Insights from the for Profit Sector and Business School Deans - Book Report/Review Example

 Insights from the for Profit Sector and Business School Deans Executive Summary: This report carries out a review of the current processes that are in place at SB, a financial regulatory company that deals with the regulation of non bank activities, within the context of the existing literature on the performance appraisal of employees in an organization. After carrying out this review, this report offers recommendations for the design of a holistic program of performance assessment that could help to improve the existing system. This report proposes that a balanced scorecard be utilized in order to provide a quantitative measure of performance. The existing performance management system: SB’s existing system rates employee performance on the basis of three specific aspects, i.e., (a) rating (b) self assessment and (c) development centre. The first is through the use of scale that ranks several characteristics that are associated with job related behaviour or personality. It is easier to compare different personality or behavioural traits by ranking them on such a scale. The limitation associated with this method of assessment however, is that such traits are difficult to measure because they are subjective. The method of self assessment allows employees to measure their own performance using a structured appraisal form. The advantages associated with this method are that it allows employees to participate in their own appraisal process and facilitates their own self analysis, which in turn functions as a tool for discussion. The limitation associated with this method however, is that it permits the application of a too lenient structure and thereby could prove to be a potential source of conflict between the person performing the appraisal and the person whose performance is being appraised. Lastly, the development centre method uses BMC Consultancy, which provides a range of individual and group tests and tasks for employees, which are then assessed by trained assessors. This method is the best of the three methods because it (a) allows for the assessment of a range of dimensions and (b) it is objective rather than subjective. It is significant to note that the current performance management systems at SB may not take into account the impact of leadership patterns on employee performance. The proposals for improvement are primarily based upon improvements to the existing interview process for the employees, such as ensuring a more thorough preparation process for both the appraiser and the appraisee. This report carries out an examination of the existing literature on the impact of leadership patterns on organizational productivity and employee behaviour, as well as a literature review of the balanced scorecard in order to apply them to the improvement of the current appraisal performance systems at SB. Introduction: The recent recession that occurred in 2008 shook up the financial markets and has created uncertainty and turmoil in the business markets that has not yet died down. While earlier financial scandals such as Enron highlighted the financial anomalies that could arise out of a lack of regulation of financial activities, the deep cut and prolonged recession of 2008 has only highlighted further, the acute need for regulatory action by financial regulatory authorities. This strongly suggests that the role played by organizations such as SB is even more important and improving the performance of employees in this organization would help to benefit financial regulatory action, because the primary cause of the turmoil in the stock markets and the recession that followed could be the deregulation of markets. In carrying out its financial regulatory activities however, SB has to function as an organization that needs to exist in an environment where organizations are faced with a competitive market, characterized by changing customer and investor demands. This has necessitated the process of seeking a continual improvement in organizational performance by reduction in costs, continuous innovation of products and services as well as improvements in productivity, quality of products and speed in getting these improved products into the market. Since most organizations are focused on these goals, their financial activities are primarily directed towards meeting those objectives and SB is no different; its appraisal program must also seek to achieve such goals of enhanced and improved employee performance in order to attain a competitive advantage in the market. There is an ever increasing trend for quality to be the major criterion that determines productivity, rather than a singular focus on costs which was the guiding principle prior to globalization. The new organizational approach therefore focuses on employee participation in decision making and a new set of human resource practices have evolved, focusing upon improvement in employee welfare through training, compensation and profit sharing, to motivate them in achieving this objective (Marchington and Wilkinson, 2005). These human resource practices are collectively referred to as high commitment HRM. In the present day competitive environment, people are viewed as an organization’s most valuable resource. While it may not be difficult for competitor companies to imitate products that are produced by one Company, it is next to impossible for one organization to imitate the people or replicate their skills. Human resource strategies within an organization are difficult to imitate because of path dependency, i,e, they are based upon organizational policies that have evolved over time. This is the reason why human resource management and its associated practices have come to be recognised as one of the most important factors that could impart a strategic advantage to an organization in competing in the global marketplace.(Boxall and Purcell, 2003). According to Baron and Kreps (1999), in the present global environment, employees need to clearly understand what the best interests of their organization are and work towards the achievement of those ends by being flexible enough to take on assignments that may be different from the normal work routines. Employees must engage both mental and motor skills in the performance of their jobs; they should not hesitate to exercise their own judgment where necessary in determining what needs to be done and contribute any ideas they may have for improvement in their respective organizations (Baron and Krepps, 1999:189). This requires a much higher level of participation from employees in the current global environment, as compared to earlier trends. Hence, any employee performance appraisal process that is put into place by SB must therefore actively seek to discover, highlight and promote individual employee skills and this needs to be the ultimate objective of SB’s appraisal program, so that during the interview process, the kind of questions that are posed would seek to discover those hidden and special attributes which each individual possesses that are distinctive and could be useful to the organization. This could include open ended questions such as “Do you feel you have some skills to contribute to the organization that are not currently being used?” or “On a scale of 1 to 5, how much flexibility and independence do you feel you have?” The importance of human resource management within the framework of electronic commerce in a business to business environment has been examined by Power (2004). The variables tested in his study were training, employee involvement and participatory culture. The findings in this study supported the conclusion that a clear association exists between human resource management and the implementation of technology enabling business to business commerce. Although this study was limited to organizations that were functioning within the consumer goods sector, it nevertheless, demonstrated that developing a participative culture within the organization with active participation of employees is more effective than investing in training programs and is likely to contribute to improved productivity of the organization. At SB, the IT department plays a significant role in contributing to the core activities of the firm, especially in a global technological environment; hence the appraisal process may need to enable an extraction of individual employee IT skills and their ability to function both in an individual capacity as well as in the spirit of a team member. Leadership: Since It operations will play a significant role in today’s business climate in SB’s financial regulatory activities, It leadership in the firm will impact upon productivity and some quantitative measures of leadership impact may need to be included in the new appraisal process. The leader of an IT organization is the CEO, and this role has become the most challenging one in the business world today, because the role of an IT leader has moved from technical planning and implementation to strategic planning. The functions of the IT leader would include the development of IT plans, policies, standards and architecture. The leader would also be expected up review and improve upon existing initiatives and develop IT performance metrics, by motivating team members.(Bass, 1999). Leadership has traditionally been associated with management, but this may not necessarily represent an accurate view because managers think incrementally while leaders think radically. Moreover, leadership involves a transformation in individuals, according to Spencer, ““transformational leadership is a process that changes and transforms individuals”. (Spencer 1). Three different leadership and decision making styles have been identified, namely (a) authoritarian (b) democratic and (c) bureaucratic, based upon decision making patterns of the leader (www.skagitwatershed.org). When the leadership style is authoritarian or autocratic, then the leader seeks to retain as much of the decision making power as possible, exercises authority and control and retains the responsibility for decisions (www.leadership-expert.co.uk). The advantages of this leadership style are faster decision making and a work group that functions in a structured manner. The disadvantages however, are that team members may not respond well to being ordered around or may become too dependent on the leader and helpless to function in an emergency. The democratic style of leadership promotes the sharing of responsibility for decision making and consultation among team members in arriving at those decisions. The most significant advantage of this leadership style is that team members are generally much happier and there is a reduced employee turnover because the working environment is perceived as being positive. This leadership style also fosters more creative thinking because all members of the team are involved in the decision making process (www.leadership-expert.co.uk). The disadvantage of this style of decision making is that consulting everyone can be a time consuming process and opportunities may be missed along the way. The bureaucratic style of leadership requires managers to be in control, but the roles of other team members are also more clearly defined and employees are expected to adhere to a definite set of rules. Managers have the authority and make decisions but employees are rewarded for their ability to follow the rules perfectly (www.leadership-expert.co.uk). The benefits of this style of decision making are tight management control over decision making and the running of the firm and quality work, because employees can be made to conform to the rules. The disadvantages of this kind of leadership style may be poor motivation in workers and managerial obsession with power. Other disadvantages are the hindering of creativity and poor communication between managers and team members. At SB, the inclusion of questions within the appraisal interview, such as “how supportive do you find your supervisor/leader?” or “Does your supervisor allow you to exercise flexibility in making some decisions”? would enhance the current appraisal process. Mossholder et al (1991) have pointed out that a perceived failure of effective leadership in organizational activity can often lead to unfavourable employee perceptions that have a detrimental impact upon performance. In particular, when employees feel that the performance appraisal system which is being used in their organization violates their privacy, they view the system in a negative fashion and also respond likewise. Such employees also considered the appraisal system to be overly complex and were on the whole, less satisfied with the performance appraisal system and their jobs in general. On the basis of their findings in the study, the authors have therefore recommended that organizations provide clearer guidance to both supervisors and their subordinates about how the appraisal system will work and the ethical issues of privacy that are associated with it, especially the confidentiality of the information which is collected through such appraisal systems. Mossholder et al (1991) recommend that leaders freely and frankly discuss privacy issues with employees at the outset, with discussion on all points being encouraged to provide clarification and involvement. Fictional scenarios could be used to make managers aware of the ethical issues involved. The introduction of the new appraisal process at SB must therefore include a pre-training process, whereby managers are made aware of sensitive issues such as the potential violation of privacy of individual employees. They would need to freely and frankly discuss such matters with the employees and seek their consent to the appraisal process by explaining that the goals of the process are not necessarily negative in aiming criticism at employees or violating their privacy but are rather directed at extracting their best performances and also drawing out any of their concerns. Implications of leadership in developing plans for the appraisal process: The appraisal process may thus, also need to examine how leadership plans are being executed in SB. At the outset, if any leadership plan is to succeed within the context of the financial regulatory environment using IT tools, it must ensure that workers within the organization support, manage and implement the Plan, with the commitment to make it succeed. The proposed steps for such an appraisal plan which could take into account leadership patterns are as follows: (a) Appoint an appraisal strategy team consisting of a Head of the group, a head of each individual department including legal and IT and at least three project development managers for each individual departmental assessment group. This team should solicit ideas from team members and employees as well as focus groups on how that particular department’s performance can be improved. On the basis of these suggestions, revisions can be made to an existing plans on an annual basis. These revisions can also take into account the results derived from implementation of the generalized appraisal in the previous year and the loopholes, limitations or failures identified, as have been stated initially, at the beginning of this Paper . (b) Incorporate measures in the Plan to prevent business failure. According to Pabrai (2004), a Disaster recovery Plan sets out the procedures to be followed in the event of errors caused by humans, environmental failures and natural disasters. Errors caused due to humans would also include failures and losses caused to the business due to terrorist attacks, irregular financial activities and individual financial gains at the expense of the organization, while losses of data resulting from power outages and network failures could be classed as environmental failures. Losses to the business caused by natural events could include hurricanes, floods and similar natural calamities. Including a Disaster recovery element within the Plan would ensure that the Plan lays out specific procedures to tackle any of the above calamities. This would help the business to be prepared, so that employees are aware of procedures to be followed in tackling any emergencies and losses to the business can be minimized. (c) Collaborative decision making may be optimal in a financial regulatory environment environment, because it allows the development of creativity in developing solutions to problems. As the recent financial crisis leading to the recession showed, there is an element of unpredictability that arises out of a lack of regulation and it is difficult to predict how investors and markets will perform on a regular basis. Therefore there may be a lack of set guidelines for employees against which their performances can be benchmarked and a much more open minded, flexible approach may need to be utilized, which also incorporates their responses to the existing patterns of leadership. Workers are also likely to be more productive if they work in a positive environment where team work in decision making is encouraged. The democratic style of leadership and decision making may thus be most relevant in a financial regulatory context of the present day, which is primarily IT based. In order to provide some level of a quantitative measure to the process, the potential in the application of a Balanced Scorecard approach is examined below. The Balanced Scorecard: The Balanced Scorecard was first developed by Robert S. Kaplan and David P. Norton in 1992, in an article that appeared in the Harvard Business Review titled: “The Balanced Scorecard: Measures that drive performance.” This management strategy was devised in response to the fact that while most financial measures were able to track the past performance of a business, they were unable to effectively assess the intangible factors that contributed towards ensuring that the business retained a competitive advantage in the marketplace (Rutan 1996). The Balanced Scorecard is therefore a strategic measure of performance, not only from the financial point of view but from a more broad based perspective that also enables accurate projection of future goals and the degree of adherence of the business to those goals. The concept of performance measures was earlier developed by Peter Drucker as Management by Objectives (Birnbaum 2000:43-52). Employees in every department were to set out short-term objectives, which were to be achieved within a certain deadline. Companies such as General Motors and RCA Foods adopted this method of management, but it was found to be ineffective due to the failure to take into account the unpredictable human factor in actual practice. There are two underlying principles that drive the Balanced Scorecard. The first one is that adhering to strictly financial measures hinders a company’s ability to formulate long term value. The second principle is that what gets measured is what actually gets done. (www.tqe.com). Therefore, while the Balanced Scorecard retains traditional financial measures, it also includes such factors as customers, suppliers, technology, process, employees and innovation. Therefore, this strategy identifies four distinct areas that need to be analyzed: (a) Financial, Learning and growth, Customers and (d) Business process Kaplan and Norton advocate the design of a comprehensive set of develop a scorecard, to evaluate the status of the business and what needs to be done to improve or enhance the scorecard to make it balanced in all the four fronts identified above (Rutan 1996). A company that has a well crafted scorecard will demonstrate a balance on the basis of three distinct aspects: (a) a balance between measures for external shareholders and customers versus internal measures of innovation and growth within the organization; (b) a balance between measures derived from outcomes which reflect past performance vis a vis measures of future performance; and (c ) a balance between the objective measures of outcomes vis a vis the subjective measures of performance. In order to develop a balanced scorecard, Kaplan and Norton emphasize the value of team effort, which is the only means by which the long term value of the scorecard can be maintained (Monczewski, 2003). Feedback is also a vital part of the program. Another crucial aspect of this program is the collection of data, which helps to provide quantitative results that are evaluated by managers in order to aid in the decision making process for future Company strategy. Lastly, team work and good communication will ensure that a balanced scorecard is successful (Monczewski 2003). In recent years, improvements have been introduced into the BSC program by its authors through a concept known as “strategy mapping” whereby the cause and effect relationships between internal efficiency and customer perspectives, learning versus growth and other such relationships are given a visual form and further enhance the use of the balanced Scorecard as a tool for organizational change and strategy planning. Implementation of the Balanced Scorecard: The Balanced scorecard is not successful in every instance. Some Companies who are successful claim that it is BSC that is responsible for their success while others claim that the BSC is a complex process that is not easily implemented and is responsible for their failure. (www.tqe.com). Some of the successful users of Balanced Scorecards are AT&T, Texaco, Elf Autochem, Mobil Oil and Intel (Bailey, Chow and Heddad 1999). Among the benefits that have been shown to accrue through the use of Balanced Scorecards, the following are among the salient ones: (a) The alignment of short term strategies with long term strategies (b) Aligning performance metrics with desired long term goals (c) Improving communications within the organization (d) Helping to formulate concrete organizational strategies (e) Aligning divisional or regional goals in line with overall organizational goals and strategies (f) Updating and clarifying organizational strategies. In some organizations, the evaluation of non financial metrics has led to the development of new financial metrics such as SVA and EVA (Cooper et al 2001). However the authors of the Balanced scorecards argue that new financial metrics are also compatible with the existing balanced scorecards, since the evaluation of financial metrics is also a part of the overall strategy. The balanced scorecard has been adapted for use in the health care industry through an incremental approach model (Pineno 2002). This model makes use of certain probabilities in considering profit contributions and incremental cost analysis. When revenues are generated, they are traced back to the appropriate product or services to determine and minimize costs related to those activities (Pineno 2002:73). In an incremental model approach to the Balanced Scorecard, several hospitals in Canada and Ontario developed reports based upon the application of the score card in four salient areas: (a) Financial performance (b) patient satisfaction (c) system changes and (d) clinical utilization. (Pink et al 2001). Most of the measures of the actual outcomes were in line with targeted scores, however discrepancies were immediately identified in hospital care outcomes and the coordination of care, thereby indicating a need for management action in this regard. The Balanced scorecard is also used by Bank One of Columbus, Ohio and the items that are ranked on its scorecard are customer retention, customer services and customer satisfaction, which are monitored carefully on a per-customer basis, in order to retain customer loyalty (Morgan 1998). Similarly, the implementation of an incremental model of the balanced scorecard was also helpful in the case of Mayo Clinic which was able to evaluate performance on the basis of financial indicators and revise its performance and management system that was representative of its out patient practice. (Curtright et al 2000). The use of the balanced scorecard is also recommended in public sector organizations, especially for using IS systems. It could be suitable for public sector organizations because it has the potential to incorporate several different objectives, especially when it is coordinated with stakeholder analysis before determining the targeted goals and objectives of the public sector organizations.(Flak and Dertz 2003). Therefore, it is likely that it may prove to be useful when used by local authorities. Applying the above in the context of SB, the balanced Score card could enable the application of a quantitative measure to the exhaustive interview process that is proposed to be introduced. The incremental model is likely to be most useful, because it can enable the incorporation of financial metrics such as the probabilities of irregular financial activities by organizations, which would then enable the development of a set of employee appraisal indicators geared towards assessing how effective employees are in detecting potential and developing cases of financial irregularities. Drawing up such financial metrics could also involve calculations on the potential losses that could arise out of such activities, thereby also highlighting the potential for losses to the economy. Actually seeing the figures in practice may be useful to employees in understanding the value of their contributions and encouraging them to actively think aboutb their own abilities and any special contributions they could help to make in the process of mitigating such losses. Criticism of the Balanced Scorecard approach: The Balanced scorecard has become known as the best management strategy, however, an important drawback was pointed out by DiMaggio and Powell (1983), since unlike institutional theory, the Balanced Scorecard approach ignores the importance of relative bargaining power within an organization, which plays a significant role in management decisions. The balanced and integrated performance management system that is purported to be a feature of the Balanced Scorecard has also been contested by Brignall and Modell (2000), who corroborate the views of Di Maggio and Powell that it may often be difficult to develop an integrated approach within an organization and certain managerial decisions may be taken to maintain the balance in a situation where there are imbalances in the power hierarchy. This may be especially relevant in the context of SB, because there are several departments functioning within the broad umbrella of this organization and the appraisal process proposed to be introduced seeks to actively refine the appraisal process of each department so that it falls within a common guideline. Relative bargaining power within the organization is an important factor which must be taken into account when designing the appraisal process, so that each department is allowed equal weightage in the appraisal process, depending upon which area it specializes in, such as legal, etc. However, it is important to note that the IT department will necessarily have a more important role to play, because most activities of the organization will be carried out in a technological environment. Yet another criticism that has been leveled against the Balanced Scorecard relates to its failure to incorporate social and environmental aspects as separate organizational perspectives.(Brignall, n.d). Moreover, the Balanced scorecard approach also relies heavily upon the linear cause and effect theory while the reality may be a high level of interdependence among factors and their causes and effects. Including social and environmental factors may add more complexity to an already difficult Company situation, however, the authors of the Balanced Scorecard have themselves identified that the limit of four perspectives is inadequate and cannot be assumed to be fixed.(Brignall n.d:6). Conclusions: On the basis of the above, it may be concluded that a holistic approach to performance management at SB must introduce some quantitative measures into the present qualitative and subjective assessment process. The primary method of dealing with appraisal so far is the interview method, but it may be necessary to include some financial metrics that need to be achieved, for instance what are the financial limits over which irregularity in financial activities in an organization will be determined and how will employee performance be rated against this criterion? It may be useful to use a Likert scale in the questionnaire, to enable employees to provide a range of responses, with each response being assigned a particular number. This would enable quantification of responses. In particular, leadership quality must be taken into account and employees may need to rank their responses to their leader/supervisor, whether favourable or unfavourable, within a scale of 1 to 10. An incremental balanced scorecard could be used as the objective measure against which employee performance can be measures, i.e., for example, how many man hours do they out in and how are the organization’s activities enhanced through the process? A holistic plan must allow some precedence to the IT department, since most of SB’s activities are carried out online. The existing rivalries and equations between the various departments must form the background of this assessment process, because it needs to form the background before any individual employee assessment can take place. Moreover, it may also be necessary for SB to quantitatively assess financial losses arising out of a lack of regulatory activity, and place a numerical value on how improvements could contribute to reduced losses and then use this as the basis to provide employees the means to tailor their own performances towards the achievement of those objectives. Moreover, the appraisal system must also take greater account of individual employee opinions and responses to the organization’s activities, with due allowance being made to incorporate such aspects. 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Manage 49(2):10-13 *Mossholder, Kevin W, Giles, William F and Wesolowski, Mark A, 1991. “Information privacy and performance appraisal: An examination of employee perceptions and reactions”, Journal of Business Ethics, 10(2): 151-156 * Pineno, Charles J, 2002. ”The balanced scorecard: An incremental approach model to health care” Journal of Health Care Finance. 28(4) : 69-81 * Pink, G.H., McKillop, I Schraa, E.G. and Preyra C et al, 2001. “Creating a Balanced Scorecard for a Hospital System” Journal of Health Care Finance 27(3):1-19 * Rutan, Steve, 1996. Book Review of “The Balanced Scorecard” by Robert S. Kaplan and David P. Norton. [Online] Available at: http://www.strategyletter.com/cp_0498/cp_br.asp; accessed 12/26/2005 * “The Balanced Scorecard: Overview” [Online] Available at: http://www.tqe.com/bsc.html; accessed 7/7/2006 Appraisal of employee performance has now become one of the salient functions of Human resource management Read More