Impact of External Issues on Organizations

Introduction

A variety of issues can have an impact on the Human Resources of an organization. Such issues may be internal or external in nature. Internal issues are caused by aspects which organizations can control and even prevent if they are foreseen beforehand. For example, if there is an issue with the Research and Development department meeting deadlines, the issue may be identified and addressed with no outside factors affecting it. However, external issues cannot be addressed in such a way since the organization is often unable to prevent them. Scenario planning is one of the tools that assist in such situations. This paper will present four external issues and information about how various organizations may be impacted by them while presenting recommendations on how to deal with this impact.

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NAFTA Deal and Possible Future Changes

Description of the Issue

The North American Free Trade Agreement, also known as NAFTA, became active on January 1, 1994. NAFTA allowed for free trade and investment between the United States, Mexico, and Canada. The agreement eliminated tariffs between the countries and led to a variety of positive outcomes for all. For Canada, it resulted in a threefold increase of investments from the United States and Mexico going from $70 billion dollars to $368 billion between the years 1993 and 2013. Canada gained access to the United States market and saw a boost in a variety of industries, especially agriculture.

The initially estimated issues with the manufacturing sector of the country did not occur, and overall it was seen in a positive light. However, one of the main promises of the current American president was to renegotiate NAFTA, and while its possible effect on Canada is currently unclear, since the majority of the information was focused on renegotiating NAFTA to address the United States-Mexico trade deficit, it may lead to a variety of negative issues for Canadian companies (McBride & Sergie, 2017).

Two Possible Scenarios of the Outcome

Two of the possible scenarios may have an especially significant impact on Canadian companies. In the first scenario, the renegotiation of the agreement may lead to less favorable rules for import of Canadian products into the United States in an effort to prioritize American manufacturing. In this case, the previously achieved growth of the industry may significantly reduce, which may be accompanied by layoffs and downsizing of companies that rely on the export of goods.

The worst-case scenario, however, may result in the addition of new rules regulations and even tariffs if the negotiations break down. In this case, major restructuring and changes in strategy would be required for most Canadian companies. A large portion of investments may disappear, and the economy of the country would suffer greatly.

HR Impacts

In both scenarios the impact on the human resources of organizations is significant. Impact on an agricultural company may be especially high. Since the industry has grown almost three times since the implementation of NAFTA, any reduction of its benefits may lead to the current size of an organization becoming unsustainable. With the strategy of the company changing to address the issue, the HR department would need to prepare the employees for possible layoffs and refocus from increasing the employee pool to retaining the existing staff. Downsizing may be possible, as well as retraining the existing employees to different positions within the company.

Suggestions to Manage the Worst-Case Scenarios on HR

In the worst case scenario, where the negotiations break down, and new tariffs and export rules have severely negative consequences for the agriculture industry, the company would have to reorganize to sustain itself. With all future plans of expansion being lost, the organization will be unable to avoid downsizing. Thousands of employees might need to be let go from the company, however, to prevent further negative impact of this event, the company may provide additional support to those who would be downsized in forms or training courses and severance benefits, perhaps even a separate series of training courses may be organized to serve the communities that would be affected the most.

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Opportunities or Benefits for Proactive Organizations

In this case, a proactive organization may benefit from implementing better employee retention programs that would include retraining, implementation of internal job boards, and other similar approaches. It would prepare the company for possible negative outcomes of renegotiations, as well as improve its employee retention if no impact occurs.

Changes in Minimum Wage in Ontario

Description of the Issue

In May 2017, it was announced that the Government of Ontario is planning to increase the minimum wage in the province from $11.40 to $15 an hour. The announcement was a part of a variety of other new possible requirements for employers that may be enacted in the future. While the minimum wage increase is almost inevitable, coupled with other requirements it may lead to severe issues for small businesses (Crawley, 2017).

Two Possible Scenarios of the Outcome

The majority of scenarios would affect smaller businesses, for example, a small clothing store. The minimum wage increase may be implemented without the additional requirements for the employees. This would result in a lesser strain on smaller businesses.

However, if all of the proposed requirements are implemented, which include an increase in minimum paid vacation to three weeks, prohibition of paying lower wages for part-time employees, and a variety of others, then they might lead to difficulties in growth for smaller businesses.

HR Impacts

In the less damaging scenario, the HR department of the store would become unable to give the same hours to its employees as they did before the increase. HR would have to manage the new wages against the hours of work that the store may give to its employees.

In the second scenario, the store would not be able to sustain their current pool of employees, and they would be forced to reduce it. The HR department would have to deal with the layoffs and reorganization of pay grids and wage increase schedules.

Suggestions to Manage the Worst-Case Scenarios on HR

One of the possible ways to make up for the issues caused by minimum wage increase is to reduce the number of hours given to the employees of the clothing store. Layoffs are also possible if the additional requirements become too costly for the store to keep its current position. Contractors may be employed to make up for the loss of staff at lower rates. Salary structures may also change to account for the change.

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Opportunities or Benefits for Proactive Organizations

Proactive organizations may feel the effect of the minimum wage increase to a lesser extent. By preparing their salary structures beforehand, they can avoid such issues as employees being distressed by a change in their pay increase or promotion schedule. They may also prevent layoffs, by adjusting their business to sustainable levels.

Changes in Pension Regulations after the Collapse of Sears

Description of the Issue

The closure of more than 130 Sears stores revealed a major issue in Canadian protection of pensioners. Due to the protection from creditors that the company was granted, more than 16,000 retirees may be unable to collect their pensions from the store chain. The employees that were fired after the store closures did not receive their severance payments. This fact exacerbates the situation and may lead to further discussion of pension regulations (Milke, 2017). This is the second occurrence of this kind, with the last concerning Nortel Networks which left a large number of retirees without pensions and resulted in a prolonged legal battle with the company. While the Canadian government discussed possible changes to pension regulations at that time, no laws were passed to address the issue (Ireton, 2017b). However, with a repeated case of such magnitude, it may revitalize the discussion.

Two Possible Scenarios of the Outcome

In one scenario, the government may put strict requirements on how companies that employ defined-contribution pension plans to control their management. When created with proper considerations, such plans may be beneficial to both the company and the employees. However, cases like Sears and Nortel show that this is currently not the case.

A harsher scenario could produce a law that would prevent companies from receiving creditor protection if a large portion of creditors consists of pensioners or puts pensioners as a priority group when assets of the company are divided during bankruptcy (Ireton, 2017a).

HR Impacts

The HR impacts in both cases would concern mostly large companies. For this issue, a case of a store chain would be most appropriate. Due to changes in the retail market, large retail businesses are becoming unsustainable, and similar organizations may experience similar problems. HR department would need to reassess its current pension policy of the store chain. With thousands of employees and retirees, mistakes of the past may require additional attention to prevent issues that Sears employees experienced.

Suggestions to Manage the Worst-Case Scenarios on HR

The presented store chain would have to immediately focus its efforts on improving its defined-contribution plans for the employees. It is likely that they were created with mostly company’s benefits in mind, and this would have to be corrected in both scenarios. Perhaps an additional HR program designed to address issues of retirees should be created to not only improve the safety of their pensions but also gain positive PR for the company during this crisis.

Opportunities or Benefits for Proactive Organizations

A large store chain that learns from the mistakes that Sears made could have an opportunity of prevention a variety of issues. If the organization does not experience bankruptcy, the new focus of better-designed pension plans would bring it positive attention from the press and could attract experienced employees that were let go from Sears. However, even a company on the verge of bankruptcy would be able to save face by giving additional attention to the pensioners.

Banks Hiring Offshore and Sending Client Financial Information Offshore

Description of the Issue

In October 2017 it was reported that TD bank is outsourcing a percentage of its jobs to India. Other Canadian banks have confirmed that they also employ such a practice. This list includes Scotiabank, RBC, CIBC, and possibly BMO. Aside from the issue of the banks preventing those jobs from going to Canadian citizens, the work they outsource involved interaction with sensitive data such as social security numbers, names, addresses, visa numbers, and a variety of other personal information. The fact of outsourcing was not announced publicly and led to a growing concern among the users of these banks. Some parties in the government are calling for legislation to prevent banks from utilizing such practices (Johnson, 2017).

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Two Possible Scenarios of the Outcome

In one scenario, the new legislation would prevent banks from putting the personal data of its clients at risk by transferring overseas. It would have a mild impact on organizations but would prevent the current practice from continuing in its current state.

A more severe scenario would result in legislation that prevents all outsourcing of bank jobs overseas. Since the job markets are experiencing a decline at the moment, actions to support more jobs in Canada may be seen in a positive light by the public, despite the severity of such regulations.

HR Impacts

The hypothetical company in this scenario would be a bank that previously experienced a breach of its security. In both scenarios, the HR department would have to attempt to reduce the amount or nature of outsourcing. Also, neither scenario would allow the information processing to continue so alternative methods would have to be considered.

Suggestions to Manage the Worst-Case Scenarios on HR

Since the bank would not be able to outsource information processing anymore, HR would have to make sure that it is done by a Canadian team. Perhaps it could be done through contractors or through a partnership with a Canadian organization focused on cybersecurity. However, doing it within the organization could instill the trust of both its employees and clients as the bank would create new jobs and keep the information safe within its walls. If all outsourcing of bank jobs were disallowed, the organization would have to either increase its pool of employees or focus more on partnerships that would handle secondary tasks that were previously outsourced.

Opportunities or Benefits for Proactive Organizations

Proactive organizations would avoid transitioning issues when legislation goes into place if they preemptively adjust for it. While outsourcing allows the banks to save money on wages, it is seen as a major issue by the public. If the work of the bank becomes negatively affected by the ban on outsourcing, it could create a sense that the bank is unreliable and does not serve the best interests of the Canadian public.

Conclusion

External and internal issues can affect the work of an HR department. Internal issues can often be resolved and even prevented, but external ones can only be adjusted to. In the case of the four presented issues and organizations, the possible scenarios range from having a mildly negative impact on the human resources which could be resolved without layoffs, to large-scale issues that could result in the complete restructuring of the company’s strategy and focus.

References

Crawley, M. (2017). Why Ontario is moving toward a $15/hr minimum wage. Web.

Ireton, J. (2017a). In wake of Sears bankruptcy, push is on to better protect retirees. Web.

Ireton, J. (2017b). Sears demise is Nortel all over again for pensioners, says expert. Web.

Johnson, E. (2017). TD insider says bank doesn’t want you to know it’s outsourcing work overseas. Web.

McBride, J., & Sergie, M. (2017). NAFTA’s economic impact. Web.

Milke, M. (2017). Sears shows us the wisdom of defined-contribution pensions. Web.

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StudyCorgi. (2020, November 3). Impact of External Issues on Organizations. Retrieved from https://studycorgi.com/impact-of-external-issues-on-organizations/

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StudyCorgi. 2020. "Impact of External Issues on Organizations." November 3, 2020. https://studycorgi.com/impact-of-external-issues-on-organizations/.

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StudyCorgi. (2020) 'Impact of External Issues on Organizations'. 3 November.

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