To some agencies, strategic planning is a way of life. To others, it's an exercise. To almost all, it's a requirement. In today's world Human capital plays a vital role in organizations strategic management. That is in helping the organization plan for balancing its internal strengths and weaknesses with external opportunities and threats in order to maintain a competitive advantage. As we known, the new economic paradigm has been characterized by speed, innovation, quality as well as customer satisfaction. In this sense, the essence of the competitive advantage has shifted from tangible assets into intangible ones (Needle, 2004). Such intangible assets are normally a set of scarce and special resources and capabilities that bestow a firm its competitive advantage. The focus is now on human capital and its effective alignment with the overall strategy of the organizations (Needle, 2004). Today most companies have access to the same technologies, resources & services hence effective and efficient HR management is necessary to maintain a competitive advantage. HR employs various tools and methods like HR score card, HR Dash boards, performance appraisal etc, to meet its strategic goals, in turn help the organization achieve its goals and objectives.
A quickly changing economic environment, due to globalization, customers demand, market deregulation, investor and product market competition, is the norm for most organizations. For organizations to be effective, they must frequently improve their performance in order to achieve their goals. The Appraisal System is one of the key strategies that an organisation can employ in order to maximize its employees' performance. Performance appraisal, also known as employee appraisal, is a process that provides an analysis of an individual's overall capabilities and potential, allowing informed decisions to be made for particular purposes in order to improve individual performance, as stated by Bratton and Gold (2003). This report attempts to evaluate some of the key HRM practices and strategies, various tools used by HR, the performance appraisal system and the importance of international performance management.
Human Resource Management
Human Resource Management is defined as a strategic and coherent approach to the management of an organisation's most valued assets - the people working there who individually and collectively contribute to the achievement of its objectives. Storey believes that HRM can be regarded as a 'set of interrelated policies with an ideological and philosophical underpinning' .He suggests 4 aspects that constitute meaningful version of HRM.
- A particular constellation of beliefs and assumption
- Strategic thrust for informing decisions about people management
- The central involvement of line managers
- Reliance upon a set of 'levers' to shape the employment relationship
As per Mabey and Salaman, (1995) Human resource management focuses on making the most of the employees' abilities and talents to create a competitive advantage and to make higher profits. To accomplish this goal, take a strategic approach to human resources. That requires professional HR managers who are competent in dealing with strategy and an HR system that deliberately implements policies and practices that support the corporate strategy. The Following diagram explains the functions of HRM
From the above diagram it is clear that one of the most important functions of HR is performance management and employee appraisal. We try to evaluate the performance appraisal system.
Performance Appraisal System
The history of performance appraisal is very brief and recent. Its roots can be traced back to the early 20th century to Taylor's Time and Motion studies. But this is not very helpful, however the same may be said about almost everything in the field of modern human resources management.
As a formal and distinct management procedure used in the assessment of work performance, appraisal really dates back to the time of the Second World War - not more than 60 years ago.
Yet in a broader sense, the practice of appraisal is a very ancient art. In the scale of things historical, it might well lay claim to being the world's second oldest profession!
Performance appraisal is a formal system of measuring, evaluating, and influencing an employee's job-related attributes, behaviours and outcomes. Initially performance appraisal systems began as methods for justifying relative income distributions -- deciding whether or not the wage of an individual employee, relative to other employees, was justifiable; however over the recent times it has become a tool Performance appraisals provide employees with recognition for their work efforts. (Charalambous, M. 2008). The appraisal system provides the supervisor with an opportunity to indicate to employees that the organisation is interested in their performance and development. This recognition can have a positive motivational influence on the individual's sense of worth, commitment and belonging.
The Objectives and purpose of Performance Appraisal
- A performance appraisal system links employee activities with the organization's goals by setting objectives for each individual employee of the organisation which are generally in line with the long term goals of the organisation.
- It helps in succession planning and promoting employees with high performance levels.
- To decide whether the individual is suitable for the position
- Performance-management information is used for such administrative decisions as pay raises, promotions, retention/termination, layoffs, and recognition of individual performance.
- Many managers see the performance-appraisal process as a necessary evil, and they feel uncomfortable feeding back evaluations to the employees; thus, they tend to rate everyone high, or at least rate them the same.
- Performance management can be used to develop employees who are ineffective at their jobs.
- Ideally, the performance-management system identifies not only the aspects of the employee's performance that are deficient but also the causes of these deficiencies.
- To settle on the training, education and job experience need for the Individual
- To motivate an employee and increase their commitment into the organization
Key Activities of Performance Appraisal (PA)
- Role profile;
- The PA contract or agreement: what the individual needs to achieve towards his or her objectives;
- Personal development plan: actions to be taken to improve employee's knowledge and skills in specified area;
- Managing performance throughout the year: day-to-day monitoring of employee's and company's performance.
- Performance Review: formal evaluation stage.
It is important to mention the fact that the appraisers must be well trained and committed to get accurate results in order to avoid cognitive problems and frustration. The Performance Appraisal system is usually a time consuming process and is seen by many managers as a chore they ought to complete. Because of this mentality, in order to save time, some managers might not perform a thorough analysis, which might compromise the accuracy of the Performance Aappraisal system and team improvement.
For this system to be effective, it should be applied from the top and both parties, appraiser and appraises, need to be committed to the process. Based on our research, we have observed that at Starburcks Company, a Performance Appraisal is done every month in order to let employees know what they need to improve and what the performance for last period is.
The clarity of the communication between interviewer and interviewee and the HR managers' support to the seniors and juniors managers to be accountable of issues result in a cohesive work environment. The trust that has been built up in the professional environment is one of the key elements of a successful performance appraisal system. If people do not feel comfortable about giving or receiving feedback or do not trust the capabilities of the appraiser, the system is will not work properly and simply becomes one more ineffective task on the to-do list. One way in which PRET a Manger has increased this trust is by implementing an online system instead of paper base system, in order to make the data more secure and confidential. Bratton, J and Gold, J (2003).
Impact of Performance appraisal on Employees - a Critical Analysis
Maddux (1987) reports that performance appraisal provides a Performance appraisal 13 periodic opportunity for communication between the person who assigns the work and the person who performs it, to discuss what they expect from the other, and how well those expectations are being met. Maddux adds that performance appraisal interviews are not adversary proceedings or social chitchat. They are intended to be an essential communication link between two people with a common purpose. He states that almost all employees are eager to know how well they are doing in their jobs, but many dread the meetings in which their performance is to be discussed. Additionally, most supervisors don't look forward to evaluation sessions and in fact one of the primary reasons why performance appraisal fails or is overlooked is because providing honest feedback does not come naturally. Supervisors generally are also reluctant to tell employees that they are doing unsatisfactory work. Armstrong and Appelbaum (2003) note that performance appraisal can be one of the most anxiety provoking aspects of work for both supervisors and employees due to the difficulty of delivering or receiving information that is critical or relates to less than adequate work.
Although performance appraisal in some form has been there for ages, a formal structure has only come in to existence very recently. As per Dulewicz (1989), "it's a basic human tendency to make judgements about those one is working with, as well as about oneself." Hence appraisal system is both inevitable and universal. In the absence of a carefully structured system of appraisal, people will tend to judge the work performance of others, including subordinates, naturally, informally and arbitrarily. The human inclination to judge can create serious motivational, ethical and legal problems in the workplace. Without a structured appraisal system, there is little chance of ensuring that the judgements made will be lawful, fair, defensible and accurate. Performance appraisal is important in order to help the employee achieve full potential. Additionally, performance appraisal enables the supervisor to establish benchmarks that can be used to measure performance. Vroom (1990) states that formal performance appraisal plans can be designed to meet the following key needs: (a) the organization; (b) the supervisor; and (c) the employee. He stresses the need for effective evaluation as it can effectively serve these critical areas. Johnson (1979) states that without performance appraisal, serious performance problems could develop.
While appraisals systems do have many positives and are important to track an employees performance, it does has limitations which can have a negative on employees. We try to evaluate some of the main issues with of appraisal systems which have an impact on employee behaviour.
The Halo effect - A hallo effect is "a process in which a general impression which is favourable or unfavourable is used by judges to evaluate several specific traits" When managers perform appraisal they tend to form impressions about the employees performance which at times may not be objectives and accurate. This can de-motivate employees and affect their performance. For many organisations pay increase is linked to the employees appraisal, hence if the employees performance is not measured accurately it can affect the amount of money one earns.
Personal Biases - Racial, sexual, religious and other biases result in unfavourable considerations for promotions and pay. Biases made at work places by senior managers can cause resentment among employees and reduce performance efficiency and quality.
Contrast error - This results what a rater compares several employees with one another rather than with an objective job standard. Cascio (1998) provides the following example: If two workers are unsatisfactory while the third is average, the third worker may well be rated outstanding because in contrast to the first two, the third worker's average level of job performance is magnified.
Recency error - This results when a rater assigns his or her ratings on the basis of the employee's most recent performance. The longer the appraisal period (beyond one year), the greater the likelihood for recency error. This can be unfair on some employees. For example if an employee has performed well throughout the appraisal period, however his performance drops during appraisal time it is possible that the employee may be rated low. On the other hand, an employee may only perform well close to appraisal time and get away with a good rating.
In addition Maddux (1987) notes the following performance appraisal "pitfalls": Bias or prejudice, trait assessment (things that have nothing to do with the job), overemphasis on favourable or unfavourable performance pertaining to one or two tasks leading to an unbalanced evaluation, relying on impressions rather than facts, holding employees accountable for things beyond his or her control, and failure to allow an employee to advance. Vroom (1990) notes the inadequacies of employee appraisal systems due to judgments made by raters that are usually subjective and impressionistic. He states that what could be completely acceptable behaviour in one work unit, might be unacceptable in another unit by employees at the same rank. Supervisors also fear that arguments could develop, as the employee will attempt to defend him or herself from negative findings.
Even though there are many shortcomings in an appraisal system which impact the employees behaviour and willingness to work, the importance of appraisal systems cannot be ignored and positives outweigh the negatives. If the system is implemented correctly and both the employee and employer commit towards maintain the appraisal system, these challenges can easily be tackled.
The UNUM Corporation is a USA based disability and special risk insurer. It devised a five-year employee development plan to meet specific performance targets in order to accelerate the company towards its strategic vision. The intense focus on internal communication and innovative compensation scheme proved vital to the company's success. Their appraisal system consisted of following key elements
- Setting objectives and goals for each employee which are aligned to the companies long term vision.
- Monitor and track performance using dash boards
- Include monthly one to ones in addition to six monthly appraisals.
- Conduct self appraisals followed by supervisor appraisal
- Give opportunity to employees to share their feedback
They were able to achieve better productivity and job satisfaction from employees.
Borealis is a polyolefin plastics manufacturer. They created a HR Scorecard that supported their corporate strategy and focused on performance improvement based on best-in-class benchmarks. Within HR itself, country-based HR teams created their own appraisal scorecards. These score cards were regularly shared to motivate employees that showed fantastic results. Not only did the employee's productivity improved, the company's profits also rocketed.
The training department within Nextel Communications, a telecommunications company, implemented a training and appraisal scorecard to demonstrate the return on investment (ROI) of its training programme. Post employee appraisals the training department using the feedback shared identified training and development areas for employees. Then trainings were conducted on the specific areas identified. These trainings were not only used develop employee's soft skills but were also in line with the business needs of the company.
Marks & Spencer
The retail giant M & S adopted the use of performance appraisal with the aim of linking staffs' satisfaction with the sales performance and evaluating it with two questionnaires per year. According to the head of HR Strategy and Change, Marcus Powell, this relation helped in moving HR at the top of the business' agenda. It also increased sales, employees' satisfaction and their commitment to achieve the final output. The appraisal system assisted the restructuring of their HR function, which in turn led to encouraging and rewarding commitment that will steer the business towards further success. It also gave employees a platform to voice their ideas and concerns, which helped management to improve many strategies and practices.
P&G's HR strategy is mainly based on two strategies superior recruiting and retention of its employees. P&G hired experienced Americans to manage the country's operation and also hired Chinese at that time but gave them a set plan to follow. It trained these chinese locals to think the American way. At this time, the locals gained experience and were absorbed into senior positions. P&G believed in promoting from within the organization and so the strategy company used was to recruit those people who were starting their career or had little work experience. P&G to conducted campus placements in reputed Chinese universities and had gained strong awareness among university students and was among the first multinationals to conduct such campus placement. Its HR strategy was to provide world-class training programs to build general business skills as well as core functional skills in their employees. Achievers and good leaders were also given overseas assignments. In May 2005, P&G employed 4,000 people in China, out of which only about 50 were not Chinese. Its strategy was innovative and seemed to pay off at that time.
Appraising the expatriate's performance
Managing Expatriate performance has become very important in the field of international human resource management, given that expatriate employees play a critical role in the success of multinational enterprises. As more and more companies get global, set up offices in diverse locations, managing the performance of the employees working overseas has become a more challenging task. The increasing internationalization of business through the establishment of international subsidiaries, joint ventures, and strategic alliances, has resulted in increasing numbers of people working part of their working career abroad (Gregersen, Morrison, & Black, 1998). Not only is it now important to manage the performance of expatriates, but also important for HR department to hire right candidates and provide sufficient training before the international assignments start. Hence employing an effective appraisal system which helps recruitment, selection, training and managers is very important. Performance management (PM) has traditionally been used as a guide for employee performance. Over the past 20 years, PM has expanded from evaluating employee performance to more comprehensive functions such as goal setting, training, feedback and development, and motivation. Though with regards to expatriate performance management there is very little literature. (Mabey and Salaman, 1995). Previous studies largely focused on Performance Management issues concerning domestic employees.
Appraising the expatriate's performance is quite different from appraising a domestic employee and it posts different challenges. Those involved in the process include the host country management, the home office and the manager himself. Even though the home office uses similar criteria to evaluate the performance, the approach and results are normally different. On most occasions the home office is not in a position to evaluate competencies and non tangible traits displayed by the expatriate, hence they rely on simple, objective and highly visible measures like profits, market share and output. They tend to ignore that these measures can be influenced by factors outside of the control of the expatriates. Tahvanainen (1998) indicates that it is affected by three layers of contextual factors: within organization context, within domestic context, and within international context. Level of internationalization is a major concern in the international context. He finds that home country managers are more likely to participate in goal setting in less internationalized companies, while host country managers in highly internationalized MNEs are more involved in appraisal process and establish formal performance goals and adopt an evaluation process. National culture is the most important variable involved in the domestic context. He compared American and Taiwanese performance appraisal practices and found that the latter react in a more conservative manner and avoid open confrontation.
Mainly due to the diversity of locations, culture and view points, appraising an expatriate's post different challenges. Some of the common challenges are:
- The home manager may be more likely to be unfamiliar with the important cultural variables in the host country and how they impact the local working customs. This can particular post problems if there is a clash between behaviours demanded by the organisation and those demanded by the local culture.
- Performance criteria and standards are not normally tailor made to the local context of the foreign assignment. Very few MNCs take contextual influences like economic conditions, legal constraints, employee qualification, market conditions into consideration when appraising the performance.
- Many organisation provide substantial support to help expatriates settle down in the place of their assignment by provide relocation services, allowances etc. However, not many organisation invest in the efforts to provide substantial on job support, regular feedback, development and training.
- Senior managements attitude towards international appraisal can be a problem at times. They tend to ignore the need to address the issues faced by subsidiaries and focus only on the performance of the local employees. They tend to rate the expatriates on perceived performance which is based on fairly complex variables usually below evaluators level of awareness.