Performance Management Cycle - Term Paper Example

 «Performance Management Cycle» Profitability, people and strategy Organisations are concerned with making best use of their assets to achieve their objectives, profitability and growth. In the increasingly competitive environment where similar organisations vie for the same space, a motivated and capable workforce that acts in alignment with the organisation’s strategies (Kaplan and Norton 2004, p. 13) provides the competitive edge for success (Dressler 2002, p. 4). In this context, it becomes essential that policies and processes exist where the employees are adequately equipped to perform their job and that their performance meets or exceeds expectations. Purcell (1999) proposed that each organisation is distinct and needs a unique solution beyond traditional pre-packaged policies. Consequently, it is imperative that an organisation uses well researched guidelines to develop and implement a method to gauge the performance and develop the capacity of their employees. A holistic approach to performance management is now being used widely which “establishes strategy-driven goals, modifies goals as needed, assesses performance against goals, and provides feedback on performance (Lawler 2008, p. 10). A detailed discussion of performance management systems will follow. Performance Management Process and Performance Appraisals Armstrong (2006a, p. 496) defines performance management as a “planned process” and identifies “agreement, measurement, feedback, positive reinforcement and dialogue” as its key elements. The process focuses on the future and integrates values, behaviours and inputs which help to enable an employee or manager achieve clearly enunciated goals. This process is beyond simply evaluating outcomes. Lawler (2008, p. 10) characterizes it as a “systemic process” and emphasises “multiple meetings” with employees to review “skill and knowledge development”. It is consciously referred to as a process rather than a system (Armstrong 2006b, p. 144), as it is dynamic in nature and continues year round. Each organisation adapts the process according to its own needs, environment and complexity of work and creates a localized system. The process is also meant to be flexible and can adjust to changing organisational requirements and stay aligned with them. The performance management process entails a two way communication between the employee and the manager with a dialogue and agreement on performance and development objectives. This ensures active participation of the employee in his or her own development and that all measures necessary to enable the employee to perform well are taken at the right time. As performance and development issues are to be regularly discussed, the process is managed by line managers themselves rather than HR. In contrast, a performance appraisal system is typically a once in a year activity where objectives are set at the beginning of the year and outcomes are assessed at the end to gauge the employee’s performance. Even though some organisations increase the frequency of appraisals to more than once a year, there is no in-built adaptability to changing requirements. Appraisals also inherently have a one way information flow where, at the time of appraisal, the manager informs the employees how well they performed retrospectively. Typically being a monolithic system, performance appraisals are more bureaucratic (Armstrong 2006a, p. 500), output oriented and are carried out by HR or by line managers with prepared forms supplied by HR (Torrington, Hall and Taylor 2005, p. 259). By its nature, an appraisal alone looks at past performance of the employee and leaves little room for improvement, capacity building or behaviour monitoring during the year. In the context of performance management process, appraisals can be said to form a part of the entire process if carried out through a dialog and with an emphasis on future (WorldatWork 2007, pp. 330-332). These differences are summarized in the table below. Performance Appraisal System Performance Management Process Reviews past performance. Focuses on future Discrete system Process Mostly output oriented. Integrates inputs, values and behaviour with output. Single meeting. Multiple meetings. Static and inherently inflexible. Dynamic and adaptable to changes. One top down communication. Two way dialog. Owned by HR department Owned by line managers. Drawbacks of Appraisal Systems Deming (2000, p. 98) referred to traditional performance appraisal as “a deadly disease” and suggested that it “nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics”. So what makes an appraisal so disliked by thinkers like Deming and others? Appraisals are usually one-off events and are based on manager’s evaluation of the employee. Usually this evaluation is made using ratings on quantifiable or discrete outcomes during the period under review. The frequency and approach of appraisal can introduce rating errors that may reflect an incorrect assessment of the employee’s work and capability. Dressler (2002, pp. 402-404) outlines these errors. These include the recency effect where the appraiser can tend to forget older events and give more weight to recent events during appraisal. Some managers by nature may give an average rating to most subordinates in the central tendency effect reducing the difference between achievers and poor performers. Other errors include bias, regardless of whether it is intentional or unintentional, halo effect, where a person is rated on the basis of a single prominent quality while ignoring other dimensions, and contrast error, where an employee is rated in comparison to another rather than performance standards. As briefly touched earlier, appraisal systems have a unidirectional top down communication. In addition, past events are evaluated. This places the appraiser in the awkward position of a “judge” who passes decisions on the employee. Dressler (2002, p. 384) points out that this “judgement” role is uncomfortable for managers who have to give negative news to employees. This experience is equally difficult for the employee who may either feel inadequate or pass the blame on someone else (Robbins 2002, p. 163). , A number of times, perceived or real negative feedback is based on reasons beyond the employee’s control but owing to lack of communication is not able to redress the situation through the system before the appraisal. Bach (2005, p. 291) points out that appraisal schemes usually do not correlate with business strategy and managers also seem disinterested in the process (Armstrong 2006a, p. 500) with no systemic requirement to change the situation. Performance Management Revisited Pfeffer (1986, p. 17) noted, “Success comes from successfully implementing a strategy, not just from having one. This implementation capability derives, in large measure, from the organisation’s people, how they are treated, their skills and competencies, and their effort on behalf of the organisation.” A performance management process epitomises this statement. Historically, employees were paid to do a job procedurally based on their inventory of skills and employers were not expected to help them (Tropman 2001, p. 91-92). This perhaps stemmed from unionised bargaining where rewards were based on duration of service rather than performance. However, increasingly, the landscape has shifted and employees are expected to consider the organisational goals as their own. Consequently, it is becoming imperative for managers to get involved to coach, motivate and enable employees to reach the desired goals. This, in turn, translates to focusing on not only “what” to achieve but also on “how” to achieve it. This shift has also moved the traditional focus of performance management away from being solely to assess and quantify performance related pay in a reward driven system and, through the 1990’s, development driven performance management has emerged which focuses on the capability of the individuals and teams to perform. Bach (2005, p. 292) supports this assertion by noting the results of survey conducted by Chartered Institute of Personnel and Development (CIPD) in 1998 where focus on development driven processes was far higher than reward driven processes. This certainly does not mean that performance related pay, with all its shortcomings, has gone out of favour completely. Hale and Whitlam (2000, p. 5) suggested, however, that it was important to address development issues prior to reward issues and that a focus on development contributed more in a total rewards system. Many organisations still try to maintain both reward and development foci while keeping them separate. The Performance Management Cycle In the reviewed literature, Armstrong (2006a, pp. 504-519), Torrington, Hall and Taylor (2005, pp. 263-267), and Houldsworth and Jirasinghe (2006, pp. 105-107) and others broadly agree on a three stage performance management cycle with no significant difference in accompanying guidelines. While these stages are not water tight and can be adapted, they are broadly classified as 1. Agreement or Planning. 2. Managing and coaching 3. Review. Agreement or Planning The first stage in the process is planning the process cycle and developing a mutual agreement between the manager and employee on performance and development objectives. These are benchmarked against defined role profiles which are aligned with the organization’s business objectives. This ensures that each employee’s own objectives create a cumulative effect towards achieving the organization’s goals and core values. This places a higher burden on the management as they must have well defined business plan prior to beginning the cycle. The process begins from the top level of management and role definitions and expectations are cascaded down to lower levels. Early at this stage it is also ensured that objectives do not have any ambiguities, possess enough stretch to introduce achievable challenge, are measurable and relevant to the corporate objectives and roles, and have a time cap to finish. At the same time, realizing that employees cannot achieve these objectives in a vacuum, mutually agreed development targets are also set which equip the employee to produce better performance while making the effort to achieve these objectives. At this point it is pertinent to note that specificity in goal setting and development planning flows well with the goal and expectancy motivation theories. In the goal setting theory, challenging yet possible and clear goals are a source of motivation. It must be remembered that this motivation can only be sustained if employees are given continuous feedback, coaching, mentoring for future progress. This aspect is addressed in the second stage of the performance management cycle. The other motivation theory that gels here is the expectancy theory. Shields (2007, pp. 77-78) summarizes it by noting that an employee’s motivation is dependent on the attractiveness of the goal and the anticipated probability that he or she may achieve it by following some action. If the goal is vague, the employee will have no way to determine its value. Also, if conditions are such that the employee does not perceive a high probability of achieving it, there will be no motivation. However, if the basic premises of performance management cycle are revisited, they are naturally focused to increase employee motivation. A clear, unambiguous, challenging and achievable goal motivates the employee on the basis of the goal setting theory thus increasing its value. In addition, the confidence generated in the employee by development planning and mentoring increases the perceived probability of achieving that goal. Both these factors result in higher motivation. Looked at from another angle, Bandura (1982, p. 122) defines self-efficacy as a perception of “how well one can execute courses of action required to deal with prospective situations”. In their meta-analysis of literature linking self-efficacy with performance, Stajkovic and Luthans (1998, pp. 240-261) found that there is a “positive relationship between self-efficacy and work-related performance”. Managing and Coaching This stage is where the initial plan and agreement is rolled out and spans the entire period of performance delivery, typically a year, where agreed objectives are worked for and development plans are executed. The employee and manager assume their respective roles: the manager assumes the role of facilitator, motivator, coach and mentor while the employee uses capabilities to achieve the defined objectives. In essence, good management practices are followed and through frequent formal and informal meetings, progress and development needs are reviewed and discussed. Adjustments, if any, are made during this period. It is quite clear from above that the role of management becomes very critical when acting as an enabler for employee performance. It is up to the manager to ensure the employee is successful, planned development commitments are followed, feedback is offered, unforeseen hurdles are smoothed out, and the employee is made to feel secure and motivated (Houldsworth and Jirasinghe 2006, pp. 105-106; Torrington, Hall and Taylor 2005, pp. 265-266). Review Even though dialogue is expected to be in place throughout the second phase, at least one performance review is still usually conducted. This forms a milestone in the entire process and, unlike performance appraisal, is not an end in itself. Positive discussion takes place to assess performance and future development needs. Lessons learnt during the year are shared and future course of action discussed. In reward based performance processes, the review provides input to the reward system. Conclusion: Friesian Performance Management System The above discussion has given an overview of how modern performance management systems are meant to operate. The newer holistic approach is compared with some of the significant pitfalls associated with older annual appraisal systems. This comparison, along with description of the entire process, helps put the current appraisal system at Friesians in perspective. Also, two foci of performance management, developmental driven and reward driven, have been identified and briefly described. In view of this author, it is recommended that a development driven performance management strategy be adopted for the entire organisation. The rationale is given below. Collis and Montgomery (2005, pp. 193-194) suggest that a corporate strategy cannot be effective and successful, unless “all elements” within it including “human resources” are “aligned” with it and this should create a “competitive advantage” for the company. This approach ties in well with development driven performance management which also focuses on motivating and equipping employees to perform better. As the old adage “success breeds success” goes, it has been shown earlier in this paper that acknowledging the importance of motivation principles and their application brings a sense of achievement in the employees and they will begin treating Friesians’ success as their own. Development driven focus will infuse this spirit in the day to day working of employees. Central to this approach will be the role of managers who will need to be trained to first translate organisational objectives to concrete individual objectives and, second, to maintain a proactive enabler role for their subordinates by keeping an ongoing formal and informal contact. Motivated employees will be induced to voluntarily strive for excellence and become part of a well-oiled machine leading to higher productivity competitive edge for Friesian. This “discretionary behaviour” (Tyler and Blader 2003, p. 72) is associated with development driven systems. As discussed in previous sections, the focus on development is aligned with organisational success. This success may not necessarily need to be shared through individual rewards contingent upon individual performance. There is enough literature available that points out the disadvantages of performance related pay. Sadler (2001, p. 95) summarized some of the criticism such as smallness of amount allocated as contingent pay, disconnect between perceptions of employee contribution versus reward and reluctance of managers to be fully part of the process resulting in inaccuracies of assessment. Also, there is a possibility that the employee will only limit one’s work to achieving a performance goal for a specific reward and in this mechanical approach to working, will not strive for excellence. Industry trends over the years have also borne out the trend that organisations are shifting away from reward driven performance management systems. According to CIPD surveys in 1998 and 2004 (Bach 2005), a significant decline from 43% to 31% was noted in reward driven performance management systems. References Armstrong, M., 2006a. A Handbook of Human Resource Management Practice. 10th edition. London: Kogan Page. Armstrong, M., 2006b. Strategic Human Resource Management: A Guide To Action. 10th edition. London: Kogan Page. Bach, S., 2005. Managing Human Resources: Personnel Management in Transition. 4th edition. Oxford: Blackwell Publishing. Bandura, A., 1982. “Self-efficacy mechanism in human agency”. American Psychologist, 37(2): 122–147. Collis, D.J., and Montgomery C.A., 2005. Corporate Strategy: A Resource-based Approach. Columbus, OH: McGraw Hill. Deming, W. E., 1986. Out of the Crisis, Cambridge, MA: MIT Press. Dressler, G., 2002. Human Resource Management. 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