Business Issues and the Contexts of Human Resources
Internal and External factors that impact on an organisation’s business and HR function
Like many entities, Farah Experiences LLC operates in diverse environments and learns to cope with the different factors driving the environment in which they operate in for sustainability purposes (Ulrich, D., 2013). The factors that determine the operational conditions are divided into internal factors and the external factors both of which limit the operations of the entity. Internal factors emanate from within, while external factors are forces from outside the entity. External factors that drive the business environment include industry, market or political factors and managers have no control over them but are able to only anticipate (Armstrong, and Taylor, 2014). These factors are summarized below:
1.1 Internal factors
Human Resources: relates to the personnel the entity employs to perform the duties and tasks assigned to them. Senior employees are charged with setting the entity’s goals, the middle level employees are in charge of the operations while the lower level employees are responsible for the day to day accomplishment of tasks (Acca, 2016). An entity retains control of these human resource factors in order to increase its competitiveness via methods ways such as recruitment, remuneration, appraisals and retrenchment according to the strategies they have in mind.
Physical Resources: relates to resources such as land, buildings and equipment owned by the entity and used for production or held as assets. The entity can control it competitiveness through strategies on employment of physical resources (Barker, 2005).
Financial resources: relates primarily to liquidity. An entity may have sufficient assets but if it lacks sufficient cash it may cripple the business (Barker, 2005). An entity requires enough liquid cash to sustain activities required for daily operations. Financial resources need to be well managed so to be able to fulfil the entity’s goals even in economic recessions (Acca, 2016).
Activities and processes: reflect the way the entity has set procedures and standards of handling different situations (Pun and White, 2005). The rules and policies and procedures for handling employee grievances and handling customer complaints are essential in determining the success of the entity. Any entity such as Farah which has efficient methods will have success in its environment or industry.
1.2 External factors
External factors can be summarised by PESTEL:
Political: associated with political unrest for example coups, democratic election processes, war, genocides, and revolutions. An entity cannot affect this situation individually however it may adversely affect reputation should they be associated with political upheaval (Vining, 2011).
Economic factors: market forces of demand and supply affect the entity, as do monetary and fiscal policies. These factors determine availability of money in the marketplace which affects consumer buying capacity and in turn volumes required for the entity to reach break-even point (Pun and White, 2005).
Socio-cultural factors: relate to factors such as fashion, preferences, age and should be assessed in the environments in which the entity operates (Armstrong, and Taylor, 2014).
Technology in the world is fast evolving; any entity that does not embrace technology has low chances of survival in the ever changing world. Utilising technology may result in simpler methods of production that are cost efficient , reduced costs selling/ marketing and also methods that are eco-green according to International Standards (Barker, 2005).
Legal factors also affect the operation of the entity due to having to follow various laws that differ between marketplaces.
Competitive analysis is another type of tool used to compare industry competitors in relation to pricing and products in order to produce quality products, improve customer satisfaction and stay competitive in the market.
Key forces which shape the Human Resource agenda
The key forces that shape the HR agenda are the models of the HR function, the insights and solutions which sustain the business the HR strategies, accountability and business ethics.
These models for example the Dave Ulrich model is divided to four sections namely the Strategic partner who is involved in managing Strategic human resources, the Change Agent who deals with transformation and the change, then the Employee Champion who takes into consideration the employee contribution, and finally the Administrative Partner who manage the firm’s infrastructure (Ulrich, 2013). The four sides of the model represent operation for both long and short-term, management of people and processes. This model shows the relationship of all the agents involved in transformation of an entity to a better state, hence the name Ulrich’s four role model (Ulrich, 2013). The diagram below shows the Ulrich’s model to illustrate the model.
Another model for human resource function is the Henry Mintzberg’s model that breaks down the organisation to five categories; the strategic apex, operating core, middle line, the support staff and techno-structure. Strategic apex in this case manages the macro-environment; operating core carries activities important to produce the output (Kerzner, 2003). The middle line is the link between the strategic apex and operating core to show that the operational activities have to be in line with the strategies laid down. The techno-structure has individuals that work on training, human resource, planning and financing and finally the support staff that are involved in legal affairs, public relations and research and development.
The figure below is an illustrate of the Mintzberg model as explained above.
HR strategies on the other hand are plans laid after identifying the needs of personnel currently and in future (Kerzner, 2003). It always serves as a link between the between the strategic plan the organisation has and the HR restructuring to meet the strategic plan. Business accountability and ethics is essential in dealing with the code of conduct of the employees in the organisation and the outside (Pun and White, 2005). The code of conduct helps maintain courtesy in the organisation and good rapport even to the outside industry.
Tools used to evaluate the business environment
These are strategic analysis tools used by companies to derive strategies on how they manage the entities for sustainability. SWOT is the analysis of the Strength versus Weaknesses, Opportunities versus Weaknesses of the organisation. PESTLE is the analysis of the external forces that affect operation of the business which are political, Socio-cultural, economic, technological, environmental and legal factors (Vining, 2011). The five forces model by Michael Porter’s focuses of the competitiveness of a product in the market, the model highlights the competitive rivalry, supplier power, and threat of new entry, threat of substitution and buyer power.
PESTLE points out some macro environmental factors that affect the entity and its competitive advantage and assess how the organisation is affected by these factors. It is used to develop business strategies to evaluate chances of new markets and exploiting opportunities.
Figure of the PESTLE model of analysing the market.
In application to UAE there is good political will and political stability which attracts investment not only in tourism but also it makes it conducive for the oil and gas industry which has recent drop in oil prices. There a high employment rate in UAE that boosts the economy, different nationalities have been employed that increase the per capita income of the people both citizens and foreigners. The tax policies and laws are also conducive and attractive to investors, currently they are not taxed anything on income or wealth of companies. (Santander 2016)
Below is an outlook on some positive macro-economic factors (Oxforeconomics.com, 2016):
The UAE tourism industry is forecasted to expand in the next 10 years with a 9% growth
UAE accounts for a third of Middle Eastern travel and tourism demand
3 billion people live within 4 hours flight from UAE
AD vision 2030 and Dubai Expo 2020 are expected to have a clear boost of inbound tourism
Porter’s Five Forces Analysis
Porter’s model on the other hand, is used to point out where there is power in a specific competitive situation. The model is used to assist financial professional and managers explore ways to balance their competitive power in the situations of buyer or supplier power, competitive rivalry among already existing businesses, and threat of new entry of firm or threat of a substitute product (Vining, 2011). It is targeted at creating ways to take a leading advantage where there is strength, overcoming the weaknesses or avoiding situations that may make the competitor gain over the entity.
Figure of the Porter’s model
The THEME PARKS in UAE are a good example to be used for the Michael Porter’s five forces model. These parks include Ferrari World Abu Dhabi, Wild Wadi Water Park, Yas Waterworld, and Aqua Venture among others. Each of these firms has to guard themselves from new entrants such as Dubai Parks and Resorts and IMG into the market, or substitution from each other. Then they have to balance the buying power of customers and supply of their resources. The intensification of industry rivalry as well as the evolution of the consumer patterns may impact Farah’s attendance across the parks. Below highlights some intensification of the leisure facility rivalry:
From 2016 onwards, upcoming large-scale leisure developments will begin entering the market offering, critical mass of rides and attractions, resort offering and adding an additional 12m theme parks tickets in the market
There is a growing need to reduce dependency towards Dubai-based tourists and DMC’s and enhance in-source market penetration strategy
There is also a significant theme park offering in major source markets (particularly India, China, and Southeast Asia). By 2018, theme park attendance in the Asia-Pacific region will account for 50% of all global attendance, making it the largest theme park market in the world (iaapa.org, 2016)
SWOT consequently assesses the company’s strength and weaknesses with respect to the industry opportunities and challenges in the operating environment in relation to their competitors (Barker, 2005). While the Porter’s model stresses on how the company is at a better advantage over the competitiveness of its products in relation to the five forces, SWOT highlights it’s the general competitiveness of the entire company.
The SWOT analysis tool is used by Farah to analyse the business environment. Important areas of development for Farah concern organisational efficiencies, analytical capabilities, strong human resources, multi-park/YI synergies, market awareness, control of customer flow and customer experience enhancement as shown in the below figure (farahexperiences.com, 2016).
Figure of Farah’s SWOT analysis
Farah Management, shortlisted 21 strategic initiatives to be launched and implemented in 2016. Below are some of the HR initiatives that will strengthen the organisation and support the business strategy by developing a data driven culture with reliable data, streamline operations, enhance a service culture and develop leading human capital programmes to attract top performers, expats and Emiratis.
Secure replacement of employee housing for Farah
Salary/benefits review initiative
Human Resources readiness initiative (recruitment)
HR initiatives (including talent audit)
Emirati development programme initiative
Introduction of service culture initiative
Implement and realise shared service synergies across the Theme Park and Non-Theme Park assets
4. Key Stages in Strategy Formulation
The five stages for strategy formulation are setting of goals, analysis of the goals, formation of the strategies to achieve the goals, implementation of the strategy and monitoring of the strategy.
Goal-setting: this involves coming up with the both the long-term and short-term objectives to be achieved and which are supposed to relate with the organisation’s mission and vision. (Pun and White, 2005).
Analysis: Brainstorming is done to assess the impact of the decisions taken. Much data is gathered for assessment from the employees, the customers and all stakeholders to determine whether the decisions taken are in line with the objectives of the company in the competitive environment (Armstrong, and Taylor, 2014).
Strategy formulation: After analysis of the strategy and coming up with conclusive evidence that the goals taken are the required, the company checks whether it has the necessary resources needed to further the project (Pun and White, 2005). Resources that will be outsourced are listed and budgeted.
Strategy implementation: It is the stage that works on the strategies, it takes action to implement the goals as per the outlined procedure so as to ensure the success of the business (Vining, 2011). If the strategies do not work then new ones have to be implemented and the people made to focus so that they make sure they optimize the resources and also ensure success of the business.
Evaluation and control: these include measurement of performance of the implemented project. It entails constant review of the internal and external forces affecting the progress of the implemented plan and making corrective actions so that they successfully bear results (Kennerley, and Neely, 2002).
The role of HR at each stage and HR contribution to HR and ethics
Goal setting: the aim of this is to define the objectives and the goals. The HR department is involved in determining whether more staff will be needed as from the current production level with the employees present.
HR is vital in Strategy formulation. HR provides competitively intelligent people to be used in strategy formulation; they come up with the goals while understanding the internal and external forces involved (Makadok, and Barney, 2001). The goals reflect what can be achievable with the experience and qualities of the people that they have as their employees. They also address the employee concerns and the expectations rose when the new goals are set.
Analysis: HR is fundamental in analysing strategies. First it provides the key personnel to assess the strategic plan to brainstorm about the goals to be achieved, it then comes up with the procedures to be followed to ensure success (Kennerley, and Neely, 2002). Second it gives the analysis in terms of labour variances and what is expected of the future about the labour market. This information incorporated in the master budget will be useful information for the decision making.
During the implementation stage, HR assigns the best employees to their best jobs because they understand each one’s experience and where they fit. If there arises any problem during implementation of the project and roles have to be shifted or adjusted so as to meet the goals; HR is tasked with informing the employees (Makadok, and Barney, 2001). The department is also given the duty to ensure ethics and good code of conduct among employees.
Evaluation and control involves checking the progress of the project so that it is done within the limits. HR keeps adjusting the roles of the employees till the optimisation level is reached (Markgraf, and Media, 2016). HR establishes the guidelines to the employees and ensure adherence to the code of conduct. They also come up with perfect employee appraisal schemes to reward the employee whose efforts have been successful.
It is HR that establishes the ethical conduct of behaviour in the place of work; therefore the employees have to follow the guidelines not only to ensure their own safety, job security but also the success of the organisation for achievement of the goals.
Farah Experiences can be said to have both vertical and horizontal integration of strategy. HR has a vertical integration of strategy supporting the business strategy and a horizontal integration within the various HR function strategies ensuring efficiency in all activities.
Evaluating Business Performance
Business performance can be evaluated by the following indicators; operations, market, customers, the products, internal factors (learning and growth), and the financial position of the organisation.
Operations in Farah are measured by sales and profitability. Increase in sales and profitability is a sign that the business organisation that the operations increased and most probably the organisation enjoy the large-scale economies of production (Markgraf, and Media, 2016).
The overall market performance is also another indicator of success, having a large market share is a good indicator that the company is having good progress. A good market share also enhances profitability and chances of market influence over pricing (Dess, and Lumpkin, and Eisner, 2010).
Customers are also a good indicator of market performance. Having a good number of customers and handling them well makes it easy for the company to retain them, then tis transforms to increased sales and automatically increased profitability. This is key for success in the long term.
The products quality is also a tool to measure a company’s performance, high quality products increase the number of customers purchasing them (Marchington, and Wilkinson, 2005).
Internal factors can also a good example of a method for measuring the progress of a company (Armstrong, and Taylor, 2014). For example, low labour turnover is a pointer that the employees are satisfied with the organisation. Employees with long length of service are good because they well understand the company, and have the exact experience for the work.
Finally financial factors are also an indicator performance. Financial factors are profitability, solvency and liquidity. High profitability is a good indicator of showing good performance (Dess, and Lumpkin, and Eisner, 2010).
These are all factors that are part of a Balanced Scorecard approach in evaluating business performance. Therefore, using the balanced scorecard to consistently rate the quality of internal processes within an organisation can be an important tool in allowing for the maintenance of the continuity of operations within the organisation. According to Marchington, and Wilkinson, (2005) a recent paradigm shift in the use of balanced scorecard analysis has been the increased emphasis which has been placed on using the scorecard in order to determine strategic objectives, to determine which measures should be implemented in order to achieve those objectives, and to determine the extent to which those objectives have been met.
Key Performance Indicators (KPI’s) is another way to evaluate performance against strategic and operational targets. Below are some of the HR Strategic and Operational KPI’s for Farah to evaluate internal performance that has a direct impact on the business strategy (farahexperiences.com, 2016).
Figure of Farah’s SKPI’s and OKPI’s
The Role of HR in business planning and change management
The HR team is involved in planning because first it informs of the organisation of the work force available and their individual qualification. Comes up with individual responsibilities and duties that are to be carried out in each level of the organisation to avoid confusion while dealing with mandate or tasks. These tasks have to be in line with the plans and goals to be achieved by the organisations to ensure success (Armstrong, and Taylor, 2014). After this, the human resource defines the code of conduct to ensure ethics and etiquette in the organisation. It also comes up with ways of handling grievances between employees or directed to other people like their employers.
After goal implementation, the human resource is actively involved in change management, it can decide whether the transition will take immediate effect or it will be a parallel slow transition where the old system is done away in phases (Dess, and Lumpkin, and Eisner, 2010).
Different sources of business and contextual data used for planning process
Information to be used by an entity for planning can be accessed from a variety of different sources. The major classifications are internal sources of information that are generated from within the company or organisation and external sources of information which are found from sources outside the organisation (Makadok, and Barney, 2001).
Examples of external sources of information are; print information, television and radio media, and online information. Print media is information from newspapers, journals, magazines, books and periodicals all which have the information that can be understood to give a picture of the progress of the ipandustry, so that an informed planning criteria is arrived at (Armstrong, and Taylor, 2014). Radio and television can also be a good source of information. Switching to programs that explain about the financial status of the industry or the market trend in the industry might just give valuable information necessary for coming up with good strategies for the future of an organisation.
Another source of external information is over the internet. Online information is always real-time especially for the stock exchange, which can be used to make short-term planning goals (Makadok, and Barney, 2001). On the other hand the internet can also provide enough sources of historical data to make good plans about the future of the company.
Internal sources of information can be from the company records, financial statements, HR metrics or from interviewing every stakeholder in the organisation. These give the figures about the progress, bringing out clearly the weakness the organisation has (Marchington, and Wilkinson, 2005).
Most human resource activities are crucial in strategy formulation. Thus organisations like Farah Experience LLC will have to come up with a strong team to enable it achieve its strategic goals. An organisation’s success can be on how strong and vibrant its employees are when it comes to strategy implementation. Most organisations all over the globe feel the need to have people on their team who are able to play a crucial part in strategy formulation and implementation. In my opinion, organisations should allot enough finances for their human resource departments, this will not only enable them work efficiently but also attract top talent. It is only through talent, skills and due diligence of an organisation’s employees that a company can be able to meet its strategic mission and vision.
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