Managing Human Capital, Evolution of the Performance Management System - Essay Example

Managing Human Capital AFFILIATION: Table of Contents Table of Contents 2 Introduction 4 Criticalanalysis of the appraisal system 5 Evolution of the Performance Management System 8 Issues encountered by the organisations 12 Conclusion 15 References 18 Organisations in today’s competitive and dynamic business environment have realised the importance of developing an effective, loyal and competent workforce. When the company has a competitive edge in its workforce, then it is able to excel in its market and respond to the challenges in an effective manner. One of the important driver for creating such valuable assets is the performance appraisal process as it is the technique utilised for assessing the employee’s performance and identify the developmental areas for optimising the person’s potential. Recently, there has been surging demand of designing, developing and implementing a total Performance Management system which will assist the organisation in conducing the strategic human resource planning process. Traditionally, the appraisal was done at year-end by the manager or supervisor of an employee in an informal way. The appraiser had to rate the performance of the employees on predetermined standards. This technique was ineffective as it reviewed the past performance of the employees and there was lack of feedback mechanism and suggestions for future developmental opportunities for the employees. In order to address the discrepancies in the outdated appraisal processes, it was recommended that a Performance Management system is developed. This concept allows the organisations to not only evaluate an employee’s performance but the individual is made part of the process. Also, the employees have clarity about their roles, accountabilities, responsibilities, expected outcomes and behaviours. As a result, the employees are able to designate their best efforts and make sure that they make valuable contribution in organisation’s long-term objectives. Hence, the performance appraisal process has to be developed in alignment with the organisational strategy and the corporate objectives so that the individual’s goals are effectively and strategically determined. Introduction Every organisation is run and managed by people who assist them in attaining the desired goals and objectives. A company’s performance is dependent on the total sum of the members’/workforce’s performance (Biron, Farndale & Pauuwe, 2011; Hutchinson, 2013). As a result, the success of a firm relies on its ability of measuring the performance of employees accurately and objectively so that individuals can be utilised at optimum level as a valuable resource (Aguinis, 2013; Sharma et al., 2011). On the basic level, an individual’s performance is the record of the results or outcomes presented due to the particular job related activities over a designated period of time. It does not take account of the personal level traits, competencies or characteristics of a person (Appelbaum, Roy & Gilliland, 2011). Furthermore, there should be an effective feedback mechanism so that people can learn from them and be aware of their accomplishments and failures simultaneously (Collings & Mellahi, 2009). In the organisations, performance appraisal is conducted to review the individual’s performance and it is mostly referred to as merit rating as a person is given rating of being better or worse when compared with others. It is among the traditional HR practices of the management (Brown, Hyatt & Benson, 2010). In this process, the focus is on determining the employee’s performance on job by comparing it with a predetermined set of measures/standards. It is defined by Bhattacharjee and Sengupta (2011) that performance appraisal is an in-depth and systematic assessment of the person in accordance to the performance during the job and also support in identification of the development potentials. Globally, the performance appraisals are used by all corporations and there is a range of techniques which are employed by them as each one of them has varying goals which can be focused on by the management team for examining the employee’s performance and detecting the developmental opportunities (Toppo & Prusty, 2011). On basic level, the core purpose of this constituent is to present the organisation with a system for measuring and evaluating an employee’s accomplishments and behaviours over a particular time period (Armstrong, 2012). The entire process has to be developed and implemented properly so that it can assist the organisation in proper reward allocation, promoting/demotioning an employee, transferring, selecting the training and development initiatives and enhancing an employee’s satisfaction and commitment (Rowland & Hall, 2011). The principal purpose of the paper is to shed light on the evolution of the appraisal system from traditional appraisal framework to a total Performance Management System which gives importance to the development of an individualised performance management structure (Maley, 2013). Additionally, it is important to realise that the structures of the organisations have to be redesigned so that they align with the requirements of the modern employee appraisal systems. Likewise, there are various challenges which have to be addressed by the managers so that they can strike balance between the employees’ and organisation’s level of performance. Therefore, there should be a strategic fit between the organisation structure and its strategy so that an effective human resource planning endeavour can be undertaken. Critical analysis of the appraisal system In the present day organisations, almost all of them have some form of appraisal system which is undertaken for reviewing an employee’s performance over a certain time period. But most of the processes are not free from criticisms because they are still in compliance with the traditional HR practices (Budworth & Mann, 2011). The foremost dominant critique of the system is the top management structure which is reluctant in developing the appraisal framework in compliance with the orthodox concept. This technique seeks remedies for the employee’s weak areas and help them in identifying those aspects which can motivate, train and develop competent individuals (Gruman & Saks, 2011). This framework is in conflict with the traditional performance appraisal system which is to evaluate the employee’s past performance and distribution of rewards should be done accordingly. Moreover, the managers are resistant in making negative judgements about the person’s performance because they believe that it will be demotivating for the individual which can lead to judge the claims of lacking managerial support and can contribute to the poor performance of the employee (Kagaari, Munene & Ntayi, 2010). Even the appraisers feel that the dual role of being judge and reviewer of their own performances is challenging for them and it requires immense effort make them understand the importance of developing their own performance appraisal plans (Prowse & Prowse, 2009). In order to avoid the conflicts that can arise between the appraisers and appraise, some organisations are employing the central tendency technique which eases this process. According to this tool, the managers have to rate the employee’s all criteria in the average or middle rating points. However, such methods are influenced by the politics in the organisations. It is mentioned by Boon et al. (2011) that politics in appraisals is embedded in the form of encompassing deliberate efforts of enhancing self-interests when there is possibility of conflicting actions and consequently the rating and decisions are affected by the biasness or inaccurate ratings performed by the appraiser. Also, the judgments on the basis of politics is influenced by overrating some of the competencies clearly mentioned about performance instead of being critical and this is known as ‘halo effect’. In simpler terms, when a manager over-rates an employee on majority of the performance measures, it is referred to as halo effect. However, the reciprocal of this issue which is giving low ratings to the employee on most of the competencies is known as ‘horns effect’ (Ahmad & Bujang, 2013). Additionally, in some evaluation processes, the ratings are influenced by the recent events and it tends to give inaccurate analysis of the person’s performance. Such appraisal is believed to have been impacted by the ‘recency effect’. In these instances, the manager’s ratings are affected by the most recent activities of the employee and the person does not take account of the performance evident over the complete appraisal period. Besides, these major criticisms found in the appraisal systems, the performance ratings are even suffered from other biases such as physical appearance, personal preferences, attitudes, values, gender, ethnicity and others (Smith, 2012). Despite all the criticisms highlighted by the scholars, performance appraisal system is viewed as a vital tool for evaluating the employee’s performance. Almost all the organisations have such processes but they lack the skills of appreciating the short comings present in them (Rowland & Hall, 2013). As a result, they are reluctant to modify the systems to meet the contemporary demands of the business environment. However, in the late twentieth century, the approaches of the performance appraisal system has shifted to designing and implementation of the Performance Management System (Stack, 2013). The organisations have realised that they need to focus on clear definition, planning, management and enhancement of performance of an employee rather than just appraising the performance. Even the economy’s competitiveness and rapid changes in environment are forcing the organisations to shift towards proactively designed performance management system from reactive based performance appraisal process so that the performance and productivity of an organisation can be boosted (Boxall & Purcell, 2011). Armstrong (2012) has defined the performance management process as an organised and systematic procedure for augmenting the organisation’s performance by developing individuals and teams level of performance. Furthermore, Devanna, Fombrun and Tichy (1984) created a matching model which emphasises the significance of creating HR strategy and organisational structure in such a way that they are in alignment with the organisational strategy (Smith & Cantrell, 2011). The primary purpose of this process is to create a high performing culture where the teams and individuals are held responsible for enhancing the business processes along with their own contributions and capabilities which has to be complemented with an effective leadership (Truss, Munkin & Kelliher, 2012). Evolution of the Performance Management System For majority of the modern day organisations, motivating the employees to perform at their peak level is crucial requirement and performance management is viewed as the mandatory element for creating such supportive workforce (Guest, 2011). Moreover, this process encourages the organisations to develop linkages between the corporation’s strategy and the desired outcomes by embedding supportive HR policies and competent HR strategy (Brudan, 2010). As Shrivastava and Paurang (2011) has highlighted that the performance appraisal is the precursor of contemporary Performance Management system, he has even given clear distinction between the two approaches. A performance appraisal system has its foundation on the person’s review of job completion for a year and it can be conducted either on annual or semi-annual basis for fulfilling any of the actions such as promotion, salary increase or bonus payment. Also, it is usually a paper based activity in which HR department plays the role of a custodian of the employee’s information and such process is slightly informal without any supporting evidence of the rating (Buller & McEvoy, 2012). On the other hand, Performance Management is a process in which the objectives are set on consensus basis by the employee and respective supervisor which have to be aligned with the individual’s job description. Furthermore, it states the set of expectations which has to be fulfilled by the person and this document is usually developed for the forthcoming performance period which can be either for one year or six months. Even Personal Development Plans are the latest norms which are stored in the electronic systems so that they can be assessed all the time and they need to be updated so that both employee and supervisor can monitor the progression level (Armstrong, 2012; Jafari, Bourouni & Amiri. 2009). This development in performance appraisal system tries to address the shortcomings which were found in the traditional techniques. In addition to reviewing the performance of the employees, the main purpose of the new systems is to make the employees feel valued and give them liberty of making decision and take responsibility of their actions. When the objectives are set in consent with the individual, the person feels responsible and is able to review the course of actions and its effectiveness on the job. Additionally, it permits the organisations to undertake strategic initiatives for equipping the employees with the modern skills and competencies so that they can make valuable contribution in organisation’s performance (Sharma et al., 2011). It is found in many organisations that when employees are engaged in Performance Management processes there is high probability that they are able to create a loyal, committed and capable workforce. Moreover, the morale of the employees is boosted which is reflected in the company’s increased level of productivity. The major factors or changes in the business environment as depicted by Aguinis (2013), Bratton and Gold (2012) and Visser (2011) which has encouraged the organisations to focus on total Performance Management system are as follows: 1. Accelerating importance of TQM (Total Quality Management) in all forms of organisations as they were realising the significance and implications of continuous improvement initiatives in business operations. In early 1980s, the concept of Performance Management started gaining momentum as TQM mandated the need of restructuring the organisational infrastructures. Also, the framework allowed the firms to capitalise on enhancing the quality of performance so that the international quality standards could be effectively met. Other concepts such as job designing, leadership development, open communication, team working, cross-functional teams, employee engagement, career development, specialised training sessions and comprehensively aligned reward system became popular to support the creation of strategically aligned Performance Management system. Furthermore, it is an ongoing process and it does not have to be restricted a year end activity because the performance has to be continuously reviewed so that it enhances the organisation’s performance. 2. Even the Performance Management process explicitly appreciates the fact that the present era which is dominated by international level firms have to recognise that employees are the most valuable asset of their businesses. In today’s competitive, technologically advanced and industrial business environment, every employee of the organisation has to be guided in employing the efforts just like a laser so that the company can attain the strategic objectives. Hence, the organisations have to develop an integrated process for evaluating the employee’s performance, guide him/her in developing the imperative competencies and continuously appraise the employees to boost their confidence and morale. 3. Every individual has to be shown respect and the individuality has to be appreciated so that a bond is developed between the organisation and the person. Since everyone has unique capabilities and differing motivational aspects, HR has to identify those factors which will inspire the employees to perform at an optimum level and they make valuable contribution in the organisation’s performance. Performance Management is a vital requirement of the modern organisations as it allows the employees to work with their full potential and is favourable both for the employee and company as the expectations are clearly defined in terms of the roles, accountabilities, responsibilities, required capabilities and expected behaviours (Hutchinson, 2013). In order to make sure that the system is effective and the desired outcomes are achieved, there are various changes which have to be undertaken within the organisation. The foremost thing required is to develop a focused approach for the performance appraisal process. It is important for the management to support the creation and implementation of a procedure which will allow the employees to evaluate and assess their performances and be assured that their evaluation will be undertaken in a fair and bias free manner (Smith, 2012). Other thing required is the development of an IT automated system which will make sure that this process is an ongoing activity and the concerned people should be provided accessibility to this document. It will be the responsibility of the manager to review the progress of their subordinates and give them support towards attainment of the objectives (Biron, Farndale & Pauuwe, 2011). Furthermore, the process should be viewed as an ongoing dialogue rather than a rating technique. Finally, there should be alignment between the individual’s objectives and the organisation’s strategic goals so that the employee’s efforts are valuable for the company in the long-term (Boon et al., 2011). Issues encountered by the organisations In the last few years, Performance Management system has attained high level of popularity because it has assisted organisations in undertaking a strategic HR planning process which allows them to maintain a competent team of employees. Since the external market environment is getting competitive, it has become crucial for the organisations to develop an excellent internal business structure. Therefore, all leading firms are allocating their funds in the development of the most valuable asset i.e. capable and competitive workforce (Toppo & Prusty, 2011). Almost all the organisations have realised that this aspect is crucial for thriving competitively in the dynamic business environment. Since it is evident that the performance appraisal process has to be changed to comply with the contemporary business world, it is important for the organisations to build a process which will meet their present as well as future human resource requirements. The main objective of the entire process is to create a prospective workforce which will support the company in attaining its long-term vision (Maley, 2013; Smith, 2012). Equally important for the global organisations is to address the diversity issue which is encountered in their international operations. As people come from different backgrounds, they possess their own set of beliefs, values and work behaviours. Hence, it is imperative for the firms to promote the individually developed performance management plan so that the employees can contribute with full potential (Aguinis, 2013; Toppo & Prusty, 2011). Even the managers are required to work with their subordinates when developing the Performance Appraisal plan so that they can be assured that their objectives are in alignment with the corporate level goals. Likewise, they have to act like a coach and encourage open communication so that employees can give their best performance on the job (Boxall & Purcell, 2011). It is mandatory to have two-way communication so that both the manager and subordinate are on the same grounds. Also, it allows the employees to seek assistance for any area of concern with ease (Bratton & Gold, 2012). Recently, it has been acknowledged that performance appraisal interview should be conducted in the process so that the employees are able to perform with excellence. Moreover, it is believed to be the most frequently performed communication on the job and is also viewed as a feedback process because it provides valuable insights to the employee about the performance level (Rowland & Hall, 2013). Also, it is an ongoing activity which supports an individual in keeping track of the direction undertaken for attaining the assigned objectives. Besides, it is a one-to-one communication between the supervisor and employee. During the entire appraisal period, the manager or appraiser has to make sure that adequate information is collected about the employee’s efforts so that the individual is assured that the evaluation is fair and justified. It even reinforces the tasks which have to be accomplished by the employee and any deviation are addressed beforehand so that the goals are effectively attained (Budworth & Mann, 2011). Thus, communication has to be clear, transparent and open so that the employees are provided accessibility to the required resources for carrying out their roles productively. Despite all the developments undertaken by the experts of the field, there are various challenges encountered by the practitioners of the Performance Management system. The main dilemmas arise because of the varying perceptions held by the employees, ineffectiveness of the existing appraisal system, lack of management commitment towards implementation of the new process and objective appraisal techniques (Armstrong, 2012; Boxall & Purcell, 2011; Smith, 2012). The major issues as depicted by Ahmad and Bujang (2013) and Prowse and Prowse (2009) which are faced by the contemporary organisations when they involve employees in the appraisal process are as follows: 1. Fairness of the decision – An employee wants evidence that the evaluation of performance is undertaken on fair grounds and there should be examples given to support the rating given by the supervisor or manager. Most of the appraisers have difficulty in undertaking the endeavour in appropriate manner. If the employee will sense that the evaluation is done on unfair basis, then it can lead to dissatisfaction which can hamper the performance of an employee. The managers have to identify those situations which can give explanation about the assessment decision. 2. Incompetence of the raters/supervisors/managers – Other factor which creates negative perception about the evaluation is the viewpoint that the supervisor/rater/manager is not proficient and lacks the skill of conducting performance appraisal process. If such concern is shown by the employee, then the individual will consider the evaluation to be unfair, bias and unreliable. Hence, open dialogue in the form of one-to-one communication has to be encouraged so that the employees have trust on the performance appraisal process. 3. Subjective evaluation – Since there is human element present in the entire appraisal process, there is strong evidence that the managers tend to rate the employees on subjective prejudices. Although the performance appraisal explicitly mentions that there will be no subjective element in the evaluation but most of the time the raters get carried away from the objective assessment. 4. Presence of quota system – Presently, in some organisations, the quota system is still implemented because only small proportion of the employees get increment in their salaries. Even if the employees will perform exceptionally well but they are not eligible for the reward because of the existence of such system. 5. Conflicts between the employee and employer – Now-a-days, the employees seem to be dissatisfied with the decision of the performance appraisal process despite their involvement. Even the conflicts arise among the employer and employee because they feel that they are not given fair and unbiased evaluation decision. 6. Alignment with organisational culture – The manager of international organisations have to be assured that they design the appraisal system according to the culture of the country. It will allow the corporations to ensure alignment between the corporate goals and individual level objectives. Conclusion Now-a-days, all the organisations have realised that they have to develop a competent, loyal, committed and proficient workforce which will assist them in surviving in the competitive business world. In order to support the corporations in developing of an efficient employee base, it is crucial to design and implement a strategic, comprehensives, focused and integrated Performance Appraisal system. Moreover, the process has to be built in such a way that it is an ongoing activity which reviews the employee’s performance continuously and provides them guidance on undertaking right course of actions. The matching model which was developed by Devanna, Fombrun and Tichy (1984) emphasised the need of aligning HR strategy, Organisational structure and organisation strategy in such a way that it enhances the company’s performance. Furthermore, there is immense requirement of creating proactive Performance Management system which will encourage the employees to undertake learning and development endeavours so that they can refine and polish their skills. Likewise, the organisations have to develop their infrastructures, processes and policies in a manner which will optimise the employee’s performance and allow them to employ their competent skills and capabilities in proficient manner. In addition to reviewing the employee’s performance, the managers have to take the responsibility of acting as coaches so that they can guide the individual in attaining the objectives effectively. Equally important is to demonstrate that the entire process is fair, bias free, objective and supportive of the individual’s developmental paradigm. In order to make sure that the performance appraisal process is in alignment with the contemporary business requirements, it is crucial for the organisations to identify the factors which can boost the morale of the employees. Moreover, there is a requirement of creating open communication channels so that the employees can seek assistance when required. The main factors which have contributed to the creation of such strategic and integrated Performance Management system is to tackle the biasness issues, eliminate the unreliability aspect of the process, conduct a transparent and fair evaluation of an employee’s performance and prepare the employees for future challenges. Additionally, the corporations have to be assured that this appraisal is an ongoing activity and the employees are given feedback on frequent intervals so that they can monitor their progress level. Moreover, when employees will develop their own performance appraisal process and get engaged in its designing, they will make sure that they are equipped with the complimentary set of capabilities. Also, they will have clarity about their role and contribution in the organisation’s enhanced performance. When they will view that they are being rewarded for their excellent performance and the appraisal process enhance their capabilities, they will be motivated and even will be willing to enhance the firm’s reputation in the market. Thus, it is imperative for the modern day organisations to move away from traditional HR practices to the contemporary ones so that they can attain the desired objectives successfully. 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Strategic Human Resource Management. 1st ed. London: OUP Oxford. Visser, M., 2010. Configurations of human resource practices and battlefield performance: A comparison of two armies. Human Resource Management Review, 20(4), pp. 340-349. Read More