Performance Appraisal System: Hewlett Packard

This course work is a study of a Multinational Company called Hewlett Packard and its Performance Appraisal System. This report is focused on Management by Objectives that is practiced in this company as Performance Appraisal tool. MBO is an performance appraisal tool which is widely used by many companies around the world. Firstly, MBO starts with a Job Description, Performance Planning and Performance Evaluation. HP uses MBO to encourage employees to take up initiative and support the work culture. To make the employees to perform to the best of their ability MBO is the tool which empowers employees. However, this research does suggest that MBO alone is sufficient but also other Performance Appraisal methods are also suggested, because MBO has its own strength and weaknesses. This research also suggests other strategies and methods in order to prevent difficulties or problems in the performance appraisal system.

Keywords:

Performance Management, Performance Appraisal, Management by Objectives

Index

Introduction

Performance Management System……………………………………3

Performance Appraisal………………………………………………..3

Role of HRM function in Performance Appraisal…………………….4

Literature Review

2.1) Types of Performance Appraisal methods……………………………….5

2.2) Definition 1……………………………………………………………….7

2.3) Definition 2………………………………………………………………..7

2.4) Similarities and Conclusion………………………………………………..8

3) Analysis and Discussion

3.1) Performance Appraisal at HP……………………………………………….8

3.2) Findings………………………………………………………12

4) Recommendations and Conclusion

4.1) Recommendations…………………………………………………..14

4.2) Recommended Appraisal Tools…………………………………….14

4.3) Conclusions…………………………………………………………15

5) Bibliography

Introduction:

Performance Management System

Armstrong and Baron (1998a) defines performance Management as, “a process for establishing shared understanding about what is to be achieved, and an approach to managing and developing people in a way which increases the probability that it will be achieved in the short and long term “. The above definition explains that Performance Management System is a continuous activity which has been formed by the organization for integrating and developing the individual goals and objectives in accordance with the company goals and objectives and it also aims at increasing the probability which can be achieved in the long and short term. In simple words, it is a process used by the employers to make sure organizational goals are achieved by the employees. In today’s globally competitive business environment the necessity of Performance Management System is very essential for the employers to help their employees efforts to focus on achieving the company’s strategic goals and objectives. The Performance Management Systems goals should be inclined and in accordance with the business strategy goals.

1.2 Performance Appraisal

According to Roland Benjamin, a “performance appraisal determines who shall receive merit increases; counsels employees on their improvement; determines training needs; determines promotability; identifies those who should be transferred. Moreover, it improves employee job performance; encourages employees to express their views or to seek clarification on job duties; broadens their outlook, capacity and potential; promotes a more effective utilization of manpower and improves placement; facilitates selection, reward and promotion of the best qualified employee; prevents grievances and increases the analytical abilities of supervisors ” . In simple words it is evaluating the current and past performance of the employee relative to his or her performance standards. It is a tool which is used to measure the employee’s performance against the set expectations and give them feedback and training (if necessary).

1.3 Role of HRM function in Performance Appraisal

The role of HR has undergone a sea change in the HR in the present scenario, and its focus is on evolving functional strategies, and enabling successful implementation of the corporate strategies. Corporate and HR strategies function in alignment. HR works towards improving the performance of the employees and facilitating employees by providing maximum opportunities and building a conducive work environment to employees to enable them to participate in decision making process and organizational planning. Today majority of HR activities are focused on importance of employee motivation and development of high performance leaders.

Literature Review:

Organizations are run by employees and steered by them. It is through employees the goals are set and objectives are realized. Organization’s performance is dependent upon the total sum of the member’s performance. According to Peter Drucker “an organization is like a tune. It is not constituted by individual sounds but by their synthesis. The success of an organization, therefore, depends on its ability to accurately measure the performance of its members and use it objectively to optimize them as vital resources”. “Performance Appraisal is a process by which an employee’s contribution to the organization during a specified period of time is assessed”.(Sims,2002b). For a successful operation of most organizations Performance Appraisal is integral. During this process, employees are evaluated informally and formally to measure their contributions to the organization. “Appraisal occurs during time periods and in meetings that are scheduled to produce reasoned consideration of contributions, but it also occurs informally as employee contributions are observed or when an evaluation is brought to the attention of others” (Dickson, 1993).

It mainly involves three steps:

Setting work standards

Assessing actual performance of employees against the set standards

Offering feedback to the employee so that he/she can eliminate deficiencies and improve

2.1 Types of Performance Appraisal methods:

Critical Incident method

Weighted checklist method

Paired comparison analysis

Graphic Rating scales

Essay Evaluation method

Behaviorally anchored rating scales (BARS)

Performance ranking method

Management by Objectives

360 degree performance appraisal

Forced ranking

Behavioral observation Scales

Critical Incident Method:

Under this method the performances and critical incidents of the employees are continuously recorded along with the behavior to all positive or negative characteristics in a notebook which is specially designed.

Weighted checklist method:

This method involves weighting different items in the checklist. It contains a series of statements about an individual that indicates some are more important than others.

Paired Comparison Analysis:

Relatively this method is simple. In this method the employees are ranked by the appraiser by comparing one employee’s with the other employee’s performances in a group, one at a time.

Graphic Rating scales:

This is the most commonly used method of measuring performance. In a printed form, each employee’s characteristics will be rated.

Essay Evaluation method:

In this method an open-ended appraisal of an employee will be conducted by the supervisor in a free form in his own words and writes down his impression.

Behaviorally Anchored Rating Scales (BARS):

This method combines elements of the traditional critical incidents and rating scales methods. BARS helps to describe the job behaviours from critical incidents. The ineffective and effective behaviours are described more objectively.

Performance Ranking method:

Employees in this method employees are ranked from best to worst on certain characteristics and performances in that particular job category.

MBO(Management by Objectives):

Management by objectives can be described as “a process whereby the superior and subordinate managers of an organization jointly identify its common goals, define each individual’s major areas of responsibility in terms of results expected of him and use these measures as guides for operating the unit and assessing the contributions of each of its members.”

360 degree performance appraisal:

In this method the appraisers are peers, supervisors, subordinates and employees themselves. The Performance Appraisal by all these parties is called 360 degree appraisal and the employee should be assessed without any bias.

Forced Ranking:

In this method the rater’s tendency is corrected not to give consistently low or consistently high ratings to all the employees.

Behavioral observation Scales:

In this method the value and behaviour of the employees are measured whose performances cannot be evaluated on productivity basis alone. This sort of evaluation is used to ensure whether the employee is meeting the required expectation or necessary disciplinary action is to be taken.

2.2 Definition No. 1)

According to Armstrong & Baron (2005) that “(performance) appraisal systems should be seen as being transparent and equitable, providing reporting consistency and regular feedback on performance”. Here the author says that the performance appraisal system should be well designed so that it is transparent to the employees as to what they have achieve with regards to the standards set and the managers should explain the objectives in a simple way. And the performance appraisal system must be equitable to all the employees with respect to their cadres, levels or positions so that no employee is biased and fairly treated and the performance appraisal system should be engaged and should be able to monitor the employee’s performance consistently and produce reports to his/her manager regularly. And the manager has to provide regular feedback to his/her employee on his/her performance so that employees can make corrections if necessary.

2.3 Definition 2)

According to Flippo, “performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job.” It is a systematic way designed to review and assess the employee performance during a given period of time. In this definition the author says that performance appraisal is a system in which there is a consistent periodic feedback about the employee’s performance in an unbiased manner and are treated fairly. And the assessment of these employees are conducted pertaining to their present job and their capabilities for better challenges and future opportunities.

2.4 Similarities and Conclusions

Both the authors have presented their views about performance appraisal in their own words. Here it is noticed that the first definition by Armstrong & Baron (2005) highlights about transparency, equity, reporting consistency and regular feedback about the employee performance but it doesn’t explain about future prospects or opportunities about an employee based on his/her potential for a better position or a job role.

The second definition by Flippo explains about the systematic, impartial and an periodic rating of an employee performance and after his/her assessment the capabilities they have for a job better job role or position. But it doesn’t explain about the performance appraisal system being transparent, equitable or consistent.

So I would conclude that I would conclude that both the definitions are right in their own ways but the concepts and ideas of both the definitions should be inculcated for a better Performance Appraisal system.

3 ) Analysis and Discussion:

3.1 Performance Appraisal at HP

Management by Objectives (MBO)

The employees of HP and their activities are being guided by a system of Management by Objectives (MBO). The performance appraisal system starts by establishing long term and short term objectives and goals derived from group and company objectives. At each level the overall objectives are communicated and sub-unit objectives are negotiated. HP allows its employees decide on accomplishing their goals that are set by them. The goals are made to interconnect vertically and horizontally throughout the company. MBO is a part of the company’s strategic planning which defines the responsibilities and objectives that a job entails. The process is initiated by top management and every employee is given the opportunity in the setting of objectives. In this system, employee has a discussion with his or her manager and they discuss and collectively set goals for the coming period of time. And the goals are quantifiable and they are objective and usually written. During a specified timeframe, the employee and the manager periodically meet to review the employee’s performance relative to attaining goals. During the end of the specified period a formal one on one meeting is scheduled in which the employee and manager assess the actual performance of goal attainment. “The degree of goal attainment then becomes the individual’s performance appraisal” (Sims, 2002a).

HP has a combination of MBO and paired-comparison approach. The paired comparison approach, according to Sims (2002b), “measures the relative performance of employees in a group. The manager will list the employees in a group and ranks them”. Managers at HP invest considerable amount of energy and time ensuring that an employees pay level within their salary range is reflected in their performance when compared to other employees. Performance is judged by the team supervisors but adjusted in co-ordination with managers in face to face meetings which compared employees with similar responsibilities in different departments.

Goal Setting

There has been long tradition of targets in Hewlett Packard being determined by both manager and employee. These are participative conversations. The discussions attempts to cover the situations of diversity the employees would face. Managers and employees have monthly formal meetings and informal meetings and they discuss revising the targets of new information about the client behavior in environment.

Performance Evaluation:

In Hewlett Packard, the performance appraisal system is primarily used as a development tool. Employees and manager have formal meetings and feedbacks, held every quarter resulting in a full annual appraisal. Self-assessment is strongly encouraged in HP. Managers dedicate a good amount of time to discuss problems and identifying the improvement areas but also give constructive feedback. This will not only occur during the formal meetings but it is an ongoing process. This type of informal process helps to build new organizational values by reinforcing and correcting attitudes and behaviors. In order to achieve a better clarity of the performance of the employee, the company has introduced additional evaluation technique such as 360-degree appraisal.

Figure 1. Brand CMD: The Edge (Hewlett Packard 2012)

The above mentioned figure, in the “People” tab it talks about the skill, tenurity of employee, expertise and talent. It says about the key elements that is expected from employee on which they are gauged in the score card and movement of people from one level to another based on their “potential for a better job” as highlighted by the author “Flippo”.

Figure 2. Career Development Plan (Hewlett Packard 2012)

The above picture shows the position levels(pay band) in which the employee can obtain a career growth(skill level) according to his/her tenurity in terms with their performance rating.

Figure 3. Recognition programs for CMD family (Hewlett Packard 2012)

The above picture says about the types of Rewards and Recognition (RNR) practiced and followed at Hewlett Packard.

Figure 4. GSCB CMD EDGE: FY11 PLAN OF RECORD (Hewlett Packard 2012)

The above picture highlights about the” Transparency” that HP has in practice in the form of “Employee communication”.

3.2 Findings:

Evaluation of Performance Appraisal system at HP

Based on my analysis and investigation from the data and the information what I have gathered I can say that HP has a effective and an efficient performance appraisal system in place. The goals, rewards and objectives of the organization are aligned with the performance appraisal system which is efficient and effective. The contributions of each employee along with their strengths and weaknesses are measured performance appraisal. The training needs for the employees are identified. HP has adopted combination of both MBO and paired comparison method. And we can also notice here that there are career development plans for employees to grow in the company and support this there growth opportunities as HP also has New Business Development strategies to acquire new businesses. It also has Rewards and Recognition to identify the works of efficient and effective employees, recognize them for the performances and motivate them to perform in a better way.

Evaluation of Management by Objectives (MBO) at HP

Hewlett Packard which has their performance appraisal system as MBO, tends to recognize and reward the employees who have achieved the agreed targets, with promotion or increased pay. Employees who fail to attain the objectives are deemed as failed and penalized accordingly. MBO also focus on attaining the objectives.

Strength and Weaknesses of MBO

The strengths of MBO are as follows:

Involvement of employee is increased in setting performance objectives and the motivation required to reach those objectives is also increased.

It favors an objective for measuring accomplishments on factual basis.

It is job centered

Rather than a critic of performance, the appraiser is termed as a performance facilitator.

Gives assurance to the organization that all employees are performing to achieve a common goal.

The weaknesses of MBO are as follows:

It cannot function at a single organizational level without operating at all levels.

It requires management support and commitment, time and interest if it has to succeed.

MBO cannot be applied on all types of jobs. Another method needs to be implemented for individuals performing repetitive , routine or machine based .

Employees require extensive training before they normally respond in a positive way to MBO (Caruth and Hadlogten, 2001)

4 ) Recommendations and Conclusions

4.1 Recommendations:

HP uses MBO as the primary tool in appraising employee performance. HP was able to establish MBO system which is effective and that it is able to measure the employee performance, against the goals that have been set. However, depending alone on MBO alone can lead to different problems and difficulties. MBO has both weakness and strengths. In order to minimize the weaknesses maximize the strengths of MBO, the company must make use of other available performance appraisal tools and techniques for better performance of the organization and its employees.

4.2 Recommended Appraisal Tools:-

Rating Scales

Rating scale method is one of the most widely used performance appraisal tool . It is quiet popular among the organizations as it is simple to use and it is easy. Using the rating scale method employees are assessed against a set of predetermined standards such as quality and quantity of work they perform and absenteeism. Performance is evaluated form lowest level to the highest level in different categories.

Checklists

The checklist method is used by the assessor or the evaluator to describe performance of the employee, based on series of statements, adjectives and phrases. These statements may be subdivided into particular factors such as quality and quantity of work and so on, with the listed descriptors without categorizing. The employee performance is marked by the appraiser based on a statement or an adjective which describes the performance of an employee during the appraisal period.

4.3 Conclusion

Hewlett Packard has one of the best Performance Appraisal systems. The performance appraisal system used by HP has been supports the company’s objectives, philosophies and culture. The primary tool used in the performance appraisal process in HP is MBO. MBO is considered to be efficient and effective. At HP performance appraisal system begins with establishing of short-term and long-term goals derived by the company objectives. The advantages of MBO are that it empowers its employees. It allows its employees to decide on how they can accomplish their goals and objectives set by them. Employees are encouraged to give their suggestions and opinions on how they can contribute to the success of the organization. MBO as a tool is considered to be an effective and an efficient performance appraisal system. The effectiveness of every performance appraisal system depends on how one uses it. I hereby conclude that Hewlett Packard has Transparency, consistency and regular feedback on performance of its employees.