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Unit 2: Business Management Notes2.1: Functions and Evolution of Human Resource Management
Human Resource Planning
Human resource management (HRM) is the management function of using and developing people
within a business to meet its organizational objectives. This entails interrelated roles, such as:
workforce planning (human resource planning)
the recruitment, selection and induction of new employees
staff training and staff development; performance management and staff appraisals
reviewing pay and remuneration packages; looking after the welfare of employees
People are important to an organization as they add value to its output. This can be achieved by
increasing productivity (output per worker), improving quality, coming up with new ideas and
providing better customer service to enhance the overall purchasing experience of customers.
Numerous entrepreneurs state that people are a firm’s most valuable resource - employing the right
people helps businesses to achieve their aims and objectives. To do this, a firm needs to use human
resource planning (or workforce planning) - the management process of anticipating and meeting
an organization's current and future staffing needs.
Workforce planning can either be short, or long term, although it is mostly an ongoing process:
short-term workforce planning deals with the existing and upcoming demands of an
organization, e.g. employing workers to cover for staff who are about to retire.
long-term workforce planning deals with the human resource needs of the business in the
future, e.g. training workers for a period of time before the business opens.
Workforce planning can be achieved by looking at:
historical data and trends – e.g. the change in size of the workforce over the past few years.
sales and income levels – higher income levels increase spending in the economy, thereby
creating more jobs, reducing the unemployment rate.
labour turnover rate – the higher the rate, the more workers a firm will need to recruit.
flexibility and workload of staff – a flexible and skilled workforce may be able to efficiently
continue their tasks in an event of a staff shortage, however if workload increases, firms may
require to employ more staff.
Workforce planning consumes a lot of time and money. Despite attempts to achieve effective
workforce planning, external influences affect the accuracy of the forecasts. This is because
businesses are constantly exposed to the forces of change, such as an economic recession which
reduces the demand for human resources.
Labour Turnover
Labour turnover measures the percentage of the workforce that leaves the organization in a given
time period, usually one year.
Number of Staff Leaving
Labour Turnover= ×100
Total Number of Staff
,Some organizations tend to have higher rates of staff turnover than others. Firms that hire lots of
part-time and temporary staff are likely to accept higher rates of labour turnover, mainly due to the
nature of the job (such as the relatively low wages paid to unskilled workers).
A low labour turnover rate suggests that managers have recruited the right people for the job and
that the existing employees are content and motivated at work. By contrast, a high labour turnover
rate suggests that staff are incompetent or lack job satisfaction. It might also be caused by better
job opportunities and remuneration packages offered by other employers. A high labour turnover
rate will clearly add to the costs of recruiting and training new staff in addition to the lost
productivity, especially in the case if experienced staff leave.
Firms with high staff retention tend to be those that regularly offer training for both personal and
professional development. This helps to boost morale as staff see their employers valuing their
contributions and development. Employers also benefit from the resulting employee loyalty.
Internal & External Factors Influencing Human Resource Planning
Internal factors (such as labour mobility) and external factors (such as new communications
technologies) both influence human resource planning.
Demographic Change
The supply of human resources in a country is affected by demographic changes in the workforce.
Demography is the statistical study of population characteristics and trends. Demographic changes
can be caused by changes in various factors:
the net birth rate – the difference between the number of births and deaths per period of
time; countries with a higher net birth rate will have a larger supply of human resources in
the long-term.
the retirement age – the legal age when people can stop working and claim pensions; if the
retirement age is higher, there are more people in the labour force of legal working age.
women entering or returning to the workforce – this boosts the supply of human resources;
at present, an increasing number of women are working part-time, allowing businesses
greater flexibility in employing the correct employees for their business.
A distinct demographic change in economically developed societies is increased longevity, i.e.
people, on average, are living longer. An ageing population has the following effects:
increased dependent population – the dependent population consists of minors,
unemployed people, and the retired population; they are ‘supported’ by the working
population of taxpayers (retired members – pensions).
changes in consumption patterns – an ageing population can create opportunities for firms
to cater for more mature age groups.
changes in employment patterns – as more people go to university, the average age of
people entering the workforce increases, meaning that firms would most likely retain staff
beyond their retirement age due to the labour supply shortages.
Changes in Labour Mobility
The mobility of labour is the extent to which labour can move to different locations (geographical
mobility) and their flexibility in changing to different jobs (occupational mobility).
, The limitations of on geographical mobility include:
interpersonal relationships (friends and family).
relocation costs (moving expenses) such as considering house prices.
the cost of living in particular areas with high expenses can deter people from relocating in
these areas, thus reducing the potential supply of labour.
The limitations on occupational mobility include:
younger people tend to be more occupationally mobile as they often change careers.
some workers are immobile because they are highly specialized their area of expertise.
occupational mobility tends to be greater with acquired attributes of a worker (such as
education, qualifications, skills, experience and training).
New Communication Technologies
Advances in communications technologies, such as email, e-commerce and video conferencing, can
bring both opportunities and threats to human resource planning. Information and Communications
Technologies (ICT) in human resource planning can be used to support current practices (activities)
in workforce planning and/or to change (improve) workforce planning processes.
Examples include:
recruitment – the use of online applications to speed up communication and to reduce
costs; and the increased use of video-conferencing for job interviews.
meetings - businesses with branches or facilities in different locations, including overseas,
can reduce the costs of meetings by using video-conferencing technologies.
appraisals - collaborative tools such as Google Docs can be used by the line manager and
appraisees to set targets and review progress.
online training courses - these courses tend to be cheaper than off-the-job training courses
with a specialist trainer.
Recruitment and Selection
The recruitment and selection of employees is vital to the running of a business. Labour is an
essential factor of production needed for the provision of any good or service. Hiring the right
people helps to ensure that businesses can function effectively.
Before a business recruits new workers, managers usually carry out a job analysis. This involves
scrutinising the different components of a job, such as the routine tasks and responsibilities to
determine what the job entails. The job analysis helps to create two important documents needed
for the recruitment and selection of staff - the job description and the person specification.
Once the initial job analysis has been done, the human resources manager will produce a job
advertisement to get as many suitable people as possible to apply for the vacant job.
A job description is a document that outlines the details of a particular job. It refers specifically to
what the job entails rather than the type of person required for the job. It includes the job title and
the roles, duties and responsibilities of the post holder.
A person specification is a document that profiles the ideal candidate, such as the qualifications,
skills, and experiences sought by the employer. It also lists the personal attributes that the successful
applicant should have, such as the ability to lead a team and to think critically.
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