Any function of the organization cannot work in isolation and are interdependent on a lot of factors internally within the organization and outside the organization too, therefore for smooth operations and decision making it is essential to take into account of these factors which can influence HR policies procedures and practices. The best framework to study the external macro-environment, its components and how they affect the functioning of the HR department is by the PESTEL analysis. I will further discuss the possible factors that lie in the PESTEL analysis and influences the HR function.
The economic environment is composed of many economic factors like populations, fluctuation in economic and trade cycle, national income, labour market conditions, interest rates and globalization of the economy. This is the most important of all the factors prevailing in the environment that affects an organization the most including the HRM function. This could be made evident by the scenario for e. when a company’ s performance in well due to the boom in the trade cycle, it will attract more business and due to increase in business it may need to hire more labour from the market and it might face difficulty in hiring the required labour from the market.
To serve the purpose the organization may be willing to pay extra compensations and will hire the labour at any possible price which may cause issues for the HRM functions, the practitioners and the mangers regarding recruitment, retentions, compensations and may have to deal with the problems of lay-offs, retrenchment, difficulty in maintaining the high morale of other employees and other legal issues etc. The labour market exists outside the organization and is an important external factor for the HRM function as they choose the employees from outside the organization; therefore their demand and supply greatly influence the HRM function in an organization.
Further, there are players that affect the demand and supply of labor in the market and indirectly affect the HRM function.
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