Human Resource Management Diagnostic Model: External/Internal Environmental Influences
December 17, 2018
In this episode, Matt Kerzner and Tim Schuster discuss the External and Internal Environmental Influences and how this impacts the Strategic Roadmap.
TS: It's always good to see you, my friend. Let’s continue with our conversation of the diagnostic model for Human Resource Management. We discussed in our last podcast the high-level approach to this model and the importance of how this impacts businesses. We're now going to start to break down each section of the model.
TS: Matt, let's start by discussing external environmental influences.
MK: Tim, just as a refresher for our listeners, there are four major pillars of the diagnostic model of human resource management and we talked about it in our last podcast. There's acquiring human resources, rewarding and recognizing human resources, developing people and resources that we have, and then maintaining and protecting. There are really both external influences and internal influences that really impact this model. To specifically answer your question of what is the external influences, these are things outside or entities outside of the business that will impact this model. How we approach human resources, and for the audience out there, when we talk about family businesses and we talk about tightly held businesses and really putting together a model for human resource management, one has to assume that they might not have a robust HR department. It might funnel into the finance and accounting world. These are just some really important things to think about when you're putting together or developing human resources or developing a department as you grow.
TS:You see that a lot with a phantom business. Most of the time there's no real HR department. So really this will trickle into other groups to really influence.
MK:Absolutely. And as we talked about in the past, human resources means a lot of different things to many different organizations. I always tell leaders, directors, managers, everybody is human resources. We all have to find talent. We all have to develop our people. We all have to reward and recognize them. We're going to get more and more into this as we peel away this diagnostic model. What I want to get back to your great question of what is an external environmental influencer. It's anything outside of the business that's going to impact it. There are a few things that I want to touch upon here. Some of them are governmental requirements, regulations and laws. A perfect one I think of is the Fair Labor Standards Act. A salary versus hourly. And when you find people, what category do they go into? What triggers overtime? These are things that might impact your workforce. When we get into the Affordable Care Act (ACA), this would be an external influence that's going to have an impact. Are you going to hire people at 40 hours and have to give them benefits, or are you going to hire them for under 30 hours? You're not mandated to follow the ACA. That's a perfect example of an external environmental influence. Another one would be unions, a third-party entity that will negotiate terms of agreements when it comes to pay benefits and working conditions. The company is going to want to do a lot of activities or programs, but they have to negotiate with the union. It's an external influence that's going to impact how you go about hiring and rewarding. You can't just implement things. It might be the mandatory subject of bargaining. Economic conditions is another big one that comes into play with the external environmental as an influencer. For example, if you are in an area where unemployment is extremely low, it might be harder to find a skilled employees.
TS:Which is actually what's going on right now. Unemployment is at relatively low rate for our firm and at clients that I work with. They're saying the same thing. It's very hard to find talent right now.
MK:Absolutely. It's really difficult. What happens is when you're developing your human resource model, when it comes to acquiring talent, you might have to do a compensation analysis to make sure that what you are offering for wages and benefits fits into the model of attracting people away from their current employers.
TS: Fringe benefits is something else to consider.
MK:Absolutely. Those are some really key things. And then we also get into competitiveness. You have to understand your competitors are also competing for talent and developing their folks. You have to really benchmark what they're doing and make sure that you are either the lead, or at least competitive. So you really have to track what your competitors are doing. They are absolutely an external influence that's going to impact how you put your HR strategy together. We already talked a little bit about the composition of the workforce and where you're located. There's a big difference of being in Manhattan…
TS:… and being in Dalton, Alabama.
MK:Both are great places, but it might be harder to find talent in Dalton just because of the location. You really have to start thinking about when you're looking to grow your business and staffing. Or are you looking at mergers or acquisitions and you're looking at your HR model, where are you located? Where do you want to be located? Where are your customers and how is that going to impact getting talent and retaining talent? Another big one would be obviously location of the operation. That's going to really impact how diverse your workforce is. Is your workforce a good representation of your community? These are also external influences that impact how you put your HR strategies together.
TS:Makes sense to me. Let's flip the switch a little bit and discuss the internal environment. Let's think about this now that we've looked at it from the macro perspective. Let's get the micro perspective. What does it look like from an internal side?
MK: The internal side obviously is your own organization and really working through the politics, norms and policies that are going to impact how you structure these four major pillars to make sure that you're doing the right things. A few things that I always work on with my clients when I'm helping them to develop HR is what is the company strategy, what are you really looking for as far as skills, knowledge and ability for your workforce? That's going to really hone in on making sure that you have the right org charts in place, the right job descriptions in place, the right job analysis so that people understand how long it takes to do the job, how many full-time equivalent people do you need to actually get the work done and what is your strategy? Another piece is do you offer overtime or do you increase the headcount? These are things that you have to think about, and that's the internal environmental influence. The organization might say it's worth it not to hire somebody, but to actually offer overtime because there's not additional fringe benefits that have to be paid.
TS: Right, exactly. It's compensation.
MK:We talked about the strategic roadmap. I'm going to talk probably a little bit more about it. How do the goals of the organization really fit in? What are your goals for growth? What are your goals for reduction in force and how does that impact what you currently have for skill sets of employees and what do you need? Another piece is the organizational culture. We talked several times in previous podcast about finding the right candidates that fit the culture, especially when you're working with a family business and you have a lot of family members and non-family members that are currently working. You're bringing new people in, especially when you're looking to bring in executives. It’s critical that you are matching the organizational culture when you're looking at developing policies.
TS:And that's a big piece of it. When you think about it, if you have an organization and have someone coming in and it's not jiving. You can have a lot of issues that are coming in from an internal perspective, you really want to make sure you spend extra time to make sure they are a great fit for the company's culture. Things are working really well and the wheels are all moving into the same direction.
MK:That's correct. Also diversity and when I mean diversity it might not just be people of color, but across generational diversity. Tim, I don't want to give our ages away, but there's a little bit of a generational difference between you and I. We actually work well together and this is an internal environmental influence. When human resource organizations are putting strategies together they really should look at the demographics of their work force. The nature of the task is another big one. How people go about doing it, how they mentor new employees to make sure that they're fitting in. When we talk about the internal environmental influences, it is what the corporate politics are, what the corporate philosophy is, what the future growth plan is over the next year, three years, five years. That's really going to say, okay, what do we need to do to really build the infrastructure? If you're a family business and you're looking to acquire another business to grow—and a lot of businesses acquire others to grow instead of just growing organically—you are also now taking on when you do an acquisition, another company's HR philosophy. That's another internal environmental influence you have to think about.
TS: Absolutely. Now let's see if we can put this all together. How does external and internal environmental influences impact that strategic roadmap?
MK:Great question. When we look at both external and internal influences and we start thinking about the game plan. Current state, future state, one year, three years, five years, even 10 years down the road. Another big piece here that I'll just mention because this is a big one, is succession planning, the transition of one generation to the next generation. That's a huge thing that comes into play here when you're putting your HR strategies together, not just for family members, but for non-family members as well. When you're looking at why we exist, the mission, the core values what we believe in, the vision, you’ve really got to start thinking about how the external influences impact that. Or what about the internal, right? How many people are going to retire in the next three years, and how many of those have critical skillsets that you need to think about? Okay, are you replacing just one person or when you look at what they truly do and add value, especially if they're a family member that actually works? Because you're constantly working, replacing the aggregate. Is it really replacing one or are you replacing three? Whenever I work with leaders’ boards and we start looking at key leadership, we start asking let's really peel away what they do and we start looking at a job analysis, you'll be amazed that they are not just the CEO, but they're also playing a role as a CFO. They're also involved in marketing. They're so ingrained in all different areas that when you start saying, okay, we're looking for a CEO. Well, you know what they do and that they also roll up their sleeves and get into the weeds. Now it's like we have to replace those people or bring in people to fill the Jack-of-all- trades. I've experienced that when I was an executive of HR working for a family business when one of the owners, who actually before I came on board, played the role of CFO, HR and oversaw IT. When she left, or semi-retired and decided to move on, we literally right before they even brought me in needed to replace the CFO. They needed to replace an HR and they had to bring in a director of IT.
TS:That's a lot.
MK: Of course it is because again, a lot of tribal knowledge or just information that they bring as part of the family culture now changes. I already talked about some of the other internal environmental influences of the goals of the organization, department, and individuals. How does that come into play here and impact that? It's very difficult to forecast turnover or even retention. It's a critical piece, but how do you build that in when you're building your objectives and goals to actually think about the future of the workforce?
TS:It makes sense to me.
MK:We talked about the roadmap for growing the business, operating efficiency and people development. It’s very critical to think about the landscape both outside of the organization and inside. That's how it links together.
TS:Matt, thank you so much for the valuable information you've provided today.
MK:It's always a pleasure, Tim. I look forward drilling down in more of these specific areas of this model.
TS: Me too. Thank you for listening to Generations and Family Business Past, Present, and Future as part of the EisnerAmper podcast series. If you have any questions or there's a topic you'd like us to cover, email us at email@example.com. Visit Eisneramper.com for more information on this and a host of other topics. We look forward to having you listen to our next EisnerAmper podcast.