Impact of the External Environment on Human Resource Policies
The widening of the global business crisis since 2007 has contributed to a rise in competition in all manufacturing sectors. However, there are sectors, like the grocery industry, where the effects of the financial crisis have been quite limited. This paper is focused on an overview of the possible effect of the economic climate on the HR practises of a well-known British supermarket company: Sainsbury’s. Relevant literature is used to objectively analyse the extent at which the crisis and other aspects of the firm’s external climate have influenced the HR strategies of the company. It has been seen that, amid business challenges, HR practises in Sainsbury have been marginally influenced by the economic climate of the sector, a reality that has been closely connected to the strategic decisions of the organization’s representatives.
Sainsbury’s – Contact Between the Natural World and the HR Practises of the Business
Like all organizations, Sainsbury’s is also highly affected by its external environment. In fact, it could be stated that the external environment of the organization affects all aspects of the firm’s strategies and operations, included the HR policies. In order to understand the level at which the external environment can influence Sainsbury’s HR policies, it would be necessary to refer to the organization’s performance, as part of the UK grocery industry. Then, the firm’s HR strategy should be presented and compared with the external environment – which is analyzed using the SWOT analysis – aiming to show the key points of impact of the external environment on the HR policies of the organization.
2.1 Overview of the Organization
Sainsbury’s is one of the major competitors in the UK grocery industry. The firm’s employees have been estimated to 150,000; the firm was first established in 1869 and has now about 890 stores across Britain (Sainsbury’s, corporate website, 2011). The firm is part of the J Sainsbury plc, which activates in many industries, including the banking sector – through the Sainsbury’s bank (Sainsbury’s, corporate website, 2011). The performance of the firm in 2010 has been increased, achieving a profit of £21,421m, while in 2009 the firm’s profits were estimated to £20,383m; the specific fact is quite encouraging, taking into consideration the turbulences in the global market – due to the recession which has not been terminated – but also the strong competition in the British grocery industry. Of course, the level of increase of the firm’s profitability may be reduced compared to the past – see Graph 1, Appendix section where the performance of the firm for the third quarter of the years 2008, 2009 and 2010 is compared; in accordance with the above graph, the growth of sales of the firm in the third quarter of 2009 and 2010 may be reduced – compared to the third quarter of 2008 – but it is standardized at a particular level, at a percentage of 3.6%.
2.2 External Study of the Climate – SWOT Analysis
The impact of the external environment on the firm’s HR policies requires the presentation of the main elements of this environment; the SWOT analysis can be used for highlighting the key characteristics/ trends of the organization’s external environment and their impact on the firm’s HR policies. In the context of the SWOT analysis, the following elements of a firm’s external environment are analyzed: strengths, weaknesses, opportunities and threats. In the case of Sainsbury’s these elements could be described as follows: a) Strengths: the firm operates in the British grocery industry, a sector which presents a trend for continuous growth; in fact, as indicated in the Graph 6 (Appendix) the grocery industry in UK has been in a continuous growth from 1999 up to 2010; it seems that the global recession did not affect the particular industry – or, at least, its effects have been quite limited, at such level that the continuous increase of the industry’s performance has not been prevented; b) Weaknesses: the firm’s performance is not standardized; even if it seems as being kept at specific levels, the changes (increase and decrease) in the organizational performance cannot be ignored; in Christmas of 2010 the firm’s performance towards its major competitor, Tesco, has been significant, a fact that has been characterized as a major achievement of the firm’s employees (Poulter 2011); however, the results of the firm for the fourth quarter (as released in March 2011) have been quite disappointed, at such levels that concerns have been caused for the other firms in the British grocery industry (Humphries 2011); the above fact, shows that the firm’s position in its industry is not secured, despite the performance of the organization in the past; however, the above limitation of the firm’s performance could be related to the overall decline of the customers’ buying power, a result of the increase of the prices of food and fuels (Pike 2008); c) Opportunities; the firm has a long presence in the British grocery sector; moreover, it operates across the country, being able to protect its profitability in case of radical changes in the spending trends of people – even in case that spending on grocery will be reduced in certain areas of Britain, this phenomenon is not expected to be expanded across the country; d) Threats: the competition in the British grocery industry is strong; the industry’s leading firm, Tesco, have managed to develop an important difference from the industry’s other firms (see Graph 4 and Graph 5, Appendix); at the next level, inflation in Britain is continuously increased from 2009 onwards (see Graph 3, Appendix); the introduction of key strategic changes for the improvement of the firm’s position in its industry would be considered as risky, especially if taking into consideration the firm’s current performance, as indicated in its results for the fourth quarter – released in March 2011 (Humphries 2011).
2.3 Natural Environment and HR practises of Sainsbury
2.3.1 Effect of the Environmental Climate on Corporate HR Policies
The firm’s external environment has influenced the HR policies of the organization. The firm’s efforts in order to improve the level of communication within the organization is reflected to the ‘Tell Justin’ scheme, in the context of which employees are prompted to contact the firm’s leader – by sending a letter – in case they have to make a complaint on the organization’s activities or strategies (Allen 2010). The above initiative is considered as a response of the firm to the increased industry competition; by offering its employees the chance to contribute in the development of the organizational strategies, the firm aims to be differentiated in its industry in regard to the support provided to its employees, a fact that could lead to the following two benefits: the firm’s chances to improve its profitability towards its competitors are increased – since conflicts in the workplace are decreased, due to the improvement of communication between employees and employer, the performance of employees will be increased, leading to the growth of the firm’s profits. At the next level, employees in Sainsbury’s are given the chance to develop their skills through the programme ‘You Can’, which offers to the firm’s employees the chance to gain qualifications and improve their existing skills (Sainsbury’s, Corporate Responsibility 2011). This scheme also is considered as an effort for the firm to develop a competitive advantage towards its competitors; the continuous growth of the British supermarket industry – as analyzed above – have led the firm’s leader to suggest such scheme, which is expected to have a rather short payback period, meaning that the increase of the firm’s profits, as resulted from the improvement of the employees’ skills is expected to be significant in the near future. Inflation and strong competition that characterize the British market, as explained in the SWOT analysis, do not seem to have negatively affected the firm’s HR policies; on the contrary, the firm’s support towards its employees has been kept at high levels, as indicated through the above schemes and through the promotion of inclusion, meaning the fairness and equality, in all organizational departments (Sainsbury’s, Corporate Responsibility 2011). In accordance with the above, the external environment has influenced the firm’s HR policies, but not negatively, meaning that the challenges and the threats of the external environment have not been used as justifications by the firms’ leaders for reducing the support provided to the employees; on the contrary, employees are treated fairly and equally, giving the opportunity to develop their skills and increase their contribution in the firm’s growth – the continuous growth of the British supermarket industry has been probably the key criterion on which the firm’s HR policies have been based. At this point, the employees of the firm have been mostly benefited by the continuous growth of the industry’s performance, especially if taking into consideration the continuous decrease of employment rate in Britain, from 2009 up to 2011 (see Graph 2, Appendix). The employees of the firm can feel that their position is secured, a fact that would lead to the increase of their motivation, compared to their counterparts in other firms of the specific industry – where the uncertainty regarding the level of employment is, still, quite strong. It is perhaps for this reason, that Sainsbury’s has been characterized as the leading firms in the British grocery sector regarding the support provided to employees (Allen 2010); the failures of certain of the firm’s employees to respond to the requirements of the organization, in regard to ethical behaviour, cannot be considered as a failure of the firm’s HR policies (Hall 2010). However, such problems would be related with the firm’s external environment (especially the recession). On the other hand, the specific problems are quite limited – in fact, just one case of such type has been identified (Hall 2010), a fact that proves the limited influence of the firm’s external environment on its HR policies.
2.3.2 Outline and Review of Future Developments and Their Possible Effect on Future HR Policies and Activities
The future trends in regard to the firm’s external environment can be identified by reviewing the relevant graphs; more specifically, inflation in Britain is expected to be further increased (see Graph 3, Appendix) leading to the increase of the unemployment rate across the country (Graph 2, Appendix). The above trends are not expected to influence the performance of the supermarket industry in the country (no such influence has been developed up to now, as it is made clear through the Graph 6, Appendix); in fact, the above sector is expected to achieve a further growth, on a stable basis (Graph 6). Moreover, the market share of the firm would be difficult to be changed – in different periods of time, see Graphs 5 and 6 – the firm’s market share has been proved to be at similar levels. The above assumption is also verified by the firm’s performance trends, as indicated in Graph 1, Appendix. In this context, the HR policies of the firm are not expected to be highly differentiated in the future; at least, no differentiation would be expected in regard to the resources engaged (especially the funds) in the development of these schemes; their forms may be alternated aiming to be aligned with the similar schemes of its competitors, the market trends (Lussier 2008, 53) and the organizational culture, as it may have been differentiated in the future (Pfister 2009, 139)
The external climate of a firm must be taken into consideration when developing the organization’s key strategies (Daft et al. 2009). In accordance with Armstrong (2007) ‘what happens inside an organization must be linked to what happens outside’ (Armstrong 2007, 69); on the other hand, Mol (2003) noted that the priority of employees in modern market is to identify an organization, which will be able to provide them fair compensation for their work, autonomy in decision taking and safety (Mol 2003, 38). Moreover, Werner et al. (2008) explained that the key factors of a firm’s external environment, which are likely to influence its activities, are ‘the state of the economy, meaning the inflation and the level of unemployment and the activities of other organizations’ (Werner 2008, 37). These factors, as analyzed above, have also affected the firm’s HR policies, but not entirely; in fact, the influence of the firm’s external environment on the organizational HR plans has been positive, offering the chance to the firm to improve its competitiveness in the particular industry.
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Graph 1 – Sales growth of Sainsbury’s
Graph 2 – Unemployment rates in UK – 2009-2011
(Source: UK National Statistics Online, 13 April 2011)
Graph 3 – Inflation in UK
(Source: UK National Statistics Online, 12 April 2011)
Graph 4 – Supermarket industry in UK, major competitors, online performance
Graph 5 – Supermarket industry in UK, major competitors, overall performance, 2007
Graph 6 – UK Grocery Market Performance, 1999-2010