Assignment

On
“Performance Management and Potential
Appraisal”

MASTERS OF BUSINESS ADMINISTRATION

Session 2019-2020

Submitted to: Submitted by:

Dr. Sandeep Kumar Sonu Sharma
Assistant Professor MBA Sem 2nd
Department of Management Roll No 190253
Studies,
PIET

PANIPAT INSTITUTE OF ENGINEERING &

TECHNOLOGY, SAMALKHA

AFFILIATED TO KURUKSHETRA UNIVERSITY,

KURUKSHETRA
Introduction
In a developing economy like INDIA, there is a need as well as challenge for organizations in
commercial, industrial and social services and all other sectors to be dynamic and
competitive. Dynamic and looking forward for organizations can only grow fast and
contribute to the nation’s economic development. While growing, very organizations need to
plan for their growth in order to avert the danger breakup. Planning for the human resources
of an organization is a significant aspect of corporate planning. Growing organizations
continue to add new structures that create new roles and it essentially necessitates the right
people to be deployed in those roles. Unless the right people are available to perform these
roles at the time of need, organizations’ growth will be at stake. In this context, human
resources planning become important in order to make sure that, the right types of people are
available to perform various tasks at a time when the organizations require it.

Human resource planning takes into consideration of the existing human resources of an
organization, their promote ability and the possibility of their development. In this process
crucial promotion decisions have to be made. To make these decisions prudent and ensure a
healthy climate in an organization, performance appraisal, performance management and
potential appraisal has become important.

CONCEPT AND DEFINITION OF PERFORMANCE MANAGEMENT

Performance management is a source of income justification. It is a tool used to determine an

employee’s wage based on his performance. Organizations use Performance management to
drive the employees’ behaviors to get specific outcomes. In today’s business world, the
human resource management has been introduced as an integrated approach to the
management and development of employees. It is posited as a strategic driver and has
changed the process of managing people to a very formalized and specialized one. Many of
the conventional performance appraisal methods have been absorbed into the concept of
performance management, that aims at a more extensive and comprehensive process of
management. Some of the recent developments in the field of Human Resource Management,
that have shaped performance management are the talent management, differentiation of
employees or management by objectives and constant monitoring and review. Though the
process is not easy, rather is much complicated, now-days performance management has been
given a lot of importance, as more and more companies incorporate these as effective
management strategies.

Performance Management (PM) is a term coined by Dr. Aubrey Daniels in the late 1970s to
describe a science imbedded technology in applications methods for managing behavior and
results. It includes all the activities that ensure consistent achievement of goals in an effective
and efficient manner. Performance management can focus on the performance of an
organization as a whole, a department or an individual employee. Even, it can also focus on
the processes to build a product or service, as well as many other areas. Generally, a
performance management system includes the following actions.

 Developing a clear job description

 Selecting right people with proper selection process

 Negotiating requirements and accomplishment-based performance standards, outcomes,

and measures

 Making provisions for effective orientation, education, and training

 Providing on-going coaching and feedback

 Conducting quarterly performance development discussions

 Designing reinforced compensation and recognition systems that reward people for their
contributions

 Providing promotional avenue and career development opportunities for staff

 Assisting with exit interviews to understand the reason for which valued employees leave
the organization.

Principles of performance management

 It helps to clarify corporate goals and translates it into individual, team, department
and divisional goals.

 It is a continuous and evolutionary process, in which performance improves over

time.

 It relies on consensus and co-operation rather than control or coercion.

 It creates a shared understanding of what is needed to improve performance and how

it will be achieved.

 It encourages self-management of individual performance.

 It requires a management approach that is open and honest and encourages two-way
communication between superiors and subordinates.

 It requires continuous feedback that enables the individuals to gain on the job
experiences and knowledge to modify corporate objectives.

 It measures and assesses performance against jointly agreed goals.

 It applies to all employees and is not primarily concerned with linking performance to
financial reward.

Importance of Performance Management

1. Help working towards common goals

People at workplaces are usually caught up with daily routine work. As a result of
which the purpose of an organization is forgotten many times. Performance
management make the people understand and remember that, Individual performance
drives organizational performance. It ensures that, everyone understands
organizations vision and goals. It helps them to understand how their work fits into
and contribute to organizations mission accomplishment. This practice increases
employee engagement and improves delivery.

2. A clear understanding of job expectations

Performance management set clearly defined specific job duties for all the employees.
When the employees and supervisors have a clear understanding of it, ambiguities in
the workplaces are reduced or may be eliminated. Each and every individual remain
accountable for their own duties and responsibilities. Performance management
empowers an individual to think about and clarify his own role in the organization by
setting clear goals and expectations. A balanced credible employee performance plans
must be designed to get the desired result. While measuring expected results, the
performance plans measures quality, quantity, timeliness, and cost effectiveness. To
be credible, performance expectations must be based on proper job analysis. It must
be very clear, specific, and understandable, reasonable and attainable, measurable,
observable or verifiable, and results oriented. More importantly, it must be
communicated to the concerned employees in timely manner and foster continual
improvement in productivity.

3. Regular performance feedback

Regular feedback facilitates better and clear communication in the workplace.

Performance management helps people to identify their strengths and weaknesses. It
provides opportunities to be heard and exchange views and opinions. Most
importantly, performance management gives a better understanding of how an
individuals’ performance is being assessed and monitored. This builds employees’
confidence and adds to their contribution in the workplace. Performance management
can be a motivational tool by fostering an individual’s job satisfaction to perform at
his peak level. Performance feedback process facilitates the exchange of dialogues
between supervisors, managers and employees. Performance management is a
continuous and changing ever process. It reflects and measures the work performed
by the employees.

4. Helps in improving performance

Performance Management can help in identifying ways to improve performance and

provides the opportunity to discuss career direction and prospects. It presents the
opportunity to plan for and set objectives to further develop one’s career. Performance
Management helps in gaining any additional training or mentoring which can act as a
basis for developing future succession plans.

5. Rewards for good performance

Outstanding efforts should not go unnoticed. Performance Management offers a
variety of awards such as time off, and bonuses and so on. that show gratitude for a
job well done. Fully Successful performance appraisal provides incentives to the
employees to perform well and may open the door to career advancements in the
future. Moreover, performance management is about increasing performance.

Benefits of Performance Management

a) Linked to Organizational Performance

If Performance management is implemented correctly with specific objectives and

linked to the strategic and operational plan, organizational performance outcome is
supposed to increase. For example, increase in profit objective would be cascaded
down to every department, team and individual. People who are successful in
achieving this objective will get a favorable review. Those could not able to achieve
get an unfavorable review. Therefore, the process of Performance Management drives
organizational performance outcomes. Employees who achieve the organizational
goals are rewarded with favorable reviews and bonuses in line with their performance
and contribution to the organization.

b) Lower Stress

The employees and managers of an organization communicate more frequently and

agree on changed objectives to suit continuing changes in conditions and priorities.
This ensures an inclusive and collaborative process and entails that the employee has
his own input and work to specific and relevant objectives lowering the level of stress.

c) Increases levels of confidence

Where there is a structured performance management system that is communicated

well in advance, employees and managers enter into the process with high degree of
confidence. Employees are assessed on the basis of achievement of objectives that
have been clearly spelled out and agreed to. Managers have a better framework to
assess employees’ performance as they know well the criteria on which employees are
to be assessed. The outcome is that both individuals have an informed discussion that
raises confidence and reduces stress and both parties know they can have a content
rich and factual discussion about performance and focus on achievement of both
personal and business objectives, not on issues that are not relevant.

d) Focus on performance

Performance management reviews performance more frequently, the discussion focus

on performance of objectives rather than being dominated by the employees’ needs.
Emotionally charged discussions tend to be displaced by business focused discussions
on achievement of objective outcomes.

e) Aligned to the corporate plan

As expectations are modified with the introduction of performance management

system, most organizations switch to defined performance periods. The strategic and
operational objectives are set at the beginning of the performance period. Formal
performance reviews are then conducted quarterly or half yearly that enable
management to direct and fine tune efforts in relation to the objectives.

f) High Visibility

By performing frequent Performance Reviews, visibility is increased dramatically.

Areas of nonperformance receive much more focus and attention and problems can be
acted upon much quicker. Most Performance Management systems provide reporting
as to which departments and individuals have or have not achieved their objectives.

g) Planning

By reviewing more frequently, all managers and staff plan and execute well thought
out objectives which results in better resource management, less firefighting and
enables managers to work on the business.

h) Human Capital Development

As performance management systems require that managers and employees commit

to a development Plan, employees experience real personal development and become
more engaged with the organization. They feel part of the organization and start to
understand that they and the organization are interdependent. The organization is
developing the employees and the employees are working towards developing the
organization by achieving its goals.

i) Compliance

Moreover, since the objectives setting and development plan for employees is well
thought-out. Employees see real planning, are involved in setting meaningful
objectives and have input into personal development plans which benefit both
themselves and the organization as well. In all, this result in more engaged workforces
committed to achieving real outcomes for the organization.

j) Performance appraisal VS Performance management

The terms 'performance management' and 'performance appraisal' are sometimes used
synonymously, but they are different. Performance management is a comprehensive,
continuous and flexible approach to the management of organizations, teams and
individuals which involves the maximum amount of dialogue between those
concerned. Performance appraisal is a more limited approach which involves
managers making top-down assessments and rating the performance of their
subordinates at an annual performance appraisal meeting.

Potential Appraisals

Potential appraisal is a powerful tool of employee development. Potential Appraisal is

the process of tracking unrevealed talent, skills and abilities in a person which even
he/she is unaware of. It is a future oriented appraisal; whose main objective is to
identify and evaluate the potential of the employees to rise up in the organizational
structure. Managers use it as predictors to determine whether the employee has the
potential to execute added responsibilities in the future, therefore is a potent device
for employee advancement. It is a future – oriented appraisal. Potential appraisal helps
to identify what can happen in future so that it can be guided and directed towards the
achievement of individual and organizational growth and goals. Many organizations
consider and use potential appraisal as a part of the performance appraisal processes.
Potential appraisal data is extremely useful for career panning, as the latent abilities of
an individual can be captured and linked with the future role and responsibilities.
Potential appraisal may thus be defined as a process of determining an employee’s
strengths and weaknesses with a view to use this as a predictor of his future
performance. This would help in determining the promotability of an individual to a
higher position and chalk out his career plan. Most organizations incorporate potential
appraisal in their appraisal processes for identifying and developing suitable employee
base for succession planning.

The fundamental difference between reviewing performance and assessing potential is

in the criteria used. In reviewing performance, the criteria used is what goals the
employee achieved and what skills he or she currently possesses that could be
indicators of his or her ability to assume different or more advanced responsibilities.

Purposes of Potential appraisal:

o To advise employees about their overall career development and future

prospects

o Help the organization to chalk out succession plans

o Motivate the employees to further develop their skills and competencies.

o To identify the training needs

Techniques of potential appraisal:

o Self – appraisals

o Peer appraisals

o Superior appraisals

o MBO

o Psychological and psychometric tests

o Management games like role playing

o Leadership exercises etc.

Characteristics of potential appraisal

 Reviewing performance forms the basis of potential appraisal -- Performance review
of employees is assessed on the basis of the targets accomplished and the skills
possessed and utilized. The results act as indicators on the candidates’ aptitude to
manage extra functions. However, this is not a fool proof way of knowing whether
added responsibilities will be handled successfully in future. This makes potential
appraisal important.

i. Potential Appraisal cannot be applied to all in the same level

There are people in the organization who have potential but who do not perform due
to attitudinal problem. If they are promoted to higher designations then it becomes a
problem for the employees as well as for the company. Dealing with workhorses too
could be tricky. They can perform very well on routine tasks but have limited
potential. Hence, if promoted, they are unable to perform higher level jobs. To
conclude ‘stars’ are ideal people to have in organizations. But retaining these stars
could be difficult. They have high potential backed by high levels of performance and
could be always on the lookout for greener pastures. Thus, as we see, potential
appraisal is more intricate and complex vis-à-vis performance appraisal.

ii. The time for a potential appraisal is not fixed

It is under the discretion of the manager to hold the assessment activity. Unlike
performance review, it does not happen at a particular period in every organization.
The managers generally exercise it when an employee achieves a certain milestone, or
completes a year or is planning to change jobs for whatever reasons. Usually it is
recommended to take place within 6 months.

Potential appraisals commence and end with a meeting between the two parties.

In the first meeting the manager can list the abilities required to deliver additional
tasks. He/she can recommend various ways to attain them – in-house training
programmers, external workshops, etc. The latter meeting usually happens after six
months and can be a review to test whether the skills have been rightly acquired or
not. During the observation time the manager is supposed to note the various abilities
adopted and used by the candidate in work and the improvement areas. They can then
chalk out a plan to chase the potential and taste growth in the organization.

Potential appraisal does not ensure promotion.

 Normally, companies do it to facilitate the growth of an individual. The

companies can use the results of such an assessment for –

 Recommending a growth plan that shows a bigger picture to the employees.

 Infusing enthusiasm in the employees to sharpen their abilities.

 Depicting about the training requirements of the employees.

 Drawing a succession plan for future.

PERFORMANCE COUNSELLING

The performance counselling can be defined as the process of helping an employee to

analyze his related job performance and performance outcomes over a predetermined
period. It identifies the ways and extent to which he and factors other than him are
responsible for the performance outcomes. Such an analysis results in identifying
ways and means of improving the effectiveness of the counselee for the next
performance period. Performance counselling is a dynamic process that focuses and
aims at strengthening the "counsellor- counselee" relationships and helping the
counselee to improve his effectiveness. Primarily, the counselling techniques are
primarily used to help employees deal with personal problems that may interfere with
the achievement of these goals. It may encompass issues such as substance abuse,
stress management, smoking cessation, or fitness, nutrition and weight control. A
survey conducted by the center for HRD at XLRI, Jamshedpur, reveals that out of 53
organizations 41 require their executives to counsel their subordinates. 27 of these 41
require their executives to counsel their subordinates as often as they need. 32 percent
of 41 required their executives to counsel their subordinates once a year. This survey
entails that there is a demand of performance counselling as part of corporate life.
However, counselling is becoming a part of the executive life more on paper than in
practice except few organizations like Larsen and Toubro Ltd, and State Bank of
India, where executives are continuously trained to have a performance review and
counselling skills and required to have discussions with their subordinates.

Performance counselling can be defined as the help provided by a manager to his

subordinates in analyzing their performance and other job behaviors in order to
increase their job effectiveness. Essentially, it focuses on the analysis of performance
on the job and helps in identifying training needs for further improvement.
Performance Counselling is a crucial activity that helps employees to know
themselves, their strength and weaknesses and their bosses better. Performance
counselling helps the counsellor and the counselee to understand themselves, each
other and their environment better and thereby contribute to their individual and joint
effectiveness. Since providing performance related feedback is an important
component of performance counselling, it accelerates:

 Improvement in performance

 Acquisition of skills

 Changes in behavior

 Overcoming personal shortcomings

 Conditions for effective counselling

Climate of openness and trust: A climate of reasonable degree of trust, confidence and
openness is inevitably essential for effective counselling. Counselling cannot be
effective if the subordinate does not trust his supervisor.
Empathetic attitude of Management: Effective counselling encompasses with a
general helpful a d empathetic attitude of counsellor towards counselled.

Uninhibited Participation by subordinates: It is necessary that the subordinate should

feel free to participate without fear or inhibition as it is a dialogue between supervisor
and subordinate and hence should be a two-way communication eventually
strengthening dyadic relationship.

Mutual goal setting: performance counselling focuses on the counselee’s achievement

of the performance goals that have been set both by the employee and his reporting
officer. Without Joint participation and collaboration in goal setting as well as in
performance review, counselling does not achieve its purpose.

Focus on work-oriented behavior: performance counselling is helpful, if the focus is

kept on work related behavior and preventing the attention into various other personal
and personality problems.

Focus on work related problems and difficulties: performance counselling is not

related only to the achievement of goals, but also the contextual problems in
achieving or not achieving the goals. Analysis of performance ought to be the basis of
counselling.

Avoidance of discussion of salary and other rewards: performance counselling may

not serve its purpose if it includes discussion about salary raise, rewards, etc.

Performance counselling must be periodic, comprehensive and planned.

The basic purpose of counselling is employee development. It is an educative process

that should lead to the development of counselee as well as the counselled.

Performance counselling is to be taken seriously and must be followed up during

post-performance counselling period.

Performance Counselling Phases

Rapport Building: This step is very necessary as it generates the necessary confidence
in the subordinate and assures him of his superior’s genuine interest in helping him. In
the rapport building phase, a good counsellor attempts to establish a climate of
acceptance, warmth, support, openness and mutuality that facilitate the employees to
open up frankly, share his perceptions, problems, concerns, feelings etc. The
subordinate must be made to feel wanted and that his superior is genuinely interested
in his development.

Exploration: During this stage the counsellor puts to the subordinate’s various
questions, which may elicit elaborate information on the latter’s achievement,
strengths, failures and short comings. The object is to make the subordinate himself to
introspect and define his strengths and weaknesses. Questions are asked that help the
employees focus on his problem since problem identification is a critical step in
planning for improvement. To help the employee make a correct diagnosis of the
problem, open-ended questions may be asked. For example, if an employee’s problem
is that others do not co-operate with him, the counsellor may narrow down the
problem to the employees’ interpersonal relationship with other individuals then help
the employee understand what he does or says to his colleagues which is making it
difficult for him to win their co-operations.

Action Planning: Counselling interviews should end with specific plans of action for
development of the employee. The main contribution of the superior in this phase is in
helping the employee think of alternative ways of dealing with a problem. For
example, in case of an employee whose relationships with colleagues are poor, the
superior may suggest "What three things could he do in the coming week in order to
improve his relationship with X?" After helping the employee brainstorm, the
superior may also add more alternatives to the solutions already generated. Finally,
the superior may render some assistance in helping the employee implement the
agreed upon action plan. Often good counselling sessions fail to produce effective
results due to lack of follow up.

Processes in Performance Counselling

Feedback: It is extremely important that the feedback is communicated in a manner

that produces a constructive response in the subordinate. Feedback should be
descriptive and non- evaluative. It must focus on the behavior of the person rather
than on the person himself. The intent should be clear to the employee so that, some
specific behavior is being rejected or criticized not the employee as an individual. To
convey feedback, it is generally desirable to back it up with few examples of actual
events. Care must be exercised so that subordinate will not misinterpret it that the
superior is systematically building up a well-documented case against him. Feedback
should be given at the first opportunity when the employee is in the receptive mood
and most importantly feedback should be given continuously so that the subordinate
develops an ability to accept and act upon the feedback and moreover feedback
should be checked and verified.

Pre-Interview Preparation: In the context of mutually agreed upon job responsibilities,

the employee’s background, education, training and experiences is reviewed during
pre-interview preparation phase. The strengths and development areas of employees
that need to be discussed with the employee as well as the areas that need attention
during the next review period are identified. The employees must have sufficient
advance notice for the interview so that they can have enough time for their
preparation.

Interview

It must be informal and friendly. The purpose of the discussion should be

communicated with utmost clarity. The employee too must be encouraged to appraise
his own performance and tell his own plans so that suggestions for his development
can be provided easily with a follow-up action.

Performance Metrics
A performance metric is a measure of an organization's activities and performance.
Performance metrics should support a range of stakeholder needs from customers,
shareholders to employees. A metric is nothing more than a standard measure to
assess one’s performance in a particular area. Metrics are at the heart of a good,
customer-focused process management system and any program directed at
continuous improvement. The focus on customers and performance standards show
up in the form of metrics that assess one’s ability to meet customers’ needs and
business objectives. Traditional performance measures, such as profit performance,
return on investment or earnings per share, provide reasonable estimates of whether a
company achieves its ultimate goals of making profits, but do not reveal how the
business achieves this position. However, performance metrics professionals choose
measures that have little value, which is referred as the "measurement inversion". For
example, metrics seem to emphasize what organizations find immediately measurable
even if those are low value and tend to ignore high value measurements simply
because they seem harder to measure whether they are or not. To correct for the
measurement inversion, "value of information analysis" needs to be introduced in the
process so that metrics can focus on high-value measures.

Effective Performance Modelling

An effective performance model is one which allows senior management to be

confident that the end results are not guess work but a summation of all the different
activities and process, given an attainable standard of performance. The requirements
of such model are as follows:

Relevant relationships: Process and activity metrics must form a chain of co-relations
leading to the ultimate end results of enhancing profits, brand equity and market
valuation.

Measurability: Data for the Metrics can be accurately collected in a timely manner
without undue cost.

Comprehensible: It must be easy to understand and impact on the effectiveness of

other process and the end results.

Actionable: It must be actionable with a set of corrective actions.

Motivating: It must be motivating, make people to act positively.

Automation complaint: Data collection and analysis should be automated so that

employees do not have to be diverted from their main activity into Data collection and
analysis.

Summary

Performance appraisal, potential appraisal and performance management reinforces

HRP in an organization. In this era of technological change, global competitiveness,
organizations are constantly required to renew and update skills of their people or else
they are likely to encounter the problems of manpower obsolescence, which among
others, will call for downsizing or rightsizing. While performance appraisal addresses
the skill gap.