Managing The Employment Relationship: An Analysis Of Internal And External Factors

Employment Relationship

Employers and employees are a key part of an organization. When they cooperate and show commitment toward each other, it helps in ensuring the smooth running of an organization. Hence, to ensure that organizational objectives are accomplished, managing the employment relationship is considered a key part of strategic human resource management (Bingham, 2016). According to International Labour Organization, employment relationship generally refers to the legal framework that attaches an employer to its employees. This relationship comes into existence when a person performs a job under certain given conditions and in return gets remunerated for his work. It is through the means of the employment relationship, that obligations and reciprocal rights develop between the employer and the employee (International Labour Organisation, 2022). This topic has gained a lot of importance in recent years due to numerous challenges arising in organizations like employee retention and satisfaction, work stress, etc. To tackle these challenges, it is necessary to effectively manage the employment relationship (Bingham, 2016). This essay aims to deeply understand the concept of the employment relationship and critically analyse the various factors that affect the approach taken by management towards the employment relationship.

The employment relationship is a term used to describe the formal link between an employer and the employees working in a workplace. As per the theory of traditional economics, when a person gets into a contract to exchange his services for money, he sells his factor of production to the employer. Hence, they become passive production factors who have been hired by the employer in a way to increase his profit as much as possible. The employment relationship must be transparent and clear, but there are certain situations in which this is not the case, like contractors, interns, volunteers, etc. (Latorre, et al., 2016). But economists believe that it is of utmost importance that business organizations adopt a transparent employment relationship as it helps in fostering a healthy work culture, helps develop a collaborative environment and strengthens the relationship between employers and their employees. Moreover, there are numerous internal as well as external factors that shape management’s approach toward the employment relationship (Countouris, 2016).

People or members of the organisation are a crucial internal factor that influences management’s approach towards managing the employment relationship. Under this, numerous factors are considered through which members of the organisation interact with each other. First, is the employee relations with the line managers, as they act as an important liaison between the employees and the company. They help in communicating information to their team, whether it is good or bad. Secondly, the relations that co-workers share, which can be friends, acquaintances, close friends, etc. Good peer relations help in improving communication, problem-solving, controlling aggressive feelings, etc. Third, is the company values that are expected from the members, such as loyalty, trust, honesty, respect, simplicity, etc. Fourth is the organisational culture, which can be clan culture, market culture, adhocracy culture, and hierarchy culture (Jia, et al., 2014). An equally important factor is the resources available to the organisation. These resources could be in the form of tools and machinery or time.  Another important resource is the skill set possessed by the employees which define their work efficiency and production. Moreover, an important element of this factor is whether the workspace provided to the employees is fit for the job allotted to them (Guest, 2017).

Internal Factors

Innovation is also an important factor that greatly affects the approach of management towards managing the employment relationship. Business organisations, such as Walmart give enough freedom and welcomes any new ideas or suggestions from the employees, and recognise the contribution of the employees in this context (Calvino & Virgillito, 2018). According to a study conducted in 112 developed and developing countries, it was observed that there is a positive relationship between employment relationships and innovation. A strong and flexible employment relationship gives enough freedom to the employees to innovate and engage in problem-solving (Usmana, et al., 2020). Another important factor is the marketing of the brand name of the organisation. In companies like Starbucks, employees have faith in the brand, they remain motivated, enhance their output toward the organisation, and talk about their enthusiasm to the brand’s clients (This is Now, 2017). It also ensures that the employees give quality service to customers, thereby helping the company to stay on the trajectory of high growth. This promotion of the brand through internal marketing not just impacts the management’s approach towards employment relationship, but also greatly help in enhancing employee retention in the organisation (Huang & Rundle-Thiele, 2014). Moreover, it also highlights whether the employees are engaged in product research and development. In such a scenario they take ownership of the company’s product and help in marketing, thereby influencing the management’s approach towards the employment relationship (Huang & Rundle-Thiele, 2014). 

Another crucial internal factor is the operations, which refers to the nature of the working environment of the organisation.  Working conditions greatly determine the productivity of the employees. Whereas good working condition, keeps the employees motivated and enhance their work efficiency and productivity, inadequate working conditions hamper productivity (Seppala & Cameron, 2015). Moreover, the kind of policies adopted and procedures followed also greatly impact employee productivity. This ultimate impact on employee productivity is what influences the approach of the management towards the employment relationship (Bingham, 2016). Financial aspects of an organisation also greatly influence the management’s approach towards employment management. If an organisation has enough money, it can fulfil the needs of the employees and fulfil its objectives and simultaneously ensure employee satisfaction. Adequate financial resources help the company to better manage employee wages, training, and benefits, hence it can have a great impact on strategic employee relations (Wikhamn, 2019). According to a study released by Society for Human Resource Management (SHRM), it was observed that more than 60% of the employees consider pay and benefit as an important factor towards job satisfaction (Miller, 2022).

External factors is generally analysed using the PESTLE analysis. Political factors of the country in which the organisation functions, greatly affect the management’s approach towards employment relationships. These factors involve the policies of the government, the ruling party’s ideology, Legislation Regarding Labour, political stability, unions, etc. Such an environment greatly helps companies by promoting production and increasing companies’ profits. This in turn encourages the management to take a more flexible approach to manage the employment relationship. Moreover, unions and harsh government policies regarding labour put roadblocks to the functioning of the company. This in turn puts pressure on the management of the companies by forcing the management to increase wages, reduce working hours, improve working conditions, etc. (Bennett, et al., 2020). A good example of this is the 2021 labour protests in France, through such protests the unions exert immense pressure on the government as well as companies to alter their policies regarding employees like the wages, working hours, etc. (Moqdy, 2022).

External Factors

The next important external factor is the Economic factors of the country in which the company functions.  It involves the economic condition of the customers in that country which greatly affects the demand for the products or services of the company, thereby affecting the company’s overall profit (Bingham, 2016). Australia is currently ranked 14^th in the world in terms of ease of doing business, due to its policies like tax relaxation, export incentives, economic support, etc. (Trading Economics, 2022). Such policies promote the business environment and help companies function to the best of their capability, this in turn also helps in a positive approach of the management towards managing the employment relationship. In recent years due to trade pandemic and trade wars, a lot of countries are going through a moderate recession, which in turn force companies to reduce their spending. In such scenarios, companies often resort to firing their employees and this, in turn, puts unnecessary psychological pressure on them thereby altering the Employment relationship (Bingham, 2016). This could be better understood by the example of Scandinavian Airlines (SAS), which decided to lay off around 10,000 employees due to halt in its operations during the Covid-19 pandemic (Taylor, 2020).

The social factors of a country also play an important role in influencing management’s approach to managing the employment relationship. Social factors include demographics, lifestyles, sex distribution, buying habits, religion and beliefs, fashion, population growth, education, customer service expectations, etc. These factors greatly affect the prospects of the company’s products and services in that country, which in turn affects the profit-making and growth of that company. When social factors help the company in improving its income and growth, the management values its employees and improves their working conditions, pay, etc. Social factors determine the behaviour and buying habits of people, an appropriate example of this is the changing eating habits of people in recent years (Countouris, 2016). People are preferring more healthy habits, joining fitness clubs, and increasing demand of organic products. Such habits have a great impact on food processing companies like Nestle, thereby affecting the management’s approach towards employees (Manuell, 2017).

Another important factor is the technological factors related to the country where the company is functioning. It involves the existence of various technologies available in that country, like internet connectivity, automation, artificial intelligence blockchain technology, etc. These technologies greatly enhance the capabilities of the companies operating in that country. For example, internet connectivity has become a crucial necessity for every business in recent years. It helps the companies to enhance their reach to newer markets, easier marketing, connect with their customers, and help in faster and smooth internal communication between the employees of the company. This in turn helps the company to further grow its business, enhance its efficiency and improve its profit altogether (Bingham, 2016).

Legal factors of the country in which the company is functioning also play a crucial role in the management’s approach toward the employment relationship. It mainly involves any form of acting legislation related to employment, resources, taxation, access to materials, quotas, consumer laws, health and safety laws, etc. These have a lasting impact on the business prospects of the country as well as internal environment of the company (Bingham, 2016). Harsh legislation not just reduces the productivity of the companies but also enhances their overall spending. A good example of this is the increasing consumer laws in most of countries. Although these laws safeguard the consumers from any type of fraud or faulty products, but they also greatly increase the spending of most of the companies as they must spend extra money to detail out the information about their policies and products. Hence, to reduce their spending, companies tend to decrease their workforce, which increases unnecessary mental pressure upon the employer as well as employees (Bennett, et al., 2020).

An equally important external factor is the environmental factors of the country where the company is operating.  It involves factors like weather, pollution, climate, the existence of biodiversity, and environmental laws in that country (Bennett, et al., 2020). This can be understood by an example, south-western Australia is considered as a major biodiversity hotspot. It is estimated that it has about 50% of the endemic species of world (Australia: State of the Environment, 2018). To ensure that this biodiversity is not harmed, companies operating in this region must follow strict environmental laws which put certain obligations on the company thereby increasing its overall spending. This in turn influences the employer-employee relationship in the company (Bennett, et al., 2020).

Conclusion

Altogether it can be concluded that a good employment relationship is a crucial aspect for the smooth functioning of a company. Effective management of employment relationship helps in ensuring that organisational objectives are achieved and simultaneously the employees too are satisfied while working in that company or organisation. The approach of the management of a company towards managing the employment relationship depends on wide-varying factors, which are either internal or external. Internal factors are mainly related to the internal working environment of the company. It mainly involves factors like members of the company and the relations they share and the company values which influence these relations. It also involves the amount of resources available with the company in terms of tools, machinery, time, workspace, money etc. Moreover, innovation and internal marketing are also equally important internal factors that determine the management’s approach towards the employment relationship. Similarly, operations and financial condition of the company play important role in how much the employees can be satisfied while working towards the company’s goals. Moreover, external factors that affect the employer-employee relations involve the political, economic, social, technological, legal, and environmental factors. These factors vary from one country to another depending upon the prevailing situations in the country regarding the previously mentioned factors. These external factors are related to the external environment of the company and greatly affect the business prospects, profit-making and overall functioning of the company, thereby depending upon the nature of these factors, they have a positive or negative impact on the approach taken by the management of the company towards employment relationship. 

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