adhering to such regulations a company can be fined extensively which if it was bad enough could cause the company to shut down.
Economic Conditions – One of the biggest external influences is the shape of the current economy. Not only does it affect the talent pool, but it might affect your ability to hire anyone at all. One of the biggest ways to prepare against economic conditions is to not only know what’s happening in the world around you, but also create a plan for when there is an economic downturn. All companies can make due in a bad economy if they have a rainy day fund or plan to combat the harsh environment.
Technological Advancements – This is considered an external influence because when new technologies are introduced the HR department can start looking at how to downsize and look for ways to save money. A job that used to take 2-4 people could be cut to one done by a single person. Technology is revolutionizing the way we do business and not just from a consumer standpoint, but from an internal cost-savings way.
Workforce Demographics – As an older generation retires and a new generation enters the workforce the human resources department must look for ways to attract this new set of candidates. They must hire in a different way and offer different types of compensation packages that work for this younger generation. At the same time, they must offer a work environment contusive to how this generation works.
Those involved in human resource management does more than hiring and firing, they make sure that every type of external influence is listened to and proper procedures are followed to avoid lawsuits and sanctions. If you’re in HR make sure that you’re paying close attention to external influences because there is a good chance they’re affecting your job and the company you work for. So next time you talk to someone invovled in the human resource management process think twice about the amount of factors that affect their job and how important it is for them to be on top of their game
STEP was devised, which stands for:
Sociological trends - demographic changes, trends in the way people live, work, and think
Technological innovations - new approaches to doing new and old things, and tackling new and old problems; these do not necessarily involve technical equipment - they can be novel ways of thinking or of organizing.
Economic influences - the nature of the competition faced by the organization or its services, and financial resources available within the economy
Political factors - both big and small 'p' political forces and influences that may affect the performance of or the options open to the organization
Advantages and disadvantages of using a STEP analysis
Advantages
· Simple framework.
· Facilitates an understanding of the wider business environment.
· Encourages the development of external and strategic thinking.
· Can enable an organization to anticipate future business threats and take action to avoid or minimize their impact.
· Can enable an organization to spot business opportunities and exploit them fully
· By taking advantage of change, you are much more likely to be successful than if your activities oppose it;
· Avoids taking action that is doomed to failure from the outset, for reasons beyond your control
Disadvantages
· Some users over simplify the amount of data used for decisions it is easy to use scant data.
· To be effective this process needs to be undertaken on a regular basis.
· The best reviews require different people being involved each having a different perspective.
· Access to quality external data sources, this can be time consuming and costly.
· The pace of change makes it increasingly difficult to anticipate developments that may affect an organization in the future.
· The risk of capturing too much data is that it may make it difficult to see the wood for the trees and lead to paralysis by analysis.
· The data used in the analysis may be based on assumptions that subsequently prove to be unfounded (good and bad).
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From Wikipedia:
Political, Economic, Social and Technological: describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.
The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.
Best Regards
This form of analysis can be undertaken by reviewing the organizational(external) environment using the PEST-analysis (sometimes known asSTEP-analysis), extended to the PESTELI checklist described below. PESTELIAnalysis is a useful tool for understanding the big picture of theenvironment in which you are operating, and the opportunities and threats thatlie within it. By understanding your environment, you can take advantage of theopportunities and minimize the threats.
What is PEST(ELI)?
The term PEST has been used regularly in the last 10 years and itstrue history is difficult to establish. The earliest known reference to toolsand techniques for scanning the business environment is by Francis J.Aguilarwho discusses ETPS - a mnemonic for the four sectors ofhis taxonomy of the environment: Economic, Technical, Political,and Social. Over the years this has become known as PEST with theadditional letters are: Ecological factors, Legislativerequirements, and Industry analysis. PESTELI is known as a trendsanalysis. The external environment of an organisation, partnership, communityetc. can be assessed by breaking it down into what is happening at Political,Economic, Social, Technological, Environmental, Legal and Industrylevels. The same checklist can also be applied inside an organisation.
Initially the acronym PESTwas devised, which stands for:
Political factors - both big and small 'p' political forces andinfluences that may affect the performance of, or the options open to theorganisation
Economic influences - the nature of the competition faced by theorganisation or its services, and financial resources available within theeconomy
Sociological trends - demographic changes, trends in the way peoplelive, work, and think
Technological innovations - new approaches to doing new and oldthings, and tackling new and old problems; these do not necessarily involvetechnical equipment - they can be novel ways of thinking or of organising.
The expanded PESTELI, also includes:
Ecological factors - definition of the wider ecological system ofwhich the organisation is a part and consideration of how the organisationinteracts with it
Legislative requirements - originally included under 'political',relevant legislation now requires a heading of its own
Industry analysis - a review of the attractiveness of the industry ofwhich the organisation forms a part.
To be useful as an analysis tool, these environmental factors have to belinked to the organization's mission: which are helpful or which make it moredifficult to accomplish that mission.
Why undertake a PEST(ELI) Analysis?
To be effective a PEST(ELI) needs to be undertaken on a regular basis.Organisations that do analyses regularly and systematically often spot trendsbefore others thus providing competitive advantage.
Advantages and disadvantages of using a PEST(ELI) analysis
Advantages
Disadvantages
Who should undertake the analysis?
Decision-making is more natural to certain personalities, so these peopleshould focus more on improving the quality of their decisions. People thatare less natural decision-makers are often able to make quality assessments, butthen they need to be more decisive in acting upon the assessments made. PESTELIis almost entirely based on external factors, so ensure at least some members ofeach team have knowledge of, or are able to consider, the PESTELI factors if youintend using this exercise. PESTELI is a good exercise for marketing people, andis good for encouraging a business development, market orientated outlook amongall staff. If you want to use PESTELI with staff who are not naturallyexternally focused you can have them do some research and preparation in advanceof the exercise.
Completing a PESTELI analysis can be a simple or complex process. Itall depends how thorough you need to be. It is a good subject for workshopsessions, as undertaking this activity with only one perspective (i.e. only onepersons view) can be time consuming and miss critical factors.
What areas of PESTELI are best to use?
For most situations the original w:st='on'>PESTanalysis model arguably covers all of the 'additional' factors within theoriginal four main sections. For example Ecological or Environmental factors canbe positioned under any or all of the four main PESTheadings, depending on their effect. Legislative factors would normally becovered under the Political heading since they will generally be politicallymotivated. Demographics usually are an aspect of the larger Social issue.Industry Analysis is effectively covered under the Economic heading. Ethicalconsiderations would typically be included in the Social and/or Political areas,depending on the perspective and the effect. Thus we can often see these'additional' factors as 'sub-items' or perspectives within the four mainsections. Examples of these have been added to Table 1.
Keeping to four fundamental perspectives also imposes a discipline ofconsidering strategic context and effect. Many of these potential 'additional'factors (ethical, legislative, environmental for example) will commonly becontributory causes which act on one or some of the main four headings, ratherthan be big strategic factors in their own right.
How to undertake a PEST(ELI) analysis?
It is important to clearly identify the subject of a PEST(ELI) analysis,because a PEST(ELI) analysis is four-way perspective in relation to a particularpolicy, proposal or business plan- if you blur the focus you will produce ablurred picture.
The shape and simplicity of a four-part model is also somehow morestrategically appealing and easier to manipulate and convey.
The PEST(ELI) template below (Table 1) includes sample prompts, whose answerscan be inserted into the relevant section of the PEST(ELI) Grid (Table 2). Theprompts are examples of discussion points, and obviously can be altereddepending on the subject of the PEST(ELI) analysis, and how you want to use it.Make up your own PEST(ELI) questions and prompts to suit the issue beinganalyzed and the situation (i.e. the people doing the work and the expectationsof them).
The following factors may help as a starting point for brainstorming (butmake sure you include other factors that may be appropriate to your situation):
Table 1: w:st='on'>PEST(ELI) Template
Insert Subject for PEST(ELI) analysis:
Political
Economic
Socio-cultural
Technological
Examples:
Ecological factors Air quality, transportation, parking,pollution discharge, water quality, waste management, land use, coastalresources etc.
Legislative requirements Primary and secondary legislationin relation to Health Bills e.g. employment laws, contracts over rightsof staff, rights of patients, direct payments etc.
Industry analysis Demand, liaison and selection forservices, products and/or component parts on the basis of price,quality, delivery times and services support; market knowledge,forecasting, purchasing strategies, liaising with users, businessefficiency;
This form of analysis can be undertaken by reviewing the organizational(external) environment using the PEST-analysis (sometimes known asSTEP-analysis), extended to the PESTELI checklist described below. PESTELIAnalysis is a useful tool for understanding the big picture of theenvironment in which you are operating, and the opportunities and threats thatlie within it. By understanding your environment, you can take advantage of theopportunities and minimize the threats.
What is PEST(ELI)?
The term PEST has been used regularly in the last 10 years and itstrue history is difficult to establish. The earliest known reference to toolsand techniques for scanning the business environment is by Francis J.Aguilarwho discusses ETPS - a mnemonic for the four sectors ofhis taxonomy of the environment: Economic, Technical, Political,and Social. Over the years this has become known as PEST with theadditional letters are: Ecological factors, Legislativerequirements, and Industry analysis. PESTELI is known as a trendsanalysis. The external environment of an organisation, partnership, communityetc. can be assessed by breaking it down into what is happening at Political,Economic, Social, Technological, Environmental, Legal and Industrylevels. The same checklist can also be applied inside an organisation.
Initially the acronym PESTwas devised, which stands for:
Political factors - both big and small 'p' political forces andinfluences that may affect the performance of, or the options open to theorganisation
Economic influences - the nature of the competition faced by theorganisation or its services, and financial resources available within theeconomy
Sociological trends - demographic changes, trends in the way peoplelive, work, and think
Technological innovations - new approaches to doing new and oldthings, and tackling new and old problems; these do not necessarily involvetechnical equipment - they can be novel ways of thinking or of organising.
The expanded PESTELI, also includes:
Ecological factors - definition of the wider ecological system ofwhich the organisation is a part and consideration of how the organisationinteracts with it
Legislative requirements - originally included under 'political',relevant legislation now requires a heading of its own
Industry analysis - a review of the attractiveness of the industry ofwhich the organisation forms a part.
To be useful as an analysis tool, these environmental factors have to belinked to the organization's mission: which are helpful or which make it moredifficult to accomplish that mission.
Why undertake a PEST(ELI) Analysis?
To be effective a PEST(ELI) needs to be undertaken on a regular basis.Organisations that do analyses regularly and systematically often spot trendsbefore others thus providing competitive advantage.
Advantages and disadvantages of using a PEST(ELI) analysis
Advantages
Disadvantages
Who should undertake the analysis?
Decision-making is more natural to certain personalities, so these peopleshould focus more on improving the quality of their decisions. People thatare less natural decision-makers are often able to make quality assessments, butthen they need to be more decisive in acting upon the assessments made. PESTELIis almost entirely based on external factors, so ensure at least some members ofeach team have knowledge of, or are able to consider, the PESTELI factors if youintend using this exercise. PESTELI is a good exercise for marketing people, andis good for encouraging a business development, market orientated outlook amongall staff. If you want to use PESTELI with staff who are not naturallyexternally focused you can have them do some research and preparation in advanceof the exercise.
Completing a PESTELI analysis can be a simple or complex process. Itall depends how thorough you need to be. It is a good subject for workshopsessions, as undertaking this activity with only one perspective (i.e. only onepersons view) can be time consuming and miss critical factors.
What areas of PESTELI are best to use?
For most situations the original w:st='on'>PESTanalysis model arguably covers all of the 'additional' factors within theoriginal four main sections. For example Ecological or Environmental factors canbe positioned under any or all of the four main PESTheadings, depending on their effect. Legislative factors would normally becovered under the Political heading since they will generally be politicallymotivated. Demographics usually are an aspect of the larger Social issue.Industry Analysis is effectively covered under the Economic heading. Ethicalconsiderations would typically be included in the Social and/or Political areas,depending on the perspective and the effect. Thus we can often see these'additional' factors as 'sub-items' or perspectives within the four mainsections. Examples of these have been added to Table 1.
Keeping to four fundamental perspectives also imposes a discipline ofconsidering strategic context and effect. Many of these potential 'additional'factors (ethical, legislative, environmental for example) will commonly becontributory causes which act on one or some of the main four headings, ratherthan be big strategic factors in their own right.
How to undertake a PEST(ELI) analysis?
It is important to clearly identify the subject of a PEST(ELI) analysis,because a PEST(ELI) analysis is four-way perspective in relation to a particularpolicy, proposal or business plan- if you blur the focus you will produce ablurred picture.
The shape and simplicity of a four-part model is also somehow morestrategically appealing and easier to manipulate and convey.
The PEST(ELI) template below (Table 1) includes sample prompts, whose answerscan be inserted into the relevant section of the PEST(ELI) Grid (Table 2). Theprompts are examples of discussion points, and obviously can be altereddepending on the subject of the PEST(ELI) analysis, and how you want to use it.Make up your own PEST(ELI) questions and prompts to suit the issue beinganalyzed and the situation (i.e. the people doing the work and the expectationsof them).
The following factors may help as a starting point for brainstorming (butmake sure you include other factors that may be appropriate to your situation):
Table 1: w:st='on'>PEST(ELI) Template
Insert Subject for PEST(ELI) analysis:
Political
Economic
Socio-cultural
Technological
Examples:
Ecological factors Air quality, transportation, parking,pollution discharge, water quality, waste management, land use, coastalresources etc.
Legislative requirements Primary and secondary legislationin relation to Health Bills e.g. employment laws, contracts over rightsof staff, rights of patients, direct payments etc.
Industry analysis Demand, liaison and selection forservices, products and/or component parts on the basis of price,quality, delivery times and services support; market knowledge,forecasting, purchasing strategies, liaising with users, businessefficiency;
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