Performance Management Systems and Strategies by Dipak Kumar Bhattacharyya

PERFORMANCE MANAGEMENT
SYSTEMS AND STRATEGIES
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SYSTEMS AND STRATEGIES
Dipak Kumar Bhattacharyya

Director
Camellia School of Business Management
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Copyright © 2011 Dorling Kindersley (India) Pvt. Ltd.
Licensees of Pearson Education in South Asia
No part of this eBook may be used or reproduced in any manner whatsoever without the publisher’s prior
written consent.
This eBook may or may not include all assets that were part of the print version. The publisher reserves
the right to remove any material present in this eBook at any time.
ISBN 9788131754221
eISBN 9789332501065
Head Office: A-8(A), Sector 62, Knowledge Boulevard, 7th Floor, NOIDA 201 309, India
Registered Office: 11 Local Shopping Centre, Panchsheel Park, New Delhi 110 017, India
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Dedicated to Tapodeep, Sudip and Sutapa,
the three masterminds who always monitor my performance.
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Contents
Preface xxi
About the Author xxix
CHAPTER 1 Introduction to Performance Management 1

Introduction 2
History of Human Resource Management Function 2
Process of Development in India 5
Human Resource Development As a Separate Personnel Discipline 5
Performance Management As an HRD Function 6
Job Description 6
Standards of Performance 7
Observation and Feedback 7
Performance Appraisal 7
Performance Development Plan 7
Performance Management Through Continuous Learning 8
Definitions and Concepts of Performance Management 8
History of Performance Management 9
Performance Management As a Management Tool 10
Philosophy of Performance Management 11
Overview of Performance Management 12
Performance Objectives and Standards 13
Performance Objectives and Standards—Comparative Analysis
of Advantages and Disadvantages 14
Characteristics of Performance Objectives 14
Some Examples of Performance Objectives 15
Points to Be Considered for Developing Performance Objectives 15
Standards of Performance 15
Relating Performance Standards to the Hierarchical Level 16
Checklist for Performance Standards 17
Benefits of Performance Management 17
Process of Performance Management 18
Performance Domains 19
Performance Dimensions 20
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viii Contents
Teamwork Dimensions 20
Performance Ethics 21
Summary 21
Key Words 22
General Review Questions 22
Critical Review Question 23
References 23
Further Reading 24
Case Study on Performance Management Systems 24
Case Study 26
CHAPTER 2 Performance Planning 30

Introduction 31
Performance Planning Process 31
Development and Contents of a Performance Plan 33
Performance Planning Steps 36
Process of Developing Employee Performance Plans 36
Eight-step Model of Elements and Standards of a Performance Plan 37
Step 1: Understand the Overall Picture 37
Step 2: Identify the Accomplishments at the Work Unit Level 37
Step 3: Identify Individual Accomplishments and Their Integration
with the Work Unit Goals 37
Step 4: Convert Expected Accomplishments into Performance Elements,
Duly Mentioning Their Type and Priority 37
Step 5: Determine Work Unit and Individual Measures 38
Step 6: Develop Work Unit and Individual Standards 38
Step 7: Determine How to Monitor Performance 38
Step 8: Check the Performance Plan 38
Preparing the Performance Development Plan 39
Transition from Individual Performance Plan to Group Performance Plan 40
Performance Plan and Role Clarity 42
Role Descriptions Template 43
Creating Strategic Plans and Their Alignment with the Performance Plans 44
Strategy Realization: Essential Elements Through Performance Plans 46
Summary 48
Key Words 48
References 50
Further Reading 50
Case Study 51
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Contents ix
CHAPTER 3 Performance Appraisal 53

Introduction 54
Definitions 54
Role of Appraisals in Performance Management 55
Process and Methods of Performance Appraisal 55
Purposes of Performance Appraisal 56
Importance of Performance Appraisal 58
Objectives of Performance Appraisal 58
Reasons for Failure of Performance Appraisal 58
Steps to Performance Appraisal 59
Characteristics of an Appraisal System 59
Performance Appraisal Design 59
Approaches to Performance Appraisal 61
Types and Methods of Performance Appraisal 61
Traditional Methods 61
Straight Ranking Method 61
Paired Comparison Techniques 61
Man-to-Man Comparison 62
Grading Method 62
Graphic or Linear Rating Scale 62
Example of Graphic Rating Scale 63
Forced Choice Description Method 64
Forced Distribution Method 64
Checklist Method 65
Free Easy Method 65
Critical Incident Method 65
Work Standard Approach 65
Group Appraisal Method 66
Field Review Method 66
Modern Methods 66
Appraisal by Results for Management by Objectives 66
Advantages 67
Disadvantages 67
Steps Followed in MBO Implementation 68
Assessment Centre Method 68
Human Asset Accounting Method 69
Behaviourally Anchored Rating Scales (BARS) 69
Behavioural Observation Scales (BOS) 70
Mixed Standard Scales 70
Behavioural Checklist Method 71
The 360-degree Appraisals 72
Potential Appraisal 73
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Techniques of Potential Appraisal 74

Components of the Appraisal Format 74
Dimension of Personal Attributes 74
Biases in Performance Appraisal 75
The Halo and Horn Effect 76
The Leniency Error 76
The Error of Strictness 76
The Central Tendency Error 76
The Recency Effect 77
The Contrast Error 77
The Similarity Effect 77
Reducing Performance Errors 77
Diagnosing Poor Performance 78
Improving Motivation 78
Summary 79
Key Words 79
References 90
Further Reading 91
Case Study—1 92
Case Study—2 94
CHAPTER 4 Performance Management Review 95

Introduction 96
Top of Form 96
Definition 96
Scope of Performance Review 97
Types of Performance Review 98
Performance Review Meeting 98
Steps in Performance Review 99
Before the Performance Review 99
During the Performance Review 99
After the Performance Review 100
Benefits of Performance Review 100
Structured Performance Review Process 101
Performance Counselling 102
Conditions for Effective Performance Counselling 103
Different Phases of Performance Counselling 103
Performance Counselling Process 104
Counselling Interview 104
Summary 108
Key Words 108
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Contents xi

Further Reading 109
Case Study 110
CHAPTER 5 Performance Management Systems 111

Introduction 112
Importance of PMS 113
Features of PMS 113
Focus on Objective Setting 114
Systems for Review of Objectives 114
Developing Personal Improvement Plans 114
Training and Development 114
Ensuring Formal Appraisal with Feedback 114
Compensation Review 114
Developing Competence-based Organizational Capability 115
Process of Building PMS 115
Dimensions of PMS 115
Output or Result Dimensions 115
Input Dimension 116
Time Dimension 116
Focus Dimension 116
Conceptual Framework of PMS 116
PMS and Organizational Strategy 117
Organizational and Social Perspectives of PMS 117
Performance Consulting 118
Role of Performance Consultants 119
The Four Pillars of PMS 120
Performance Management Theatre 121
Annual Stock-taking of Performance 121
E-performance Management 122
Performance Prism 123
Summary 123
Key Words 123
References 124
Case Study 125
CHAPTER 6 Strategic Performance Management 127

Introduction 128
Definition 130
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Evolution of Strategic Performance Management 130

Characteristics of SPM 131
SPM and Generic Strategies 131
Performance and Strategy Linkage 133
Reward Practices 133
Firm Performance 133
Purpose of Performance Management Strategy 134
The Process of Performance Management Strategy 134
Components of Strategic Performance Management Process 135
Strategy and Performance Management Cycle 136
Dimensions of Linkage Between Individual Performances and Strategy 137
Benefits of SPM 137
Advantages of SPM 139
Disadvantages of SPM 139
SPM and the Balanced Scorecard 141
SPM and Metrics 141
SPM for Environmental Threats and Risks 142
Summary 142
Key Words 143
Further Reading 144
Case Study 147
CHAPTER 7 Competency-based Performance

Management Systems 149
Introduction 150
Managerial Skills and Competencies 150
Skill Inventories 152
Multi-skilling 152
Skills for the New Millennium 152
Developing Competencies for Effective Performance Management 153
Types of Competencies 154
Competency Characteristics 155
Competency Identification and Assessment Process 156
Steps of a Competency Identification Process 158
Steps to Introduce Competency-based System 158
Advantages of a Competency-based Approach 159
Developing Competency Models 159
Examples of HR Competencies 160
Competency-based Performance Management Systems 161
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Contents xiii
Essential Elements of Performance-based Competency 162

Competency Dictionary 164
Summary 165
Key Words 165
References 166
Case Study 167
CHAPTER 8 Performance-based Compensation 169

Introduction 170
Definitions 170
Various Concepts of Compensation 171
Determining Compensation Through Job Evaluation 171
Incentive Schemes 172
Performance-related Compensation Design 173
Benefits of Performance-based Compensation 174
Performance-related Pay 175
Problems in Monitoring the PRP 176
Selection of Appropriate Performance Appraisal Tools 176
Perceptual Differences Between the Managers and the Employees 177
Lack of Participation of Employees in Designing PRP 177
Compensation Broadbanding Using PMS Results 177
Compensation Design Through Skill-based Programmes 177
Major Obstacles to the Introduction of Skill-based Pay 178
Application of Skill-based Pay 179
Competency-based Pay 179
Obstacles in Introducing Performance-related Pay 179
Performance Guide Charts 180
Use of Performance Criteria for Designing Executive Compensation 180
Calibration of Executive Compensation to Performance 180
Performance Measurement in Executive Incentive Programmes 181
Summary 183
Key Words 183
References 184
Case Study 185
CHAPTER 9 Performance-based Career Planning,

Career Development, and Succession Plans 187
Introduction 188
Definitions and Concepts 188
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Important Elements of Career 188

Meaning and Overview of Career Development 189
Importance of Career Development 189
Significance and Advantages of Career Development 190
Purposes and Objectives of Career Development 191
Types of Career Development Programmes 191
Difference Between Career Development and Career Planning 191
Difference with Manpower Planning 192
Difference with Succession Planning 192
Different Stages or Cycles of Career Development Process 193
Exploratory Stage 193
Establishment Stage 193
Maintenance Stage 193
Stage of Decline 194
Issues in Career Development Process 194
Exploratory Stage 194
Establishment Stage 194
Maintenance Stage 194
Decline Stage 195
Career Anchors 195
Managerial Competence 195
Technical/Functional Competence 196
Security and Stability 196
Creativity and Challenge 196
Freedom and Autonomy 196
Other Anchors 197
Career Development and Employee Empowerment 197
Issues Involved 197
Indian Scenario 198
Career Planning and Career Development Process 198
Integration of Career Development Process with Career Stage
and Family Issues 198
Developing Career Paths Compatible with Changing Needs 199
Steps of Career Planning Process 199
Preparing Personnel Skills Inventories 199
Developing Career Paths 200
Put the Right Man at the Right Place 201
Impart Training 202
Review and Counsel 202
Succession Planning 202
Steps of Succession Planning 202
PMS Career Planning, Career Development, and Successful Planning 203
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Contents xv
Summary 203
Key Words 204
Further Reading 205
Case Study 206
CHAPTER 10 Team Performance Management 208

Introduction 209
Definition and Concepts 210
Principles of Team Performance Management 211
Types of Teams 212
Approaches to Change Team Behaviours 212
Work Wheel and Team Performance 213
Advising 213
Innovating 214
Promoting 214
Developing 214
Organizing 215
Producing 215
Inspecting 215
Maintaining 215
Linking 215
Measuring Team Performance 215
Managing Team Performance 216
Different Stages of Teamwork 216
Team Building Exercises 218
Objectives of T-group 218
Benefits of T-group Training 218
Role Analysis 219
Summary 220
Key Words 220
References 221
Case Study—1 222
Case Study—2 224
CHAPTER 11 Performance Measurements Through

Balanced and HR Scorecards 226
Introduction 227
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Different Perspectives of Balanced Scorecard 228

The Learning and Growth Perspective 228
The Business Process Perspective 229
The Customer Perspective 229
The Financial Perspective 229
Benefits of the Balanced Scorecard 230
HR Scorecard 230
The HR Scorecard Approach 231
Process of Developing the HR Scorecard 231
Benefits of the HR Scorecard 233
Need for Implementation of Balanced Scorecard and
Balanced HR Scorecard 233
Summary 235
Key Words 235
References 236
Case Study 236
CHAPTER 12 Performance Management and Mentoring 238

Introduction 239
Characteristics of Mentoring 240
Mentoring and Coaching 240
Benefits of Mentoring 242
Types of Mentoring 242
Foundations of a Mentoring Programme 243
Ethical Guidelines for an Effective Mentoring Programme 243
Culture of Mentoring 244
Executive Mentoring 245
Summary 245
Key Words 246
References 247
Case Study 248
CHAPTER 13 Performance Measurement 249

Introduction 250
Measuring Performance 251
Measurement Quality 252
Selection of Performance Measurement Criteria 252
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Integrated Performance Measurement Systems 253

Statistical Methods of Performance Measures 253
Use of Control Charts for Measuring Performance Variation 254
Control Charts for Measuring Performance Attributes 254
Performance Measures Through Ranking and Rating 256
Management-by-Objectives (MBO) 257
Behaviourally Anchored Rating Scales (BARS) 257
The Mixed-Standard Scale (MSS) 257
Behavioural Observation Scales (BOS) 258
Ranking Systems 258
Comparing Job Performance Rating Systems 259
Multiple Raters/360-degree Feedback 259
Scales for Evaluation of Performance Measures 259
Performance Matrix and Models 260
Shingo Prize Model 260
EFQM Model 262
Malcolm Baldrige Criteria for World-class Performance 262
General Performance Measures 263
Developing Specific Measures 263
Deciding the Performance Standards 263
Annual Stock-taking of Performance 264
Performance Metrics 264
Key Performance Indicators (KPI) 264
Performance Measures Through Productivity Metrics 266
Summary 269
Key Words 269
Further Reading 271
Case Study 272
CHAPTER 14 International Performance Management 274

Introduction 275
Structure and Strategy of International Performance Management 277
Expatriates’ Performance Management 277
Effect of Culture 278
Influences on Performance Appraisals 279
Performance Management in International Assignment 279
Globalization and International Performance Management 280
Compensation and International Performance Management Practices 281
Appraising Performance 282
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International Performance Management Practices 283

Summary 284
Key Words 285
References 286
Case Study 288
CHAPTER 15 Performance Audit, Human Resource Valuation,

Accounting, and Audit 290
Introduction to Performance Management Audit 291
Scope of Performance Management Audit 291
Differences Between the Performance Audit and Financial Audit 292
Checklist of Performance Audit 293
Structure of Performance Audit 293
Steps in Performance Audit 294
Methods and Techniques of Performance Audit 295
Performance Data Reliability Audit (DRA) 295
Human Resource Valuation, Accounting, and Audit 296
Various Methods of Valuating Human Resources 298
Non-monetary Measurement 298
Monetary Measurement 298
HR Audit 299
Objectives of HR Audit 299
Job/Role of HR Auditor 300
Importance of HR Audit 300
Records Used for HR Audit 300
Methods and Techniques of HR Audit 301
Checklists for HR Audit 301
Human Resource Records 301
List of Personnel Records 302
Recommendations for Personnel Record Keeping 304
Use of Human Resource Information System (HRIS) for
Maintaining Personnel Records 304
Scope of HR Audit 305
Purposes of HR Audit 306
Human Resource Management (HRM) 306
HR Information Systems (HIRS) 306
Audit of the Service Role of HR 307
Audit of the Compliance Role of HR 307
Audit of the Strategic Role of HR 307
Audit of the Financial Management Role of HR (Financial Ratios) 307
Benefits of HR Audit 309
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Contents xix
Summary 309
Key Words 310
References 311
Case Study 311
CHAPTER 16 Ethical and Legal Issues of

Performance Management 314
Introduction 315
Ethical Perspective in Performance Appraisal System 317
Objectives of Performance Management Ethics 318
Code of Ethics and Code of Conduct 319
Benefits of Code of Ethics 319
Benefits of Ethical Practices in Organizations 320
Implementing Code of Ethics in the Workplace 321
Ethical Dilemma in Performance Management 321
Legal Aspects of Performance Management 322
Summary 326
Key Words 326
Concept Review Questions 326
References 327
Case Study 327
CHAPTER 17 Contemporary Issues in Performance

Management 330
Introduction 331
Business Process Reengineering—Concepts and Definitions 332
McKinsey 7S Framework 333
Toyota Production System (TPS) and Lean Management 334
Andon 335
Genchi Genbutsu 335
Heijunka 335
Hoshin 335
Jidoka 335
Jishuken 336
Just-in-Time 336
Kaizen 336
Nemawashi 336
Pokayoke 336
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Performance Improvement Through Quality Management Practices 336

Performance Improvement Through Quality 337
Cost of Quality 337
Quality Management Principles 338
Teamwork Through Quality Management 338
Employee Empowerment 339
Quality of Work Life (QWL) 339
Performance Improvement Through Six-sigma Practices 340
Six-sigma Implementation 341
Performance Improvement Through Innovation and Creativity 344
Quick Response Manufacturing (QRM) 344
Summary 345
Key Words 345
Concept Review Questions 346
References 346
Case Study 347
Index 349
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Preface
Among all human resource management functions, today, performance management is considered the
most crucial, as only through this developmental function, an organization can sustain in the long run.
Moreover, performance management systems provide essential inputs to organizations to take crucial
HR decisions, and also help organizations to align their business goals with the performance of the
people. Understanding performance management systems and strategies, therefore, has now become
important for management students (specializing in HR) and HR professionals.
Against this backdrop, the objective of this book is to develop skills and competencies of HR students
and professionals to understand the nitty-gritty of performance management systems and strategies. This
book intends to provide extensive theoretical knowledge with practical overtones to the students, and
application-based knowledge to the professionals to help them successfully implement performance
management systems and strategies. With such comprehensive knowledge and practical skills, HR stu-
dents would be able to develop their capabilities as future managers to manage performance in any orga-
nization. As managers, HR students will be able to derive maximum advantage to successfully develop
the people of the organization through effective feedback and by adopting appropriate strategies to align
the people with the business of the organization. They would be able to effectively measure and rate
the performance of the people and scientifically base their strategic HR decisions like promotion and
rewards, training designs, sustaining an environment of motivation and effective work culture for mutual
benefit of the people and the organization, etc. Organizations also in the process can emerge as winners in
a competitive environment. Successful performance management practices in organizations, apart from
nurturing a motivating work culture, bring in effectiveness, efficiency, quality, productivity, innovation
and profitability. This book will provide the students and the professionals with an insight into all these.
Chapter 1 deals with the meaning of performance management, history of human resource manage-
ment function, its development in India, performance management as HRD function, history of perfor-
mance management, performance management as a management tool, philosophy, benefits, processes
of performance management, performance objectives, standards, dimensions, domains and ethics.
Chapter 2 introduces the concept of performance planning, its definitions, process, contents, model
of elements and standards of a performance plan, process of transition from individual performance
plan to group performance plan, performance role clarity, alignment of strategic plans with performance
plans and strategy realization through performance plans.
Chapter 3 deals with performance appraisal, its meaning and definitions, role of appraisals in perfor-
mance management, importance of performance appraisal, objectives of performance appraisal, reasons
behind the failure of performance appraisal, steps and characteristics of performance appraisal system,
performance appraisal design, approaches in performance appraisal, types and methods of performance
appraisal, concepts and methods of potential appraisal, biases of performance appraisal and diagnosis of
poor performance.
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xxii Preface
Chapter 4 discusses performance management review, introducing its definitions, process of employee
development through performance review, types, steps, benefits and structured process of performance
review, performance counselling, etc.
Chapter 5 introduces performance management systems, explaining the definition and concept of
performance management system, its benefits and steps, importance, features, processes, dimensions,
conceptual framework, relations with organizational strategy and social perspectives, performance con-
sulting, role of performance consultants, pillars of managing performance, performance management
theatre, annual stock-taking of performance, e-performance management, etc.
In chapter 6, the concept of strategic performance management has been introduced, along with its
definition, evolution, characteristics, generic strategies, performance and strategy linkage, purpose of per-
formance management strategy, process of performance management strategy and components of stra-
tegic performance management process, strategy and performance management cycle, linkage between
individual performance and strategy, benefits of strategic performance management, advantages and dis-
advantages of strategic performance management, strategic performance management and the balanced
scorecard, strategic performance management and metrics, environmental threats and risks, etc.
Chapter 7 discusses competency-based performance management systems, deliberating on defini-
tions of competency, managerial skills and competencies, skill inventories, multi-skilling, skills for the
new millennium, developing competencies for effective performance management, competency identi-
fication and assessment process, competency mapping, steps to introduce competency-based systems,
developing competency models, HR competencies, elements of performance-based competencies and
competency dictionary.
Chapter 8 talks about performance-based compensation, introducing its concepts, process of design,
job evaluations, incentives, benefits, performance-related pay, compensation broadbanding, design-
ing compensation through skill-based programmes, competency-based pay, performance guide charts,
performance-based executive compensation, calibration of executive compensation to performance, per-
formance measurement in executive incentive programmes, etc.
Chapter 9 elaborates on performance-based career planning, career development and succession
plans. The chapter helps us to understand the interrelation between career planning, career development,
succession planning and the performance management function of an organization. Also the chapter
elaborates on the process of career planning, process of career development, importance and signifi-
cance of succession planning and the process of strengthening internal supply of manpower through
career planning, career development and succession planning.
Chapter 10 deals with team performance management, explaining the definitions and concepts of
team, principles of team performance management, methodology of team performance, approaches to
change team behaviours, work wheel and team performance, measuring and managing team perfor-
mance, different stages of teamwork and team-building exercises.
Chapter 11 introduces the concept of performance measurement process and then goes on to talk
about the various tools and techniques like balanced scorecard, HR scorecard. The chapter provides
detailed guidelines for developing balanced scorecard and HR scorecard for an organization.
Chapter 12 elaborates on performance management and mentoring, introducing its definitions and
concepts, characteristics, differences, benefits, types, ethical guidelines, culture, etc.
Chapter 13 discusses performance measurement using various quantitative and statistical tools. For
effective performance measurement, the chapter at the outset highlights on the importance of selection
of performance measurement criteria, integrated performance measurement systems, statistical meth-
ods of performance measures, performance measures through ranking and rating, scales for evaluation
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Preface xxiii
of performance measures, performance matrix and models, key performance indicators, performance
measures through productivity indices, etc.
Chapter 14 introduces the readers to the basics of international performance management, discussing
its structure and strategy, expatriates’ performance management, effect of culture, performance manage-
ment in international assignment, globalization and international performance management practices,
compensation and international performance management practices, etc.
Chapter 15 details the process of performance audit, human resource accounting, audit and valuation,
detailing various concepts, structures, steps, methods and techniques.
Chapter 16 deliberates on the delicate aspects of ethical and legal issues of performance manage-
ment, its concepts, perspectives, objectives, benefits, dilemmas, etc.
Chapter 17, the final chapter of the book, discusses the various contemporary issues of performance
management, organizational improvement tools as drivers of performance management systems, busi-
ness process reengineering, lean management and culture, Toyota production system, total quality man-
agement, six sigma, quick response manufacturing, etc.
Special Pedagogic Features of the Book

The book has been written keeping in view the primary needs of the students and professionals so
that they can get first-hand exposure to theories and practices. Performance management is the most
important area of human resource management function, as organizations can sustain in competition
only through improved performance of employees. A comprehensive text on this subject, keeping up
with the all-India syllabi, therefore, is required. So far, our focus was on performance management
books that dealt with some specific areas. But with this comprehensive text, I am sure students and pro-
fessionals will get immensely benefitted. The book is written in simple business language with proper
fusion of theories and examples from the corporate world (including case studies, exercises, etc.) The
readers will find this book extremely useful in developing their knowledge and practical insight into
performance management systems and strategies. The key features of the book are mentioned below:
CHAPTER 1
Introduction to Performance
Management
Learning Objectives
After reading this chapter, you will be able to understand:
Meaning and concepts of performance man- Performance objectives and standards
agement
Characteristics of performance objectives
Process of development of human resource
management in India Documenting performance standards
Performance management as HRD function Performance dimensions and domains Learning objectives
Performance management through continu-
ous learning
Benefits of performance management outline the main learning
History and philosophy of performance man-
Process of performance management
goals of each chapter.
agement Performance ethics
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xxiv Preface
Marico’s Performance Management

Marico is a leading Indian group in consumer products and services in the global FMCG market. Marico
markets well-known brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker,
Revive, Kaya, Sundari, Aromatic, Fiancee, and HairCode. Marico’s brands and their extensions occupy
Each chapter leadership positions with significant market share in most categories—coconut oil, hair oils, post-wash
begins with a hair care, anti-lice treatment, premium refined edible oils, niche fabric care, etc. Marico is present in the
skin care services segment through Kaya Skin Clinics (48 in India and the Middle East), the Sundari
relevant small range of Spa skin care products (in the USA and other countries), and also through a recently acquired
case example. nascent soap franchise (in India and Bangladesh). Products and services in hair care, skin care, and
healthy foods. Marico is consistently consolidating its market share in the Indian FMCG market. With its
prime brands like Parachute and Saffola, Marico could achieve a 20 per cent growth in its sales revenue.
Today Marico has become a conglomerate. All this Marico could achieve because of its strong brand
identity and its strategy to add value to existing products and services.
Understand the overall picture
Indentify the accomplishments at the work unit level
Identify individual accomplishment and its integration

with work units’ goals
Convert expected accomplishment into performance

elements, duly mentioning its types and priority
Exhibits inside the chapters
provide a wide variety of
figures, illustrations and other
documents to prepare the stu- Determine work units and individual measures
dents for real life challenges.
Develop work units’ and individual stantards
Determine how to monitor performance
Check the performance plan
Exhibit 2.1 Employee Development Programme
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Preface xxv
SUMMARY
Performance management is the strategic HRD discussion the process of development of perfor-
function which develops organizational capability mance management functions. Being the intro-
to sustain in competition. The age-old use of per- ductory chapter, to set the premises, the chapter
formance management was to validate compen- elaborates on the process of development of the
sation design and other HR-related decisions like concepts to help the readers to appreciate its gen-
promotion, demotion, transfer, etc. With the real- esis. Among others, the chapter also elaborates
ization that people are the only sustainable driv- on the history of performance management, its
ers of achieving organizational excellence, the philosophy, methods and techniques of setting
performance management focuses have shifted performance objectives and standards, benefits
towards HRD activities like identification of of performance management, its domains and Each chapter ends with
training needs, providing performance feedback dimensions, and finally the ethics of performance a summary of the key
directly to employees to enable them to make an management.
informed choice about their career development Being the introductory chapter, it sets the prem- issues discussed in the
opportunities, etc. This chapter first analysed the ise for the other chapters of the book. All impor- chapter.
process of development of human resource man- tant aspects of performance management have
agement functions, and then delineates from the been covered in a nutshell in this chapter.
KEY WORDS
Performance Management Cycle: Performance of information through various transparent com-
management cycle starts from core job descrip- munication mediums, etc. The basic thrust for
tions and reinforced with strategic plans. It trans- continuous learning is to help the employees to
lates to performance development, performance develop and achieve the results, to prepare for the
appraisal, observations and feedback, and refor- change, and nurture compelling work culture.
mulating the performance standards. This cycle Individual Performance Domain: Individual
continues, as performance management is an performance domain focuses on individual perfor-
ongoing employee development function. mance management to achieve results and goals
Performance Management Philosophy: Per- with some performance standard. These results
formance management philosophy basically and goals are recorded and referenced during a
espoused the values and beliefs of the organiza- performance appraisal process. Ongoing training
tions on their embraced performance management and development is provided as needed. Ideally,
systems. Going through the performance philoso- the supervisor and employee exchange ongoing Key words highlight
phy, it is possible to understand the specific roles feedback during the appraisal period to enhance
the important concepts
of the employees, their superiors and the organiza- the individual’s performance.
tion as a whole. Mission Performance Domain: Mission perfor- addressed in each
Holistic Approach to Performance Management: mance domain identifies the purpose of the orga- chapter.
A holistic approach to performance management nization, based on the changing business focus
considers performance management is a ‘strategy and customers’ expectations. The mission pro-
which relates to every activity of the organization vides overall direction, and performance targets
set in the context of its human resources policies, when aligned with the mission helps in achieving
culture, style and communications system’. the cherished goals and objectives of the organiza-
Continuous Leaning: Continuous learning tion. Depending on the changing business focus,
ensures systematic updating of employees’ skills organizations redefine their mission and accord-
and knowledge, experience sharing through struc- ingly performance requirements of the people also
tured knowledge management approach, sharing get changed.
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xxvi Preface
GENERAL REVIEW QUESTIONS

1. Discuss the history of performance manage- 4. What is philosophy of performance manage-
ment functions. In what way does the pro- ment? How performance management phi-
General review ques- cess of development of performance func- losophy is determined?
tions are meant to help tions get infiuenced by the history of human 5. Explain the concept of performance objec-
resource management and HRD functions? tives and standards. How do performance
students revisit the key
2. Explain the concept of performance man- objectives and standards help in performance
concepts discussed in agement cycle. Using the performance management process?
a chapter. management cycle, how can you justify that 6. Explain the process of developing perfor-
performance management is a continuous mance standards collaboratively.
process? 7. What are the important characteristics of
3. Do you consider performance management performance standards?
as a management tool? Develop your answer 8. Explain how performance management can
with justification. benefit an organization.
CRITICAL REVIEW QUESTION

12. Your organization is a world-renowned team leader you do with five graduates who
knowledge process outsourcing company, are reporting to you. The job is absolutely
Critical review questions mainly catering to the billing functions protocol bound and requires your mandate
test the students’ ability of global organizations. You have been (acceptance or non-acceptance) instantly.
to apply their learning to recruited by your company to perform the Accuracy in decision and speed of work
outsourced jobs of one of the leading IT both are essential parts of your and other
real life situations.
Company, based in the USA. This company team members’ job. Identify what could
has over 50,000 employees in their payroll. be your performance domains and dimen-
Billing and employees’ claim form process- sions. Develop your answer with specific
ing is part of your major duty, which as a examples.
CASE STUDY
Linking Performance to the Bottom Line: The Approach of Mono India

The Mono India, an Indian conglomerate with more focus on FMCG products, operates globally with
59,000 workforces in their payroll. The company manages each product line as strategic business units
(SBUs). For absence of commonality in product lines, SBUs do not compete with each other. The com-
pany follows a matrix structure, making each employee reportable to two bosses. FMCG SBU head,
Use of case studies Mr Pratap, has a high reputation for achieving the consistent growth for last 5 years. Mono India strate-
gically locates their manufacturing units keeping in view the market proximity. Accordingly, the company
from companies like located their 16 Indian units spread across 14 states and 2 union territories in India. Market in unrepre-
Mono India, Infosys, sented states and union territories are controlled from manufacturing units that are close to them.
TCS and Proctor and
Gamble to help students
build application-based
knowledge. CASE STUDY
Valuing Human Resources—The Infosys Way

The human resource accounting concept was pioneered by the Indian public sector companies. It was
rst introduced by two public sector majors, i.e., Bharat Heavy Electricals Limited (BHEL) and Steel
Authority of India Ltd (SAIL) in the 1970s. At Infosys, the concept was started in the year 1995–96.
Infosys basically utilized the Lev & Schwartz Model of human resource accounting. Later with the
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Preface xxvii
Acknowledgements
Writing this book would not have been possible without the support and cooperation of my family,
friends and colleagues. I gratefully acknowledge the support and cooperation of my wife and children,
N. R. Datta, Chairman and Managing Director of Camellia Group; Partha Pal, Deputy Director (Academics);
Aveek Bhattacharyya, Business Development Head of Camellia Group; my friends and colleagues
at the Camellia School of Business Management; Prof. Sudipti Banerjea, my mentor at the University
of Calcutta; and all my students of Camellia Business School, Indian Institute of Social Welfare and
Business Management, and various other institutes where I was earlier engaged. Finally, I congratulate
the team at Pearson Education for bringing out this book in its best possible form.
I would welcome suggestions and comments from my readers and friends at dkbhattacharyya@
yahoo.co.in.
DIPAK KUMAR BHATTACHARYYA
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A01_9788131754221__PREL.indd xxviii 5/18/2011 10:26:46 AM

About the Author
Dr Dipak Kumar Bhattacharyya is a Ph.D. from the University of Calcutta and has been engaged
with teaching and research at postgraduate level management programmes for more than 20 years.
Dr Bhattacharyya also has about 15 years of experience in industry in HR-related functions. Presently,
he is the Director of the Camellia School of Business Management, Kolkata. Earlier, he was the Dean of
the Indian Institute of Social Welfare and Business Management (IISWBM), Kolkata; and also served
as the Director of the Institute of Engineering and Management, Kolkata and All India Management
Association – Centre for Management Education, New Delhi. He has also been a visiting professor at
XLRI, Jamshedpur and IIFT, Kolkata. He is actively involved in teaching, research, training and consulting.
He has authored several books on HR and management and also published more than 100 research
papers in various journals of national and international repute.
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A01_9788131754221__PREL.indd xxx 5/18/2011 10:26:46 AM

CHAPTER 1
Introduction to Performance
Management
Learning Objectives
Meaning and concepts of performance man- Performance objectives and standards
agement
Characteristics of performance objectives
Process of development of human resource
management in India Documenting performance standards
Performance management as HRD function Performance dimensions and domains
Performance management through continu- Benefits of performance management
ous learning
Process of performance management
History and philosophy of performance man-
agement Performance ethics
Performance Management Culture

To ensure performance culture in the largest public sector bank in India, based on shared understanding,
clear purpose and results based on accountability, some action plans have been drawn by the bank.
Earlier, the bank used to follow job descriptions, and managers and executives followed such mandates
to achieve business objectives. However, the changing business scenarios demanded more flexibilities
in performance, requiring managers and executives to be multi-skilled and deliver more in line with the
pre-set key result areas (KRAs). KRAs in the bank are decided based on the finalized business objec-
tives at the top, and hence at the individual level, managers and executives hardly get any flexibility to
alter KRAs. The entire performance management functions in organizations have been entrusted to the
specially developed cell, under one senior-level manager. The cell operates under the Strategy and
Policy Group of the Bank. It implements and monitors the performance management functions in the
organization, and, based on its review, the Strategy and Policy Group of the Bank recommends appropri-
ate human resource development (HRD) or organizational development initiatives. Recently, based on
such practices, the bank has been able to redesign its working systems and practices, focusing more on
the creation of a compelling performance culture in organizations.
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2 Performance Management Systems and Strategies
INTRODUCTION
Performance management is now considered as the most crucial and strategic HRD function to enable
organizations to sustain in competition. Traditionally, however, performance management was more
for validating compensation design decisions and to initiate other HR measures like promotion, demo-
tion, transfer, etc. With the realization that people are the only sustainable drivers for achieving organi-
zational excellence, performance management perspectives have changed, and today it encompasses
crucial HRD activities like identification of training needs, providing performance feedback directly to
employees to enable them to make an informed choice about their career development opportunities,
etc. This chapter first analyses the process of development of human resource management functions
and then delineates from the discussion the process of development of performance management func-
tions. As it is the introductory chapter, it sets the premises by elaborating on the process of development
of the concepts thereby helping the readers appreciate its genesis.
HISTORY OF HUMAN RESOURCE

MANAGEMENT FUNCTION
Human resource management as a profession gained acceptance with the incresed spate of globalization
and rising complexities of business. Before we understand the subject of performance management, it
is important to understand the context with the incidence of human resource management functions.
Human resource management as a subject of study has its roots dating back to 4000 B.C. (Chaldeans’
incentive wage plans). Since then, it has been practised in different civilizations. However, here we are
more concerned with the recent history (Bhattacharyya, 2006).
Before the industrial revolution, working processes and systems involved close relationships between
mentors and apprentices. The focus was more on learning a particular trade. Apprentices (commonly
known as trade apprentices) even used to stay in the shop (workplaces) or at the mentor’s house to learn
the craft from the master craftsman. The relationship between mentors and apprentices were not bound
by wages only. It was more on a mutual share of efforts—good or bad and long and perpetuating. The
system was more a replication of the Gurukul system of learning prevalent in ancient civilizations like
India. However, we also get some opposing views of employer–employee relationships during these
days. In some countries, the status of labour was extremely low and the relationships between employ-
ers and employees were characterized by slavery, serfdom and the guild system. Barring slavery, which
was based on negative incentive system, serfdom and the guild system were more a structured approach
to the management of human resources. Serfdom was based on positive incentive system, whereas
the guild system involved master craftsmen (the owner), the journeyman (the traveling workers) and
the apprentice. In fact the guild system was the beginning of human resource management practices,
involving selection, training and development of workers, and emergence of collective bargaining over
wages and working conditions (Bhattacharyya, 2009).
With the beginning of the industrial age, i.e., the shift from guilds and home-centred production to
steam-driven factories, the working relationships had changed, requiring workers to perform the same
repetitive tasks. The assembly line systems of production further made this process more mechanized,
requiring workers to put in physical labour. With the division of labour, the work processes were frag-
mented, requiring each worker to perform specific tasks. The skill requirements being very low, skill
interchangeability among workers was high, which made it possible for workers to perform most of the
jobs in the factories. This can be better understood from the example below.
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Introduction to Performance Management 3
Tea manufacturing or processing is an age-old industry in India and other countries like Sri Lanka,
Kenya and China. For obvious reasons, e.g., raw material sourcing (green tea leafs), tea manufacturing
units are mostly adjacent to tea gardens. Tea workers or tea tribes are a cult, and they learn these jobs
not through institutional systems, but rather acquire it through generations and also so through practice.
With tea gardens being mostly located in remote areas, tea workers and other tea officials like execu-
tives and managers need to stay in adjacent housing colonies. A work breakdown analysis of tea manu-
facturing indicates involvement of the following activities:
Withering of tea leafs, which can be done in open or closed troughs. The withering time var-
ies depending on the variation in ambient temperature. While in open troughs it may take up to
14 hours, in closed roughs, depending on the nature of environmental conditioning, it may take 2 to
6 hours. The ambient temperature can be verified taking the reading of the industrial thermometer.
The progress of withering needs to be measured from time to time through visual checking. Both
the under- or over-withering of leaves lead ultimately to quality problems.
Crush–tear–curl (CTC) operation—This operation is done using CTC machines. Workers attached
to this operation are required to put withered leaves in the mouth of CTC machines and carry the
outputs to the adjacent fermenting bay.
Fermenting—This operation requires spreading of CTC outputs on the fermenting bays to allow
the formation of coppery colour. The fermenting time again depends on the temperature and varies
from 1 to 2 hours.
Drying—The fermented leaves are then put in dryers to get the final output. The drying operation
is considered critical as rework on over- or under-dried outputs may not ensure the desired quality
level. During the drying operation, supervisors need to check the quality through visual inspection
to adjust the driers.
Spreading—After collection of the dried outputs, it needs to be spread on a tarpolin, till the tem-
perature becomes normal.
Grading—Tea output in a day accumulates together. Grading operation segregates the tea depend-
ing on the size of the granules. After tea tasting, pricing is done at the factory level and accordingly
packed.
All these operations are simple and can be done by any worker, the skill sets being interchangeable. In
the tea industry, the absenteeism rate among workers is very high, which compels the organization to
rotate workers through different jobs to continue production activities. However, in modern organiza-
tions, the scope of skill interchangeability may not always be possible because of complexities of tech-
nologies and manufacturing processes.
Subsequent to the industrial revolution, a new economic doctrine, i.e., laissez faire, intensified the
competition among organizations. The transition from home-centred to factory-centred mass produc-
tion, along with the competition, deteriorated the employer–employee relationship. This exposed the
need for a more structured approach to the management of employer–employee relations.
Reviewing the history, it is observed that great thrust had been given to personnel management func-
tions by business expansion, labour strategies and higher wage rates during World War I (1917). Before
this, the thrust was more on labour welfare to ensure that workers are not exploited in organizations.
This was because of the movement of social activists, political parties and trade unions of different
countries who were putting pressure on their respective governments to come out with legislations
pertaining to labour so that they are protected and given their due rights and privileges. Labour welfare
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officers were statutorily appointed to ensure safeguarding the interests of workers. Thus, many of these
activities had been initiated then for welfare and paternalism. Labour welfare officers then had no
managerial role. However, the devastating effect of the world war necessitated urgent reconstruction of
the economy. At organization level, there was immediate need to augment productivity. Labour welfare
officers, because of their closeness to workers, were given the additional role of personnel management
so that they could effectively motivate people to contribute more for enhancing productivity. The great
depression of 1920–21 thereafter threw many personnel men out of jobs, and this created a disillusion
for this profession. A number of literatures came up around the world during 1920–22, dealing with dif-
ferent areas of personnel administration and by 1923, it was considered that the profession had reached
a stage of maturity, as organizations started giving importance to this profession, recognizing its impera-
tiveness like other core functions—production and marketing (Bhattacharyya, 2006).
Human resource management, as a profession, therefore, gradually evolved with the attitudinal
change of the people, and so also with the emergence of various employment laws and regulations. All
these cascaded to a major shift in sociological trends. With the global acceptance of human resource
management as a profession, it is now recognized as the complex, dynamic configuration of four major
drivers, i.e., strategy, people, technology and the processes for any organization.
From the records, we find that the beginning of institutionalized personnel management function was
started at the National Cash Register Co. (NCR). At the NCR, a major strike and subsequent lockout
took place in 1901. In this battle, the workers suffered tremendously. The company president, John
H. Patterson, then decided to improve worker relations forming the personnel department to manage
workers’ grievances, discharges, safety and other employee-related issues. The personnel department also
kept track of legislations and court decisions and trained the supervision on various legislative practices.
Thus, tracing the history, we find that personnel function derived from the introduction of welfare
and charitable activity. Initially welfare was perceived as a moral duty and later welfare was considered
as precondition of industrial efficiency. The second development sprung from the employers’ endeav-
ours to cope with the challenges of trade unionism. The third phase of development could be attributed
to the development of the concept of humanization of work.
Factors which are responsible for the development of this profession in a phased manner from a
world perspective can be listed as follows:
Rapid technological changes throughout the world, which had a great bearing upon personnel func-
tions as it fundamentally changed the relationship between people and work.
Increased competition at home and abroad. Such competition virtually reduced the profit of the
organization to the level of production cost. The free movement of technology from one country to
another does not allow any production process to monopolize any particular technology.
The rise of consumerism, government protection, so also international competition, developed the
necessity to maintain quality and price, which completely redressed the opportunity to follow
the traditional production method.
Social changes are also taking place at a fast pace. Business function is no longer a mere profit
multiplying one. Organizations, being a part of society, also have to fulfill certain responsibilities
towards society.
Political development also restructured trade unionism. Trade unionists are no longer a mere wage
bargainer.
Structural changes in employment (more oriented towards white collared jobs, gradual decline of
unskilled jobs) and changes in sector distribution of employment (more geared to tertiary or service
sectors) also brought a great challenge to the employers.
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For personnel management functions, all these challenges had a great impact. The alienating and
de-humanizing effect of repetitive and monotonous tasks, in the wake of technological advancement, is
a universal phenomenon. Effective utilization of human resources under this technological environment
is the prime challenge before today’s personnel functions.
PROCESS OF DEVELOPMENT IN INDIA

The history of evolution and growth of personnel management in India is not very old. The Royal Com-
mission on Labour in 1931 for the first time recommended the abolition of Jobbers Systems and the
appointment of labour officers to deal with the recruitment and to settle their grievances. The Factories
Act, 1948, made it obligatory for industries to appoint labour welfare officers. Today personnel man-
agement function in India encompasses all professional disciplines like welfare, industrial relations,
personnel administration, HRD, etc.
The general functional areas of personnel vis-à-vis HR professionals can be grouped under five
major heads as below:
Determining and staffing for employment needs
Measuring performance and developing employee potential
Preserving effective employee–management relationships
Uncovering and resolving employee problems
Anticipating and coping with organizational changes
The new changes have extended the functional horizon to many. From a legalistic approach, it has
extended to human relations; from a mere passive factor of production, employees are now perceived
as human resources. The functional demand, therefore, encompasses many areas like management by
anticipation, more use of work teams by small group activities/quality circles, practising total quality
management culture, etc.
Human Resource Development

As a Separate Personnel Discipline
So far, our discussion has centred on personnel functions. At this stage, we will delineate HRD as a
separate discipline of personnel management. But before we go into the details of HRD functions, a
brief understanding of the historical process is considered necessary to appreciate the importance of
HRD functions in today’s organizations.
It is believed that Kurt Lewin’s (1947) studies of behaviour of small groups and setting up of national
training laboratories are the beginnings of the HRD profession, which till late 1940 was the domain of
psychiatrists, psychologists, counselors and nurses, and furthered the concept of human relations train-
ing and the experiential approach. Participants in training groups (T-groups) effectively identified prob-
lems, acquired the skills and also actively collaborated in the problem solving process. Training group
leaders, unshackling their traditional role of instructors, became facilitators and focused on how the
individual relates to and interacts with other individuals and with groups and got them trained on leader-
ship and its influence, handling conflict, expressing feeling, giving and receiving feedback, competition
and cooperations, problem solving, and increasing awareness on oneself and one’s impact on others.
In 1969, the Handbook of Structured Experiences for Human Relations Training was published by
university associates giving structured experiences with guidelines for training and development. The
subsequent publication of handbooks for group facilitators in 1972 and 1973 furthered the process of
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developing training and organization development vis-à-vis HRD as a recognized area of professional
endeavour, delineating HRD as a new profession encompassing personnel function.
Performance Management As an HRD Function

Performance management as a sub-set of human resource management function focuses on facilitation
support to employees for their individual and overall organizational development. Traditionally, organi-
zations used to focus on age-old command-and-control models to exert the desired level of performance
from the employees. However, modern performance management practices altered such percepts and
consider people as assets, and like any other asset, people also have the potential to add future value.
This obviously shaped the HRD dimension of performance management function, making it a long-
term or strategic function of management. It is strategic, as alignment of individual performance with
the business objectives of organizations ultimately leads to the achievement of strategic intents. It is
strategic as organizations, through effective performance management, can focus on continuous devel-
opment of human resources to sustain in competition. It facilitates in not only achieving the business
results co-creating the performance goals, but also facilitates in preparing employee development plans
matching with the long-term goals of the organizations. All these made performance management, in
the strictest sense, an HRD function.
In Figure 1.1, we have illustrated the performance management cycle, which starts from core job
descriptions reinforced with strategic plans and goals, which translates to performance development,
performance appraisal, observations and feedback, and reformulating the standards of performance.
This cycle continues, as performance management is an ongoing employee development function.
Job Description
Job description is a systematic process of collection, analysis and documentation of the important facts
about the job. Through job descriptions we name a job, i.e., establish the job identity. Job descrip-
tions facilitate in implementing strategic plans, translating the organizational vision to mission and
then initiating the desired strategic initiatives to achieve the mission through well-defined goals and
Job Description and

Essential Functions Strategic
Plan and Annual Goals
Standards of Performance
Performance Development
Observation and Performance

Feedback Appraisal
Figure 1.1 Performance management cycle
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objectives. From a performance management point of view, job descriptions help in recruiting the right
fit through adequate profile matching and also extend support to develop performance standards. Across
organizations, we find commonality in job title; hence a well-structured job description also facilitates
in benchmarking the performance, matching with the best performances nationally and internationally.
Thus, job descriptions provide the basis for job-related selection procedures and thereby also help in set-
ting performance standards and, subsequently, in performance benchmarking within and outside orga-
nizations. For these reasons, job description is construed as the first stage of performance management
cycle of any organization.
Standards of Performance
Performance standards are documented guidelines for excellent performance of any job. To gain accep-
tance from the employees, organizations prefer to develop performance standards collaboratively.
However, this may not be feasible for every job. For example, performance protocol or standards for
a complex research and development job may require the organizations to conform to the laid down
guidelines that are externally determined, which naturally squeezes the power of the organizations to
decide the performance standards. Whatever be the manner of deciding performance standards, com-
municating the same to the employees is very important. For newly recruited employees, organizations
prefer to familiarize performance standards through induction programmes. Individual-level perfor-
mance is compared with the documented performance standards to measure the extent of employees’
performance achievement. Standard job descriptions also set the initial premise for standards of perfor-
mance. These apart, performance standards are determined based on industry practices, benchmarked
data, etc.
Observation and Feedback

Observation is performance monitoring to measure the deviation from the performance standards and
to initiate the corrective actions. Feedback is sharing the performance levels achieved by the employ-
ees. Both observation and feedback are important ingredients of the performance management pro-
cess. Performance feedback is observable and verifiable work-related behaviours, actions, statements
and results. With the feedback, employees can understand their performance gaps and can accordingly
improve to deliver better performance in future. Organizations can also take important HR decisions
using the performance feedback.
Performance Appraisal
The performance appraisal process summarizes, assesses and develops the work performance of employ-
ees based on the objective assessment of performance-related information. We have several methods of
performance appraisal and have discussed these in a separate chapter. Most of the organizations focus
on teamwork. This has now made 360-degree assessment of performance more important. This method
even requires customers to evaluate employees’ performance.
Performance Development Plan

Organizations with performance development plans develop the quality of the workforce to make them
the enablers for organizational growth and development. Performance development plans need to be
reinforced by continuous learning; professional growth; sustaining employee performance to meet
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or exceed expectations; enhancing job- or career-related skills, knowledge and experience; making
employees understand the change; and, finally, motivating employees. Performance development plans
may be considered at each stage of the performance management process.
Performance Management
Through Continuous Learning
To develop a performance culture in organizations, it is important for the organization to focus on
continuous learning. Continuous learning ensures systematic updating of employees’ skills and knowl-
edge, experience sharing through structured knowledge management approach, sharing of information
through various transparent communication mediums, etc. The basic thrust for continuous learning is to
help the employees to develop and achieve results, to prepare for the change and to nurture a compelling
work culture. In a globally competitive business environment, employees of organizations must have
up-to-date information about the new technologies, about the market and customers, about the nature
and type of effectiveness in their current jobs, etc.
DEFINITIONS AND CONCEPTS

OF PERFORMANCE MANAGEMENT
Performance management, per se, is a cyclical process. Organizations manage performance with two-
fold objectives: to assess the employees’ performance and to develop the employees’ performance.
Both these objectives help organizations to achieve strategic intents, i.e., achievement of organiza-
tional objectives. The process encompasses setting of performance objectives for the organizations
as a whole, which is then cascaded to divisional-, departmental- and individual-level performance
objectives. After setting these performance objectives, the process requires rating of employees’
performance against the pre-set performance goals, objectives or standards, and deciding of future
employees’ development programmes to improve the performance. Through the performance rat-
ing or assessment, organizations can map the performance gap, identify the employees’ potentiality
and accordingly develop employees’ capabilities through competency development, i.e., knowledge,
skill and abilities (KSA). With the positive behavioural skill change or renewal, employees become
good performers and accordingly organizations can enjoy the sustainable competitive advantages.
Therefore, performance management can immensely benefit organizations, irrespective of their size,
locations and geographical dispersion.
Based on the above introductory discussions, we can summarize the essential features of perfor-
mance management systems as follows:
A holistic approach to performance management as given by the Institute of Personnel Management
in 1992 produced the following definition of performance management: ‘A strategy which relates to
every activity of the organization set in the context of its human resources policies, culture, style and
communications systems. The nature of the strategy depends on the organizational context and can vary
from organization to organization.’
Interpreting this definition, we can identify the following important activities of performance man-
agement:
Communicating vision to all employees
Translating vision to mission
Converting mission to overall objectives of the organization
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Setting departmental and individual performance targets that are related to overall objectives
Converting such targets in terms of measurable outputs
Developing the formal appraisal procedure and systems
Linking performance to pay, wherever it is essential (particularly for senior managerial employees,
performance-based pay is more applicable)
Conducting formal performance reviews to track the progress towards achieving the targets
Using the review process as the basis to identify training, development and reward outcomes
Evaluating the performance holistically to improve organizational effectiveness
The Institute of Personnel and Development (CIPD) in 1998, based on the survey and series of practice-
based case studies, could come to the conclusion that performance management is a continuous process
rather than an annual activity (Armstrong and Baron 1998). Performance management through the
process of shared understanding not only helps in achieving the organizational objectives, but also
facilitates in developing the employees. A comprehensive definition of performance management can
be drawn after Briscoe and Claus (2008), as follows:
‘Performance management is the system through which organizations set work goals, determine
performance standards, assign and evaluate work, provide performance feedback, determine training
and development needs and distribute rewards.’
Latham et al. (2007) considered performance management as a continuous process, while the per-
formance appraisal as an even at discrete time intervals. Sparrow (2008) argues that performance man-
agement emphasizes an open and honest communication between managers and individuals and the
development of trust-based relationships.
Reviewing all the above definitions of performance management, therefore, we can define it as a con-
tinuous process of developing individual employees through evaluation of their contributions towards
achieving organizational goals, and giving feedback and initiate appropriate HR actions, including
design of training and development programmes, deciding rewards, promotions, transfer, etc. However,
with the emergence of teamwork, this concept is changing, as in the corporate world team-based perfor-
mance is now more emphasized rather than individualized performance.
HISTORY OF PERFORMANCE MANAGEMENT

Historically, the concept of performance management was developed to authenticate the process
of wage determination. Also, organizations traditionally used performance management to drive
the behaviours of employees to get specific outcomes. However, such a rewards-driven approach to
performance management could not be sustained in knowledge-intensive organizations. Moreover,
traditional organizations have also started becoming knowledge intensive for technology-intensive
manufacturing processes. The focus of performance management has gradually shifted towards pro-
moting the learning and development of the reinforced work environment. It became a process of
continuous development of employees to sustain organizational competitive advantages. Such per-
ceptive change in performance management was more evident in organizations worldwide from the
1980s. It was at this time that organizational performance became a major issue for achieving produc-
tivity and for sustaining competitiveness through prudent utilization of human and other resources.
Today’s organizations, using scientific performance management systems, not only track individual
employee’s performance, but also align such performance with the overall organizational perfor-
mance to meet business objectives.
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Some of the key driving factors for the development of scientific performance management sys-
tems are:
Strategic dimensions of human resource management functions
Integrated approach to develop the competencies of employees to understand how its employees
are currently performing
Identification of those employees that contribute most, or least
Undertaking a thorough assessment of the training needs of its employees
Setting development plans for employees
Designing compensation packages
Ensuring transparency over performance in the workplace
Providing a framework to document issues relating to performance
Assessing future career development requirements, etc.
Historically, performance management systems became more scientific after the introduction of deci-
sion support systems in the 1970s. In the 1980s, executive information systems were introduced, which
got more structured with the introduction of computer-integrated business intelligence systems in the
1990s. Along with these improvements, new management concepts like customer relationship manage-
ment (CRM), technology-integrated advanced management techniques, planning, reporting and the con-
cept of corporate performance management (CPM) (Gartner, 2001) were introduced. All these together
then became the basis of strategic planning in organizations. CPM or business performance manage-
ment describes the process, methodologies, metrics and systems needed to manage the performance of
an organization. The main characteristics of CPM include complete integration, automating data pro-
cessing, support of collaboration, analytical insight and focusing on exceptions. The important steps in
CPM are strategic planning, score carding, budgeting, forecasting, consolidation and business intelligence.
Gradually, performance management systems have been institutionalized and today it is embraced in
all organizations worldwide as a development tool to ensure the organizations’ sustenance in a competi-
tive world. Using different performance metrics, it is now possible to assess the present state of business
and, accordingly, draw business plans, budgets, etc., along with the necessary employee development
interventions.
AS A MANAGEMENT TOOL
Performance management is the most critical management tool to improve overall organizational health.
By recruiting the best fit, organizations cannot sustain in the long run, obviously for gradual redundan-
cies of skill, knowledge and competencies. As a management tool, performance management ensures
managers and employees possess the requisite skills and do whatever they ought to, conforming to the
performance standards. But developing performance systems and enforcing its uses as critical manage-
ment tool autonomously may not work, as an individual’s willingness to perform is all the more impor-
tant. This brings into focus the relationships between the managers and their employees. An integrated
performance management system that establishes the linkage between the people and the organization
can also account for relationship issues and effectively operate to get the desired results.
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Performance management as a management tool, therefore, manages the business, shapes individual
behaviour and directs employees’ behaviour to achieve strategic aims. Mohrman and Mohrman (1995)
emphasized, ‘performance management is managing the businesses’. Tracing history, we observe, over
the years, performance management from the traditional HR domain, slowly transformed to a business
process, duly aligning activity with strategic goals. It directs people and controls the flow of training
and reward.
PHILOSOPHY OF PERFORMANCE MANAGEMENT

Etymologically, philosophy is ‘loving wisdom’, and when we relate it to performance management
systems, it means the critical evaluation of all the facts of an experience. Critical evaluation means
assessment that is free from bias or prejudice. Hence, performance management philosophy means a
value-based approach to evaluate the performance of employees.
Hughes Communications India Ltd (HCIL) is a subsidiary of Hughes Communications Inc., USA, and is
the largest satellite service operator in India. HCIL’s philosophy of performance management is ‘what
gets measured, gets assessed and what gets assessed, gets enhanced’. HCIL appraises employee
performance on an annual basis, giving credit for their achievements and setting targets for the forth-
coming year. HCIL has developed a balanced policy that is both objective and holistic in its approach.
HCIL’s HR team facilitates the appraisal process and also trains senior personnel in assessing individual
performance. It shares a reciprocal relationship with various processes facilitating continuous improve-
ments in areas such as selection, career planning, goal setting, reward schemes and culture building.
Assessments in HCIL are not just for improvement and development, but are also well recognized and
rewarded.
Source: Adapted from: http://www.hughes.in/about/about_hughes.htm
Professionally managed organizations always emphasize on developing performance management

systems based on their perceived performance management philosophy. To develop employees to
deliver their best is all along the motto of all professionally managed organizations. Through well-
crafted performance management systems, organizations ensure that people are geared for success and
ultimately help organizations to achieve their business goals. An Indian MNC starts its performance
management system with its hiring process. It invests time to understand the prospective employees’
goals, capabilities, career expectations, etc. Once the new recruits cross such successive hurdles, they
ultimately become the right fit for the job and become part of a high-performing team. The structured
performance management systems enable their employees to get clear feedback and incentives, based
on performance results, and also to get a clear direction about the next performance cycle. Performance
management philosophy for the company, therefore, is to develop an organized system of evaluation
that communicates mutual performance expectations, monitors results of work activities, collects and
evaluates performance that determines achievement of goals, and uses performance information for
important decisions and also for allocating resources.
From the foregoing discussions, it is clear that performance management philosophy basically
espouses the values and beliefs of the organizations on their embraced performance management sys-
tems. Going through the performance philosophy, it is possible to understand the specific roles of the
employees, their superiors and the organization as a whole. For example, we can understand how
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the embraced performance management philosophy of any organization aligns the efforts of managers
and employees with the goals of the organization, from the following specific roles:
Employees irrespective of their hierarchical levels must feel responsible to communicate their per-
formance with the managers. They must actively participate while framing their development plan
and extend all support to deliver their best to achieve the organizational goals.
Managers must develop performance targets for their employees through mutual discussion,
recognize the performance of employees, and guide the employees to improve their performance,
extend the resource support, and take them through rigorous training and development programmes.
The underlying philosophy here is to develop people and to harness their potential.
The organization must feel responsible to design and develop a transparent performance manage-
ment system. To make the performance management system operational, the organization must also
develop the skill and ability of managers and truly make them the enablers to drive change in the
organization through effective performance management systems.
Thus, the espoused values and beliefs of effective performance management system, when positive, can
motivate employees to deliver their best. Any high-performing organization can achieve excellence and
sustain in competition. The espoused philosophy of performance management systems translates to job
behaviours, job responsibilities and performance goals.
OVERVIEW OF PERFORMANCE MANAGEMENT

Modern performance management systems emphasize the facilitation model of leadership. With the
recognition of people as the only sustainable resource for competitive advantage and subsequent insti-
tutionalization of practices like linking employees’ performance to the strategic intents of the organiza-
tions, performance management practices have now been recognized as a high priority human resource
management function. As a process, performance management provides an opportunity for mutual dis-
cussion on the development goals of employees and organizations and designs a feasible plan to achieve
such decided goals. This process not only helps organizations to grow and achieve excellence, but also
provides opportunities to successfully respond to changes. The new model of performance management
lays emphasis not only on achieving the goals, but also increases the sense of responsibility in people
who embrace it in their day-to-day work systems. For example, a customer-centric organization needs to
focus on a service culture, which even extends to functioning at the operations level. Performance man-
agement systems, therefore, need to be tracked with the customer-centric approach and team rewards
based on valuing the customer services.
Performance management, therefore, among others, emphasizes on managing, supporting and devel-
oping human resources at all levels within the organization. It systematically monitors individual and
team performances, rewards the person who delivers his or her best and takes corrective or remedial
actions for those who lack in their performance. For effective performance management results, organi-
zations need to develop the people through continuous learning.
In such a refocused approach of performance management, a manager’s involvement in performance
management is ensured through the following course of actions:
To establish specific job assignments.

To write job descriptions, assign responsibility for strategic initiatives, develop and apply perfor-
mance standards.
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To discuss job performance with the employees and provide feedback on strengths and weaknesses,
as may be needed.
To conduct periodic performance evaluation to improve the performance and employees’ develop-
mental goals.
With the above overview on performance management, it is now clear that performance management is
one of the critical development functions for organizations.
PERFORMANCE OBJECTIVES AND STANDARDS

Performance objectives and standards are the most common methods to define the basis for measuring
performance results. Using these objectives and standards, managers can provide specific feedback to
describe the gap between the expected and actual performance. For every job position, it is desirable
to define the performance objectives and standards to track the results of employees’ performance.
A finer distinction between the performance standards and objectives can be made: while standards are
more related to job-task completion and can be tracked to the individual-level performance, objectives
are more aligned with the overall organizational performance, leading to the achievement of business
goals. Both objectives and standards are useful when, in addition to being written down and verifiable,
they are SMART.
S = Specific
M = Measurable
A = Attainable
R = Relevant
T = Timely
Specific—Performance objectives and standards must spell out the actions and results that are expected
to be accomplished.
Measurable—It must be measurable to track the degree of accomplishment. For ease in measurement,
it is often recommended to design quantitative measures like ratios, percentages, counts, etc. Some
performance measures are, however, difficult to quantify. In our chapter on performance management
research, we have explained different tools and techniques used for both qualitative and quantitative
performance management.
Attainable—Setting of performance objectives and standards must be realistic, i.e., achievable or attain-
able, within the given resource constraints. Often organizations deliberately assign stretch targets to put
pressure on individual employees. But this may not always be the right approach, as employees may
feel over-stressed and underperform. From industry practices, it is evident that the performance level
of employees less than 55 per cent is considered to be poor. Those who perform within 55–70 per cent
are considered to be performers who meet expectations. With a performance level of 70–100 per cent,
employees exceed expectations, and beyond 100 per cent employees are considered to be star performers.
This, therefore, exemplifies how industry rates performance.
Relevant—Individual goals, objectives and standards need to be aligned with the unit, departmental and
overall organizational missions. Missions define the purposes and from the purposes, people get the direc-
tions. Mission-aligned performance standards and objectives, therefore, help in achieving business results.
Timely—While deciding on performance objectives and standards, it is necessary to spell out the time
frame, i.e., time within which the employees are expected to deliver the set results. Goals and objectives
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are annual; hence performance targets also need to be annual. However, for better tracking of results,
performance monitoring is done at short intervals to ensure achievement of performance targets.
Performance Objectives and Standards—Comparative

Analysis of Advantages and Disadvantages
The advantages and disadvantages outlined in Table 1.1 can give guidance on when to use objectives
or standards or both.
Ch aracteristics of Performance Objectives

Performance objectives are framed to define the future state of achievement which allows the organi-
zation to succeed and to create value. The future state of achievement for any organization is directly
linked with the overall mission and objectives of the organization. When the mission and overall objec-
tives of the organization change, its future state of achievement also changes, and so also the perfor-
mance objectives of the employees. We can list the following characteristics of performance objectives:
Performance objectives are mutually agreed targets, which employees are expected to achieve dur-
ing a performance assessment cycle.
Performance objectives cannot be separated from the job of employees; rather it forms part of the job.
Performance objectives are the ‘ends’, hence they provide directives to employees to achieve the
results and to focus on the resources.
Table 1.1 Advantages and disadvantages of performance objectives and standards

Performance Objectives Performance Standards
Aligns organizational objectives to employees’ objectives. Focus on job duties.
Specific to individual, as the KRAs even for the employees Can be made applicable to all employees doing
doing similar nature of job may vary, depending on the similar nature of duties.
employees’ performance track record.
Facilitates communication between the employees and Facilitates communication specific to job or duties.
the managers.
Focus on future. Makes the performance measurement process
very clear.
Flexible. Standards are job specific.
It can be used for all employees, but more applicable for More suitable for protocol-bound or standard-
those whose scope of responsibilities is wider with the mix specific jobs, as deviations may lead to non-
of routine and non-routine nature of work. performance. Hence, standards are used for rou-
tine nature of jobs only.
More focused on annual results rather than routine aspects Too much focused on tasks.
of jobs.
To make the objectives realistic may be flexible. No flexibility.
More challenging to the employees. Not challenging, as employees are required to
perform protocol-bound jobs.
Needs to be consistent with culture. Needs to conform to work practices.
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It is always desirable to develop performance objectives through mutual discussion, negotiation,

compromise and agreement. Although differences between objectives, targets and goals can hardly be
made, based on the scale and time, some distinctions can be made. By setting the performance goals,
both the organizations and the employees plan for the results. By identifying objectives, organizations
become more specific in quantifying the goals and focus on overall effectiveness and efficiency at the
individual, departmental and organizational level. This is ensured through alignment of performance
objectives with the mission, and setting of objectives in a collaborative process, to elicit commitment
and responsibilities from the employees.
Some Examples of Performance Objectives

From organizational practices, we can highlight some of the examples of performance objectives
as under:
Complete the in-house training programme schedule by 1 October 2010.
Reduce telephone expenses by 15 per cent within the first half of the fiscal year.
Identify three new cost-effective vendors for supply of raw materials by the end of FY 2010.
To generate ideas for performance objectives, we can raise the following questions:
What can employees do to improve the overall effectiveness?
To what extent can employees’ efforts to meet the objectives during the appraisal period help us to
achieve results?
What needs to be done to improve the quality of service?
What refinements need to be made in operations by the process of new introduction or elimination?
What do the employees need to do to optimize resources, modify systems, change priorities and
update skills?
What do employees need to do to meet the demand of the customers?
Points to Be Considered for Developing

Performance Objectives
Consider the following points while developing the performance objectives for any organization:
Set short-term goals with a long-term perspective. Objectives are generally set for periods of a year
or less, which ultimately cascades to long-term gains.
Identify critical performance issues and the possible bottlenecks to meet the same.
Never underestimate resource needs.
Ensure flexibility to bring changes in the performance objectives.
STANDARDS OF PERFORMANCE
Performance standards are written statements to describe the job well. It is a benchmark for evaluation
of work, as it defines the process of meeting or exceeding performance expectations. Performance stan-
dards are developed in collaboration with the employees. To new employees, performance standards are
adequately explained to guide them the way they need to perform the job.
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Written or documented performance standards become more like a standard operating procedures
(SOP), which provide guidelines to employees, clarify what are expected from them, and what are the
essential functions and related tasks. Therefore standards of performance become a common under-
standing, become the basis for performance appraisal, ongoing feedback and performance counseling.
Organizations follow different approaches while developing the written performances. A directive
approach to develop performance standards requires managers to write the standards for employees.
After writing and developing the standards, the same is then shared with the employees and their doubts,
if any, are then clarified. On the contrary a collaborative approach to performance standards requires
managers and the employees to develop the standards through mutual discussion and agreement. Being
mutually decided, the commitment from the employees to achieve the results is also unusually high.
Whatever may be the approach followed to develop performance standards, it is important to explain
the process to those who are concerned and ensure that they understand it in its entirety. While writ-
ing or developing the standards, it is also necessary to refer to job description, vision, mission, goals
and the objectives of the organization, and the desired model of performance evaluation. To guide the
employees in the process of achieving the performance standards, it is also essential to document the
desired pattern of behaviour expected and the minimum acceptable performance for the task or function.
Some of the principles followed by organizations while developing performance standards are:
Relate performance standards to employees’ job requirements.
Write performance standards in clear language, describing specific behaviours and actions that lead
to meeting the expectations.
Incorporate measurable or verifiable features in performance standards.
Detail performance expectations in terms of deadlines, cost, quality, quantity, customer satisfac-
tion, degree of initiatives, innovativeness in suggesting process changes, or in any other areas of
activities, which can be traced back and verified.
Determine the acceptable margin for error.
Determine the specific conditions for meeting the performance expectation.
The above principles can also be construed as important guidelines for developing performance
standards.
Relating Performance Standards to the Hierarchical Level

Depending on the hierarchical level, performance standards vary and even at times become complex.
With the level 1 hierarchical level (top level of the organization), performance standards become more
general. Let us examine the following examples:
Level Description
Level 1 Simple description of general expectation.
Example: Task Description: Processing of tea.
Standard: Segregate made tea as per quality, price and batting order in auction
market.
Example: Task Description: Finalize business plans.
Standard: Finalized Business plans need to be submitted by agreed-upon date.
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Level 2 Simple description of specific expectations.

Standard: Grade made tea and complete the grading process within 1 hour of drying.
Example: Task Description: Develop business plans.
Standard: Submit developed business plans one week before the deadline for
finalization.
Level 3 Description of specific expectations and success indicators.
Standard: Dry fermented tea leaves ensuring zero case of over- or under-drying
through constant monitoring of output and the temperature of driers.
Task Description: Develop business plans.
Standard: Produce business plans in accordance with the format and submit it to
the departmental heads two weeks before the deadline for finalization.
Level 4 Description of specific expectations, success indicators and conditions, if any.
Standard: Ferment or oxidize CTC leafs to the correct extent, keeping pace with the
variation of ambient temperatures.
Example: Task Description: Develop business plans.
Standard: Prepare business plans as per the format and submit the same three
weeks before the deadline of finalization.
Checklist for Performance Standards

After developing the performance standards, we can test its effectiveness based on the following checklist:
Are the standards realistic, attainable and consistent?
Are the standards specifying the minimum acceptable level of performance?
Are the standards candid about the specific actions or results, which the employees are expected to
accomplish?
Are the standards measurable and verifiable?
Are the standards in consonance with the organizational goals?
Are the standards challenging?
Are the standards clear and unambiguous?
Are the standards dynamic?
Benef its of Performance Management

An effective performance management system provides multiple benefits for the organizations, which
ultimately cascades to improved top line and bottom line results.
Firstly, it focuses on key objectives and priorities for the organization, aligning with the manage-
ment by objectives and the organizational strategy as a whole. Obviously people in the organiza-
tion get clarity and shared vision and mission to put their efforts in the correct direction. This also
ensures optimization of resource utilization, as people can avoid wastage of their efforts pooling all
these to the right direction.
Secondly, performance management acts as self-motivating for the employees as they get a clear
picture about what they contribute to the organization and how their contributions relate to the
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organization’s success. Organizations also provide the required support to the employees, helping
them to achieve the results.
Thirdly, it allows organizations to monitor how they function as a whole, as it emphasizes on the
achievement of targets assigned to the individuals. The monitoring process helps in identifying the
performance gaps and thus acts as an important control device to intervene and improve.
Fourthly, it helps organizations to align their important HR decisions like promotion, increment,
transfer, training, manpower planning, etc.
Fifthly, based on the performance track of employees, organizations can also draw their plans and
frame strategies to stay ahead of competitors.
Finally, it also helps organizations to fulfil their commitments to different stakeholders, as all peo-
ple working with them try to meet their assigned tasks and responsibilities.
PROCESS OF PERFORMANCE MANAGEMENT

The performance management process indicates the way performance management systems in any orga-
nization are implemented. The process outlines the sequence of actions taken to achieve the intended
goals. Performance management process in any organization tries to achieve the following objectives:
To link work efforts of employees with the vision, mission and objectives of the organization. Ful-
filling this objective, it is possible to make both the employees and the organization understand how
the job performance contributes to the organization.
To set clear performance expectations for giving clear directions to the employees on what they
need to do to achieve their goals. Performance expectations are the summation of results, actions
and behaviours.
To focus on employees’ efforts, eliminating the wasteful jobs. This ensures productive use of the
work of employees.
To link the performance to the employees’ career development, so as to enable them to understand
how meeting of the performance expectation and exceeding the expectations can help them to grow
within the organization.
To ensure performance monitoring on a regular basis. The process of monitoring includes coaching,
feedback and giving flexibility to employees, so that they can build their capabilities.
To make performance evaluation an ongoing process. The frequency, however, will depend on the
nature of the organization and the degree of competition.
Thus, the effective performance management process, backed by adequate planning, can mutually ben-
efit the organization and the employees. For such reasons, performance management is considered to
be one of the key processes of an organization. The performance management process is also construed
as a cycle, which varies with the changing business needs of the organization. It plans, checks and
assesses employees. Through the process of planning, organizations develop performance goals to prop-
erly direct the employees’ efforts. Checking is done through the process of review of goals, matching
with the employees’ performance achievements. Even at this stage, organizations need to reframe their
objectives, for obvious shift of the initial planning premises. At the assessment stage, employees’ perfor-
mances are compared against the expected objectives, using appropriate assessment tools or techniques.
To develop an effective process of performance management, organizations require an ongoing
‘dialogue’ with their people. It requires sustained efforts to develop the right organizational attitude
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to manage the performance, so that it improves the overall functions of the organization. Important
processes, therefore, can be listed as follows:
Make sure that employees understand the objectives and priorities of the organization.
Help people to focus on their efforts rather than acting on hunches.
Justify the benefits (to people) so that they can manage and improve their performance.
Help the people to deliver the results through extending appropriate support.
Align the organizational reward systems with performance management.
PERFORMANCE DOMAINS
Performance domains are based on the focus of an organization on performance measures. Based on the
type of measurement or measurement criteria, we can have the following performance domains:
Mission
Process
Critical performance sub-systems
Individual
Mission performance domain identifies the purpose of the organization, based on the changing business
focus and customers’ expectations. The mission provides overall direction, and performance targets
when aligned with the mission help in achieving the cherished goals and objectives of the organization.
Depending on the changing business focus, organizations redefine their mission and accordingly the
performance requirements of the people also get changed.
Process performance domain can be understood, first understanding the concept of the process itself.
The process is a series of steps required to produce a product or service. For example, quality efforts
focus on process performance domain. A defined process cuts across various sub-systems. Market
research, new product development, new product design, customer service, financial planning and man-
agement, each follow a process. Designing a performance management based on the process require-
ments helps the organization to achieve results in each processes and sub-processes.
Critical performance sub-systems performance domain defines internal performance sub-systems
that always directly connect to the internal environment, and frequently with the external environment
(the mission domain always interacts with the external environment). These sub-systems differ from
processes in that processes cut across multiple performance sub-systems. Examples include:
Programmes (implementing new policies and procedures to ensure a safe workplace; or, for a non-
profit, ongoing delivery of services to a community)
Products or services to internal or external customers
Projects (automating the billing process, moving to a new building, etc.)
Teams or groups organized to accomplish a result or an internal or external customer
Individual performance domain focuses on individual performance management to achieve results and
goals with some performance standard. These results and goals are recorded and referenced during a
performance appraisal process. Ongoing training and development is provided as needed. Ideally, the
supervisor and employee exchange ongoing feedback during the appraisal period to enhance the indi-
vidual’s performance.
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PERFORMANCE DIMENSIONS
Performance dimensions indicate broad categorization of employees’ behaviours and actions, which
form the basis of performance assessment. For example, strong networking ability is one of the impor-
tant performance dimensions of marketing people to achieve results. Thus, performance dimensions
relate job and the work with those peripheral attributes, possessing which employees’ can deliver their
best. Usually organizations decide the performance dimensions outlining the range of behaviours that
employees need to possess and demonstrate while accomplishing their job roles. We may not have
any universality in performance dimensions, as these are specific to job and so also the nature of the
organization. Nevertheless, we still find some commonality in performance dimensions, across jobs.
These are:
Strong interpersonal skills
Customer service orientation
Teamwork
Effective communication
Valuing diversity
Analysis and problem-solving
Decision-making and results orientation
Adaptability
Fostering a safe and secure environment
Once performance dimensions are identified and clearly defined, it is for the organization to communi-
cate the same to the employees and help them to understand what it constitutes. Better communication
to employees would be possible, when identified performance attributes are explained using some rating
scales. For example, the degree of interpersonal skill required can be explained using a 5-point scale,
where 5 denotes the highest and 1 the lowest. For marketing and human resource functions it may be 5,
or at least 4 (depending on the level of hierarchy), while for the operations and finance functions, such
requirements may not be so high.
Let us now list some of the performance dimensions.
TEAMWORK DIMENSIONS
Employee’s ability to solve problems with alliances
Ability to work cooperatively and respectively with co-workers
Ability to use diplomacy and tact when interacting with others
Ability to diffuse tension
Ability to manage conflict
Ability to collaborate and foster collegial cooperative attitudes
Ability to share knowledge and information
After identification of performance dimensions for effective teamwork, we then use the appropriate rat-
ing scale to assess an employee’s performance.
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Here, it is appropriate for use to differentiate between the performance dimensions and competencies.
Performance dimensions are the actions that employees are supposed to take to perform the job. Com-
petency, on the other hand, is the cluster of KSA that describes a general trait that an employee has or
should have to perform a job. While competencies relate to the individual, performance dimensions
relate to the job.
PERFORMANCE ETHICS
Abuse of performance management systems is a violation of ethics. It not only indicates poor focus
on corporate governance, but also creates an unhealthy work environment, where every employee
feels demoralized. Reduced performance and productivity, and employees’ dissension even ultimately
weakens the organizational competitive strength. It is necessary to ensure transparency in performance
evaluation process, and communicate to employees, whose interests get prejudiced for any performance
aligned decisions like promotions, transfer, salary raise or increments, training, etc. Some organizations
even ask the poor performers to quit. Violation of ethics in performance management systems may
not always be deliberate for the managers. It may be just for their self-understanding of the process in
absence of any guidelines. Managers often feel they are skillful and knowledgeable enough to rationally
use the performance management process. Ethical performance management practices require manag-
ers to help the employees to understand how their contributions mutually benefit them and so also the
organization.
Often we misconstrue that legal compliance is synonymous to ethical conformance of performance
management systems. This may not be true. For example, clarity, and so also mutuality of expecta-
tions, can lead to higher performance. Both of these do not require legal compliance, but critical ethical
aspects of performance management.
SUMMARY
Performance management is the strategic HRD discussion the process of development of perfor-
function which develops organizational capability mance management functions. Being the intro-
to sustain in competition. The age-old use of per- ductory chapter, to set the premises, the chapter
formance management was to validate compen- elaborates on the process of development of the
sation design and other HR-related decisions like concepts to help the readers to appreciate its gen-
promotion, demotion, transfer, etc. With the real- esis. Among others, the chapter also elaborates
ization that people are the only sustainable driv- on the history of performance management, its
ers of achieving organizational excellence, the philosophy, methods and techniques of setting
performance management focuses have shifted performance objectives and standards, benefits
towards HRD activities like identification of of performance management, its domains and
training needs, providing performance feedback dimensions, and finally the ethics of performance
directly to employees to enable them to make an management.
informed choice about their career development Being the introductory chapter, it sets the prem-
opportunities, etc. This chapter first analysed the ise for the other chapters of the book. All impor-
process of development of human resource man- tant aspects of performance management have
agement functions, and then delineates from the been covered in a nutshell in this chapter.
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KEY WORDS
Performance Management Cycle: Performance of information through various transparent com-
management cycle starts from core job descrip- munication mediums, etc. The basic thrust for
tions and reinforced with strategic plans. It trans- continuous learning is to help the employees to
lates to performance development, performance develop and achieve the results, to prepare for the
appraisal, observations and feedback, and refor- change, and nurture compelling work culture.
mulating the performance standards. This cycle Individual Performance Domain: Individual
continues, as performance management is an performance domain focuses on individual perfor-
ongoing employee development function. mance management to achieve results and goals
Performance Management Philosophy: Per- with some performance standard. These results
formance management philosophy basically and goals are recorded and referenced during a
espoused the values and beliefs of the organiza- performance appraisal process. Ongoing training
tions on their embraced performance management and development is provided as needed. Ideally,
systems. Going through the performance philoso- the supervisor and employee exchange ongoing
phy, it is possible to understand the specific roles feedback during the appraisal period to enhance
of the employees, their superiors and the organiza- the individual’s performance.
tion as a whole. Mission Performance Domain: Mission perfor-
Holistic Approach to Performance Management: mance domain identifies the purpose of the orga-
A holistic approach to performance management nization, based on the changing business focus
considers performance management is a ‘strategy and customers’ expectations. The mission pro-
which relates to every activity of the organization vides overall direction, and performance targets
set in the context of its human resources policies, when aligned with the mission helps in achieving
culture, style and communications system’. the cherished goals and objectives of the organiza-
Continuous Leaning: Continuous learning tion. Depending on the changing business focus,
ensures systematic updating of employees’ skills organizations redefine their mission and accord-
and knowledge, experience sharing through struc- ingly performance requirements of the people also
tured knowledge management approach, sharing get changed.

1. Discuss the history of performance manage- 4. What is philosophy of performance manage-
ment functions. In what way does the pro- ment? How performance management phi-
cess of development of performance func- losophy is determined?
tions get influenced by the history of human 5. Explain the concept of performance objec-
resource management and HRD functions? tives and standards. How do performance
2. Explain the concept of performance man- objectives and standards help in performance
agement cycle. Using the performance management process?
management cycle, how can you justify that 6. Explain the process of developing perfor-
performance management is a continuous mance standards collaboratively.
process? 7. What are the important characteristics of
3. Do you consider performance management performance standards?
as a management tool? Develop your answer 8. Explain how performance management can
with justification. benefit an organization.
M01_9788131754221_C01.indd 22 5/17/2011 12:12:12 PM

9. What are the important performance domains? 11. Short Notes:

How do performance domains relate to per- (a) Collaborative performance standards
formance dimensions? (b) Teamwork dimensions of performance
10. Explain the concept of performance ethics. (c) Critical performance sub-systems
Give your answer relating it to some organi- (d) Behavioural aspects of performance
zational practices. (e) Observation and feedback

12. Your organization is a world-renowned team leader you do with five graduates who
knowledge process outsourcing company, are reporting to you. The job is absolutely
mainly catering to the billing functions protocol bound and requires your mandate
of global organizations. You have been (acceptance or non-acceptance) instantly.
recruited by your company to perform the Accuracy in decision and speed of work
outsourced jobs of one of the leading IT both are essential parts of your and other
Company, based in the USA. This company team members’ job. Identify what could
has over 50,000 employees in their payroll. be your performance domains and dimen-
Billing and employees’ claim form process- sions. Develop your answer with specific
ing is part of your major duty, which as a examples.
REFERENCES
Armstrong, M. and A. Baron (1998), Performance Institute of Personnel Management (1992), Per-
Management: The New Realities (London: formance Management in the UK: An Analysis
CIPD). of the Issues (London: IPM).
Bhattacharyya, D.K. (2006), Human Resource Latham, G., L.M. Sulsky and H. Macdonald (2007),
Management, 2nd edition (New Delhi: Excel ‘Performance Management’, in P. Boxall,
Books). J. Purcell, and P. Wright (eds), Oxford Hand-
Bhattacharyya, D.K. (2009a), Organizational book of Human Resource Management
Behaviour (New Delhi: Oxford University Press. (Oxford: Oxford University Press).
Bhattacharyya, D.K. (2009b), Human Resource Lewin, Kurt (1947), ‘Frontiers in Group Dynam-
Development (Mumbai: Himalaya Publishing). ics’, Human Relations, 1(1): 5–42.
Briscoe, D.B. and L.M. Claus (2008), ‘Employee Per- Mohrman, S.A., S.G. Cohen and A.M. Mohrman
formance Management: Policies and Practices (1995), Designing Team Based Organiza-
in Multinational Enterprises’, in P.W. Budwah tion: New Forces of Knowledge World (San
and A. Denisi (eds), Performance Management Francisco, CA: Jossey Bass Publishers).
Systems: A Global Perspective (Abingdon: Sparrow, P. (2008), ‘Performance Management
Routledge). in the UK’, in A. Varma, P.S. Budwar, and
Gartner (2001), Corporate Performance Manage- A. Denisi (eds), Performance Management
ment, http://www.gartner.com/it/page.jsp?id= Systems: A Global Perspective (Abingdon:
597910, accessed on 19th September, 2009. Routledge).
M01_9788131754221_C01.indd 23 5/17/2011 12:12:12 PM

FURTHER READING
Bhattacharyya, D.K. (2007), Human Resource Cardy, R.L. and G.H. Dobbins (1994), Perfor-
Research Methods (New Delhi: Oxford Univer- mance Appraisal: Alternative Perspectives
sity Press). (Cincinnati: South-Western Publishing Co.).
Boyett, Joseph H. and Henry P. Conn (1988), Maxi- Frazier, G.L. and R.D. Howell (1983), ‘Business
mum Performance Management: How to Man- Definition and Performance’, Journal of Mar-
age and Compensate People to Meet World Com- keting, 47: 59–67.
petition (London: Gland bridge Publishing Ltd.). Kane, J.S. and C.E. Lawler (1979), ‘Performance
Burke, R.J (1978), ‘Characteristics of Effective Appraisal Effectiveness: Its Assessment and
Employee Performance Reviews and Develop- Determinants’, in B.M. Straw (ed), Research
ment Interviews: Replication and Extension’, in Organizational Behavior (Greenwich: JAI
Personnel Psychology, 31: 903–19. Press).
Byham, W.C. and G.C. Thornton (1986), ‘Assess- Longenecker, C.O. and D.C. Ludwig (1990),
ment Centers’, in R.A. Berk (ed), Perfor- ‘Ethical Dilemmas in Performance Appraisal
mance Assessment: Methods and Applications Revisited’, The Journal of Business Ethics, 9:
(London: The Jones Hopkins University Press). 53–61.
CASE STUDY ON PERFORMANCE MANAGEMENT SYSTEMS

In studying performance management systems, it management practices. They are not intended to
is imperative to understand corporate practices. be a comprehensive collection of teaching mate-
Here we have discussed about an important case rial. They provide a useful backbone to a pro-
with far-reaching implications on performance gramme of study.
management issues. Students are advised to care-
fully go through the case and understand the per- Steps of a Case Study
formance management issues. Get any doubts
clarified from your instructor. Read the case carefully and note down all the
material facts and identify the problem(s).
What Is a Case? Mention the area of management to which
the main problem relates. It is possible that
A case is a short description, in words and num-
the problem may overlap other areas as well,
bers, of an actual management situation. A typical
which may demand simultaneous solution.
case consists of number of pages of prose descrip-
The total view of the situation should not be
tion with some quantitative materials (figures),
lost.
exhibits, organization charts, graphs or tables. The
use of cases for advanced management education Place yourself in the position of manage-
started at Harvard University in 1908. ment and view the case situation and the case
problem.
What Is a Case Study? The analysis should be from a managerial
Case study is a systematic way of helping stu- angle—unbiased and objective.
dents to learn from experiences. Such studies are List out various possible alternatives and then
intended to serve as the basis for class discussion prioritize on the basis of comparative superi-
and not as an illustration of either good or bad ority and feasibility.
M01_9788131754221_C01.indd 24 5/17/2011 12:12:12 PM

Select the best alternatives and state the same be studied comparing outsourcing vis-à-vis
as your decision. employment on permanent payroll.
Indicate an estimate of outcome including the In case analysis, we always attempt to estab-
possible side effects, if any. lish a casual relationship between various
factors couching qualitative and quantitative
Case Study Techniques information. To illustrate effective CRM may
be co-related with increased market share.
Case study method is basically a qualitative analy- Employee motivation may be related to pro-
sis pertaining to an organization. In some cases, ductivity.
however, where quantitative details about the Case analysis is a direct approach and, there-
organization are available, case study may also fore, requires analytic rigour and experience.
provide certain insights to operational details of
case problems scientifically. Normally case study Case study unleashes the best management
method focuses on organization or at best two or practices and therefore significantly contrib-
three homogenous or competing organization (for utes in enriching the theories. For example,
benchmarking) unless it is a cross-organizational benefit of ‘direct participation’, which is a
study to authenticate any management practices strategy to use collective wisdom of the peo-
or approves or disapproves any assumptions to ple to develop a response capability toward
establish certain theories. Case study requires in- some targeted goals of the organization,
depth analysis of some situations and study on would not have been known to the world,
their inter-relationship in an organization. Impor- unless the practices of ‘CHEVRON’, the
tant characteristics of case study methods can be petroleum giant, were brought into the lime-
listed as follows: light by researchers.
In case study method, one can choose to study Despite its advantages, case analysis may often
a single organization or social unit or more. suffer from the problem of generalization and
One may even confine his focus only on cer- unless properly structured may also vitiate the
tain areas or situations of the sample organi- purpose of learning.
zation. To illustrate if the purpose is to review
an organization’s strategy, one may critically Important Guidelines
examine, the vision, mission, goals, objec-
There is no single correct solution even for a spe-
tives, strategies, action plan and policies, and
cific management problem. Logical thinking in
document his/her observations.
line with the accepted basic principles and prac-
Case analysis is done very intensively focus- tices (processes) of management is what which is
ing on some limited identified areas rather judged and assessed by the examiner.
than exhaustively. Such studies may be Questions which are given at the end of each
longitudinal in nature for drawing correct case study suggest the line of enquiry; hence study
inferences. the questions carefully.
Even though perennially case study method A case with questions at the end is known as
is considered a qualitative analysis, we can close-ended case study. But there are also cases
also do quantitative analysis and interpret the which may not have questions at the end. These
organizational issues, when such details are are open-ended cases. A case solution is done duly
available. For example, we can analyse the identifying the problems and issues and providing
resource allocation strategy of an organiza- answers to those problems.
tion in terms of cost–benefit analysis. Simi- Mere restating the facts of a case report without
larly, efficacy of a compensation strategy can any meaning should be avoided.
M01_9788131754221_C01.indd 25 5/17/2011 12:12:12 PM

CASE STUDY
Performance-based Incentive Systems of Modern Bank of India

The CEO of a national-level private sector bank, Modern Bank of India, which is growing very fast,
always nurtures the view that HR people themselves are poor in managing behaviour of people in his
organization. He feels that over the years, his HR is instrumental in demotivating people, as they failed
to retain the result-oriented employees, causing huge manpower-replacement cost to the organization.
Besides, employees feel that the performance management system is too complicated, and focuses
only on achievement of quantitative targets, rather than on the other positive aspects of employees, who
largely feel that they are instrumental in taking their organization to a new height, with focus of customer
satisfaction and developing organizational loyalty. Business target achievement, fixing a stretch goal
and forcing employees to accept the KRAs, without listening to them, may have helped in achieving
the short-term goals, but such achievements far outweighed the losses when good performers left the
organization in less than two years. As per policy, immediately after recruitment the organization is to
train the new recruits through a month-long induction programme, and allow them to understand the jobs
for the next two months, without setting for them any specific targets for achievement. All these add to
the costs for the company. The CEO laments that every employee replacement costs them directly two
times the annual salary paid to an employee, and indirectly it costs even more, as value addition differs
between existing individual employees and replacement employees. Average value-addition potentiality
of marketing executives (at current discounted values), assessed by the organization, using the learn-
ing curve theory, taking the employment span to be of 10 years, five years before indicated a figure of
Rs. 25 lakhs. Five years down the line, the figure is Rs. 15 lakhs. The CEO justifiably argues that what
HR is doing is to recruit on a piece-meal basis, rather than considering the long-term effect.
In one of the corporate level meetings, with all functional heads present, the CEO was blunt in accus-
ing the HR department, telling ‘lets accept that our HR department is an utter failure. Our HR department
still considers employees just another input into the process. There is no effort to make our employees a
partner in the organization.’ The CEO then asked the HR people to put up a detailed performance-driven
compensation plan, which will help the organization to optimize the compensation cost and at the same
time will reduce the attrition rate, thereby increasing the motivation level of employees.
The HR manager accordingly prepared the plan which is as follows:
Variable pay component in executive compensation in India has now been increased to almost 50 per
cent from 20 to 30 per cent, only a few years back. Without linking it to company performance alone, a
three-tiered structure has now emerged, that is, the variable pay is linked to company performance, team
performance and individual performance.
Our company’s annual turnover today is Rs. 1000 crore. We have 900 marketing executives with the
current rate of staff turnover at 15 per cent. The number of marketing executives with a tenure of more than
five years with the company is 115. The number of marketing executives over 40 years of age is only 60.
The benchmarked annual salary data in comparable private sector banks in the country for market-
ing executives is Rs. 6 lakhs (considering the cost to the company), while our organization today pays
Rs. 6.25 lakhs. Our organization believes in pay equity and follows broad banding while designing base
pay. The calculated wage cost to annual sales is 20 per cent.
An employee-motivation survey carried out by the HR department of the organization indicated that
30 per cent of the marketing executives feel that they are underpaid, 50 per cent feel that they are getting
the competitive benchmarked salary, while the rest 20 per cent feel that they are getting more than the
market rate. In response to a questionnaire item, requiring executives to point out what should be their
M01_9788131754221_C01.indd 26 5/17/2011 12:12:12 PM

perceived percentage of salary rise, which they feel will motivate them, the replies suggested that an
incentive plan needs to be designed, which corroborates with the Scanlon Plan explained below.
This plan relates compensation cost ratio to the total sales value to measure effectiveness of per-
formance. As per this plan, an incentive bonus will be payable to marketing executives, based on the
percentage reduction in the marketing executive to sales ratio, comparing the base period and assess-
ment period.
The HR manager believes that following this plan will not only ensure optimization of compensation
cost of marketing executives (whose variable component of compensation is now linked with individual
performance achievement) but also foster teamwork and develop a culture of togetherness, which will
have enduring effect on marketing executives’ motivation and retention.
Question for Discussion The New Incentive Plan

Imagine you are the CEO of the bank. Critically The new incentive plan has the following features:
review the proposal of the HR manager and com-
ment whether this proposed incentive plan would Introduction of variable pay component in
really ensure motivation and increased retention executive compensation.
of marketing executives of the company. Give jus- Three-tier structure for variable—company per-
tifications in support of your answer. formance, team performance and individual
performance.
Tentative Case Solutions Scanlon Plan has to be followed for incentive
Introduction pay. This plan helps the management to tap the
The case critically examines the incentive scheme ingenuity of employees as a means of improving
of Modern Bank of India, a national-level private production.
sector bank in India. The CEO of the bank is dis-
satisfied with the HR managers. According to the Analysis
CEO, the HR department is not skillful at motivating
the employees, besides following poor human man- The analysis shows the following points:
agement procedures, the effect of which is seen in The new plan will help curtailment of attrition
the high attrition rate the bank is witnessing. The as the new compensation plan will increase the
CEO believes that the present HR performance bank’s employee’s pay packet to 6.25 LPA (lakhs
measurement systems lay too much emphasis on per annum) against the industry benchmark of
the quantitative aspects and not on the qualitative 6 LPA.
aspects. The business target achievement unit is The tangible outcome of the policy is already
fixing a stretched target and focuses only on KRAs. known where a survey was conducted amongst
This approach, the CEO feels, has lead to the the employees to judge their reactions towards the
fulfillment of the short-term goals/objectives albeit proposed performance appraisal system. As part
at the cost of long-term goals. It has been observed of the survey, it was observed that a majority of the
that employees are leaving the organization after employees considered the revised salary figures
completing their two years with the company and as either competitive or were satisfied.
on account of their attrition; the company has to The Scanlon plan is effective. A quick analysis
bear additional costs in terms of recruitment, train- reveals that as the ratio of marketing executives to
ing of new employees, etc. In light of the above sales decrease, the bank will be able to save more
facts, the CEO has asked the HR department to money. Hence this plan helps the bank to increase
come up with a performance-driven compensa- the sales and reduce the employees. This plan will
tion plan which can increase employee motivation also help the bank to increase the team culture
thereby reducing the high attrition observed. and improve the performance.
M01_9788131754221_C01.indd 27 5/17/2011 12:12:13 PM

Recommendations Brief for the Manager

The following recommendations are suggested: You are the Manager of a Development Depart-
The real causes of discontent amongst the ment whose task is to plan, organize and control
employees shouldn’t be implicitly assumed. It layout and equipment changes in the manufac-
is very likely that salary is just one reason of the turing division of the company. One of your staff,
high attrition. Hence, it is imperative that some a graduate engineering, aged 24, has just com-
form of survey or informal discussions be con- pleted a project to install a new layout of convey-
ducted between the senior management and ors, sorters and packing machines at the end of a
the employees to undercover their real sources line producing small plastic bottles. This has been
of dissatisfaction. highly successful. The Manager of the line and the
staff working on it are all pleased with it and prefer
It is the responsibility of the management to
it to the original layout.
ensure that working hours of the employees is
Now is the time to talk to your young graduate,
kept to industry standards only.
show how pleased you are with this project and its
For enthusing motivation, the HR manag-
conclusion, and try and discover which areas are
ers should conduct assign challenging roles
ones in which further help, training and develop-
to employees based on their capabilities.
ment of skills are required.
This would at least ensure work satisfaction
amongst the employees.
Upgradation of the bank’s technology which Brief for the Graduate
will help in improving the employee productivity.
You have been working for one year in this Devel-
opment Department whose task it is to plan, orga-
Role Play Exercises for Performance nize and control layout and equipment changes
Management in the manufacturing division of the Company.
You have just completed a project to install a
Performance management requires, among oth- new layout of the conveyors, sorters and packing
ers, frequent counseling sessions with the employ- machines at the end of a line producing small plas-
ees. In such sessions, managers share the perfor- tic bottles. This has been highly successful. The
mance feedback and also suggest possible ways Manage of the line and the staff working on it are
and means to employees to develop. For those all pleased with it and prefer to the original.
who perform below the expectation levels, such Your boss has asked to see you. You hope he is
counseling sessions also help the employees to as pleased as you are with the outcome of this proj-
identify their weaknesses and understand the ect. If you get the chance you would like to become
imperativeness to develop them to match with the involved in an automation and computerization
level of expectations. Many organizations use it project next. You have heard that the main line
as a morale-boosting way and means, while some producing the shrink wrapped 6-pack of half-litre
use it negatively to show the non-performers bottles is due to be automated further later this
the exit route. Whatever may be the purposes, year. You would like to do that. The most difficult
managers need to master the art of counseling. issue during this last project was negotiation with
Role play exercises help in reaching to the level of several different companies for the purchase of the
perfection to performance counseling. conveyor equipments—their salesmen were fairly
From the script below, do this Role Play, writ- aggressive and you found it difficult to deal with
ing the dialogues both for the Manager and for the them.
Graduate, the focal theme of which is Praise and (Hints: Remember you have to confine your
Develop. discussion within the ambit of the scripts). This role
M01_9788131754221_C01.indd 28 5/17/2011 12:12:13 PM

play requires two characters. It is better to practice Structuring the meeting

also the role reversals. Role Play facilitates the Observation, interpretation and judgement
development of the following skill sets: Identifying training/development needs
Questioning skills Reconciling individual and organizational needs
Listening skills (including summarizing and
Non-participants in a role play can fill up a
reflecting)
structured observation sheet as under. This will
Establishing rapport help them to develop analytic skill. However, in
Controlling conversations turn, all must participate in a role play.
Understanding of body language
Giving and receiving feedback
Objective setting
Role Play Observation Sheet
Gaining agreement and commitment Note both positive and negative observations.
Points to consider Examples and their effects

Opening
Putting at ease
Venue, Seating, Formality
Clarity—was the purpose explained?
Middle
Sensitivity, use of questions, listening
Control of pace
Structure and direction
Body language; approach and style
Rapport and agreement
Who is doing all the talking?
Editing
Outcome, feelings at the end, acceptance or agreement
Summary
Overall effectiveness
Was the aim achieved?
M01_9788131754221_C01.indd 29 5/17/2011 12:12:13 PM

CHAPTER 2
Performance Planning
Learning Objectives
Definitions and concepts of performance Preparing the performance development
planning plan
Performance planning process Transition from individual performance plan
Development and contents of a performance to group performance plan
plan Performance plan and role clarity
Process of developing employee performance Creating strategic plans and its alignment
plans with the performance plans
Eight-step model of elements and standards Strategy realization essential elements through
of a performance plan performance plans
Aligning Strategy with the Performance Plans

The strategy alignment and implementation, rather than strategy content, differentiates organizations.
Measurement is the key in transforming and maximizing employee performance and productivity. Organ-
izations like General Motors, Armstrong World Industries, Inktomi, and Cisco Systems Inc. could suc-
cessfully link their strategies with their performance plan and performance management systems.
With the emergent need to improve the performance to survive the onslaught of Japanese automobile
majors, General Motors Europe (GME) developed a balanced scorecard, encompassing all the functions
and operations of the organization. In all the 8 business units and 12 functions, the company introduced
the balanced scorecard. According to Martin Shotbolt, leader of General Motors Europe’s Information Sys-
tems and Services Change Management Team, ‘overall, scorecard adoption has strengthened strategic
performance management because it has helped all operating units across GME to focus on and under-
stand how their performance and capabilities impact on business strategy’. High-performance capabilities
of GME could help the company to sustain their global market leadership. Performance management
systems could push its competitive standards, and contribute to critical success areas by reorienting of
strategic planning, priorities, and management. In the process, performance management systems of the
company could drive the corporate goal of value creation for employees, customers, and shareholders.
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Performance Planning 31
INTRODUCTION
Performance management cycle starts with the process of reviewing employees’ performance against
the organizational performance expectations. At the beginning of the performance management cycle,
it is important to review with employees the performance expectations of the organizations. Such a
review must also consider the behavioural aspects, as an employee’s behaviour also reflects on their
performance. Review of employees’ behaviour is important as it helps to assess the way the job is
done, employees’ propensity to teamwork, interpersonal communications, attitude towards subordi-
nates’ development, etc. The review exercises also set the premises for future performance expecta-
tions from the employees. In many organizations, it is often observed that outstanding performers are
attitudinally bad, and often exhibit disruptive behaviour, which ultimately creates a difficult situation
in the work place. People who are subordinate to such employees feel unhappy and even take harsh
decisions to leave the organization. Such attrition ultimately affects the organizational performance. On
the contrary, good performers with positive behaviour for their helpful attitude can benefit the organiza-
tion creating a compelling culture to perform. Therefore, during the performance planning itself, it is
important for the organizations to assign weights to behavioural and target-achievement aspects, as the
behavioural syndrome decides the performance outcome, if not the performance output. Performance
review processes, therefore, take stock of behavioural and the performance results, and accordingly
provide the feedback to the employees. Performance feedback needs to be given to employees on an
ongoing basis. The purpose is to give the message to the performance laggards and help them to develop
their performance. With the balanced scorecard, nowadays, it is possible to give real-time performance
feedback to employees, and even employees on their own can self-assess their contributions in achiev-
ing the organizational objectives. Also, employees enjoy self-pride in understanding the gravity of their
contributions. Giving effective performance feedback to a great extent depends on the way it is provided
to the employees. Good managers make this feedback process a two-way communication. Some manag-
ers fear adverse performance feedback to employees will increase their dissension, and they may even
feel demoralized, which may exert adverse impact on their future performance. But with the role of a
performance facilitator, when managers help the employees to understand their performance gaps, and
also show them the way it can be improved, even under performers can churn out to become good per-
formers. Many organizations, therefore, provide training to their managers to successfully provide their
performance feedback to employees. With ongoing candid performance communication (two-way),
organizations achieve better results. It makes the performance management system more effective, and
ultimately contributes to develop a compelling culture of performance.
PERFORMANCE PLANNING PROCESS

Performance management is the systematic process of planning, monitoring, developing, rating, and
rewarding good performance. Planning sets performance expectations and goals for the individuals and
groups, keeping pace with organizational objectives. Performance plans for employees explain what
employees need to do to accomplish their jobs successfully. It consists of written and documented per-
formance elements, which form the basis of performance management. For group or team performance,
critical performance elements are difficult to document. Although individual members of the group need
to accomplish the critical performance elements, group performance consists of achieving group goals.
Group goals are an aggregation of individual level critical and non-critical performance standards.
Performance elements explain what the employees are required to do and how well they have to do
it to achieve the desired level of performance. Effective performance elements and standards are those
M02_9788131754221_C02.indd 31 5/17/2011 12:12:29 PM

which are understandable, measurable, attainable, fair, and challenging. Performance elements can be
critical, non-critical, and peripheral or additional elements.
Critical performance elements are those that are most important, without which employees’ overall
performance become unacceptable. Non-critical performance elements are those that are not critical but
assume importance while we summarize the performance results. Additional performance elements are
not used even when we summarize the performance results. For example, non-critical performance ele-
ments being accounted in performance summarization could be the overall performance impact, such
as behavioural elements, interpersonal relations, sincerity and dedication to work, etc. In contrast, addi-
tional performance elements which are not even considered while summarizing performance results are
those like employees’ volunteerism to new work assignment, propensity to acquire new skills and self
develop, etc. Based on the study of accomplished critical, non-critical, and additional performance ele-
ments of employees, we can understand the potentiality and use these as inputs to succession planning.
Involvement of employees in the performance planning process ensures employees’ understanding
of the goals of the organization, and also employees get clarified on their job roles, the rationale behind
such job roles, and the process of accomplishing them. Through the performance planning process, the
organization also clarifies elements and standards of performance appraisal. Job elements and standards
are so designed, so that it becomes measurable, understandable, verifiable, equitable, and achievable.
Critical job elements make employees accountable for their work assignments. Non-critical and addi-
tional job requirements also form the basis of job performance. As the performance plans are drawn
on the current premises or assumptions, any change in the planning premises ultimately affects the
performance plans. It is for this reason that performance plans need to be flexible enough to keep pace
with the changes. Such flexibility ensures adjustment of performance expectations. Organizations also
experience a wide performance variation in individuals and groups. When such variations are on the
positive side, it may be required to upwardly revise the performance expectations and standards both
for the individuals and the groups. On the contrary, when individual employees and their groups consis-
tently deliver less than the performance expectations and standards, organizations may require making
downward adjustments of performance plans.
I could experience two such cases in the corporate world. In the first case, a leading private life insur-
ance company, Birla Sun Life, could get almost 80 per cent of the business from one of their managers
within 3 months, leaving achievement of 20 per cent business targets in the next 9 months. Private
insurance companies set performance targets much on the higher side, and assume achieving more
than 60 per cent of the targets tantamount to a very good performance level. In this case, periodic per-
formance review could help the company to understand the high-performance potentiality of one of their
managers. The company accordingly took the opportunity to upwardly revise the performance targets
for the subsequent three quarters (9 months), rewarding such managerial talent. The result was good;
the manger could generate more business, much higher than the previously set performance targets.
In the second case, Kitchen Appliances, a Videocon unit, had to declare temporary suspension of
work for producing more colour televisions (CTVs) much ahead of their time schedule. The company
produces CTVs independent of market demand. Temporary work suspension benefits the company
in terms of saving the labour cost (as a significant percentage of their workers are from outsourcing
vendors) and other variable overheads. Also, the company could rage the price war, as adjustment of
saved costs reduces the price of CTVs.
Thus, a flexible approach to performance plans can benefit the organizations and the individuals as
they can make best use of their talents and increase their rewards.
M02_9788131754221_C02.indd 32 5/17/2011 12:12:29 PM

Monitoring is the next phase of the performance planning process, which facilitates the continuous
measurement of performance to provide feedback. Employees and their groups can track their contribution
to reach the performance goals of the organizations. At the individual level, monitoring involves reviewing
the performance progress with the employees against job elements and standards. Ongoing monitoring
helps the managers to understand how well employees are performing in meeting the pre-decided per-
formance standards and the underlying problems in performance standards, if any, for making necessary
changes. Unrealistic performance standards lead to complications, as employees get demotivated when
they deliver far less than their assigned targets. Systematic monitoring and adjustment of the performance
plans can eliminate such problems.
Developing is the other important aspect of performance plan. Through performance review,
employees’ developmental needs can be assessed, and the gap, if any, can be suitably addressed. Focus
on employee development can enhance employees’ capacity to perform. Organizations through differ-
ent developmental plans, such as training, job rotation (to expose employees’ to new skills), creating
assistant-to positions, and improving work processes, can develop employees. With such developmental
opportunities, employees can strengthen their job-related skills and competencies, and perform better
in their work places.
Performance rating is a summarization of employees’ performance. It tracks performance variation,
if any, over different time periods and accordingly identifies best, average, and poor performers. While
best performers are rewarded through pay hike and promotion, average and poor performers are taken
through a series of development programmes to put them back on track of the high-performing group.
In performance appraisal, rating means evaluating employee or group performance against the elements
and standards in an employee’s performance plan and assigning a summary of rating. For organizations,
a report on performance rating helps in the adjustment of business plans.
Rewarding is recognition of employees both individually and as members of the group to give cre-
dence to their performance. It motivates good performers and an organization can also get the oppor-
tunity to retain the talented employees. When they observe their fellow top-performing colleagues get
rewarded, average and poor performers feel inspired to improve their performance. With positive expec-
tations, employees perform better. Organizations make their rewarding and recognition programmes
ongoing, rather than waiting for their performance cycle to end. It requires adoption of a flexible pay
plan and so also the flexible HR policies.
R. Rogers, L. Miller, and J. Worklan (1993) in their landmark study on Performance Management:
What’s Hot—What’s Not (Development Dimensions International and the Society for Human Resources
Management) could identify that effective performance planning, among others, is one of the essential
prerequisites for the success of performance management systems in any organization. While feedback
and coaching is the heart of effective performance system, performance planning shows the organiza-
tion as well as the individual employees the goals and its link with the organization. The study indicated
that with a sense of ownership and involvement, when aligned with performance plans, performance
results get better.
DEVELOPMENT AND CONTENTS OF A PERFORMANCE PLAN

To develop a performance plan, we first focus on individual level performance requirements, rather than
the performance requirements of groups and the organization as a whole. Hence, the steps for devel-
oping a performance plan are drawn using the employee performance requirements that relate more
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to individual employee-level performance. However, following such steps, we can cascade the per-
formance efforts requirement for the groups and the organizations as well. Such cascading effects on
groups and organizational performances may not always be possible for all types of jobs. For exam-
ple, one research and development (R&D) professional may develop several prototypes for consumer
durables, but marketing and operations people may adopt those which they feel fit to the customers’
requirements and have an operational feasibility. In the consumer electronics industry, to withstand the
competitive pressure, most of the organizations separate their R&D activities and allow their employees
to innovate products independent of market demand. This is to woo the customers to new designs and
gain market leadership. Michel Porter (1985) named this as product differentiation strategy to fight against
competition. Hence, performance consideration of the R&D professionals in an organizational context is
limited only to those whose ideas effectively translated to new designs resulting in market success.
Thus, application of performance plan steps, drawn at the individual employee level, may not always
work, as the nature of performance may not be traceable to organizational performance in its entirety,
though it may fulfil the individual employee-level performance requirements.
Keeping in view the above constraints, we can draw the following steps to develop the contents of a
performance plan:
1. Review organizational goals to associate preferred organizational results in terms of units of
performance, that is, quantity, quality, cost, or timeliness. Organizational goals are often estab-
lished during strategic planning. Performance management translates these to results that vary
depending on the nature of jobs, in terms of quantity, quality, timeliness, or costs. Results are
the primary outcome in terms of products and services, or any other that we desire to achieve
in the performance process. Therefore, examples of results can be a percentage increase in
sales, the extent of impact on the stakeholders, and so on. In other words, we can define results
as the expectations through performance. Premise of the results are the goals, as they set the
performance expectations. While setting the goals, organizations need to be ‘SMART’, that
is, specific, measurable, acceptable, realistic to achieve, and time bound (meeting the dead-
line). For example, the organization’s overall goal may be to increase its profit by 30 per cent
by the end of the next financial year. To achieve this goal, organizations need to devise the
performance expectations, cascading it to various sub-goals for each constituent part of the
organization. For example, an organization having multiple product lines may distribute such
an overall goal of achieving 30 per cent growth in profitability to different product lines at
varying degrees. The high revenue–generating product line may get a sub-goal of achieving
50 per cent more in their sales, while the least revenue-generating product line may get the
sub-goal of achieving 10 per cent more in sales.
2. In step 2 of the performance planning process, we need to specify the desired results. These
results vary with respect to different performance domains. For example, at the operation level
employees may be expected to produce high-quality items, while a marketing team may be
expected to render best customer services. In step 2, therefore, we cascade over goal or sub-
goals into specific performance results.
3. In step 3, we align performance results with the organizational results. This is to ensure perfor-
mance results contribute to the overall organizational goal achievement. Hence, organizations
look for answers to the following questions:
a) Are the employees able to trace how their contributions fit to the achievement of overall
organizational goals?
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b) Are the employees able to understand what organizational goals they are pursuing?
c) Are the employees aware of how they need to pursue organizational goals?
d) Are the employees able to understand what could be the most productive way to pursue the
goals?
e) Are the employees able to understand how their contribution to organizational goals will be
measured?
4. In step 4, we need to prioritize the specific performance actions, sub-goals, or goals, assign-
ing some weight to each criterion. To better understand, some organizations may also assign
numeric values to each criterion. Professionally managed organizations who prefer perfor-
mance-based recruitment indicate these through structured mapping, assigning weights or
numeric values. Assigned weights or numeric values help employees prioritize their actions
and also decide the required time per criterion. For example, a marketing manager’s time allo-
cation may be weighted as follows:
a) 70 per cent of time to develop new market opportunities
b) 10 per cent of time in analysing customer feedback
c) 10 per cent of time in planning
d) 10 per cent of time in scanning competitors’ information
5. In step 5, performance evaluation measures are identified. Performance measures may be
quantity, quality, timeliness, innovativeness, or cost. For a factory worker, performance mea-
sures may be quantity produced conforming to quality and cost-effectiveness in a given time
frame. For an HR manager, this may be reducing employees’ grievances within a week at
the most, and saving the cost of arbitration or legal suits. For an R&D scientist, this may be
developing a given number of prototypes within a given time at optimum costs. The biggest
challenge for the managers is to identify the appropriate performance measures. It requires
thorough understanding of performance domains and their relations with the goals or sub-
goals. Again, selection of measurement tools requires special attention as these need to be
valid and reliable.
6. Identify specific measures more precisely. For some performance domains, we need to be
more precise to be able to accurately measure employees’ contributions. For example, devel-
opment of prototypes by R&D scientists can be further precised, prototypes that can be used
and adopted in commercial runs. For example, a developed prototype may not be suitable for
fitment trial and subsequent production run in the absence of required plants and machineries,
or it may not be customer satisfactory.
7. Identify performance standards or the level of performance for accurate evaluation. Perfor-
mance standards clarify the level that is expected to be achieved by the employees while they
deliver results. For example, if the performance standards for R&D scientists is to develop
10 effective prototypes (effectiveness in terms of cost optimization, production feasibility,
and customer acceptance) and one R&D scientist achieves the development of 12 prototypes,
then this performance is termed ‘exceeds expectations’. When it is just 10, it is termed ‘meets
expectation’, but if it falls short of 10 then ‘does not meet expectation’.
8. Document the performance plan indicating the expected results, performance measures, and
performance standards. A documented performance helps both the managers who evaluate the
performance as well as the employees who deliver them.
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After developing the performance plans, with all the above stated details, organizations need to
extend the necessary resource support to achieve the expected results. Resource support does not
indicate only the fund allocation; it even extends to employee development programmes through train-
ing, coaching and mentoring, regular performance monitoring, feedback, and performance counselling.
While documenting the performance plans, it is important to make employees understand them as well.
PERFORMANCE PLANNING STEPS

We have already understood the process of developing the contents of performance plans. The follow-
ing performance planning steps can ensure the effectiveness of the same:
Establish performance goals that are objective, quantifiable, and measurable.
Describe the resource requirements to meet these goals.
Document indicators to measure the performance.
Align individual employee-level performances with organizational goals.
Rate performance as per documented procedures in the performance plan.
PROCESS OF DEVELOPING EMPLOYEE PERFORMANCE

PLANS
Traditionally in some organizations, performance plans are developed based on employees’ job descrip-
tions. This, however, cannot lead to achieving the expected results, as it elaborates only the activities
and not the performance accomplished. Activities in isolation cannot be aligned to organizational goals.
Here are a few examples.
Job Description:
Human Resource Manager—Work requires exceptional skill in managing people, recruiting and moti-
vating them, designing suitable compensation, planning of manpower retention and redundancy, design-
ing suitable training programmes, managing organizational change through development, and finally
managing the performance of employees.
Major Duties and Responsibilities

Manage employee grievances.
Extend support to line function for managing people.
Recruit or source people who match with organizational requirements.
Identify suitable reinforcers to motivate people.
Design competitive and cost-effective compensation plans.
Ensure employee retention through various innovative practices.
Effectively manage a manpower redundancy programme.
Design training programmes, emphasizing more on in-house programme delivery.
Manage organizational change through appropriate organizational development initiatives.
Develop and administer a suitable performance management system.
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EIGHT-STEP MODEL OF ELEMENTS AND STANDARDS OF A

PERFORMANCE PLAN
So far we have reviewed performance plans, focussing only on activities. Here we will focus on perfor-
mance plans that establish elements and standards duly addressing the accomplishments which lead to
the achievement of organizational goals. This eight-step model is based on organizational practices, and
for each successive step, the inputs come from the previous step.
Step 1: Understand the Overall Picture

This initial step requires consideration of overall organizational goals and objectives, rather than con-
sidering employees’ job descriptions while developing the performance plans. This is done collecting
information on the general outcome of the strategic plan of organizations. Organizational strategic plans
also outline the goals and objectives (goals are the subjective targets while objectives are the quantita-
tive targets) and the quantifiable and measurable performance goals. Alignment of employee perfor-
mance plans with the strategic plan of the organization ensures a holistic consideration of all aspects
providing the overall picture. Employees’ achievements of goals at every stage integrate with the overall
goals of the organization and in the process fulfil the organization’s strategic intents. In other words, the
general outcome goals of the strategic plan cascade to the specific or output-oriented performance plan,
making performance plan a subset of the organization’s strategic plan.
Step 2: Identify the Accomplishments at the Work Unit Level

This step determines the accomplishments (i.e., the products or services) at the unit level. Organiza-
tional units may be a strategic business unit (SBU), a product line (representing a bundle of similar
types of products, such as detergents of Hindustan Unilever), a division, or a product mix (representing
a single product, that is, a single type of detergent of Hindustan Unilever). Through adoption of appro-
priate measures, organizations determine the nature of accomplishments expected from the work units
to develop the performance plan accordingly.
Step 3: Identify Individual Accomplishments and Their

Integration with the Work Unit Goals
Here we consider the performance elements that include individual and group assignments and respon-
sibilities. Using a role-result matrix (represented in a table duly identifying the expected results from
the unit level employees that lead to the accomplishment of results at the unit level), we list the unit’s
products or services and the members’ accomplishments for each job position in terms of quantifiable
and verifiable performance elements. It is important to understand that role-result matrix is not intended
to document the activities (verbs); it specifies the accomplishments of unit level employees who lead to
the achievement of results at the unit level.
Step 4: Convert Expected Accomplishments into Performance

Elements, Duly Mentioning Their Type and Priority
In this step, we need to identify specific elements of the performance plan and assign weights as well as
priorities. We may have a number of job elements in a performance plan for an employee, but all may
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not be equally important. Elements with highest priority and weights are known as critical elements. In
each job position, at least one critical element needs to be present. We may also have non-critical and
additional performance elements. All such elements are clearly spelt out and accordingly get reflected
in the performance appraisal format.
Identifying Critical Elements of a Job

To understand which element of a job is critical, the following issues need to be clear:
Does it relate to individual performance?
Does it affect the performance of the work unit?
Does non-performance on this element seriously impede the work?
Does the element take maximum time of the employees?
Step 5: Determine Work Unit and Individual Measures

After identifying critical, non-critical, and additional performance elements in the earlier step 5, we
determine how to measure their performance. Measures explain the work unit’s work process. Here
again we focus on general measures and specific measures.
Step 6: Develop Work Unit and Individual Standards

With the identification of general and specific measures for the performance elements, at this stage we
establish the standards. Standards for the elements form the basis of performance appraisal programmes.
Step 7: Determine How to Monitor Performance

Performance monitoring not only indicates measurement of performance but also feedback to employ-
ees. Although performance appraisal may be at a specific time interval, performance monitoring should
be an ongoing and informal process, primarily to keep the employees on track. In the performance plan,
such detailing helps implement the structured process. To ensure that performance monitoring is effec-
tive, organizations need to focus on following aspects:
Decide the nature of data to be collected. Data collection may be through complete enumeration or
based on a sampling method.
Decide the time interval of data collection, the onus of data collection, and the custodian of such
data.
Study all the existing performance reports to design the feedback reports.
Design feedback tables, graphs, or matrix wherever necessary.
Ensure the feedback process is instantaneous and automatic.
Step 8: Check the Performance Plan

The final step examines the efficacy of the performance plan based on the following checklists. These
checklists cannot be construed as final and all inclusive, rather they are tentative. In many organizations,
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performance requirements need to conform to regulatory requirements. However, the checklists

presented below can be used as a template to understand the degree of effectiveness of a performance plan.
Check whether the critical elements are truly critical. (Ensure this is based on the understanding
that failure on the critical element makes the overall performance of employees unacceptable.)
Decide the range of acceptable performance. (Ensure this making performance action quantifiable,
observable, and verifiable.)
Decide whether the assigned performance standards are attainable. (Ensure this deciding the degree
of attainability of performance standards.)
Decide whether the attainable standards are challenging. (Ensure this assessing the degree of efforts
that employees need to put to reach this performance level.)
Decide the degree of fairness of the standards. (Ensure this comparing the performance expecta-
tions in similar job positions.)
Understand whether the performance standards are applicable. (Ensure this by assessing the pos-
sibility of measurement of performance and data collection.)
Understand whether the performance standards can be understood by the employees. (Ensure this
avoiding any ambiguity in detailing the performance standards.)
Understand the flexibility of elements and standards of performance. (Ensure this by making the
performance plan adaptable enough to the changes in the goals, objectives, and strategies of the
organization.)
Understand whether the measurement is possible at each level of job element, that is, exceed the
expectation level, meet the expectation level, good in meeting the expectation level, average in
meeting the expectation level, and poor in performance achievement. (Ensure this by developing a
scale assigning a numeric value to each such performance level.)
A flow chart of all the above steps is presented in Exhibit 2.1.
PREPARING THE PERFORMANCE DEVELOPMENT PLAN

Performance development plans are prepared after setting the performance standards. Performance
standards are decided as a part of the ongoing process of observation and feedback. It is the final ele-
ment of the performance appraisal process. Based on the performance development plans, organizations
and employees initiate action for organizing education or development opportunities. While developing
the performance development plan, it is necessary to discuss training, education, or development oppor-
tunities with the employees, identify the steps to be taken, and document the strategy to accomplish the
objectives. Such documentation should include the following:
A description of the specific steps to be taken.
Names of those who will assist the employee.
End dates for the completion of the plan’s objectives.
A statement of how the successful completion of the plan’s objectives will be appraised.
Performance management itself is considered as an employee development function. Based on the
performance appraisal results, organizations draw employee development programmes to meet the
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Understand the overall picture
Indentify the accomplishments at the work unit level
Identify individual accomplishment and its integration

with work units’ goals
Convert expected accomplishment into performance

elements, duly mentioning its types and priority
Determine work units and individual measures
Develop work units’ and individual stantards
Determine how to monitor performance
Check the performance plan
Exhibit 2.1 Employee Development Programme
performance gaps and to enhance the existing performance level. Employees also can give inputs about
their chosen development path, keeping pace with the organizational goals.
TRANSITION FROM INDIVIDUAL PERFORMANCE PLAN

TO GROUP PERFORMANCE PLAN
Instead of focussing on individual job performance, W. Edwards Deming (1982) suggested to focus on
improving the organizational productivity and quality. That individual level performance plan and its
subsequent review cannot always relate to organizational productivity has been extensively studied in
several organizations, and the results have authenticated this. Traditionally, those receiving the evalua-
tions are the most dissatisfied with the review. Deming’s observations were tested by Ford Motor Co.,
and it was observed that individual level performance plan and its evaluation was a major barrier to
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continuous organizational improvement and quality performance. Ford Motor’s introspection revealed
that company resources were being squandered on excessive internal competition, that the system was
not getting to the root causes of problems, and that work was being redone unnecessarily. In all of those
situations, Ford shifted to teamwork, revamping its performance review system to emphasize on devel-
oping teamwork to meet customer needs.
Thus, as the old model for performance reviews does not lead to productivity and quality improve-
ments, it must change. If companies really want everyone to relentlessly pursue quality and productiv-
ity improvements, they must change not only the performance evaluation process, but also the reward
system.
According to Deming, the sources of variability in a performance review system cannot be under-
stood by looking only at individuals. Variability sources may be people, information, equipment,
materials, and methods. Also, variability may emerge for the interaction among all these sources.
Therefore, evaluating individual performance and accordingly rewarding the good performer cannot
ultimately lead to the overall improved performance of the organization. Based on this assumption,
Deming suggested following a line of actions to balance the individual and group performance
plans:
Focus on the right issues: In the individual performance plan, the boss is the key customer. Hence,
focussing on the boss’s requirements or pleasing the boss himself by default can bring the results, in
terms of rewards. Introducing multi-rater feedback or 360-degree performance review also cannot settle
this impasse. Thus, organizations need to balance the focus, highlighting also on group performance
plans, making employees feel the importance of their contribution to the group. A group-focussed per-
formance plan would be possible when performance standards for both the individual and the group are
developed, making people feel responsible for achieving the group goal. For example, if the individual
goal of a hotel’s marketing team member is to develop a delicious menu (as a Chef), the group goal may
be ensure its optimum pricing. A marketing group or team in a hotel needs to be cross-functional, that
is, represented by employees from different divisions apart from marketing. From that perspective, a
hotel chef also is a part of the marketing team. The real test of a team is to get driven by a common goal.
Thus, performance plan for a group or team can also be simultaneously developed, without, however,
impairing the individual level performance plans.
Setting the right goals: While developing a performance plan, we often set goals without understand-
ing the root causes of the problems. We try to make a judgement with certain behavioural statements
or opinionated questions, such as ‘effective participation in teams’, ‘meet the deadlines’, ‘aptitude to
learn’, ‘accept responsibility for mistakes’, and so on. These are known as ‘organizational citizenship
behaviours’, but are certainly not able to capture actual results of problem solving nor improve the
performance. Hence, it is important to set goals, accomplishment of which requires teamwork. For
example, improving productivity through teamwork is more important than individual performance
goals.
Using the right measures: Use of quantitative performance measures being focussed on the evaluation
issue at a point of time becomes more a post-mortem function for individual performance plans. A group
performance plan can focus on continuous process improvement, without giving any cognizance to past
practices and goal achievements. Hence, while choosing the right measures for a performance plan, it is
important for the organizations to design the measures for the group performance plan.
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Concentrating on the right kinds of criteria: In individual performance plans, often we fail to establish
a link between the actual productivity, quality, and rewards (which may be in the form of increased com-
pensation, promotion, and bonuses). Assuming achievement of increased productivity and quality cul-
minates in improved bottom-line (profitability) of the company, which essentially requires teamwork;
organizations often select the criteria that lead to improved financial results.
Thus, the transition from an individual performance plan to a group performance plan would be pos-
sible when organizations address the above four points.
PERFORMANCE PLAN AND ROLE CLARITY

Role clarity in performance plans helps us achieve higher teamwork. This is, obviously, so that employ-
ees understand what is expected from them and which aspects of the job are important. Also, employees
can understand the job’s evaluation process. Therefore, role clarity becomes the key driver to employee
performance. Without role clarity, employees fail to understand their job requirements, which ulti-
mately leads to performance-related problems. This makes role clarity an important prerequisite for
effective performance planning, and job expectations and performance measures clear with focus on
the goals for each person or work group. Role clarity also helps employees better understand the way
work should be done. With increased freedom and authority, employees feel more committed to work
and organizations and get the best to meet their strategic intents. Hence, it is necessary to differentiate
role accountabilities both horizontally and vertically. We can illustrate the components of role clarity
as in Exhibit 2.2
To check whether adequate role clarity exists or not, we need to consider the following points:
Does every member of the team have a documented job description?

Does every employee understand the process of measurement for their performances?
Do employees match with their job role in terms of their knowledge, skills, and abilities?
Do employees understand how their performance relates to the organization’s achievement of
strategic goals?
Self understanding
Superior’s understanding
(Employee’s understanding
(Job roles)
of the job roles)
Others’ understanding Reality

(Expectations from the job role) (Execution of job roles)
Exhibit 2.2 Components of role clarity
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ROLE DESCRIPTIONS TEMPLATE
Name of the company: Ignite

Name of the officer: S.K. Juneja
Position: Chief Operating Officer
Department: Knowledge Process Outsourcing
Purpose of the role (broad description of why the role exists): Develop and implement an
operational philosophy consistent with Ignite’s long-term strategy.
Ongoing accountabilities: These are a breakdown of the purpose of the role into key elements.
They should be in enough detail to provide clarity on what the individual will be called to account
for on the role. Accountabilities are not time bound, or as specific and detailed as goals, objec-
tives, or task lists.
1. Manufacturing philosophy:
Develop a consistent manufacturing philosophy.
Develop a manufacturing systems strategy.
Implement the strategy in every plant.
2. New product strategy:

Develop a new product strategy based on inputs from marketing and sales.
Analyse the capacity, investment, and resource requirements for implementation.
Recommend the strategy for implementation.
3. Engineering processes:
Develop an engineering framework for Ignite locally and worldwide to ensure consistency
among different engineering systems.
Implement consistent engineering processes.
4. Budgeting framework:
Develop a timely and effective operational budget process (each facility producing its own
budget to be rolled up into larger budget).
Ensure consistency across various manufacturing facilities.
Ensure adherence to the budget.
5. Supplier relationship strategy:

Develop a relationship management strategy between Ignite and its global commercial supplier
base.
Implement the supplier relationship strategy.
Scope of role (resource limits)

To be determined:
Financial authority
Binding authority
Level of manageable exposure
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CREATING STRATEGIC PLANS AND THEIR ALIGNMENT

WITH THE PERFORMANCE PLANS
Without going into the details of various types of organizational strategies, we need to focus on Porter’s
(1980) generic strategies, which yield competitive advantages for the organizations. Cost leadership,
product differentiation, and focus are the three generic strategies suggested by Porter. He suggested
that to ensure long-term profitability, organizations need to make a choice between one and more of
the generic strategies. The concept of strategy–performance relationships has its origin in the theory
of industrial organization (IO), pioneered by Bain (1956) and Mason (1939). At the outset, it is impor-
tant to understand that strategy–performance relationships still continue to be debatable issues. For
example, McGee and Thomas’s (1986, 1992) studies could not establish any link between strategy
and performance. Studies by Davis and Schul (1993) and Zahra (1993) could establish a link between
strategy and performance and could also show how such a link gets influenced by the situational vari-
ables. Most of the researches on strategy–performance relationships leverage on the generic strategies
of Porter (1985).
Without going into the details of empirical validity of having linkage of strategy with the perfor-
mance or not, we will now focus on organizational practices. Operationally, strategy–performance rela-
tionships may be influenced by the organization’s reward practices. We have evidence of studies on
organizational strategy, human resource (HR) practices, and performance (Balkin and Gomez-Mejia,
1987; Hambrick and Snow, 1989; Lawler, 1986a, 1986b; Ulrich and Lake, 1990; Waldman, 1994;
Zingheim and Schuster, 2000). All these studies suggest that the organizations should adopt those human
resource practices which can complement and support the organizational strategy. More specifically, the
reward system should be aligned to motivate employee performance that is consistent with the firm’s
strategy; attract and retain people with the knowledge, skills, and abilities required to realize the firm’s
strategic goals; and create a supportive culture and structure (Galbraith, 1973; Kilmann, 1989; Nadler
and Tushman, 1988). Alignment of the reward system with organizational strategy helps to determine
organizational effectiveness. Becker and Gerhart (1996) suggest that the human resource system can be
a unique source of competitive advantage, especially when its components have a high degree of inter-
nal and external fit. Another review by Gomez-Mejia and Balkin (1992) contends that the old model of
compensation (with pay structures based on job analyses, descriptions, specifications, and classifica-
tions) is no longer effective in today’s business environment. They conclude that modern organizations
must align their reward system practices with their organizational strategy in order to achieve higher
levels of performance at both the individual and organizational levels.
Using Porter’s (1985) generic strategies as the basis, we can now list the process of linking perfor-
mance plans with the organizational strategy in line with the following approaches.
Using the product differentiation strategy, organizations can encourage individual employees to
innovate and either develop the new products or bring changes in the existing ones. With specific reward
practices, aligned with the individual performance levels, it is possible for the organization to achieve
such strategic intents. With cost leadership strategy in line with specific reward practices, organizations
can encourage employees to explore cost reduction and control and assume higher responsibility and
authority to achieve higher levels of performance. Using this strategy, a better fit can be possible when
organizations select the group-based incentives instead of individual incentive plans. Similarly with
cost leadership, strategy firms can focus on improved customer service, as customers can also be the
beneficiary for the firm’s cost-effectiveness. With product differentiation strategy, organizations can
emphasize on improved customers services, creating a unique niche. Employees need to be creative to
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pursue such a strategy. Rewarding creativity firms can achieve higher perceived levels of organizational
performance.
In the backdrop of above discussions, therefore, it is possible for us to conclude that the senior man-
agement team must come together to review, discuss, challenge, and finally agree upon the strategic
direction and key components of the performance plan. Without genuine commitment from the senior
team, successful alignment of performance plan with the organizational strategy is unlikely. Good per-
formance measures identify the critical focus points for an organization and reward their successful
achievement. When used to guide an organization, performance measures can be a competitive advan-
tage as they drive alignment and common purposes, focussing on everyone’s best efforts at the desired
goal. But defining measures can be tricky. Teams must continue to ask themselves, ‘If we were to mea-
sure performance this way, what behaviour would that motivate?’ For example, if the desired outcome
is world-class customer service, measuring the volume of calls handled by representatives could drive
the opposite behaviour.
Cascading the strategies through individual level performance plans is essential for achieving organ-
izational success. Cascading is best possible when the organizations get armed with the strategic map,
operational definitions, and the overall organizational strategic performance measures. In each func-
tional area, we create our own map of success and define our own specific performance measures. In the
1990s, Sears cascaded its strategic plan to all of its stores through local store strategy sessions involving
all employees. The plan was shown graphically by a strategy map, and reinforced through actions such
as the sale of financial businesses, for example, Allstate. Online performance measures helped store
managers to gain feedback on their own performance, and also let them share best practices with other
managers. Alignment of strategy with performance plans can be both a macro- or micro-level organiza-
tional issues. Macro-organizational issues are large-scale, system-wide issues that affect many people
within the organization. Galbraith and Kazanjian argue that there are several major internal subsystems
of the organization that must be coordinated to successfully implement a new organizational strategy.
These subsystems include technology, reward systems, decision processes, and structure. As with any
system, the subsystems are interrelated, and changing one may impact others.
Technology is an inclusive term. It includes knowledge, tools, equipment, and work methods that are
embedded with the goods and services produced by an organization. While selecting the technology, it
is important for every organization to consider its strategic fit. When technology fits with the strategy of
an organization, it helps in strategy implementation, and thus achieves the performance goals. To illus-
trate, when organizations try to achieve excellence in quality to gain competitive advantage from their
competitors, they strategically make a choice of such a technology that can contribute to the produc-
tion of superior quality goods as well as to the rendering of superior quality services. Similarly, when
the organizations pursue the low-cost strategy, emphasis is given on adopting a technology-intensive
production process to reduce labour costs. From another perspective, organizations may consider effec-
tive use of the existing technology, restructuring their production process, and boosting employees’
morale and motivation to better perform with the effective mix of extrinsic and intrinsic motivational
reinforces, such as innovative compensation, reward systems, and incentive plans. On the other hand,
recognition of commendable performance inculcates the sense of achievement through intrinsic rein-
forcement. Both can successfully help in achieving the strategic intents. Apart from the individual level
motivation, organizations also emphasize on divisional and department level motivation adopting profit
and gain sharing strategies. Many organizations adopt the system of incentive payment to employees
on quarterly, 6-monthly, or annual basis, based on the division and department level performance and
also on the performance of the overall organization. Likewise, by introducing the system of shared
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decision making, organizations can enhance the employees’ commitment in achieving the performance
plans. Shared and so also the distributed decision-making processes help the organization make the
midterm adjustments in performance plans that may consider upward or downward revisions, adjusting
the resource allocation plans accordingly.
Like the strategy-fit technology, a strategy-fit organizational structure also helps the organization
to successfully implement the performance plans. The structure of an organization establishes the link
between the people and their jobs, between the individual level jobs and the departmental jobs, and
between the departmental jobs and the organizational jobs as a whole. The organizational structure
also establishes a formal pattern of interaction and coordination between different individuals at differ-
ent hierarchical levels. Many research studies authenticated that a strategy-fit organizational structure
achieves better performance results. Different types of organizations have different natures of strategic
focus. For example, a functional structure of an organization helps in cost optimization cross-utilizing
the services of the functional experts. A divisional structure on the other hand optimizes the resources
focussing on specialized machines and equipments and so also the production process. A matrix struc-
ture optimizes the utilization of employees’ services across the departments.
In implementing performance strategy, micro-organizational issues are also important. Such issues
consider behavioural aspects of strategy implementation. Employee behaviour within the organization
is the major determinant for achieving the strategic intent. Also, strategy implementation is largely
influenced by the culture and the general propensity of employees to resist the change. Globally, it
is also observed that the culture-fit strategy enhances the degree of employees’ voluntariness to coop-
erate and implement the new strategy. The culture of any organization evolves over a period of time
and culture is the configuration of values, actions, and beliefs that are nurtured by the employees of
the organization.
While choosing the appropriate strategy, organizations also consider various information inputs,
particularly to validate their decisions for change. It requires managers to carefully analyse and evalu-
ate the information to set the strategic premise and to explore various strategic alternatives to finally
select the best in terms of its cost-effectiveness and feasibility in implementation. Also, a participative
approach to strategy framing increases the degree of employees’ acceptance of new strategy and its
successful implementation. A participative approach reduces the resistance to change. To successfully
manage the change, it is desirable for the managers to understand the frame of reference that persuades
the employees to resist the change.
STRATEGY REALIZATION: ESSENTIAL ELEMENTS THROUGH

PERFORMANCE PLANS
Alignment of performance plans with the business goals of the organization starts when annual perfor-
mance plans or work plans are drawn. Merely restating the organizational goals, without laying down
the process of its measurement with reference to the performance goals, cannot truly help in strategic
alignment of performance plans. It is necessary for the organizations to make use of certain metrics to
determine the performance against the goals. Some of the suggestive line of actions for strategic align-
ment of performance goals is presented below:
Establish the job element that directly relates to the organizational goal and include clear, credible
measures of performance quality, quantity, timeliness, and/or cost-effectiveness.
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Include employee and customer perspectives in the mandatory supervisory element and standard.
Make employees accountable for at least one critical performance element, which when not
achieved may not lead to the accomplishment of organizational goals.
To achieve excellence in business performance and results, most of the organizations worldwide initiate
to align their strategies with their performance management systems. Organizations adopt strategies to
achieve their defined goals and objectives. A well-developed strategy map for any organization gives
the sense of direction to all cross sections of organizational members. Linking such strategies with the
individual performance goals in the form of KPA (key performance areas) and KRA (key result areas)
benefit the organization to reap a competitive advantage through the high performance level of organi-
zational members.
Alignment of strategies with the people working in organizations could be best possible relating
processes, systems, and relationships to the performance management systems (PMS) of the organiza-
tions. Such strategy-aligned PMS facilitate organizations not only to transform the people cascading the
strategic objectives, but also to facilitate effective utilization of corporate strategy, and in the process
get more from the employees. To do this effectively, it is important for the top management of the orga-
nizations to be committed and involved with the process, including understanding the organization’s
visions, mission, strategy, values, and life cycles. Using a balanced scorecard, organizations can pursue
their strategy to get a unique edge in a competitive market.
Before alignment of strategies with the PMS, it is important to identify, analyse, and prioritize the core
business processes and key customers. Effective analysis and definition of key customer requirements
ensure shortlisting of critical business drivers and measures, which can then be cascaded to individual
employees’ goals and objectives (against the identified key drivers), and a well-drawn scorecard can pro-
vide a measurement tool, with which the company can identify the gaps between their plans and execution.
Thus, an effective balanced scorecard of any organization should align their strategy with their perfor-
mance management systems, identifying their business process and definable customer requirements.
Human resource practices of the organizations are also aligned and integrated to business strat-
egy to ensure congruence and synergy within the organization. This requires a systematic and holistic
approach in ensuring that business strategy policies for managing human capital are all aligned with
baseline targets for all workgroups, teams, and individuals. A strategy-linked incentive system is used
for rewarding performance. Team-based rewards are instituted to avoid individual ‘free-rider’ problems.
By doing so, people transformation can truly take place.
Personal scorecard measures and targets must be meaningful and directly related and attributable
to each individual employee. Job competencies are integrated into personal scorecards, translating the
same into non-financial goals and appropriate standards of behaviour. In the process, personal score-
cards can also function as job descriptions and performance contracts.
Cisco Systems Inc., a worldwide leader in Internet infrastructure, has the quality of leadership that is a
critical success factor in enabling the organization to tackle current business challenges in addition to
those as yet unseen opportunities. Stephen Thoma, Leadership and People Development Manager at
Cisco Systems Europe, Middle East, and Africa, emphasizes: ‘Our continuing mission is to incubate all
the passion and principles of leadership we have developed so they can be incubated in every level of
the organization as an implicit way of doing things. If we were to lose these “baked-in” qualities and the
capacity to reinvent ourselves, frankly we’d lose everything’.
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Despite the untoward experience of many organizations, it is possible to turn strategies and plans into
individual actions to exert the best performance from the employees. The problem arises in translating
strategies into action plans. For example, if the organization adopts new market development and cus-
tomer retention strategies to achieve the objective of 20 per cent market growth, without suitable action
plans, employees may feel directionless, as they may fail to understand how to address these strate-
gic intents. Effective strategy implementation is possible with motivational leadership, elaborating the
action plans with the clarity of strategic intent and emotional contracting.
SUMMARY
Performance planning in organizations is primar- criteria, and how their performance deliverables
ily a discussion process through which organiza- can be tracked with the overall organizational
tions try to reach an agreement on the key jobs goals and objectives. Such strategic alignment
and responsibilities of individual employees. of the individual performance with the organiza-
Effective performance planning helps in develop- tional performance helps the individual culminate
ing a common understanding of the organizational the sense of responsibilities and channelize their
goals and objectives, facilitates identifying the set efforts in fulfilling them. Therefore, effective per-
of competencies that individual employees need formance planning increases the organization’s
to demonstrate while doing their job, and finally productivity.
creates the appropriate individual development With the opening vignette and organizational
plan. Performance planning thus is considered as caselets, this chapter discusses performance plan-
the important precursor for effective performance ning and its process, the development and contents
management systems in organizations. With a of a performance plan, its steps and processes, its
clear operating charter, individual employees can model of elements and standards, its transition
assign priority in their jobs and feel responsible to from the individual to organizational level, the
fulfil the organization’s expectations. The process guidelines for checking the performance plans,
of performance planning starts with the identifica- the performance plan and its role clarity, and
tion of key job responsibilities of the individual finally the alignment of performance plans with
employees, the degree of competencies that the the strategic plans of the organization. The chapter
organizations expect individual employees to concludes with a real-life case study on perfor-
demonstrate, and finally the performance deliv- mance planning. Wherever possible, the chapter
erables. At this stage, employees also need to be discusses theories related to the organizational
communicated the performance measurement practices.
KEY WORDS
Critical Performance Elements—Critical per- contribution to reach the performance goals of the
formance elements are those that are most impor- organizations. At the individual level, monitoring
tant, without which employees’ overall perfor- involves reviewing the performance progress with
mance become unacceptable. the employees against job elements and standards.
Monitoring—Monitoring facilitates the continu- Rewarding—Rewarding is recognition of employ-
ous measurement of performance to provide feed- ees both individually and as members of the group
back. Employees and their groups can track their to give credence to their performance. It motivates
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good performers and an organization can also get Micro-organizational Issues—Micro-organiza-

the opportunity to retain the talented employees. tional issues pertain to the behaviour of individ-
When they observe their fellow top-performing uals within the organization and how individual
colleagues get rewarded, average and poor per- actors in the larger organization view strategy
formers feel inspired to improve their perfor- implementation. Implementation can be stud-
mance. With positive expectations, employees ied by looking at the impact organization cul-
perform better. ture and resistance to change has no employee
Personal Scorecard—Personal scorecard mea- acceptance or motivation to implement the new
sures and targets must be meaningful and directly strategy.
related and attributable to each individual Role Clarity—Role clarity in performance plans
employee. Job competencies are integrated into helps us achieve higher teamwork. This is, obvi-
personal scorecards, translating the same into ously, so that employees understand what is
non-financial goals and appropriate standards of expected from them and which aspects of the job
behaviour. In the process, personal scorecards can are important. Also, employees can understand the
also function as job descriptions and performance job’s evaluation process. Therefore, role clarity
contracts. becomes the key driver to employee performance.

1. What is performance planning? How it is individual performance plan to a group
carried out in organizations? performance plan.
2. Explain the steps involved in developing 7. Explain how performance plan is influ-
the contents of a performance plan. enced by the concept of role clarity.
3. Explain how job description helps in devel- 8. Discuss how effective performance plan
oping employee performance plans. can help in strategy realization.
4. Discuss the eight-step model of elements 9. Short Notes:
and the standards of a performance plan. (a) Performance plans
5. Develop checklists to measure the degree (b) Non-critical performance elements
of effectiveness of a performance plan. (c) Performance elements
6. Explain the transition process from an (d) Performance domains

10. Visit any organization of your choice and answer with some background information
explain how their performance plans align of your chosen organization.
with their strategic plans. Develop your
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REFERENCES
Bain, J.S. (1956), Barriers to New Competition Lawler, E.E., III (1986a), High Involvement
(Cambridge, MA: Harvard University Press). Management (San Francisco, CA: Jossey-Bass).
Balkin, D.B. and L.R. Gomez-Mejia (1987), Lawler, E.E., III (1986b), ‘Reward Systems and
‘Toward a Contingency Theory of Compensa- Strategy’, in J.R. Gardner, R. Rochlin, and
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779–801. gic Groups: Theory, Research and Taxon-
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Contingent Effects of Business Unit Strategic 141–60.
Orientation on Relationships between Organiza- McGee, J. and H. Thomas (1992), ‘Strategic Groups
tional Context and Business Unit Performance’, and Intra-industry Competition’, International
Journal of Business Research, 27(3): 183–200. Review of Strategic Management, 3, 77–98.
Deming, E.W. (1982), Out of the Crisis Nadler, D. and M. Tushman (1988), Strategic
(Cambridge, MA: Massachusetts Institute of Organization Design (Glenview, IL: Scott
Technology Center of Advanced Engineering Foresman).
Study). Porter, M.E. (1980), Competitive Strategy (New
Galbraith, J.K. (1973), Economics and the Public York: Free Press).
Purpose (Harmondsworth: Penguin). Porter, M.E. (1985), Competitive Advantage (New
Galbraith, J. and R. Kazanjian (1986), Strategy York, NY: Free Press).
Implementation: Structure, Systems and Pro- Ulrich, D. and D. Lake (1990), Organizational
cess, 2nd ed (St. Paul, MN: West). Capability, Competing from the Inside-Out
Gomez-Mejia, L.R. and D.B. Balkin (1992), Com- (New York, NY: John Wiley & Sons).
pensation, Organizational Strategy, and Firm Waldman, D.A. (1994), ‘Designing Performance
Performance (Cincinnati, OH: Southwestern Management Systems for Total Quality Imple-
Publishing Company). mentation’, Journal of Organizational Change
Hambrick D.C. and C.C. Snow (1989), ‘Strategic Management, 7(2): 31–44.
Reward Systems’, in C.C. Snow (ed), Strategy Zahra, S.A. (1993), ‘Environment, Corporate
Organizational Design and Human Resource Entrepreneurship, and Financial Performance:
Management (Greenwich, CT: JAI Press), A Taxonomic Approach’, Journal of Business
pp. 929–64. Venturing, 8(3): 319–40.
Kilmann, R.H. (1989), Managing Beyond the Zingheim, P.K. and J.R. Schuster (2000), ‘Total
Quick Fix: A Completely Integrated Program Rewards: Pushing the Pedal to the Metal’, The
for Creating and Maintaining Organizational Journal of Business Strategy, July/August,
Success (San Francisco: Jossey-Bass). 21(4): 15–17.
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FURTHER READING
Bhattacharyya, D.K. (2006), Human Resource Man- Organizations: Practices and Results of
agement, 2nd edition (New Delhi: Excel Books). Employee Involvement and Total Quality Man-
Bhattacharyya, D.K. (2009), Organizational Behav- agement in Fortune 1000 Companies (San
iour (New Delhi: Oxford University Press). Francisco, CA: Jossey-Bass).
Bhattacharyya, D.K. (2009), Human Resource Morgan, B.S., and W.A. Schiemann (1999),
Development (Mumbai: Himalaya Publishing). ‘Measuring People and Performance: Closing
Kaplan, R.S., and D.P Norton (1996), The the Gaps’, Quality Progress, 1: 47–53.
Balanced Scorecard: Translating Strategy Into Peters, T., and R. Waterman (1982), In Search of
Action (Boston, MA: The Harvard Business Excellence (New York, NY: Harper & Row).
School Press). Quinn, R. and D. Mills (1985), ‘Planning with
Lawler, E.E., III, S.A. Mohrman, and G.E. Led- People in Mind’, Harvard Business Review,
ford, Jr. (1995), Creating High Performance July–August, 63: 97–105
CASE STUDY
Linking Performance to the Bottom Line: The Approach of Mono India

The Mono India, an Indian conglomerate with more focus on FMCG products, operates globally with
59,000 workforces in their payroll. The company manages each product line as strategic business units
(SBUs). For absence of commonality in product lines, SBUs do not compete with each other. The com-
pany follows a matrix structure, making each employee reportable to two bosses. FMCG SBU head,
Mr Pratap, has a high reputation for achieving the consistent growth for last 5 years. Mono India strate-
gically locates their manufacturing units keeping in view the market proximity. Accordingly, the company
located their 16 Indian units spread across 14 states and 2 union territories in India. Market in unrepre-
sented states and union territories are controlled from manufacturing units that are close to them.
Confectionary Division of Mono India is the sole FMCG product line that enjoys more than 50 per cent
of the market share in India. The corporate strategic plan of the company envisages annual incremental
growth of not less than 5 per cent in a fiercely competitive confectionary market in India. Mr Pratap liter-
ally needs to develop a performance plan with a participative approach and shared vision of ‘do or die’.
As SBU head, he manages all activities of the confectionary division. Every employee of the SBU clearly
understands what they need to achieve and why. Mr Pratap understands that achieving a 5 per cent
market growth can only be possible when employees at their individual level deliver a minimum of 10 per
cent more. In the confectionary business, Mono India strategically follows a maximum 6-month product
life cycle with two primary objectives: to prevent aping by the competitors and to remain ever competitive
with product differentiation. Mono India’s operation team has a great market demand. Competitors hire
them with an increased salary primarily to ape the formulations. The R&D unit of the company targets a
minimum of 10 acceptable flavours of Tiffin cakes and biscuits. Every new item comes with value addi-
tion without price increase. To customers it becomes a winning steal.
The marketing team always endeavour to create news in the market. A new product launch is pre-
ceded by road shows, school functions, and shelf-space occupying in retail outlets. This is to create a
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compelling pressure for consumers to buy the product. With smart adaptable workforces, Mono India
is able to sustain in the competitive marketplace. The winning zeal of the employees is rewarded to
perpetuate the process of high performance. New Vice-president Marketing at the corporate level,
however, now critical about this approach of making employees just preoccupied with the hitting the
numbers to meet their performance objectives. His major concern is that the company is unable to
sustain the befitting culture, which often flouts the on-the-job behaviour of employees. Analysis of cus-
tomer complaints revealed that the marketing team hardly attends the low-profile retailers, obviously for
their small order bookings. Segmentation analysis could cluster the retail outlets, showing an alarming
representation of the company’s products in small retail outlets, resulting in less visibility of the com-
pany’s new biscuits and cakes. These small outlets sell their competitors’ products. Alternative biscuits
and cakes at the customers’ end are still accepted when they do not get the choice of selecting Mono’s
range of products. Moreover, many Indian customers are not informed buyers of biscuits and cakes.
Many buy it out of impulses. They buy it as they see it.
Vice-president Marketing now desires to bring changes in the performance planning process, mak-
ing it clear that reaching the bottom-line results alone cannot help the company to sustain in the long
run. He expects every employee of Mono India to drive home this message that effective performance
achievement is possible when a balance is struck between linking employees’ objectives to the corpo-
rate strategy and developing appropriate behaviours. He suggests the following steps to facilitate this
new process of performance planning:
1. Define the corporate culture as a driving force for the growth of the organizations.
2. Determine the expectations from the employees, including the way they should do their jobs, serve
their customers, deal with their peers, and so on.
3. Determine which performance behaviours are important to the organizational success.
4. Understand how employees’ performance will be measured.
5. Prioritize employees’ performance objectives.
6. Align employees’ performance objectives horizontally to develop the sense of collaboration.
7. Design a performance plan which incorporates the following key components:
a) Employee surveys (360-degree survey)
b) Individual development plan
c) Regular performance reviews
Question: Critically evaluate the line of action of VP-Marketing of Mono India.
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CHAPTER 3
Performance Appraisal
Learning Objectives
Meaning and definitions of performance Steps and characteristics of the performance
appraisal appraisal system
Role of appraisals in performance manage- Performance appraisal design
ment Approaches in performance appraisal
Process and method of performance appraisal Types and methods of performance appraisal
Importance of performance appraisal Concepts and methods of potential appraisal
Objectives of performance appraisal Biases of performance appraisal
Reasons for failure of performance appraisal Diagnosis of poor performance
Transformation of TCS
To make employees responsive to internal and external factors and change their mindsets and build
capabilities, TCS always focusses on empowered decision-making and inculcates a sense of ownership.
It views change as an ongoing process and quickly responds to changes, to remain globally competi-
tive, revisiting organizational structure, practices, and decision-making practices. Adjustments against
IP (industry practice), SP (Service practice), and GM (geography matrix) always continue as an ongo-
ing exercise. In fact TCS always senses it in advance. Perhaps for this reason, TCS for the first time
in India envisaged the need to designate a Chief Transformation Officer (CTO). Through their learning
programme, it always ensures people capability development, which facilitates continuous mutation of
organization structures, both meeting the changing employees’ aspirations and customer delight. A glar-
ing example of TCS concern about the organization structure is evident from their recent change to
matrix structure, only to keep pace with the external front. Organizational changes often cannot succeed
only with internal initiatives. TCS engaged an outsider, who acts as a change agent bringing fresh per-
spectives in the organization.
Involvement of everyone in the process of transformation, clearly making transparent the key
concerns—why change, why now, what it means, where it will take the company, and what it means
to everyone—provides a cascading effect and makes the process a great success through voluntary
participation of employees. TCS’s organizational transformation model encompasses strategic planning,
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change management, and alignment with project management to create business value. A performance
measurement system with an economic value-added (EVA) approach provides a framework to align
corporate values with the performance of the constituent business units and the individual employees
attached therewith.
INTRODUCTION
Performance appraisal is one single important tool which helps in deciding training requirements for
an organization and reinforces training activities to balance the team efforts ensuring proper alloca-
tion of activities among different members of the group. In human resource management, performance
appraisal is the most crucial area of activity. Through periodic performance improvement, organiza-
tions can continue to sustain their competitive advantage and identify non-performers, get rid of them,
and rationalize the manpower requirement. Performance means the degree or extent with which an
employee applies his skill, knowledge, and efforts to a job assigned to him and the result of that applica-
tion. Performance appraisal means analysis, review or evaluation of performance, or behaviour analysis
of an employee. It may be formal or informal, oral or documented, open or confidential. However, in
organizations, we find formal appraisal systems in documented forms. It is, therefore, a formal process
to evaluate the performance of the employees in terms of achieving organizational objectives. Like any
other function, performance appraisal is also an important management activity.
DEFINITIONS
Performance means the degree or extent with which an employee applies his skill, knowledge, and
efforts to a job assigned to him or her and the result of that application. Tracey (1998) defined perfor-
mance as ‘a basic instructional method in which the trainee is required to perform, under controlled
conditions, the operation, skills, or movement being taught’. Performance appraisal is defined as a
process of evaluating employees to understand how well they do their jobs according to performance
standards (Dessler, 2000). After an employee has been selected for a job, has been trained for it, and
has worked for a period of time, his or her performance should be reviewed. Traditional performance
appraisal relies on economic reward and the threat of punishment to motivate employees to reach a
desired performance. But this concept does not hold true anymore. Today, performance appraisal is
used for developmental and motivational purposes in the organizations. Performance appraisal is not a
standstill evaluation activity, but a dynamic process which should be viewed as follows—planning the
employees’ performance and evaluation, and improving the performance of the employees. This pro-
cess brings the new concept—performance management (Kaynak, 2003). Performance management is
essential for today’s organization to integrate the management goals and employee performances. It is
a system for integrating the management of organization and employee performance in order to support
and improve companies’ or organizations’ overall business goals (Williams, 1988).
ROLE OF APPRAISALS IN PERFORMANCE MANAGEMENT

Performance management is a continuous process, although its appraisals are periodic activities. Thus,
as a process performance management is a dynamic process, although its evaluation or appraisals are
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static. With this, we understand performance appraisals as subsets of performance management. On

the other hand, performance management is not possible without performance appraisal. It helps orga-
nizations assess where they stand vis-à-vis their competitors in terms of effectiveness in performance.
Appraisals do not just reduce the individual performances into some quantitative data, they measure and
rate the individual performances with one another, and in the process facilitate in taking performance-
related decisions, such as employee development, promotion, transfer, compensation design, etc. more
objectively. Using a well-calibrated measurement scale, such comparisons can also be made across
the functions and hierarchical levels. We have discussed about such measurement scales in Chapter 13.
In this backdrop, the role of performance appraisals in performance management can be summarized
as under.
Performance appraisal leads to increased performances at the individual and organizational level.
When the performance appraisal system in any organization fails to meet this objective, we need to
re-look into the performance appraisal systems. Decreased level of performances can be attributed
to defective performance appraisal systems. This occurs when appraisals are linked to rewards and a
smaller number of employees get the reward. Those who do not get rewarded feel de-motivated. This
occurs primarily for expectations’ mismatch. It is for this reason that performance appraisal systems
need to be properly integrated with more than one objective such as positive approach to employee
development, mentoring and counselling, rewards, promotion, etc. Psychologically, people nurture a
negative attitude to performance appraisals when they are rated poor. The primary role of performance
appraisal systems, therefore, is to focus on positive developmental aspects of the people and the orga-
nization as a whole.
Similarly, the role of performance appraisal systems should be to make the performance manage-
ment process more effective and productive. The appraisal systems must help managers manage their
performance. Line managers must see it as a tool to improve employee performance. They must not
feel overwhelmed when it helps only in tracking the poor performer and taking actions against them.
Rather, they must consider its developmental aspects—future performance improvement through
training and competency building. The next important role of performance appraisal systems, there-
fore, is to focus on developing the positive understanding of managers and to make them nurture that
attitude which culminates in building the confidence in employees to embrace it as a tool for their
improvement.
PROCESS AND METHODS OF PERFORMANCE APPRAISAL

In our preceding discussions, we have already focussed on the performance improvement and develop-
mental aspects of appraisal systems. To design an effective performance appraisal system, which can
help to achieve the above role, managers and the organizations, per se, need to follow the process as
categorized below:
Understand what to measure duly listing the job criteria and its expected level of standard.
Determine the frequency of appraisal. In a competitive market, rather than making it an annual
event, it is always desirable to review or appraise the performance at short intervals.
Identify the appraisers and train them to feel confident about the process of appraising.
Provide feedback to help employees understand their strengths and weaknesses.
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After designing performance appraisal systems, it is necessary to select the appropriate appraisal
techniques. Several appraisal techniques, such as supervisors, subordinates, peers, customers, self-
appraisal, multi-source feedback, etc. have been suggested by different scholars (Schuler, 1995; Mathis
and Jackson, 1994; Casio, 1995). Organizations, however, need to choose those that can better address
their requirements. Also, it is necessary to choose more than one appraisal method to understand the
accuracy of measurement and its reliability and validity.
Although organizations tend to formalize performance appraisal systems, keeping pace with the
administrative and developmental needs, often it becomes a more rigid process of employee evalua-
tion. Employees may feel dissatisfied primarily for single source performance feedback. Obviously, this
requires developing of multi-source feedback systems, such as 360-degree appraisal systems. Accord-
ing to Lepsinger and Lucia (1998), ‘The 360-degree feedback process involves collecting ideas about
a person’s behavior from the person’s boss or bosses, direct reports, colleagues, fellow members of
project teams, internal and external customers, and suppliers’. The 360-degree appraisal is also known
as ‘multi-rater feedback, multi source feedback, full-circle appraiser, multi-dimensional evaluation, and
upwards feedback appraisals’. This method provides better feedback and performance information of
the ratees can be collected from different stakeholders who in course of the ratees’ work got influenced
in one way or the other. Hurley (1998) also recommends this feedback method for the obvious feasibil-
ity of collecting more comprehensive performance information.
In performance management systems, we have many appraisal methods to evaluate the performance
of employees. These methods have been discussed separately. Fisher, Schoenfeldt, and Shaw (1996)
categorized such methods in three groups, that is, comparative appraisals, behavioural appraisals, and
output-based appraisals.
PURPOSES OF PERFORMANCE APPRAISAL

A performance appraisal programme can serve multiple purposes to benefit both the organization and
the employee. The following performance objectives are more generic in nature, and for their obvious
universality can be made applicable to all types of organizations.
To give opportunity for regular interaction between the employees and their managers or supervi-
sors to mutually decide the performance standards.
To equip managers or supervisors for effective identification of the strengths and weaknesses of
employees’ performance.
To empower managers and supervisors to identify and recommend specific employee development
programmes that can contribute to competency development and improved performance of employees.
To align performance appraisals with the rewards and other important human resource management
decisions.
To make available important performance-related information of employees, which can be the basis
for future business plans of the organization.
To facilitate organizational control.
To make this system an important vehicle for mutuality between the employees and the organiza-
tion. With mutual goals both the employees and the organizations can develop.
To make employees’ understand their job role and functions.
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To act as a mechanism to increase communication between employees and their managers or

supervisors.
To provide opportunities to employees for self-regulated performance control. Organizations do
this using performance scorecard, dashboards, balanced scorecard, etc.
Whatever may be the purpose of performance appraisals, they can be categorized into either admin-
istrative or developmental needs. While the administrative needs are organizational, developmental
needs are both for the employees and the organizations. Administrative needs are more specific to meet
the requirements of human resource management activities and decisions such as compensation, pro-
motion, transfer, lay-off, human resource planning, job evaluation, recruitment validation, and so on.
Also, other important administrative needs of performance appraisal are the feasibility of documenting
the human resource management actions, as when employees feel prejudiced, that is, the decisions as
against their interest, they can challenge the organization in a court of law.
Developmental needs of performance appraisal focus on individual employees’ development through
training and other competency development initiatives which contribute to improve the future perfor-
mance of employees. Individual development is facilitated by the performance feedback. Appraisal
feedback becomes the basis for discussion on the strengths and weaknesses of employees and accord-
ingly focus can be given on the performance improvement. Through such discussions, employees’ per-
formance problems, if any, can be eliminated focussing on the need-based training and development
programmes. With renewed skills and knowledge, employees then achieve high performance, and can
look forward to future growth potentiality. A developmental approach to appraisal requires managers to
nurture positive job behaviour.
Some of the administrative or developmental needs of performance appraisal systems are compensa-
tion administration, feedback, recognition, documentation for HR decisions, identification of poor per-
formers, HR decisions on retention and termination, complying with the legal requirements, decisions
on transfer and promotion, identification of training needs, HR planning, organizational development
needs identification, recruitment validation, evaluation of HR systems, etc.
We can further summarize the purposes and objectives of the performance appraisal process in any
organization as:
To identify and define the specific job criteria. Many organizations at the beginning of the year
set key performance areas (KPS) or key result areas (KRAs) for employees, based on mutual
discussions.
To measure and compare the performance in terms of the defined job criteria. KRAs and KPAs are
also designed so they help measuring job performance in quantitative or qualitative terms.
To develop and justify reward systems, relating rewards to the employees’ performance.
To identify the strengths and weaknesses of employees and to decide on proper placement and
promotion.
To develop suitable training and development programmes for enriching performance of employees.
To plan for long-term manpower requirements and to decide upon the need for organizational devel-
opment programmes, duly identifying the change areas for overall improvement of the organization.
To identify motivational reinforcers to develop communication systems and also to strengthen supe-
rior subordinate relationships.
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IMPORTANCE OF PERFORMANCE APPRAISAL

The above purposes also define the importance of performance appraisal. The primary importance of
performance appraisal is to reinforce important people-related decisions such as promotion and transfer,
training and development, compensation and reward, human resource planning, organizational devel-
opment, etc. We have already discussed about these in the preceding text. However, the degree of
importance varies between organizations. For example, continuous employee development may be the
priority for one organization, while taking important human resource management decisions may be
the priority for another. Apart from the primary importance listed above, performance appraisal also
motivates, communicates, and strengthens superior–subordinate relationships, decides on KRA/KPA,
and improves the overall performance of the organization.
OBJECTIVES OF PERFORMANCE APPRAISAL

Objectives of performance appraisal are embedded their purpose and importance discussed above. Here
again we need to understand that organizations fulfilling the purpose of performance appraisal systems
attain certain objectives. Such objectives of performance appraisal systems are remedial, developmen-
tal, innovative, and motivational.
Remedial objectives help in correcting the low performance behaviour of employees through dif-
ferent HR actions. While some of the HR actions may be punitive, such as reduction in pay, trans-
fer, and even termination, some others may be developmental.
Developmental objectives of performance appraisal systems enable employees to grow in their
present and future jobs. Such objectives are met first through identification of training needs and
then the administration of such training to improve the employee’s performance. It even extends to
career development in the form of promotion.
Innovative objectives facilitate discovering the ways to deal with new jobs and also streamlining
the process of doing the existing jobs.
Motivational objectives of performance appraisal are rewards, motivation, effective communica-
tion, and better interpersonal relations.
REASONS FOR FAILURE OF PERFORMANCE APPRAISAL

Often we find in organizations performance appraisal systems defeat the purpose of achieving their
intended purposes and objectives. There may be numerous causes of such failure, but mostly it occurs
as the top management fails to share information and extend support. These failures of performance
appraisal can be attributed to ambiguous performance standards, rater bias, lengthy process of form fill-
ing and documenting, and wrong selection of performance criteria. At times, the appraisal process itself
may be conflicting. A reward-aligned performance appraisal may conflict with the administrative and
developmental needs. This is particularly evident when rewards are limited only to a few good perform-
ers. Those who do not get rewarded feel de-motivated. Some other reasons for the failure are attributed
to managers’ lack of skill and competency, absence of feedback systems, and lack of resource support.
Also the performance appraisal process becomes a source of conflict for both the managers and the
employees, often for its annual frequency. In true sense, in such cases, employees get performance
feedback only after a year, which delimits their eagerness to correct and develop. This problem can
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be avoided by making the appraisal at short intervals and providing feedback to employees on a
continuous basis.
Another important reason for the failure of performance appraisal systems is employees’ perceived
disbelieve in the system. Such a syndrome can be attributed to organizational practices, as organiza-
tions often make it a process of compliance rather than meeting the needs to change and develop. With
its cascading effect, employees also consider it as perfunctory and play the passive role. This can be
mitigated with appropriate performance planning right at the beginning.
STEPS TO PERFORMANCE APPRAISAL

Irrespective of the methods applied for performance appraisal, its steps follow more or less a set pattern,
which are as follows:
Establishment of performance standards. This is done mostly while developing a job description.
Communication of standards to the employees.
Measurement of performance.
Comparison of performance with the job standards.
Discussing the appraisal results with the employees.
Initiating the corrective action, where necessary.
CHARACTERISTICS OF AN APPRAISAL SYSTEM

Performance appraisal systems need to be accepted by all. It is important at the outset to understand the
distinction between the performance evaluation and appraisal. Patten (1982) defined performance eval-
uation as the objective assessment, that is, more emphasis on quantitative assessment of performance,
while performance appraisal is more holistic, as it considers both the objective and subjective assess-
ment of the employees’ performance. In line with Patten, therefore, we can define performance appraisal
as the configuration of ‘feed, development and assessment’. As a process, performance appraisal, there-
fore, focusses on the job of employees, the work environment prevalent in the organization, and the
employee as a person. All these factors are interrelated and interdependent. To ensure effective perfor-
mance appraisal, it needs to be employee specific, subjective, objective, and so also more focussed on
employees’ problem-solving abilities. Also, it is important to make the appraisal system more specific
to the job performance, rather than other peripheral traits such as personality, which may or may not
influence on the job performance of employees.
PERFORMANCE APPRAISAL DESIGN

Effective performance appraisal design is the important precursor for its success. All the reasons for its
failure, mentioned earlier, can be suitably addressed by designing an effective performance appraisal sys-
tem. Some of the important considerations in designing a performance appraisal system are as follows:
Goals: Organizations set the performance goals through the job description and structure the same
through mutual discussion and acceptance both by the managers and the employees. While job descrip-
tion sets the basis, the performance premise is set by the business goals of the organizations. Hence, the
process of mutual decision and acceptance of performance goals need to be aligned with the business
goals of the organizations.
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Reliability and consistency: Effective performance designs need to be reliable and consistent. This is
ensured through objective and subjective rating and by producing consistent and reliable measurement
criteria.
Clear and unambiguous format: The appraisal format must be practical and simple to achieve its basic
functions. Long and complicated formats are not only time consuming, they often create ambiguity in
interpreting the useful information.
Frequency of appraisal should be regular and routine-bound: Instead of making the appraisal pro-
cess an annual event, it should be a continuous process giving feedback to employees on a regular basis.
This would enable employees to self-regulate their performance and organizations to initiate the neces-
sary corrective actions.
Open and participative: Employees’ involvement in designing the performance appraisal systems
makes it more effective as they feel committed to it. Through open and transparent performance review
interview or meeting, they can draw their future plans and adopt suitable strategies to improve future
performances. Such participation not only enhances the commitment to deliver, but also inculcates a
sense of belonging.
Performance rewards: This should the essential part of performance appraisal systems. Performance
rewards may be both positive and negative. Often organizations make it discretionary. This makes the
performance appraisal process more ineffective.
Noticeable, impersonal, and timely feedback: Feedback to employees will not serve any purpose,
unless it is made in compliance with all these objectives. Noticeable feedback requires communication
of information to the employees about the appraisal process. Impersonal feedback is possible when the
rating is free from bias and errors. Timely feedback, on the other hand, requires real-time sharing of
performance information with the employees.
Relevance and responsiveness of performance appraisal: The performance appraisal system not only
establishes clear performance goals, it also ensures assignment of job role to the individual employees
and the work groups. It means the appraisal system should aim at specific job needs and job roles of
individual employees as well as their work groups; otherwise it lacks its orientation.
Commitment from the top: Effective design of performance appraisal systems also requires involve-
ment and commitment from the top. When an organization mandates performance-based HR decisions,
the top management cannot be discretionary; else it loses its sanctity.
Although there may be other areas of concern for effective performance design, compliance with the
above, by and large, can substantially reduce the performance-related problems, and make it more effec-
tive to achieve the intended objectives of the organizations. Craig, Beatty, and Baird (1986) suggested
an eight-stage performance appraisal process for its effective designing. These are listed below, as our
preceding discussions are more inclusive in this respect.
Establishing standards and measures.
Communicating job expectations.
Planning.
Monitoring performance.
Appraising and documenting performance.
Feedback.
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Decision making.
Development of performance.
However, the core of any appraisal system is communication, which may be upward or downward.
APPROACHES TO PERFORMANCE APPRAISAL

To appraise the performance of employees, organizations adopt various approaches. Performance
appraisal per se is a multistage process. In line with Einstein and LeMere-Labonte (1989) and Monga
(1983), such approaches can be listed as under:
Intuitive approach—With this approach, managers appraise the employees’ performance on the
basis of their perception and external behaviour.
Self-appraisal approach—This approach appraises the employees with standard common format.
Group approach—This approach appraises employees’ group performance by a.
Trait approach—This approach focusses on appraisal of employees’ performance on the basis of
dimension of multiple traits such as personality, integrity, honesty, dependability, punctuality, and
so on.
Result-based approach—Here appraisal is done in terms of measurable performance, comparing
against the mutually decided expected performance targets of employees.
Behavioural approach—This approach appraises the behavioural parameters demonstrated by the
employees in the course of their performance.
TYPES AND METHODS OF PERFORMANCE APPRAISAL

Different methods of performance appraisal are followed in different organizations to achieve the above
objectives. Since some methods of performance appraisal are complicated and call for adequate knowl-
edge in quantitative techniques, many organizations follow traditional methods of appraisal while others
consider modern methods as the basis for evaluating their employees’ job performance.
Traditional Methods
Traditional methods of performance appraisal may be categorized broadly under the following heads:
Straight Ranking Method

This is the oldest and simplest method of performance appraisal by which employees are tested in order
of merit giving some numerical rank and placed in a simple group. Such grouping separates employees
under each level of efficiency, which may vary from most efficient to least efficient. Since it is a blunt
quantification of performance, it does not account for behavioural parameters and only considers an
individual employee’s level of efficiency in relation to others. For such obvious deficiency, this system
does not provide a scientific basis for performance appraisal of employees.
Paired Comparison Techniques

This is a somewhat better method of performance appraisal as each employee is compared with others in
pairs at a time. For each performance trait, an individual employee’s performance is tallied with others
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Table 3.1 Trait reliability of person rated

As compared to A B C D E
A × _ _ _ _
B + × _ + _
C + _ × _ _
D + _ + × _
E + + _ + ×
in pairs and the rank order is decided. This system is not suitable in those cases where the number of
employees is usually high. For better comprehension, Table 3.1 presents a comparison on trait reliability.
Man-to-Man Comparison
Under this method, certain factors are selected for analysis, such as leadership, initiative, interpersonal
relationship, etc., and a scale is designed by a rater for each such factor. After rating such factors sepa-
rately, aggregate performance of an individual employee is decided and is also given a scale. Likewise,
an individual employee is considered with others. This method is somewhat a factor comparison method
and widely used in job evaluation. Since developing a uniform rating scale is a complicated task, this
factor is not much in use for performance appraisal of employees by the organizations.
Grading Method
Under this method, certain features worth understanding the performance of an employee are identified.
Such features may be leadership, communication power, analytic ability, job knowledge, etc. The raters
mark/rate such features according to a scale and match employees’ performance compared to his/her
own developed grade definition. For example, A, B, C, D, E types of grade definitions for each feature may
be developed by a rater to indicate: A = Very Significant, B = Significant, C = Moderate, D = Average,
E = Poor. Such types of grading are of much use for selecting an employee or grading him or her in
written examinations.
Graphic or Linear Rating Scale

A graphic rating scale is a continuous scale to enable a rater to mark the performance of an employee
along a continuum. The scale offers a list of areas related to job performance, and the managers are
required to rate those areas assigning a numerical score. There may be a number of scales to relate to
certain jobs or performance-related dimensions, such as job knowledge, responsibility, or quality of
work. The continuum of scale may range from high to low, good to poor, most to least, very significant
to insignificant, and so on. Typically, such a scale may have five to seven points, or even less, depending
on the dimensions of measurement. In a printed form, performance factors are arrayed, and the rater
needs to rate those factors giving a numerical value relating the same to the achieved performance level
of employees using a continuous scale. The method, therefore, enables quantification of performance
scores and a subsequent statistical analysis. However, this method cannot help in making a rating cluster
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for obvious differences in the job characteristics. Hence, the results obtained through this scale may not
always be objective. The appraisal scores are subject to various interpretations of raters, and its reliabil-
ity and validity is often questioned. Despite such limitation, this scale is one of the simplest and most
widely used methods of performance appraisal.
For its simple and wide use, organizations design their own graphic rating scale, satisfying certain
conditions and characteristics as under:
Clear definition of performance dimensions.
Behaviourally anchored scales to enable the raters to make an objective rating of the observable
characteristics.
Avoidance of abstract traits such as honesty, integrity, and loyalty.
Brief and unambiguous way of presenting the performance dimensions. At times points or anchors
need to be chosen in a way that can be easily understood. For example, to describe the leadership
quality, we can use terms such as team leader, middle of the run, task master, people centric, and
country club, instead of outstanding, very good, good, average, and poor.
A graphic rating scale can standardize the performance appraisal systems in an organization, despite its
susceptibility to rating errors. For example, performance of employees can be rated uniformly across
performance levels. This leads to a halo effect. Central tendency error may occur for the lack of varia-
tion or differences in ratings, as people tend to be rated as average. Contrarily, leniency error occurs
when the raters tend to rate employees very high. Finally, the extreme performance error may occur in
this scale when the raters rate the employees unduly very harsh.
Example of Graphic Rating Scale
Graphic Rating Scale
This scale appraises five generic job dimensions. You are required to appraise the performance of employ-
ees putting a (√) mark against each performance dimension in the appropriate column, as may be deemed
fit by you.
1. Job Knowledge: Require Guidance Understand the job Have exceptional
Understands the job understanding of job
and can implement
such understanding
to improve the job.
Remarks: Employees with exceptional understanding of the job are rated
as exceptionally good in risk taking
2. Job Initiative: Lacks initiative Takes initiative Exceptional in taking

Capable to generate initiative
new ideas and a self-
starter.
Remarks: When employees are rated as exceptional, they are capable to

take initiative and can generate new ideas.
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3. Job Application: Poor in job application Capable in job Exceptionally capable

Application minded application in job application
on job.
Remarks: With exceptional job application capability employees can

always take new job challenges.
4. Work Quality: Poor in perfection and Conforms to job Always conforms to
Perfect and precision job precision protocols high job perfection
minded in job and precision
execution.
Remarks: Employees with high level of perfection and precision always

conform to the quality.
5. Work Volume: Poor capability to Capable to meet the Capable to deliver more
Degree of capability achieve job targets performance targets than the performance
in achieving the job targets
targets.
Remarks: With high capability, employees can achieve more job targets.
Forced Choice Description Method

This combines objective and subjective judgement on an individual employee’s performance against
each rating element. Positive and negative phrases are given asking the rater to indicate the applicabil-
ity of such phrases as objectives in describing the employee whose performance is rated. The method
does not involve any discussion; it just forces the assessors to choose the best- and worst-fit statements
from a group of statements. Score value is pre-assigned against each such statement and the same is
not revealed to the assessor. This is done primarily to eliminate bias and compare the standards of per-
formance. For its obvious complexity, this system is not very popular. Moreover, the system becomes
redundant when the appraisal process involves personal interview.
Forced Distribution Method

This is a method to evaluate employees’ performance according to a predetermined distribution scale.
The distribution is a form of comparative evaluation in which an evaluator rates subordinates according
to a specified distribution. Unlike ranking methods, forced distribution is frequently applied to several
rather than only one component of job performance. For example, under such a method, the rater may
be asked to distribute 5 per cent of the total employees on top of the scale, indicating their superior
performance and promotability; 10 per cent may be put immediately under this level, indicating their
good performance and future promotability. The proportions of forced distribution may vary. Instead of
specifying the rating in percentage terms, top management often asks the raters to categorize employees
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into top, middle, and bottom levels of distribution. This method of performance appraisal can eliminate
rating errors, such as the errors caused by leniency and central tendency. However, the method itself
may be prone to rating errors, as it forces discriminatory ranking of employees, even in cases when per-
formances may be similar. Particularly while rating a small group of people, who might have performed
equally well, the method may require discrimination, resulting in some good performers being ranked
at the bottom of the graded continuum. Because of such in-built problems, the method loses its wide
acceptance.
Checklist Method
It is a process of assessing employees’ performance, compiling yes/no responses. The assessor is
furnished with a checklist of pre-scaled descriptions of behaviour, which are then used to evaluate
the employees being rated (Monga, 1983). The scale values of the behaviour items are unknown to the
assessor, who has to check as many items as she or he believes describe the work being assessed. The final
rating is done by averaging the scale values of the items by the HR department based on such assess-
ment. The method, therefore, is not an objective method of appraisal and also not free from bias.
Free Easy Method

This is an open-ended qualitative appraisal of employees’ performance, giving an opportunity to the
rater to put down his/her impression in subjective form on important job factors. The method involves
a written appraisal report of employees’ performance, in terms of job behaviours and/or results. The
subject of an essay appraisal is justification of pay, promotion, or termination decisions, but essays
can be used for developmental purposes as well. Since it is descriptive and essay type, it is likely to be
biased by judgemental errors. Also, these appraisals are to a large extent unstructured and open-ended;
therefore, more susceptible to rater bias.
Critical Incident Method

This method measures employees’ performance in terms of certain ‘events’ or ‘critical incidents’ instru-
mental for success or failure on the job. Such critical incidents are identified by the rater after in-depth
study of employees’ working. As negative incidents get more focussed and recording incidents demands
utmost care, it is not free from defects. In this method, a supervisor describes critical incidents giving
details of both positive and negative behaviours of the employee. These are then discussed with the
employee. The discussion focusses on actual behaviour rather than on traits. While this technique is
well suited for performance review interviews, it has the drawback that the supervisor has to note down
the critical incidents as and when they occur. This may be impractical and may delay the feedback to
employees. It makes little sense to wait 6 months or 1 year to discuss a misdeed, a mistake, or a good
display of initiative.
Work Standard Approach

In this technique, management establishes the goals openly and sets targets against realistic output
standards. These standards are incorporated into the organizational performance appraisal system. Thus,
each employee has a clear understanding of their duties and knows well what is expected of them.
Performance appraisal and interview comments are related to these duties. This makes the appraisal
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process objective and more accurate. However, it is difficult to compare individual ratings because
standards for work may differ from job to job and from employee to employee. This limitation can be
overcome by some form of ranking using pooled judgements.
Group Appraisal Method

This is an evaluation of an employee by multiple judges. The immediate supervisor of the employee and
a few others discuss the performance standards and then evaluate the performance of the employee. The
greatest advantage of this method is that it is relatively free from bias even though it is time consuming.
Field Review Method

This type of review is conducted by the HR Department by interviewing the supervisor of an employee
to understand the subordinate employees’ performance. Normally for such type of an appraisal, the
appraiser, that is, the representative of the human resource department, gets equipped with certain ques-
tions and, more in the form of an informal interview, asks those questions about the employees whose
performances are to be reviewed to their respective supervisors. HR department can identify areas of
inter-assessor disagreement and understand the uniformity of performance standards. The method is
considered more valid and reliable, although a little time consuming. Since this process of appraisal is
an indirect method of appraising the performance, it may not always reflect the true performance level
of the subordinate employees. Such an interview is always having a sensitizing effect on the interview,
whose responses may be some opinionated generalization. Moreover, this method keeps the key mana-
gerial personnel always busy. Despite such defect, the process being simple and possible to administer
and centralize the task of performance appraisal function, most of the organizations prefer to have this
type of appraisal for down-the-level employees. Since individual assessors differ in their standards, they
inadvertently introduce bias in their ratings. To overcome this assessor-related bias, essay and graphic
rating techniques can be combined in a systematic review process.
MODERN METHODS
The traditional methods of performance appraisal, discussed above, suffer from a major limitation for
their obvious emphasis on assessing individual performance or task, considering it as an isolated factor.
To eliminate such narrow and partial approach, the newer techniques of performance appraisal have
been developed and are widely practised by the organizations, particularly for managerial and supervi-
sory employees. Some of the modern techniques are discussed here.
Appraisal by Results for Management

by Objectives
Management by objective (MBO) is a comprehensive management approach that is adopted for perfor-
mance appraisal and so also for organizational development. It is a systematic and organized approach
to focus on achievable goals and to attain the same by maximizing available resources. It increases orga-
nizational performance aligning organizational goals and employees’ objectives throughout the organi-
zation. Ideally, it provides a strong input for employees to identify their objectives, and the time frame
by which they must meet such objectives. MBO-based performance appraisal system is also in-built
with the performance tracking and feedback processes.
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The method was first documented by Peter Drucker (1954) in his book The Practice of Management.
In the 1990s, when MBO was used for performance appraisal only, its primary focus was on develop-
ing objective criteria for evaluating the performance of the individuals. Identification of common goals
is jointly done by the managers and the employees of an organization. After such identification, each
individual’s major area of responsibilities is defined. Such defined responsibilities become the basis for
evaluating the performance of the individual employee.
Most of the organizations emphasize on developing key result areas (KRAs) through MBO exercise,
as this approach necessitates joint meetings of the supervisors and the employees to define, establish,
and set goals or objectives which the individual employees would achieve within a prescribed time limit
(mostly it is the form of yearly targets). Such an exercise also establishes ways and methods to measure
performance. Goals are mostly work related and career oriented and are integrated with overall orga-
nizational objectives. Periodic evaluation of employees’ performances is done in terms of goals, and if
required goals may be revised. MBO also calls for superior–subordinate interactions and a supportive
role of the supervisor (which as well includes counselling/coaching).
The method being result oriented, it seeks to measure employee performance examining the extent
to which predetermined work objectives can be met. Usually the objectives are established jointly by
the supervisors and subordinates. An example of an objective for a sales manager might be: Increase the
gross monthly sales volume to Rs X by 30 April. Once an objective is agreed, the employee is usually
expected to self-audit, that is, to identify the skills needed to achieve the objective. Typically they do not
rely on others to locate and specify their strengths and weaknesses. They are expected to monitor their
own development and progress.
Advantages
The MBO approach overcomes the problems of trait-based approaches to performance appraisal as
it concentrates on actual outcomes. When the employee meets or exceeds the set objectives, then he
or she is considered to have delivered an acceptable level of job performance. Employees are judged
according to real outcomes, and not on their potential for success, or on the subjective opinion of their
abilities. The guiding principle of the MBO approach is that direct results can be observed. The method
recognizes that it is difficult to dissect the entire complex and varied performance elements, as the
employees cannot be broken into constituent parts. But putting all these parts together, we can directly
observe and measure the performance, as it culminates to an overall performance level in terms of target
achievements.
Disadvantages
Despite many advantages of MBO methods of performance appraisal, primarily in terms of employees’
sense of autonomy and achievement, it can often lead to unrealistic expectations of management.
Management often sets targets based on MBO and imposes the same on employees without a participa-
tive approach and reality checking. Thus, clarity of purpose, the biggest strength of MBO could be the
source of weakness also. A flexible approach to organizational objectives (necessary for organizational
survival) often needs to be imposed on employees very rigidly, leading to non-achievement and employees’
frustration. Variable objectives may even confuse employees. Again the method being emphasizes more
on tangible goals, intangible goals like morale, good interpersonal relations, commitment to the job,
etc., are often ignored. Moreover, MBO exercise is too time and money consuming. Peter Drucker
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himself said: ‘It’s just another tool. It is not the great cure for management inefficiency.... Management
by Objectives works if you know the objectives, 90% of the time you don’t’.
MBO in Practice
According to Drucker, managers often get bogged with the ‘activity trap’. This often takes them away
from the core objective issues of the organization. Designing a performance system with an MBO
approach put the managers and the employees on the right track. While the employees get their clear
direction, managers can concentrate on other important strategic issues.
MBO is extensively used by world class organizations. At Intel, the MBO process follows sequences
as under:
Start with a few well-chosen overriding objectives.

Set subordinates’ objectives that fit in with your overriding objectives.
Allow your subordinates to set their own key results to enable them to meet their objectives.
At Microsoft, MBO helps in preventing competing missions and objectives, and is also used for setting
objectives.
Canon Production System (CPS) uses MBO at all hierarchical levels to emphasize on managing
results.
STEPS FOLLOWED IN MBO IMPLEMENTATION

From our foregoing discussions, it is clear that MBO embeds in the organization-wide goal setting and
appraisal processes. To implement MBO, we need to follow certain steps as under:
Decide the organizational goals based on the organization-wide plan.
Cascade the organizational goal to departmental goals.
Discuss and allocate departmental goals.
Define expected results.
Review the performance and measure the results.
Provide feedback.
Wal-Mart, using the extensive participative approach, that is, involving people in the goal setting
process, manages the performances of their associates using MBO.
Assessment Centre Method

An assessment centre approach of performance appraisal evaluates the behaviour of people using sev-
eral exercises and games, observations, and interviews primarily simulating the real-life situations.
It also uses multiple observers for evaluation. Several evaluations are pooled in a meeting where the
assessors reach a consensus on the evaluation report of each participant of the assessment process.
Assessment centre reports can be subjected to statistical tests and validation and can also be used for
the purpose of recruitment and selection. In each assessment centre, the number of participants may
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vary from 5 to 20. More than 20 participants in one assessment centre may create a problem. The term
‘assessment centre’ is used to indicate extended assessments in a single centre or a venue.
This method emphasizes on testing candidates in a social situation by a number of assessors, using a
variety of criteria (which may be a paper-pencil test, interviews, in-basket exercise, business game, role
playing incident, or a leaderless discussion). The assessors or evaluators are drawn from experienced
executives, working at different levels of management. Under this method, performances of employees
are evaluated both individually and collectively. This method is useful in measuring interpersonal skills,
organizing and planning abilities, creativity, resistance to stress, work motivation, decision-making
powers, and so on in performance management.
The assessment centre approach (ACs) is used extensively for selection and development (Thornton,
1980). Typically, it assesses the performance behaviours of people relating the same to several perfor-
mance dimensions. This is done through simulation. The method enjoys more validity and reliability.
Content validity (Sackett, 1987), criterion-related validity, construct validity, etc., of ACs have been
well established in several research studies.
Uses of Assessment Centres

Recruitment and selection.
Promotion and other rewards.
Identification of leaders.
Identification of self-directed team members and followers.
Potential appraisal.
Identification of training and development.
Matching competent people for jobs.
Organizational development.
Skill/competency development.
Human Asset Accounting Method

This method attaches money value to people employed with the organization. The process estimates
the goodwill value of people or human resources, based on measurement of some variables. Such vari-
ables can be either key variables or intervening variables. Key variables are organizational policies and
decision-making styles, strategies, skills of people, etc. Intervening variables are those that strengthen
the key variables to achieve the desired level of performance. They are loyalties, attitudes, motiva-
tions, interpersonal relations, communication, and so on. Measuring such variables can quantify human
assets, which are otherwise difficult. To measure individual performance, this method is not much in
use. However, for collective measurement of performance, this method can be effective. We have dis-
cussed this method in chapter on Human Resource Auditing and Performance Management.
Behaviourally Anchored Rating Scales (BARS)

This method helps in measuring and improving job performance more accurately. For each performance
area, some standard statements are provided. These are then put on the scales in BARS. While develop-
ing such BARS, group discussions are conducted to identify significant job dimensions that need to be
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evaluated. BARS may be of different types for different job dimensions. Normally they are presented
vertically with scale points ranging from five to nine. Because of its behavioural orientation, it is con-
sidered as the most useful techniques of performance appraisal. Moreover, this system provides an
opportunity to both the appraisee and the appraiser to interact and participate in developing standards
for each performance area. This system being time-consuming and painstaking, despite its advantages,
organizations try to avoid it.
Behaviourally anchored rating scales (BARS) are developed with some effective or ineffective
behavioural statements. We call it behaviourally anchored as it represents a continuum of descriptive
behavioural statements whose value ranges from the least to the most effective. Steps for designing
BARS are as follows:
Document the important performance dimensions of job or jobs.
Identify some critical incidents that explain effective and ineffective behaviour.
Relate identified effective and ineffective behaviour to the required performance dimensions.
Assign numerical values to each such performance dimension.
Behavioural Observation Scales (BOS)

Behavioural observation scales are the frequency ratings of critical incidents pertaining to workers’
performance. Latham and Wexley (1977) developed BOS, as they perceived that both the graphic rating
scales and BARS require supervisors to make vague judgements. Managers here rank the list of critical
performance-related desired or undesired work issues or incidents based on the number of occurrences.
Using a five-point scale, such frequency of behaviour can be measured. For example, a scale as follows
may be of use:
Never
Rare
Sometimes
Often
Very often
Some examples of BOS may be listed as:

Workers’ absence from workplace increases our loss of man-days __________
Workers never require their work to be supervised ___________________
Employees like their self-development opportunities ________________
Bad workmanship causing high rate of rejection in our organization ________
Mixed Standard Scales

Mixed standard scale (MSS) helps us measure good, average, and poor performance referring to specific
job-related behaviours. Depending on the performance dimension, its uses differ. For example, for a
marketing person, customer relations and knowledge about market intelligence could be the important
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Table 3.2 Mixed standard scale

Please indicate whether the individual’s performance is better than (+), equal to (0), or worse than (–) each
of the following standards:
1. _________ Generally agrees and cooperates with others (equal to: in COOPERATION)
2. _________ Lacks supervisory skills and poorly handles employee-related issues (worse
than: in LEADERSHIP)
3. _________ Makes use of good judgement while solving problems and provides useful
alternatives (equal to: in PROBLEM SOLVING)
4. _________ Highly cooperative and also motivates others to feel cooperative while doing
jobs (better than: in COOPERATION)
5. _________ Not so good at solving problems, giving judgements, and anticipating potential
difficulties (worse than: in PROBLEM SOLVING)
6. _________ Effectively directs, coordinates, and motivates employees to deliver their best
(better than: in LEADERSHIP)
7. _________ Displays skills in supervising, encouraging productivity, quality, and develop-
ment of employees (equal to: in LEADERSHIP)
8. _________ Displays defensive attitude towards others while executing the job (worse than:
in COOPERATION)
9. _________ Anticipates problems and trouble-shoots the problems proactively (better than:
in PROBLEM SOLVLING)
performance dimensions. But in the case of a finance manager, such performance dimensions vary. MSS
primarily focus on mapping the concrete observable job-related behaviours, based on which simple
judgements of performance management–related issues can be made. The unique feature of MSS is that
it measures performance-based examples of behaviour from three dimensions, that is, good, average,
and poor. Thus, each performance dimension has three statements whereas MSS needs nine statements:
three for each of the statement to measure effective or ineffective job-related performance behaviours.
For getting better results, MSS is randomly mixed as it substantially reduces the rater errors.
This method, therefore, evaluates traits with three specific descriptions of each trait. These descrip-
tions indicate performance levels conforming to each trait. Questions are randomly arranged deliber-
ately to prevent any rating bias. Characteristically, therefore, this scale is essentially a trait approach
to performance appraisal, where measurement is done on the basis of comparison in three dimensions,
indicating better than, equal to, or worse than to measure the level of performance. An example of a
mixed standard scale is given in Table 3.2.
Behavioural Checklist Method

Under this method, the rater checks the standard behavioural statements indicating some of the perfor-
mance dimensions. This method is perhaps the oldest technique of performance appraisal, but rating
being two-dimensional, somewhat like yes/no, its reliability and validity is often questioned. It is more
applicable to map the employees’ developmental needs. When it is used to describe the behaviour of
the subordinates, rather than rating, the results are better. It is a major operational difficulty to develop
the proper instruments and to relate the same to the employees’ performance criteria. A behavioural
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statement may indicate both the effective or ineffective job-related behaviours. Let us examine the
following randomly chosen behavioural statements:
Attends to customers’ complaints after logging the complaints.
Talks to the employees when they are agitated.
Always prefers those job assignments that provide learning opportunities.
Takes decisions only after facts and figures are gathered.
Never manipulates company’s information to woo customers.
Plans before starting of a job.
Prioritizes work assignments based on the boss’s mandates.
THE 360-DEGREE APPRAISALS

This appraisal method is now largely in use throughout the world. It requires performance feedback
from all important stakeholders of the organization, such as the ratee himself, his superiors, peers, other
team members, customers, and suppliers. Apart from its effectiveness in reporting performance, this
method also ensures total employee involvement (TEI) and employee empowerment. It reduces the
error of a subjective evaluation system in an organization.
The 360-degree Feedback

Suman Dubey, General Manager (Operations) in a KPO outfit, knew he was a demanding boss. During
a 360-degree feedback from his subordinates, he was in for a shock. The subordinates did not stop
at saying he was a hard taskmaster, they even called him a ‘cold and uncaring individual’. Dubey was
dumbfounded when he realized that not appreciating people and not tempering his criticism were having
a rundown effect on his subordinates. Today, he says, ‘When people are doing well, I take care to tell
them about it. I am more open in my discussions. The results have been amazing: Team work is up and
lead times are down.’
Ms Subha, Head of Human Resources at a call centre, was surprised to know that colleagues
thought she had no sense of humour. She’d been one of the first people to laugh at herself in college.
Her rueful reaction to this feedback was, ‘I do have a sense of humour but, evidently, I’ve become
very good at hiding it. I guess that needs to change.’
These two are examples of people who have been affected by 360-degree feedback. Also known
as multi-rater feedback, full-circle appraisal, and group performance review, this feedback system has
today become a very popular tool for employee appraisal worldwide. It involves collecting feedback on
an individual’s behaviour and the impact of that behaviour from his boss, colleagues, and fellow mem-
bers of project teams, internal and external consultants/customers, and direct reports.
However, 360-degree can be considered in an organization only when the following are true for an
organization:
The organization is not able to meet challenges that come its way because of increased competition
or global expansion.
People in the organization feel the need to change their behaviour to combat increasing competition
and to progress in their careers, but are unsure about what and how to change.
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There is no formal system in place through which people receive information on what others think
about their behaviour.
The 360-degree feedback is not a package that can be delivered by a given date; it is a process that needs
to be implemented in steps. Before implementing the 360-degree feedback, it should be designed to
support a corporate strategy or goal.
Every employee should understand what it is and how it works.
Employee development should be high on your company’s agenda, and employees should believe
that the organization and manager would support feedback processes.
Sufficient resources should be available to ensure that the integrity level of the process is high.
The staff should be trained in the process.
Employees must trust that the information would be used for developmental purposes and should
be willing to receive and give feedback.
Most companies implement the 360-degree feedback in stages. It is a good idea to start with a small
group of employees, using them as a tool to gain maximum value from the total experience. Apart from
performance appraisal, the 360-degree feedback is also used to bring cultural change in the organiza-
tions and for organizational development.
POTENTIAL APPRAISAL
The potential appraisal is a future-oriented appraisal to measure the potentiality of an employee for
future higher positions. It helps in succession planning and is a holistic approach to study wholesome
qualities of an employee with a given intellect, personality, and character. Industry practices apply
two widely used approaches for potential appraisal, that is, helicopter and whole person qualities. The
helicopter method tries to measure the potentiality of a person on large as well as specific issues. The
whole person qualities method measures the wholesome qualities/potentialities of a person with a given
set of variables. Potential appraisal data is extremely useful for career planning, as the latent abilities of
an individual can be captured and matched with the future role and responsibilities. However, in India,
we do not have documented practices on potential appraisal in the corporate world. Potential appraisal
is carried out using methods such as self-appraisals, peer ratings, management by objectives (MBO),
psychometric tests, simulation exercises, case analyses, and leadership exercises.
As this appraisal process identifies the hidden talents and skills of a person, which even the person
may not know, we also call it future-oriented appraisal. Some organizations, however, consider potential
appraisal as an integral part of performance appraisal. The obvious justification here is using the results
of potential appraisal to review the future performance standards, and also to use such inputs for suc-
cession planning. Despite such practices, we need to appreciate the differences between the two. For
example, in performance appraisal, the criterion used is the achievement of assigned goals; on the other
hand in potential appraisal, based on the current level of performances, employees’ skills are assessed to
understand whether such skills can make some major differences in future job roles and responsibilities.
Using a structured potential appraisal form, we can judge the potentiality of an employee. The
appraisal form in such cases needs to cover the following important areas:
Indication of improved performance areas.
Degree of accomplishments of the present target.
Overall performance rating of employees.
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Areas of development for skills, knowledge, competencies, and qualities.

Possible steps taken by the employee to improve performance and career development .
Training requirements for the employee.
Process of updating knowledge on the job- and subject-related areas.
Overall rating of employees is done on critical behavioural characteristics such as decision making,
sense of independence, job confidence, ability to handle stress, interpersonal skills, leadership ability,
level of motivation, ability to handle conflict, etc.
Techniques of Potential Appraisal

Techniques of potential appraisal are decided by the organizations. However, using a single technique
may not always be reliable. Some of the techniques of potential appraisal are as follows:
Self-appraisals
Peer appraisals
Superior appraisals
MBO
Psychological and psychometric tests
Management games such as role playing
Leadership exercises, etc.
Self-appraisal requires the employees to give their own performance feedback. Employees autono-
mously rate their own performance on various parameters, spell out their training needs, if necessary,
talk about their degree of accomplishment, strengths, and weaknesses, and so on. While filling the
performance format, employees need to be honest, objective, nurture positive attitude, cover each and
every aspect of performance, and seek future responsibilities. Other approaches such as peer appraisals,
superior appraisals, and MBO have already been discussed. The other methods have been covered in the
chapter on Performance Management Research.
COMPONENTS OF THE APPRAISAL FORMAT

We cannot have an appraisal format that can address all performance requirements. However, any
generic appraisal format essentially contains key performance areas (KPAs), a self-appraisal, a per-
formance analysis, performance ratings, and counselling components. Essentially, the appraisal format
needs to aligned with the objectives of the performance appraisal system, and generate information
on all the important aspects, mentioned above. We have already appended one standard performance
appraisal format at the end of this chapter.
DIMENSION OF PERSONAL ATTRIBUTES

In performance appraisal, we measure many generic qualities and attributes of an individual per-
former, while we account for the achievement of targets. While the achievement of targets is measur-
able and traceable, attributes, traits, and other general qualities are difficult to assess, unless its exact
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Table 3.3 Personal and demonstrated personality traits

Personal Qualities Demonstrated Performance Qualities
Adaptability: Ability to adjust with new or changing situa- Professional knowledge: Ability to apply
tions or persons. professional knowledge and achieve the
Appearance and bearing: Possess good bearing and highest standard of performance.
appearance. Administration: Ability to optimize resources.
Decisiveness: Ability to quickly decide. Dependability: Abil- Responsibility for staff development: Ability
ity to consistently accomplish allocated jobs autonomously. to develop people through training.
Drive and determination: Ability to vigorously and reso- Foresight: Ability to plan beyond present
lutely execute a job. Ingenuity: Ability to creatively solve needs.
unforeseen problems. Delegation: Ability to feel responsible and
Initiative: Ability to take action independently. exercise guidance and supervision to people
Integrity: Ability to honestly perform in all dealings. down the hierarchy.
Loyalty: Ability to be faithful and willing to support all Motivation: Ability to feel self-motivated and
stakeholders of the organizations. motivate people down the line and exert the
Maturity: Ability to balance the situation befitting with the desired results.
age and seniority. Morale: Ability to sustain morale both for self
Stamina: Ability to sustain stress and strain and perform and for others down the line.
successfully. Control: Ability to exert control over people
Tenacity: Ability to face the odds and difficulties. down the line and gain their confidence.
Verbal expression: Ability to communicate with clarity.

Written expression: Ability to communicate in writing
with clarity.
Source: Adapted from Monga (1983).
understanding is spelt out to the assessors. It is for this reason that we need to understand the meaning
of personal qualities and the demonstrated performance qualities. In line with Monga (1983), we can
draw such a list of personal qualities and demonstrate them as in Table 3.3.
BIASES IN PERFORMANCE APPRAISAL

In organizations, performance appraisal often suffers from the crisis of errors or biases. Such errors or
biases can be primarily attributed to the lack of objectivity of the raters or the assessors. Organizations
need to reduce such errors, else the purpose of performance appraisal gets defeated. Broadly, we can
categorize performance errors/biases as follows:
The halo effect and horn effect.
Leniency error (loose rater).
The error of strictness (tight rater).
The central tendency error.
The recency effect.
The contrast error.
The similarity (similar-to-me) effect.
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The Halo and Horn Effect

Solomonson and Lance (1997) defined the halo effect as ‘the influence of a rater’s general impression on
ratings of specific ratee qualities’. In other words, the rater gives the subordinates good grades although
the performances are not at the expected level. Here raters get influenced by one or the other qualities
of the ratee, even when his/her performances are not up to the mark. For example, less absenteeism,
timely attendance, and obedience of a particular ratee may influence the raters to give high performance
score, irrespective of the level of actual performance. Often personal likings or dislikings of the raters
overlook the poor performances. Lefkowitz’s (2000) studies found that positive regard for subordinates
relates to higher halo effect.
Horn effect is the opposite of halo effect. Here the rater rates the ratee poor despite the ratee’s higher
level of performance. It means that because of the rater’s perceived negativity of any behavioural
traits, the ratee scores poor in the performance appraisal, irrespective of their level of performances.
Uyargil (1994) proposed some solutions to reduce the halo and horn effects in performance appraisals,
such as raters’ training and directing raters’ to provide some proof of events, that justify his/her high
or poor rating.
The Leniency Error

This common appraisal error occurs when the appraisers feel scared of their strenuous relationship
with the subordinates for giving poor rating. Such fear propels them to give a high rating, which causes
leniency error. Jawahar and Williams’ (1997) study indicated that performance rating for pay raises or
promotions are more prone to leniency error. However, performance ratings for employees’ develop-
ment and feedback are less likely to suffer from leniency error. Raters who are more prone to leniency
error are known as loose raters.
The Error of Strictness

This type of error is just the opposite of leniency error. Here the raters are known as tight raters, as they
always rate performances of the subordinates poorly. Often such types of raters pre-decide the rating
score, for example, a maximum of 80 per cent for top performers, between 70 per cent and 80 per cent
for very good performers, between 60 per cent and 70 per cent for good performers, and so on. Based
on such pre-decided rating scores, they rate their subordinates. According to Kaynak et al. (2005), such
raters suffer from the problems of losing their positions when employees get the highest rating. Also
they try to show that they are the best.
The Central Tendency Error

Some raters instead of over (lenient) or under (strictness) rating give an average score to all per-
formers, despite actual performance variations. They prefer to rate the employees in the middle of
the scale. According to Dessler (2000), such errors occur as the rater is less acquainted with the
ratees, and giving an average score is the best option to commit any judgemental mistake. Also these
types of raters often believe performance appraisal is a waste of time; hence, the average rating is
the best bet.
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The Recency Effect

Most of the organizations carry out the performance evaluation function annually or biannually. Such
long time gaps between appraisals create the problems, as the rater looses performance-related informa-
tion. The rater then tries to find information directly related to the value of performance. In this process,
the rater gets more inclined to the ratee’s latest behaviour irrespective of their actual performances. This
ultimately leads to errors due to recency effect. Such errors can be minimized by keeping an ongoing
record of performance, and accounting the same for the whole performance period. It is also important
to remember that some ratees deliberately perform very high with the approaching of the appraisal time,
to get the benefit of high rating for the errors due to recency effect.
The Contrast Error

Objective performance rating is possible when the rating is done based on the pre-decided established
standards. However, often the rater rates the employees’ performance in relation to other employees,
forgetting the established performance standards. In this process, the contrast errors occur. Here the
performance score or the appraisal grade of the ratee gets affected with the rating of the other, who
has been rated just before. Uyargil (1994) recommends a random appraisal of employees to avoid such
errors. It means that instead of assessing employees in the same nature of jobs and grades sequentially,
to avoid the contrast error, the assessors may assess employees simultaneously, picking them from dif-
ferent groups or clusters.
The Similarity Effect

While assessing the performance of the ratees, often the appraisers suffer from the propensity of over-
rating those ratees who are similar to them in terms of personality, behaviour, or background (Pulakos
and Wexley, 1983). Some ratees may deliberately induce the raters to commit this type of error, aping
their behaviours, tastes, and preferences. Their demonstration pleases the raters and consequently they
get the best rating. Raters training can reduce such performance rating bias.
Whatever may be the nature of performance bias or errors, it is difficult to eliminate the same alto-
gether; however, it is possible to minimize it. Accordingly, organizations need to adopt a suitable line of
actions to minimize the performance bias or performance rating errors.
REDUCING PERFORMANCE ERRORS

We have already explained a different nature of performance bias and errors. To reduce such errors,
organizations adopt various alternative forms of performance assessments, such as direct observations,
open-ended questions, essays, consolidation of views from multiple raters, and so on. Such measures
improve the reliability of standard tests mentioned earlier. Various studies indicate that training can
substantially reduce the rating errors. Studies by Latham, Wexley, and Purcell (1975), Jaeger and Busch
(1984), and Pulakos (1986) could authenticate it. Training programmes for the raters focus on familiar-
ization with the measures, making the raters understand the sequence of operations, and the process of
interpreting the normative data.
Another approach to reduce the performance rating errors is the selection of appropriate judges/
raters. Hambleton and Powel (1983) recommended certain criteria for the selection of performance
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judges/raters. These are considerations of demographic variables, forming the panel of raters with the
representation of experts and people from the interest groups, etc.
Organizations also make use of statistical techniques to measure the degree of performance bias/
rating errors. Rater effect is measured computing the difference between a rater’s average with the aver-
age of all ratings. When the rater effect is zero, we consider non-existence of systematic bias in the per-
formance scores. Other statistical techniques to measure the performance errors/bias recommended by
Houston, Raymond, and Svec (1991) are least squares regression, weighted least squares regression, and
the imputation of the missing data. Ordinary least squares regression fits where the observed rating is
viewed as the sum of the candidate’s true ability, a rater effect, and random error. Weighted least squares
regression is used where each rater’s score is weighted by a measure of the rater’s consistency. Finally,
imputation of missing data method is appropriate where actual data of the performers could not be evalu-
ated. The imputation approach is most appropriate when each rater evaluates only a few candidates. The
weighted regression approach is most appropriate when variations are expected in rater reliability.
DIAGNOSING POOR PERFORMANCE

To fix the problem of poor performance in organizations, we need to diagnose the causes. Poor perfor-
mance may be either for lack of ability or for poor motivation level. Incorrect diagnoses of poor perfor-
mance can lead to problems, as based on these organizations initiate corrective actions. Suppose poor
performance of an individual employee has been diagnosed as ‘lack of effort’, against the real issue of
‘lack of ability’, and you as his/her manager now exerts pressure to perform. Such wrong diagnoses and
initiations of corrective action can only aggravate the problems. ‘Lack of ability’ to perform is traceable
with the following points:
Difficult tasks.
Low aptitude, skill, and knowledge of employees.
Lack of improvement opportunities over time.
To enhance the ability employee performance, organizations carry out series of actions:
Taking stock of the existing resource support, and wherever necessary giving such support.
Providing additional training.
Considering redeployment (shifting the employee to a new job in an of area interest).
Finally, even if it does not work, getting rid of the employees.
IMPROVING MOTIVATION
Poor performance of employees may be attributed to low motivation. In such cases, organizations need
to take appropriate actions such as inculcating a motivating work environment, mutual setting of per-
formance goals, support for performance improvement, and instituting the provisions for performance
feedback. With all these, organizations can create a performance improvement plan for employees.
Typical performance improvement plans, among others, again require mutual discussion and agree-
ment between the employees and their managers. Once this is achieved, 80 per cent of the performance
improvement plan can be materialized, as employees with their participation enhance their commitment
to improve the performance. All the causes of poor performance are intertwined; hence, solving one
problem leads to the solution of another problem. Let us take the example of low morale and motivation.
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This problem, when it interferes with the performance of employees, can be avoided to a great extent by
involving employees in the goal setting process.
SUMMARY
Performance appraisal reinforces the human tal decisions pertain to improve and develop the
resource management function in an organiza- employees’ performance, focussing on need-
tion. In this era of technological change and based training, and other employee developmental
global competitiveness, organizations are con- programmes.
stantly required to renew and update the skill of We have various traditional and modern tools
their people or else they are likely to encounter for performance appraisals. In this chapter, we
the problem of manpower obsolescence, which have discussed all these. Organizations can make
among others, will call for frequent downsizing or best use of all these methods to measure the per-
rightsizing. While performance appraisal updates formance of their employees. As no single tech-
organizations to take a stock on their skill inven- nique can be the panacea to measure all types of
tories, training helps to address the skill gap. Per- performance, also a single measurement cannot
formance appraisal as a process serves both the truly unearth the performance issues, it is always
administrative and the developmental purposes recommended to use multi-rating approach. In this
of organizational decision making. Important HR chapter, we have also discussed issues to correct
decisions, such as promotion, transfer, termina- the performance problems of employees recom-
tion, compensation aspects, etc., are categorized mending methods such as motivation and partici-
under an administrative category. Developmen- pation of employees in the goal setting process.
KEY WORDS
Developmental Needs of Performance Trait Approach—This approach requires evalu-
Appraisal—Individual employees’ development ation of employees’ performance based on the
through training and other competency develop- observed dimensions of personality, integrity,
ment initiatives that contribute to improve the honesty, dependability, and punctuality.
future performance of employees. Individual Mixed Standard Scale (MSS)—Mixed standard
development is facilitated by the performance scale (MSS) helps us measure good, average, and
feedback. Appraisal feedback becomes the basis poor performance referring to specific job-related
for discussion on the strengths and weaknesses of behaviours. Depending on the performance
employees and accordingly focus can be given on dimension, its uses differ. For example, for a mar-
the performance improvement. keting person, customer relations and knowledge
Performance Goals—Organizations set the per- about market intelligence could be the important
formance goals through the job description and performance dimensions.
structure the same through mutual discussion and Group Appraisal Method—This is an evalu-
acceptance both by the managers and the employ- ation of an employee by multiple judges. The
ees. While job description sets the basis, the per- immediate supervisor of the employee and a few
formance premise is set by the business goals of others discuss the performance standards and
the organizations. then evaluate the performance of the employee.
Intuitive Approach—This approach rates employ- The greatest advantage of this method is that it
ees’ performance based on their perception and is relatively free from bias even though it is time
external behaviour. consuming.
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1. Define performance appraisal. Briefly performance on a six-point behaviourally

state its importance and objectives. What anchored rating scale.
are the steps you would like to follow for 5. Critically review the performance appraisal
appraising the performance of a managerial system in India. Elaborate your answer visit-
employee? ing at least two organizations.
2. What is the different performance appraisal 6. Develop a standard performance appraisal
systems followed in an organization? Select form for supervisors in an organization,
at least five methods and briefly discuss their selecting at least 10 factors for review. Rec-
strengths and weaknesses. ommend your proposed development plans
3. A traditional performance appraisal system for such supervisors based on your review.
emphasizes on assessing the individual per- 7. Explain different types of biases in perfor-
formance as an isolated factor. Briefly dis- mance appraisal. How can such biases be
cuss the newer techniques of performance reduced?
appraisal, critically reviewing the shortcom- 8. Short Notes
ings of traditional systems. (a) Human asset accounting method
4. Discuss the effectiveness of MBO and BARS (b) Assessment centre method
in a performance appraisal. Develop KRAs (c) Field review
for an HR manager and identify five impor- (d) Critical incident method
tant performance criteria for assessing the (e) Key performance areas
9. A traditional performance appraisal cannot development of employees. Visit an organi-

help an organization measure the potential- zation which successfully manages a potential
ity of employees. These seriously impede the appraisal system and develops a critical report
succession planning and the future career about its effectiveness in the said organization.
Exhibit 3.1 Managerial appraisal review form

Appraisal Period: From To:
I. Personal Data:
Name Designation Grade

Personal No. Department Division
Date of Birth
Academic Qualifications Years of Experience in Present Organization
Professional Qualifications
Professional Membership Outside Present Organization
Date of Retirement Date of Last Promotion
II. Appraisal
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II. A. Important Points
1. Assess the employee on his performance in his present position only.

2. Try not to allow personal prejudices influence your appraisal. The rating should be as objective as
possible.
3. Assess the ratee on his performance during the whole year. Do not allow isolated incidents or recent
instances to bias your assessment.
4. Assess each factor independently, uninfluenced by the rating on the other factors.
5. Assess the ratee on all factors.
6. The rater and reviewer must initial in ink in the box against the most appropriate rating in each case.
7. All entries in this form should be handwritten and legible.
II. B. General Performance Factors

Please initial in the box against the appropriate rating.
Factors Rater Reviewer Degree

1. Knowledge of the Job Exceptional mastery of all
Excellent
All round knowledge of the job phases of work. Has up
including concepts and techniques to date knowledge of his
required and their application; know- field.
how of the latest trends, develop- Thorough knowledge of
Good
ments, and innovations in the field the job.

of work.
Adequate knowledge of
Satisfactory
the job for the position he

is occupying.
Poor knowledge of his job.

Unsatisfactory
2. Planning of Work Highly effective in setting

Excellent
Scheduling of one’s assignments in goals and prioritizing them.

order to meet deadlines; setting of Anticipates problems and
well-defined targets; concentration takes corrective action.
on task priorities; ability to anticipate
problems and take corrective action. Effective in meeting tough
Good
deadlines most of the time.
Usually effective in meet-

Satisfactory
ing routine schedules.
M03_9788131754221_C03.indd 81 5/17/2011 12:12:54 PM

Is indifferent to planning
Unsatisfactory
and cannot meet dead-
lines.
3. Abilities to Achieve Results Highly effective in orga-
Excellent
Utilization and productivity of sub- nizing resources and get-
ordinates and resources; target ting extraordinary results.
achievement; follow-up system and
coordination with departments; cop- Achieves superior results
Good
ing with sustained work pressures; and is able to withstand
quick response to special jobs with- work pressures and crises.
out letting routine matters suffer; Achieves normal results
Satisfactory
keeping superiors and subordinates expected of him through
informed about relevant jobs, prob- good organization and
lems, and results. follow-up.
Does not use avail-
Unsatisfactory
able resources; does not
achieve expected results.
4. Sense or Responsibility Very high sense of

Ability to handle given assignments responsibility; can handle
Excellence
independently or with minimum assignments indepen-

supervision; degree of chasing or dently; displays rate initia-
control required from superiors; tive and drive.
setting of self targets and their
completion; seeking information Is willing to shoulder
on problems; willingness to take a greater responsibilities
decision or do a job without pass- than the job demands;
ing the buck.
Good
displays considerable ini-

tiative.
Takes on responsibilities
Unsatisfactory Satisfactory
of his job and copes with

routine problems. Takes
routine decisions.
Does assigned tasks reluc-

tantly; requires constant
direction and supervision.
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5. Maintaining Discipline Maintains high standards

Sense of organizational discipline or organizational disci-
Excellent
and ability to maintain it in the work pline and sets personal
force; punctuality; on-the-job pres- examples to his men.
ence; setting of personal example
to subordinates; firmness in deal- Achieves above average
ings with subordinates; standards standards of discipline,
of cleanness, safety, and house- safety, and housekeep-
keeping in the work place; willing- ing; is committed to deci-
Good
ness to accept the consequence sions of superiors.
of unpleasant decisions made by
superiors. Meets and maintains
Satisfactory
expected standards of
discipline and punctuality.
Is not punctual and is
Unsatisfactory
noted for unscheduled
absences; talks loosely
about superiors.
6. Getting Along with People Has a marked ability for

Excellent
Clarity and effectiveness in com- fruitful interaction with

municating with superiors, peers, people.
and subordinates; handling of
conflicts, levels of maturity in deal-
Is highly effective in
ing with bosses and peers, abil-
understanding, relating,
ity to take feedback and correct
and communicating with
oneself; skill in influencing others
Good
people.
without arousing antagonism; car-
ing attitude towards colleges and
Has the ability to commu-
subordinates.
nicate with people and

influence them for good
performance.
Finds it difficult to relate

with bosses, peers, or
subordinates.
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7. Teamwork and Cooperation Highly productive and

Ability to work with colleagues,
Excellent
successful in working
peers, and other departments; with colleagues and
kind of participation in meet- peers.
ings; degree of involvement in
team project; willingness to share Positive participation and
Good
one’s resources with others in integration with team.
the department if needed; seek-
ing and offering peer assistance; Adequate commitment
Satisfactory
degree of sensitivity to group feel- and contribution to team
ings and response. efforts. Notable peer col-
laboration.
Does not function as a
Unsatisfactory
team member. Goes all
out for himself. Tends to
disrupt rather than con-
tribute to team efforts.
8. Identification with the Company Thoroughly identifies

Sense of identification with the Excellent himself with the compa-
company’s values and interests; ny’s values and interests
concern for satisfaction of clients/ and transmits them to
customers’ needs; pursuit of excel- peers and subordinates.
lence in performance; concern for
cost reduction through optimum Is involved with and loyal
utilization of men, materials, or to the company’s inter-
equipment; concern for preserva- ests; has a high sense
of belongingness to the
Good
tion of company’s property.

company.
Shows necessary con-

cern for company’s val-

ues and interests.
Low commitment to com-

pany’s interests. Talks
loosely about the com-
pany and has no belong-
ingness to it.
9. Development of Subordinates Gives very high priority

Ability to guide subordinates in to development of subor-
their work assignments; delegation dinates.
of work; steps taken for training
and development of subordinates;
Excellent
ability to get them to accept the

challenge of higher responsibilities
or targets.
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Takes positive steps for

subordinate development
Good
such as training and job
enrichment/enlargement.
Shows concern for devel-
opment of subordinates;
is able to motivate them.
Has no interest in the

development of his sub-
ordinates.
10. Approach to Problem Solving Is extremely resource-
Excellent
Ability to seek alternative ways to ful and has practical and
solve a problem or meet a deadline original skills to solve
within the rules of the company; problems.
flexible and practical approach;
Is flexible in approach
ability to cope with unusual prob-
and successful in find-
lems and situations; generation of
Good
ing solutions to many
original ideas and enduring solu-
unusual problems.
tions to problems.
Is able to find solutions
to routine problems; is
receptive to new ideas
Is upset when problems

come; fails to solve them.
III. A. Training Plans

Please tick below selectively, the type of training courses that you think will help improve the ratee’s performance.
1. Technical (please specify the area)

2. Functional (please specify the area)
3. Computers
4. Management Training
(a) General management programmes
(b) Total quality management
(c) Problem solving skills
(d) Communications skills
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(e) Leadership skills

(f ) Interpersonal/behavioural skills
(g) Value engineering
5. Any other (please specify)
III. B. Development Plans

What are your plans to develop the ratee (e.g., special assignments and increased responsibility)?
I have seen my performance appraisal for the year…… and it has been discussed with me with respect to
my performance and development plans.
Date………........... Signature of the Ratee
IV. Checklist of Observable Behaviour

Please go through each of the items listed below. Whenever the item description distinctly tallies with the
observable behaviour in the ratee, tick in the column marked ‘Yes’. If it is not so, please tick in the column
marked ‘No’. This checklist is not an assessment of performance. It is used for developmental purposes.
Sl. No. Description Yes No

1. Pay attention to documentation. Is systematic in record keeping for
future references.
2. Is clear and concise in written communication.
3. Has the capacity for self-analysis and correction of his weaknesses.
4. Has the aptitude for systematic and methodical work. Is patient with
minute details.
5. Makes positive attempts to update himself in his professional field and
learns new things.
6. Does not accept substandard work.
7. Does not lose heart in spite of failures or setbacks.
8. Has a sense of humour.
9. Promotes healthy industrial relations in his department or work place.
10. Is skilled in organizing complex activities.
11. Is trustworthy. Does not let down colleagues for personal gain.
12. Has the courage of his convictions. Expresses dissent when he is con-
vinced of a different approach to the task or problems.
13. Respectful of elders and superiors. Polite. Does not hurt colleagues or
subordinates.
14. Finds it very easy to get to know people and get along with them.
15. Clear in his verbal communication. Is seldom misunderstood. Can con-
vey his thoughts precisely and clearly.
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V. Confidential Rating of Overall Performance
Please initial in any one of the following:

The individual has achieved an exceptionally high standard of performance. In significant Outstanding
areas of responsibility, he has exceeded expected standards. Performance is consis-
tently excellent.
The standard of performance has been consistently above aggregate; and in several Superior
areas, responsibilities were discharged so as to merit favourable comments rather than
mere satisfaction.
The individual has performed well by and large and to the satisfaction of his superior. Satisfactory
Not up to the minimum requirements of the position. Unsatisfactory
This employee has worked under my supervision.
From ____________
To____________
Signature of the Rater Date:_____________

Designation
Department
Signature of the Reviewing Authority Date:_____________

Designation
AQ:25 Department
Exhibit 3.2 Strengths and weaknesses of different performance appraisal methods
Methods Strengths Weaknesses

Appraisal by It provides a quantitative measurement Appraisal being result oriented, it is not
objectives of performance that is verifiable. Quanti- suitable for determining the potential.
(MBO etc.) fication of performance being objective,
subjectivity in analyses can be avoided.
Weakness performance area can be Individual performance area being differ-
quickly identified, thus it provides a mean- ent, it does not facilitate peer comparison.
ingful basis for improving the performance.
Graphic rating It is a simple and popular method. Highly subjective and unreliable.
It facilitates peer comparison, therefore, it Being subjective, weighting of factors
provides an objective basis for decision on may be necessary for improving the
remuneration, rewards, and promotion. quality of analysis.
Certain common criteria may be provided It does not provide facility for feedback
for improving the quality of comparison. and employee development.
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Exhibit 3.2 (continued)
Methods Strengths Weaknesses

Essay type Its proper use can provide quality informa- It requires good writing ability.
tion which can help in taking meaningful Appraisers should have the power to
decisions for placement, promotion, and take mature judgements.
development. Being subjective, inter-employee com-
parison is difficult.
Critical incidents Being highly objective, it provides factual Since performance is analysed on inci-
method data on employee’s performance and dents, it tends to be fragmentary.
behaviour.
Usually helps in improving the communica- It cannot be a method independent of
tion and development of employees. evaluation.
It is useful as a supportive evaluation. It does not provide any basis for com-
parison.
Forced distribution It is free from any bias and is uniform in It cannot be an independent method of
standards. appraisal. It is better used as a control
instrument.
Not suitable for communication and
employee development.
Straight ranking It is simple and helps in taking decisions on It does not provide feedback and also
method salary progression and promotion. cannot be used for large groups and
interdepartmental comparisons.
Exhibit 3.3 Behaviourally anchored rating scale

Guide to Performance Appraisal
Assessment A B C D E
Criteria
Quality Leaps tall Must take a Can only Needs some Cannot recog-
buildings in a running start to leap over a improvements nize building
single bound leap over tall building with at all, must
buildings no spire less jump
Timeliness Is faster than Is as fast as a Not as fast Would you Wounds self
a speeding speeding bullet as a speed- believe a slow with bullet
bullet ing bullet bullet?
Initiative Is stronger Is stronger than Is stronger Shoots the bull Smells like a
than a loco- a bull elephant than a bull bull
motive
Adaptability Walks on Walks on water Washes with Drinks water Passes water
water consis- in emergencies water in emergen-
tently cies
Communication Talks with Talks with the Talks with Argues with Loses the
God Angel himself himself arguments
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Exhibit 3.4 Typical potential appraisal form

Appraisal of Potential 2009–2010
Employee Name:__________________________________________________________
Department:________________________________
Job Title:_________________________
Immediate Reporting Boss:______________________
Please complete the following appraisal of potential for your employees. This appraisal focusses on those
tasks or responsibilities which are beyond the scope of their assigned performance roles. In other words, this
appraisal can track the extent of employees’ capability in delivering at the ‘exceeds expectation level’. While
appraising the potential of employees, it is necessary to examine the management by objective concepts, and
accordingly focus on the following assessment areas:
Determine results expected in the coming year
Determine proposed target dates
Establish target dates
Analyse previous years’ goals and objectives
Establish new goals for the next year
Apart from capturing the above information to assess the potentiality of employees, it is also necessary to
discuss the assessment results with the concerned employees.
Please examine the following questionnaire template and based on your perception, identify what skills,
knowledge, talents, and qualities must be reinforced for improving the potentialities of your employees.
To what extent the concerned employee tries to achieve excel-

lence in his/her work and prepare himself/herself for more respon-
sibility?
Based on your assessment, what development programmes
would you recommend for the employee?
What should be the next desired level position for the employee?
What specific performance results impress you to recommend
such a position?
Do you think such performance results are better than the level of
standards in comparable positions?
Describe how well performance results were achieved compared
to the standards of the job position.
Critically evaluate the methods and the approaches followed by
the employee while doing the job. (Particularly examine the out-
come or effect of his/her performance results, such as is he/she
more autocratic in getting the work done by the people reporting
to him? Are his/her subordinates executing the job in good spirits?
What is the motivation level of subordinates?)
In which performance areas do you feel the employee should
improve?
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Exhibit 3.5 A simple MBO appraisal form
Name Job/Role Date

What data is needed for What training/learning needs
Key job area Objective/target to be achieved
performance indicators? may be needed?
1.
2.
3.
4.
5.
Progress Review Dates

Notes on Achievements/Progress (at date)
REFERENCES
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Einstein, W.O. and J. LeMere-Labonte (1989), ‘Per- cation, New Orleans, LA).
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Advanced Management Journal, 54(2): 26–30. All the Children Are Above Average: The Per-
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MA: Houghton Mifflin). Total Quality Management Practices and Their
Hambleton, R.K. and S. Powell (1983), ‘A frame- Effects on Firm Performance’, Journal of
work for Viewing the Process of Standard Set- Operations Management, 21: 405–35.
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6(1): 3–24. ‘Behavioural Observation Scales for Perfor-
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mance Appraisal Purposes’, Personnel Psy- Pulakos, Elaine D. and Kenneth N. Wexley
chology, 30(2): 255–68. (1983), ‘The Relationship among Perceptual
Latham, G. P., K.N. Wexley and E.D. Purcell, Similarity, Sex, and Performance Ratings in
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Rating Errors in the Observation of Behavior’, Management Journal, 26(1): 129–39.
Journal of Applied Psychology, 60, 550–555. Sackett, P.R. (1987), ‘Assessment Centres and
Lefkowitz, J. (2000), ‘The Role of Interpersonal Content Validity: Some Neglected Issues’, Per-
Affective Regard in Supervisory Performance sonnel Psychology, 40, 13–25.
Ratings: A Literature Review and Proposed Schuler, R.S. (1995), Managing Human Resources
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FURTHER READING
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Rater Training: Creating New Response Sets tive Perception: A Note on the Departmen-
and Decreasing Accuracy’, Journal of Applied tal Identification of Executives’, Sociometry
Psychology, 65: 60–66. (June): 140–48.
Boland, Tony and Alan Fowler (2000), ‘A Sys- Grote, D. (1996), The Complete Guide to Perfor-
tems Perspective of Performance Management mance Appraisal (New York, NY: American
in Public Sector Organizations’, The Interna- Management Association).
tional Journal of Public Sector Management, Keany, T. and A. Mcgann (1975), ‘A Comparison
13(5): 417–30. of Behavioral Expectation Scales and Graphic
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Rating Scales’, Journal of Applied Psychology, tion of Judgments’, Journal of Personality and
60: 695–703. Social Psychology, 35: 450–56.
Landy, F.J. and J.L. Farr (1983), The Measurement Oberg, W. (1972), ‘Make Performance Appraisal
of Work Performance: Methods, Theory and Relevant’, Harvard Business Review (January–
Applications (New York, NY: Academic Press). February): 61–67.
Meyer, H.H., E. Kay and R.P. French (1965), Rao, T.V. (1985), Performance Appraisal Theory and
‘Split Roles in Performance Appraisal’, Har- Practice (New Delhi: Vikas Publishing House).
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Effect: Evidence for the Unconscious Altera- Jossey-Bass).
CASE STUDY—1
Training Milieu
Veriphone India in Bangalore is a software development company that has a turnover of Rs 200 crore.
It employs 400 persons.
The company is professionally managed. The management team is headed by a young dynamic
Managing Director. He expects performance of high order at every level and more so at the supervisory
and managerial levels. However, the junior level vacancies are filled up by different types of trainees in
the company.
The company offers a 1 year training scheme for fresh computer engineers. During the first 6 months
of the training, the trainees are exposed to different functional areas. This is considered to be the core
training for this category of trainees. By the end of the training, the trainees are identified for placement
against the available or projected vacancies. Then, further training in the next quarter is planned accord-
ing to individual placement requirements. During the last quarter, the training will be on-the-job. The
trainee is required to perform the jobs expected of him after he is placed there.
The training scheme is broadly structured keeping in mind the training requirements of computer
engineering graduates. The company has a reasonably good system of manpower planning. The intake
of trainees is generally planned on the basis of project requirements.
Mr Anuvab Rao joined the company in the year 1999 after his B. Tech. degree from a reputed insti-
tute. He was taken as a trainee against a projected vacancy in the CAD/CAM division.
In Veriphone, the areas of interest for a trainee in CAD/CAM are few. Moreover, since Mr Anuvab Rao
specialized in CAD/CAM in his B. Tech., his training was planned for the first 3 months only. Thereafter,
he was put for on-the-job training in the CAD/CAM department. He took interest and showed enthusiasm
in his work there. The report from his divisional head was quite satisfactory.
The performance of the trainee is normally reviewed once at the end of every quarter. During this review,
the training manager personally talks to the trainees about their progress, strengths, and shortcomings.
At the end of the second quarter, the training manager called Mr Rao for his performance review.
He appreciated his good performance and told him to keep it up. A month later, Mr Rao met the train-
ing manager. He requested that his training period be curtailed to 7 months and that he be absorbed
as a regular computer engineer. He argued that he had been performing like a regular employee in the
department for the last one quarter. As such, there was no justification for him to be put on the training
any more. Further, he indicated that by doing so, he could be more effective in the department as a
regular engineer. He would gain seniority as well as some monetary benefits as the regular employees
M03_9788131754221_C03.indd 92 5/17/2011 12:12:54 PM

were eligible for many allowances, such as conveyance, dearness, house rent, education, and so on,
which was a substantial amount compared to the stipend paid to him as a trainee.
The training manager turned down his request and informed him that it was not the practice of the
company to do so. He told him that any good performance or contribution made by the trainees during
the training period would be duly rewarded at the time of placement on completion of 1 year of training.
Further, he told him that it would set a wrong precedence. Often some trainees were put on the job much
earlier than the normal period of three quarters for several reasons.
Thereafter, Mr Rao’s behaviour in the department became different. His changed attitude did not
receive any attention in the initial period. However, by the end of third quarter, his behaviour had become
erratic and unacceptable. When he was asked by the division head to attend to a particular task, he
replied that he was still a trainee and such tasks should not be assigned to a trainee. According to him,
those jobs were meant to be attended by full-time employees and not by trainees.
The divisional head of CAD/CAM division complained to the training manager of Mr Rao’s behaviour
and he was summoned by the training manager. During the discussions, Mr Rao complained that while
all the remaining trainees were having a comfortable time as trainees, he was the only one who was put
to a lot of stress and strain; the department was expecting too much from him. He felt that he should be
duly rewarded for such hard work; otherwise, it was not appropriate to expect similar work output from
him.
The training manager tried to convince him again that he should not concentrate on rewards and that
as he was a trainee, his sole concern should be to learn as much as possible to improve his abilities. He
advised him that he should have a long-term perspective rather than such a narrow-minded approach.
He also informed him that his good performance would be taken into account when the right occasion
arose. He warned him that he was exhibiting a negative attitude. His demand for earlier placement was
illogical and that he should forget this as he had already completed 8 months and had to wait only for 4
months. He advised Mr Rao that the career of an individual had to be seen on a long-term perspective
and that he should not resort to such child-like behaviour as it would affect his career and image building
in the company.
Mr Rao apparently seemed to have been convinced by the assurance given by the training manager
and remained passive for some time. However, when the feedback was sought after a month, the report
stated that he had become more troublesome. He was called again for a counselling session and was
given two weeks time to show improvement. At the end of those two weeks, the training manager met
the CAD/CAM division head to have a discussion about Mr Rao. It was decided that he be given a warn-
ing letter as per the practice of the company, and accordingly, he was issued one.
This further aggravated the situation rather than bringing any improvement. He felt offended and
retaliated by thoroughly disobeying any instruction given to him. This deteriorated the situation more
and the relationship between the division head of the department and the trainee was seriously affected.
In case of rupture of a relationship, normally the practice was to shift the trainee from the depart-
ment where he was not getting along well to some other department so that he would be tried and could
have another lease for striking a better rapport. But unfortunately, in the case of Mr Rao, there was
no other department to which he could be transferred, since that was the only department where his
specialization could have been put to proper use. By the time he completed his training, he turned out to
be one who was not at all acceptable in the department for placement as his behaviour and involvement
were lacking. In view of this, the divisional head recommended that he be taken out of that department.
When Mr Rao got information about it, he was thoroughly depressed.
One of the primary objectives of the training department is to recruit graduates who have good poten-
tials and train them to be ‘effective’ persons, in different departments. They are taken after a rigorous
selection process that includes a written test, a preliminary, and a final interview. During the training
period, their aptitudes, strengths, and weaknesses are identified.
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Their placements in departments are decided primarily on the basis of their overall effectiveness.
Here is a case of a person who was hardworking in the beginning but turned out to be a failure at the
end. The training manager was conscious of this serious lapse and was not inclined to recommend his
termination. But at the same time it was difficult to retain a person whose track record was not satisfac-
tory. He still felt that a fresh look be given to this case but he was unable to find a way out. He was then
faced with the dilemma whether or not to terminate Mr Rao’s services.
Questions:
1. Where did the things go wrong?
2. Who is responsible for this episode?
3. Should the training manager concede to his demand for appropriate placement?
4. What are the open options for the training manager other than the termination of Mr Rao’s services?
5. Did the divisional head of CAD/CAM handle the trainee properly? How could he have put Mr Rao
back onto the right track?
CASE STUDY—2
Aligning Performance Management with Employee Development

The knowledge-intensive IT-enabled service (ITeS) organizations in India, which primarily serve the
international clients, could realize, in a competitive market, that the survival mantra is to exceed the
customers’ expectations. Among others, it requires people to develop their competencies, renewing
their knowledge and skills. In ITeS, skill and knowledge life cycles are short and unless it is constantly
renewed, people become redundant. Replacing people with the hiring of new skill sets is not only
expensive but also at times raises performance questions. New hires take time to deliver the results,
and the opportunity costs in the process get increased.
Realizing such operational difficulties and cost over-runs, the management decided the introduction
of personal development programmes for employees known as ‘SHARP EDGE’. Every employee gets
the performance feedback in a quarterly performance review meeting with their seniors, who explain
the changing skill sets in their verticals and how they can develop such skill-sets with in-house train-
ing supports. The performance review meeting among others also highlights on their skill compatibility
based on the degree of interchangeability. ‘SHARP EDGE’ programmes are integrated with the long-
term business needs of the organization, and allow credit points to the employees who acquire the new
skill sets. Learning or acquisition of skills could only be established when employees obtain an external
certification after in-house learning and implement successfully their learned knowledge in their chang-
ing work process. Credit points help the employees in career advancements and pay rise in annual
performance reviews.
Institutionalizing the ‘SHARP EDGE’ helped the company retain the manpower and substantially
reduce the costs of manpower redundancies. Over and above, the company could stay ahead in com-
petition.
Question: Identify a similar software for e-performance management and mention its features and
operational details, including the benefits that the user organization can derive from it.
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CHAPTER 4
Review
Learning Objectives
Definition and concept of performance review Different steps in performance review
Different aspects of employee development Benefits of performance review
through performance review Structured performance review process
Different types of performance review Performance counselling
Concept of performance review meeting Different phases of performance counselling
Rationalizing Performance Review Through Forced Ranking

To make the performance review process compatible with the organizational requirements, we often make
use of forced ranking. As performance assessment tool, forced ranking can only be effective when employ-
ees and the organizations understand each other. Many organizations use forced ranking as a reengineer-
ing tool, particularly for right-sizing employees. Obviously for this reason, forced ranking is misconstrued.
It is recommended to use forced ranking as a performance review tool only when organizations deliver
results above the industry standard. It, therefore, facilitates reaching the exceeded expectation levels of
performance. In reality, forced ranking calls for continuous performance improvement, and in that way
discards the traditional performance review process. It resembles Deming’s assumption that performance
review per se cannot solve the performance problems or improve the performance unless we embrace
it as a system. Context and orientation aspects of performance review systems integrate the individual
development and the achievement of personal, group, and organizational goals. Wipro, the Indian con-
glomerate, could embrace such a multidimensional performance review mechanism to achieve the per-
sonal, group, and organizational goals. Rather than making performance review process the backbone of
compensation reviews, Wipro also emphasizes on the economics of scale. In its true sense, Wipro could
embrace the performance review process as a system. Thus, forced ranking per se is not bad; rather,
it helps the employees to self-assess where they stand vis-à-vis the best industry performance results.
Adapted from: http://www.gtcs.com
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INTRODUCTION
The success of the organization depends on employees’ performance and how they develop over the
period of their tenure with the organization. Performance reviews can help in developing both the indi-
viduals and the organizations. For organization, we do not have any end to the level of excellence. Hence,
apparently well-run organizations also need to look at the future and plan for the best performance of
employees, so that they cascade to overall organizational performance. To compete, sustain, and grow,
the performance review requires the organization and its employees to adapt and adjust to the chang-
ing environment of business. In the process, performance review develops organizational capabilities to
compete, making available the best-talented people for work. In Chapter 3, we have already elaborated
the performance appraisal systems, which is synonymous with the performance review systems. How-
ever, the performance appraisal or performance evaluation as a concept is often construed as an in-built
critical look to the assessment of employees’ performance. Hence, in this chapter we have focussed on
performance review, more as a standalone concept, keeping in view the industry practices. Various per-
formance measurement tools discussed in Chapter 3, therefore, have not been repeated here.
It is often debated as to whether the term ‘performance reviews’ should be used. It is rather better to
use the term ‘performance previews’. Performance previews do not look back but forward. Employees’
performances are noted but on real-time basis. Performance previews do not just look into the behav-
iour, but also into the future that must occur before the performance happens. Performance previews’
premise is that the performance-related behaviour occurs regularly, rather than as a bi-annual or annual
event, as in performance review.
Any organization that subscribes to the concept of performance preview is forward-thinking and
focusses on retention of high-performing workers relying on collaborative teamwork. Such organiza-
tions focus on coaching and teamwork to achieve synergy. Thus effective performance preview requires
coaching, not directing.
A standard performance review is usually done annually in any organization. However, to enforce
performance control, often organizations may conduct performance review with less frequency, say, half
yearly, quarterly, monthly, and even with an ongoing review system; empowered by a balanced score
card or e-performance management systems, it could be even on a daily basis. Such ongoing performance
review systems can be better termed as performance preview. It not only gives immediate feedback to the
employees, but also reinforces organizational capability to respond to the environmental changes.
For the purpose of this book, however, we have used the terms performance review and performance
preview interchangeably.
DEFINITION
Performance review is an ongoing process to document expected results, standards of performance, and
evaluation of the employees’ performances. Performance review also tracks the progress towards achiev-
ing the results, assesses how well the performance results are achieved, provides suggestions, and so
also gives the guidelines to follow the suggestions to improve future performances, etc. It is ongoing, as
organizations need to remain watchful on workers’ performances, rather than focussing only on isolated
performance issues. It means, it focusses on the holistic evaluation of performances. Also, the perfor-
mance review process requires organizations to collect information, and such information gathering can-
not be just a one-time affair. Every employee’s performance curve goes up and down; hence it cannot
be assessed unless it is continuous. The review process involves a formal discussion about an employ-
ee’s development and performance. It is also known as a planning process, as it involves setting up a
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Performance Management Review 97
plan of action for the next period and reviewing what has been achieved in the last period. Some of the
factors considered in performance review are work conduct, key performance indicators, work plans, roles
and responsibilities, position descriptions, training/learning, and financial and non-financial compensa-
tion. Traditionally, formal performance review is conducted once a year. However, some organizations
conduct it on a quarterly or half yearly basis. There may be, however, midterm review in between the
formal annual review. Performance review is a two-way process, between the reviewer and the reviewee.
Some systems use multiple ‘raters’, particularly 360-degree systems where managers, subordinates, col-
leagues, and co-workers provide input to the review process. Most organizations use paper-based sys-
tems, although some use computer-based systems. A good performance review system helps both indi-
viduals and organizations. Formal reviews should mainly document the decisions and actions that occur
on a regular basis. There should be ‘no surprises’. A formal discussion should review what both parties
have been discussing informally. Therefore, performance review is an analysis of an employee’s work
habits undertaken at a fixed point of time to determine the degree to which stated objectives and expecta-
tions have been reached. Performance review is not a stand-alone process. It encompasses the training
and development function while addressing the need for achieving organizational growth.
A comprehensive performance review of any organization focusses on the following aspects of
employees’ development:
Developing employees’ capabilities to master the job-specific skills.

Making employees aware of the organizational policies and workplace regulations.
Helping employees deliver the results meeting the deadlines.
Culminating the employees’ willingness to volunteer for new job responsibilities.
Developing employees’ ability to take an initiative.
Making employees work well with others.
Developing employees’ communication skills.
Helping employees master the time-management skills.
Similarly, some of the negative performance factors of employees are also unearthed and appropriate
actions are taken by the organizations. Such negative factors are:
Dissuading employees to frequently remain absent from duties.
Persuading employees to reduce the absence from workstations, either by leaving the workplace
early or by stretching the lunch break.
Restricting mis-utilization of organizational resources.
Straightening employees to refrain from misbehaving with others.
On the other hand, the positive effect of performance review in fact can develop employees’ problem-solving
capabilities, and make them more spontaneous to get the things done and work as a team.
SCOPE OF PERFORMANCE REVIEW

Depending on the nature of the organization, the scope of performance review varies. Commonly,
however, the scope of performance review encompasses the following aspects:
Job performance—Considers meeting goals and developing mutually decided standards.
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Working relationships—This aspect focusses on maintaining professional relationships with

co-workers, subordinates, and managers.
Core job skills—Emphasizes on the normative aspects of job, including its skill and competencies.
Performance review, therefore, tries to address all the above aspects, and in the process ensures organizational
effectiveness. However, while we review the performance, it is important to agree on the key performance
indicators, the nature of information and its sources to measure the performance indicators, post-review
discussions with the employees, the design of need-based training, mentoring, etc.
TYPES OF PERFORMANCE REVIEW

Approaches to performance review widely vary in organizations. Many consider it as an ongoing pro-
cess, while some organizations consider it as a special event and hence conduct it to achieve some
specific purpose.
Probationary review: It is the general trend to hire employees on probationary terms, may be for a
period from, 6 months to 1 year, on satisfactory completion of which they are confirmed. It is intended
to ensure that employees are the right-fit with the organization in terms of performance; also it facil-
itates recruitment validation. If the employees are unable to perform up to the expected standards,
organizations can persuade them to leave. This process has legal mandates. Probationary review, there-
fore, assesses employees’ performance during their period of probation, based on which they are either
confirmed or released from the organizations.
Rehiring review: Often employees may voluntarily leave the job, or organizations to right size, or on
poor performance count, may ask them to leave. Even after such employment cessation, employees may
be rehired. At this time, organizations make use of the rehiring review. The process in this case is more
or less like probationary review, as in this case also rehired employees’ performances are reviewed for
subsequent confirmation of their employment or termination.
Self-review: Self-review requires employees to review their own performance. The process involves
answering certain questionnaire items that is followed by a performance interview. Often a self-review
system is integrated with the organizational performance review process, so as to get the right feel
about the employees’ own performance. In a multi-rating process, this is one of the important areas
of review. It helps managers to correctly track the employees’ performance and effectively discuss the
performance aspects with the employees.
Peer-review: Often peer-review, like the self-review, forms a major part of the normal review process.
Employees’ self-assessment may not often provide us the right performance picture. This can be better
validated by peer-review, i.e., review of their performance by their colleagues. The purpose and sanctity
of the performance review process may often get defeated by peer-review, as employees may practise
mutual appreciation and make it an issue of bargain.
PERFORMANCE REVIEW MEETING

A performance review meeting takes place between the managers and the employees. In such a meet-
ing, managers assess the performance of the employees, such as the attainment of agreed-upon goals,
overcoming difficulties in achieving the goals, if any, etc. Both the managers and the employees work
together in such a meeting. Some organizations call it performance appraisal or performance evaluation
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meeting. The frequency of such a meeting depends on the organizational performance review cycle,
which may be half yearly, yearly, or even in shorter time cycle. A meeting in shorter time spans, say
monthly or quarterly, enforces performance control, as organizations can understand from beforehand
the line of action they need to take or initiate to resolve the problem. Therefore, through comprehensive
two-way discussions, the performance review meeting benefits organizations by tracking the perfor-
mance, documenting the difficulties in performance, initiating the corrective action, and drawing the
future mutually agreed performance goals. Also in this process, it helps in identifying employees’ devel-
opmental needs, and accordingly designing the training and development programmes, so that the orga-
nizations remain competitive with knowledge, skill, and competency renewal.
STEPS IN PERFORMANCE REVIEW

Performance review is the most important part of the total performance management system and pro-
cess. It entails discussions between the managers and the employees to assess the degree of performance
achievement, identify the training and development needs, and draw the action plan for future perfor-
mance improvement. For such an obvious range of activities, the performance review process goes
through different stages and in every stage we need to follow certain steps. Such stage-wise steps are
documented below.
Before the Performance Review

Develop the time schedule for performance review and the venue for review discussion. Perfor-
mance review meeting or discussion essentially should be conducted during the working hours of
working days. Many organizations overstretch their performance review meeting and even conduct
the same during the weekend breaks, etc.
Understand the job descriptions of employees to clearly assess the expectations from the employees
that were decided during the performance planning.
Study employees’ self-assessment reports.
Study the supporting documents for employees’ performance.
Make sure that the review meeting maintains two-way communication channel, so that the employ-
ees can open up during the review process.
Advise employees to come prepared with all supporting documents during the review process.
During the Performance Review

Guide employees with specific feedback on the performance, which helps them to prioritsze with
performance goals decided during the performance planning, and to understand the performance
area, where they have excelled the expectations or failed to meet them.
Make sure that the employees are able to share their self-evaluation and understand where they are
right or wrong.
Make employees understand their developmental needs.
Ensure mutual agreement on setting the targets for future performance improvement.
Ensure mutual agreement on development goals.
Provide clarity in explaining the performance review process, answering any question from the
employees, if any.
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Understand the degree of organizational support and identify the area, where it went wrong.
Complete the performance review process, obtaining signature from the employees.
After the Performance Review

Ensure that the employees get a copy of their performance review report.
Keep record of the performance review report.
Thus, an effective performance review process requires strict adherence to certain steps at different
stages. During the review process, managers need to minimize interruptions, creating a positive and col-
laborative environment for discussions. Employees should feel enthused and volunteer for participation.
The task requires specific managerial skills, such as listening, use of clear and unambiguous language
during discussions, positive attitude to answer employees’ calls, and finally closing the discussion with
a positive node of encouragement.
Despite the above-mentioned structured steps, performance review goes wrong for certain errors,
which we have already documented in Chapter 3. Such errors are halo, horns, first impression error,
recency, leniency error, severity, central tendency, clone error (when the rater rates high finding compat-
ibility of behaviour and personality in the ratees), and spillover error (propensity to rate lower for poor
performance track records during the earlier period). To reduce such performance errors, it is desirable
to document the performance rack of employees on a continuous basis, and also advise the employees
likewise.
BENEFITS OF PERFORMANCE REVIEW

Performance review per se is the important subset of the performance management process. Hence,
success of performance management systems and processes highly depends on effective performance
review. In fact, designing of effective performance review systems is winning halfway through manag-
ing the performance of employees. Some of the important benefits of performance review can be listed
as under:
Helps in strategic improvement of employees’ performance.
Facilitates in compensation design and planning.
Validates compensation increase or decrease (particularly in cases of incentives, etc.) in employee-
specific cases.
Validates decisions on promotion, demotion, transfer (with or without relocation), etc.
Helps in identification of training and development needs of employees.
Helps in employees’ career planning and development.
Helps in succession planning.
Provides valuable inputs in reviewing HR policies, procedures, and strategies.
Helps in reviewing the job description.
Guards against legal battles on employees’ claim.
Keeps check on wrongful HR decisions pertaining to dismissal, demotion, and transfer prejudicing
employees’ interests.
Extends support for resource planning for the future.
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Gives inputs to competency mapping.

Rationalizes strategy framing for the organization.
With all these benefits, organizations can truly embrace their capability and remain competitive in their
respective areas of business. Managers need to make the performance review process as stressless as
possible and promote its benefits.
STRUCTURED PERFORMANCE REVIEW PROCESS

Every organization adopts a structured approach to their performance review process. Now it is almost
customary for the organizations to start the performance review process with the self-appraisals of
employees. Employee self-appraisals are preferably completed 2–3 weeks before the formal perfor-
mance review process starts. With these inputs, managers initiate the performance review discussions
firstly defining the major areas of responsibilities (preferably four to five). To do this, managers can
first identify the critical success factors that can address the core job requirements of employees.
This can also be done based on the job description. Depending on the identification of major areas of
responsibility, evaluation criteria and performance standards are decided. Secondly, performance com-
petencies, skills, and behaviours are documented based on shared understanding. Thirdly, the overall
assessments are made and the level of employees’ performance is graded as per the performance rat-
ing scale. Fourthly, employees’ development plans are drawn keeping in view the need for closing
the performance gaps, enhancing the job skills and performance plans, as well as employees’ career
advancement plans, their potentiality exploration, etc. This done, employees’ performance goals and
expectations for the coming performance cycle is drawn.
Typical formats used for each such area is presented in Exhibits 4.1 and 4.2.
Likewise, for every area of performance review, it is possible for the organization to design the struc-
tured format for better documentation of the review results.
Exhibit 4.1 Major areas of responsibility

Major areas of Observed achievements and Outstanding above expectations
responsibilities/goals areas for improvement Meets expectations below
Needs improvement
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Exhibit 4.2 Performance competencies and their related skills and behaviours
Competency areas Observed competency Outstanding above expectations
areas and suggestions Meets expectations below
for improvement Needs improvement
Feel responsible for the jobs: Evident

from employees’ interest in accurate and
timely completion of the assignments,
concern for self-achievement of goals
and the goals of the department, as
well as the organization as a whole.
Such competencies are also evident
from employees’ propensity to effective
handling of multiple responsibilities
Customer focus: Evident from employ-

ees’ dedication to meet and even
exceed the expectations (both explicit
and implicit) of internal and external
customers, degree of understanding
customers’ needs beforehand, and
gaining the trust and respect
Problem solving ability and creativity:

Evident from employees’ ability to
identify and analyse the problems, ability
to develop alternative and cost-effective
solutions, and creative troubleshooting
of problems
Collaboration/teamwork: Evident from

employees’ ability to maintain harmo-
nious work relationships with all stake-
holders, propensity to demand, and
share information, positive attitude to
share resources, workplace diversity,
and show respect for others
Interpersonal skills: Evident from

effective communication to persuade
others to get the results, i.e., achieve-
ment of goals
Performance Counselling
It is a process of advising employees, listening to their problems, and enabling them to find satisfactory
solutions on their own. Performance counselling as a process helps subordinates to analyse their
performance objectively. It helps in identifying training and development needs and also ensures
improvement in the future performance of an employee.
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Primarily performance counselling attempts to help an employee in the following ways:

It helps an employee to understand his/her strengths and weaknesses. More effective counselling
sessions even enable employees to make their independent SWOT analysis, i.e., strengths, weak-
nesses, opportunities, and threats.
Since good performance counselling believes in giving feedback information about the employees’
behaviour, hence their performance, it helps in improving the professional and interpersonal com-
petence of employees.
It helps in setting goals, formulating an action plan for further improvement of employees.
It helps the employees identify different alternatives for dealing with problems.
A good performance counselling session being supportive and empathetic, it helps employees feel
encouraged to openly discuss their aspirations, conflicts, and problems.
CONDITIONS FOR EFFECTIVE PERFORMANCE COUNSELLING

Conditions for effective performance counselling may be listed as follows:
A climate of mutual trust, confidence, and openness needs to be ensured at the outset.
Climate should be such that it can ensure subordinates’ free participation in the review process and
also in their giving the correct feedback. This is important, as counselling is not a one-way process
of communication, rather a two-way traffic.
The focus of performance counselling is on employee development. Employee development
should not be considered isolated from other issues of performance appraisal, i.e., remuneration
and rewards, promotion, motivation, etc.
DIFFERENT PHASES OF PERFORMANCE COUNSELLING

There are different phases of the performance counselling processing. They are as mentioned below:
Rapport Building: This is the initial phase of performance counselling. Managers who are entrusted
for performance counselling, at this beginning stage, try to gain acceptance, inculcating confidence in
the minds of employees whose performance is being reviewed. Without this, employees may not listen
and support the counselling process. It requires open and transparent sharing, listening to the problems,
and empathy.
Exploration: In this phase, apart from visiting the employees and creating a climate of openness, the
counsellors help the employees to understand their SWOT. The success of this phase lies in making the
employees discover all these on their own and at the same time initiate remedial measures indepen-
dently.
Action Planning: Specific plans and actions for the development of employees are identified at this
phase of performance counselling. The counsellor helps the employees to implement such action plans
for effective results. For making such action plans acceptable, some counsellors prefer to develop the
action plans exposing employees to a series of brainstorming sessions. This process enables the employ-
ees to develop the action plans independently.
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PERFORMANCE COUNSELLING PROCESS

Firstly, the counsellor should be an excellent listener. He should pay attention to the ideas, feelings, and
sentiments of the person being counselled. This enables the counsellor to understand and analyse the
subordinate’s concern. The effectiveness of a performance counselling session, therefore, depends on the
efficiency of asking questions. The questions should be framed in such a way that they should try to seek
constructive suggestions from the subordinate, should be open-ended and empathetic, but should not be
critical or appearing as if the intention of the counsellor is to test or evaluate the subordinate person.
Secondly, the performance-counselling process should ensure communication of feedback to the
subordinates in such a manner so as to evoke a constructive response from them. Since, giving a nega-
tive feedback is embarrassing, feedback should always be descriptive and non-evaluative. It should be
focused on the behavioural attributes rather than on the subordinate himself. Feedback should be made
more data based and suggestive. It should be continuous and verifiable.
COUNSELLING INTERVIEW
Before beginning the counselling session, the counsellor needs to study the subordinate’s job respon-
sibilities, his education, training and experience, job performance, and his past jobs. He should make
adequate planning of the discussion and the issues involved, and determine the developmental need for
discussion with the employee.
The interview should be sincere, informal, and friendly. The counsellor should explain the purpose
of the discussion to the interviewee and also emphasize on the issue that the interview is essentially a
two-way communication. The subordinates should be encouraged to discuss their appraisals. The coun-
sellor should focus on the strong points and encourage the subordinates to suggest their developments.
It is essential for the counsellor to reach an agreement on development plans and also to summarize the
points discussed in the session at the end of the interview. He should make record of plans mutually
agreed upon in the interview. See Exhibit 4.3 for more details.
Exhibit 4.3 Employee performance review format

Employee’s Name Title
Date Grade Date in current position
Major areas of responsibilities:
Has there been any change in employee’s job during the period of evaluation? Yes/No
If Yes, mention the types of change and the reasons thereof:
Evaluation criteria of major areas of responsibilities: Mention the degree of the employee’s perfo rmance
criteria with respect to the identified factors documented above.
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Evaluation criteria—rating definitions:

Define your five-point rating scale to measure the degree of performance (you may use the following rating
scale as reference):
1—Unsatisfactory
2—Below normal
3—Normal and expected
4—Very good
5—Exceptional
Performance factors (indicative list)
A. Quality of work
1. What is the quality of the employee’s technical skills? 1 2 3 4 5
2. Does the employee maintain awareness of changes in technical areas and respond to 1 2 3 4 5
those changes?
3. Does the employee correct errors or question inconsistencies in work assigned? 1 2 3 4 5
4. Does the employee organize work to make the job easier and the supervisor’s job easier? 1 2 3 4 5
5. Is the work accurate and timely? 1 2 3 4 5
Rater’s comments:
B. Quantity of work
1. Does the employee manage work efficiently? 1 2 3 4 5
2. Are speed and consistency of output, time utilization, and results satisfactory? 1 2 3 4 5
Rater’s comments:
C. Interpersonal relationships
1. How does the employee work with others? Can the employee receive assignments 1 2 3 4 5
from several people, judge or resolve priorities, and maintain good working relation-
ships with those involved?
2. Does the employee obtain cooperation from others? 1 2 3 4 5
3. Is help offered to others during slow periods? 1 2 3 4 5
4. How effectively does the employee address and resolve conflict/problem situations 1 2 3 4 5
with others?
5. How are dealings with outside contacts handled? 1 2 3 4 5
Rater’s comments:
D. Initiative and self-reliance
1. Is the employee able to take action without direction, i.e., what is the extent of supervi- 1 2 3 4 5
sion required?
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2. Does the employee seek out new and better ways of accomplishing a task? Does the 1 2 3 4 5
employee seek out new responsibilities?
Rater’s comments:
E. Dependability
1. Is the employee generally willing to change plans in order to meet deadlines? 1 2 3 4 5
2. Does the employee accomplish all tasks within the proper time frame? 1 2 3 4 5
3. Is work complete and thorough, eliminating the need for close review? 1 2 3 4 5
4. Is closer review of work required during the pressure periods? 1 2 3 4 5
5. How much knowledge of the supervisor’s work and department functions does the 1 2 3 4 5
employee have?
6. In the supervisor’s absence, can this knowledge be applied to ensure that matters are 1 2 3 4 5
tended to or are referred to the proper person for action?
7. Are such factors as attendance, punctuality, time off, adherence to institution policies, 1 2 3 4 5
and procedures satisfactory?
Rater’s comments:
F. Summary assessment
Taking all the performance factors and evaluation criteria into consideration and realizing 1 2 3 4 5
that some of the factors are more significant to acceptable performance than others, how
would the employee’s overall performance be summarized during this evaluation period?
Rater’s comments:
Employee input (optional)

Any activities and/or accomplishments completed during the evaluation period that the employee feels were
of significant value or beyond the normal scope of regular duties should be described below under column A
and commented upon by the supervisor in column B. The employee can also use this space to comment on
circumstances that may have affected any of the ratings noted above or for any other comments pertaining
to the review.
Activities (A) Comments (B)

(Employee) (Supervisor)
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Supervisor’s comments and recommendation: If applicable, indicate performance areas where improve-
ment is warranted and outline action plans to assist the employee in achieving a higher level of perfor-
mance. Include specific activities and target dates for accomplishing these objectives. Also include any
other comments, positive or negative, which you feel are important:
Supervisor’s recommendations for special training courses for employee’s development:
Performance review and career counselling performed by:

Supervisor’s signature: ____________________
Name: ____________________
Date: ____________________
Employee’s signature:
I have/have not discussed my career options. I have reviewed this evaluation and discussed the contents
with my supervisor. My signature means that I have been advised of my performance and have been given
the opportunity to make comments, but do not necessarily imply agreement with the evaluation or the
contents.
Employee’s signature: ____________________
Recorded name: ____________________
Date: ____________________
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SUMMARY
Performance review is an ongoing process to docu- performance review process effective, it is always
ment expected results, standards of performance, desirable to make the review a two-way process,
and evaluation of employees’ performances. In a so that employees can share their valuable informa-
competitive world, organizations need to survive tion that can help in eliminating future performance
and grow through their non-substitutable human blocks. Also in the process, the organization can
resources. Among others, it requires focussing on assess the employees’ potentiality to enable them
holistic performance evaluation through a struc- to assume the future challenges of the organization.
tured review process. One-time annual review of Thus, the comprehensive performance review must
performance is not the solution, as organizations focus on developing employees’ capabilities to pre-
need to track the information and make the review pare them for both the present and future job roles,
process continuous to enforce the performance and deliver performance results. In this chapter,
control. It not only helps in correcting deviations we have discussed all the important aspects of per-
from the planned goal achievement, but also facili- formance review, such as, definition and concept,
tates in developing the employees who become aspects of employee development, its types, steps
capable in achieving business results. To make the involved, benefits, and the process of counselling.
KEY WORDS
Probationary Review—Probationary review need in advance and enjoy a high degree of trust and
is conducted during the employee’s probation respect from the customers.
period, which may vary from 6 months to 1 year, Action Planning Phase—This is an important
depending on the organizational practices. It is phase of performance counselling, when specific
the usual practice in organizations to confirm plans and actions for the development of employees
employees in their present job, after they are identified. The performance counsellor helps
successfully complete their period of probation, the employees to implement such action plans for
which is assessed through such a probationary effective results. Some counsellors develop the
review. action plans to expose employees to a series of
Customer Focus—This is one of the important brainstorming sessions.
performance criteria. Employees’ customer focus Counselling Interview—Counselling interview
attribute is assessed through the measurement of is a friendly, informal, and sincere two-way
their dedication to meet and even to exceed the communication process. Although it is a formal
expectations of customers, which may be both process of performance review, an informal
implicit and explicit. For employees, customers may environment encourages subordinates to open up
be both internal and external. Employees with good and they feel encouraged to discuss their appraisals
customer focus attribute understand the customers’ and about themselves.

1. Discuss the concept of performance 2. Explain how the performance review pro-
review. Is it a better term than perfor- cess can develop employees.
mance appraisal? Give justification to your 3. Consider the job of a marketing man-
answer. ager of a growing FMCG organization.
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Identify major areas of responsibility 5. Short Notes:

and develop the appropriate rating scale (a) Rehiring review
to hypothetically rate your employee’s
(b) Problem solving ability
performance.
(c) Performance counselling
4. Explain the rationality behind considering
performance review as an ongoing process. (d) Exploration phase

6. Assume you are the CEO of a company that ule, the job reaches to the next workstation,
employs a huge number of industrial work- even if it is not fully completed in the earlier
ers, who are below graduate level and who workstation. In assembly-line production sys-
possess the technical job–specific skills. Your tem, we cannot back track a job; as a result
organization is highly technology driven and when the job travels through different work-
requires everyone to perform well, keeping stations with incomplete workmanship, the
pace with the machine cycle time. Any below- end product fails to conform to the required
the-standard performer can create a total mess quality and is rejected. As CEO, you are plan-
in the assembly line production system, as the ning to develop a performance review system
job remains in each work station for a specific for your organization. Suggest which review
period of time. On the expiry of time sched- process you deem fit and why?
FURTHER READING
Bhattacharyya, D.K. (2006), Human Resource Man- Gilliland, S.W. and J.C. Langdon (1998),
agement, 2nd edition (New Delhi: Excel Books). ‘Creating Performance Management Sys-
Bhattacharyya, D.K. (2007), Human Resource tems that Promote Perceptions of Fairness’, in
Research Methods (New Delhi: Oxford Uni- James W. Smither (ed), Performance Appraisal:
versity Press). State of the Art in Practice (San Francisco, CA:
Bhattacharyya, D.K. (2010), Human Resource Jossey-Bass).
Development (Mumbai: Himalaya Publications). Grote, D. (1996), The Complete Guide to Perfor-
Campbell, D.J. and C. Lee (1988), ‘Self-appraisal mance Appraisal (New York, NY: American
in Performance Evaluation: Development ver- Management Association).
sus Evaluation’, Academy of Management Hough, L.M., M.A. Keyes and M.D. Dunnette
Review, 13: 302–14. (1983), ‘An Evaluation of Three “Alternative”
Cardy, R.L. (2003), Performance Management: Selection Procedures’, Personnel Psychology, 36:
Concepts, Skills, and Exercises (Armonk, NY: 261–76.
M.E. Sharpe, Inc). Locke, E.A. and G.P. Latham (1990), A Theory
Cawley, B.D., L.M. Keeping and P.E. Levy of Goal Setting and Task Performance
(1998), ‘Participation in the Performance (Englewood Cliffs, NJ: Prentice-Hall).
Appraisal Process and Employee Reactions: A Mohrman, A.M., Jr., S.M. Resnick-West and
Meta-analytic Review of Field Investigations’, E.E. Lawler, III (1989), Designing Performance
Journal of Applied Psychology 83: 615–33. Appraisal Systems: Aligning Appraisals and
M04_9788131754221_C04.indd 109 5/17/2011 12:13:12 PM

Organizational Realities (San Francisco, CA: Schippmann, J.S. (1999), Strategic Job Model-
Jossey-Bass). ing: Working at the Core of Integrated Human
Spencer, L. and S. Spencer (1994), Competence at Resource Systems (Mahwah, NJ: Lawrence
Work (New York, NY: John Wiley). Erlbaum Associates).
CASE STUDY
GLOMA’s Performance Review System

Retention of employees has all along been a major problem for Indian pharmaceutical major GLOMA.
GLOMA is now an Indian MNC having global business presence, specializing in generic and most popu-
lar OTC (over the counter—sold without prescription) medicines. Most of the formulations of GLOMA
are patented and cannot be aped by the competitors unless alternative molecules are used. GLOMA’s
research and development team is highly dedicated and has been all along a prized possession for
the competing pharmaceutical companies. Poaching of GLOMA’s scientists is rare, unless the scien-
tists themselves volunteer to leave. Mr R.K. Menon, a scientist of international name and fame, heads
GLOMA’s R&D Division. With a team of 150- strong scientists, Mr Menon is able to introduce new
molecules every year to develop new formulations mostly in the generic segment. GLOMA’s business
strategy is to introduce new drugs for fighting against lifestyle deceases. Also systematically, GLOMA
targets to eliminate competitors by introducing cost-effective drugs with high efficacy. Each product
manager of GLOMA gets two new products to successfully position in the market, in addition to their
existing one. The marketing team puts their concerted effort to target their competitors’ weaknesses and
demonstrates the potential problems to the physicians. Such unfreezing exercises are done through
seminars, personal visits, and workshops in presence of the world-renowned scientist Mr Menon. With
this, GLOMA is able to position their new products and consolidate their market share and grow.
For GLOMA, performance review is a continuous process and every time the CEO tracks the per-
formance of core R&D scientists and the marketing team members. A competency-driven perform-
ance review system powered by the balanced score card accurately assesses GLOMA’s individual and
business level performances. The CEO continuously frames the strategies to achieve the results. Of
late, he finds that every week scientists are resigning. Exit interviews could only document reasons for
leaving as potential health hazards, family encumbrances, and so on. All are trivial and not sustainable,
as GLOMA’s research unit is world class and free from any danger of health hazard. Also, GLOMA’s
Employee Services division provides support to every GLOMA team member to the extent of solving
problems, such as, children’s education, doctors on call, transport facilities inside the estate, etc.
Digging further to the problem of attrition revealed that the real problem lies in GLOMA’s performance
review systems, which is unidirectional. A fatherly figure like Mr Menon feels that he is able to understand
his people better and rates their performances accordingly. Scientists cannot contest Mr Menon, but
grapevine information indicated that he often commits spillover error while rating his team members.
This resulted to high attrition of those scientists who are presently moderate performers but potentially
very good at delivering the results in subsequent performance cycles. Mr Menon is now literally left with
a handful of blue-eyed performers. Achieving business goals with these performers is not possible for
GLOMA, as it also plays with volume. In the current performance review, the CEO finds to his surprise
that the research division could only achieve less than half of the performance targets.
As the Director-HR of GLOMA suggests, how you can resolve this crisis, introducing a new
performance review system that can also ensure retention of scientists?
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CHAPTER 5
Systems
Learning Objectives
Definition, concept, and features of perfor- Conceptual framework of performance man-
mance management system agement system
Importance, benefits, and steps of perfor- Performance management system and organi-
mance management system zational strategy
Importance and features of performance man- Performance consulting
agement system Pillars of managing performance
Process of building performance manage- Performance management theatre
ment system
Annual stock-taking of performance
Dimensions of performance management
E-performance management
systems
Marico’s Performance Management

Marico is a leading Indian group in consumer products and services in the global FMCG market. Marico
markets well-known brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker,
Revive, Kaya, Sundari, Aromatic, Fiancee, and HairCode. Marico’s brands and their extensions occupy
leadership positions with significant market share in most categories—coconut oil, hair oils, post-wash
hair care, anti-lice treatment, premium refined edible oils, niche fabric care, etc. Marico is present in the
skin care services segment through Kaya Skin Clinics (48 in India and the Middle East), the Sundari
range of Spa skin care products (in the USA and other countries), and also through a recently acquired
nascent soap franchise (in India and Bangladesh). Products and services in hair care, skin care, and
healthy foods. Marico is consistently consolidating its market share in the Indian FMCG market. With its
prime brands like Parachute and Saffola, Marico could achieve a 20 per cent growth in its sales revenue.
Today Marico has become a conglomerate. All this Marico could achieve because of its strong brand
identity and its strategy to add value to existing products and services.
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Achieving business results at Marico is strongly supported by its organization structure and perfor-
mance management system. Marico’s organizational structure is flat with only five levels of reporting
between the Managing Director and an operator on the shop floor. They believe that a flat structure helps
them in being more responsive to the environment while providing enriched roles to the members. The
structure clearly defines roles and supporting relationships but is by no means rigid. Keeping in mind the
fast and ever changing business environs, Marico’s structure is dynamic and constantly evolving. Every
management trainee at Marico enjoys the freedom to reach the top of the organization ladder through
different options, depending on individual capacity. The human resource management system at Marico
emphasizes on strategies to build a stable and high-talent organization. The innovations and the quest
for excellence at Marico continue unabated. Even as the success stories continue, the focus from the
consumer never shifts.
At Marico you cannot afford to be a non-performer. The organization has an enabling culture to
deliver results!
INTRODUCTION
Performance management system (PMS) as a whole is a series of activities consisting of identification
of critical performance dimensions, planning of performance, setting of performance goals and objec-
tives, reviewing performance, sharing feedback, and finally developing the future performance through
training. PMS, therefore, is a set of tools and techniques to improve the organizational performance.
To sustain a competitive advantage, organizations need to recruit the best-fit and at the same time to
focus on their continuous development so that they do not become redundant and obsolete in their skills
and knowledge. To develop people, it is essential to focus on systematic knowledge and skill renewal
through organizational training and development. However, this process must succeed the PMS, as
PMS helps in identifying the training needs, based on the performance gaps.
A well-designed PMS ensures organizational sustainability aligning employees’ compensation to
their level of competency and contribution. PMS provides opportunities for concerted personal develop-
ment and career growth, bringing all the employees under a single strategic umbrella. It provides equal
opportunities to all cross-sections of employees of the organization to freely express themselves under
structured conditions. To enable this, it is essential to develop a technology-intensive PMS. Such a
system is instrumental in automating the entire range of performance management functions, including
systematic appraisals, closing of skill gaps, and managing career and succession plans. Technology-
enabled PMS is expected to provide following key benefits:
Faster time-to-revenue with a powerful, engaged workforce, reducing employee turnover, reward-
ing star performers, and ensuring that every employee is working toward critical objectives.
Focussed business agility to respond to competitive threats, duly aligning the workforce to business
goals, identifying and closing skill gaps, and creating succession plans for critical roles.
Reduced risk with simplified management, by reducing business disruptions, competitive threats,
non-compliance, litigation, and lost business reputation.
PMS follows the following basic steps to effectively influence individual and team behaviour:
Identification of behavioural goals
Measurement of current behaviour
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Performance Management Systems 113
Performing gap analysis

Closing the gap
Monitoring
For many organizations PMS is developed after identifying critical success factors (CSF), key perfor-
mance indicators (KPI) and balanced scorecard (BSC). A large majority, however, focus on developing
a BSC which for them serves as a PMS rather than a mere performance improvement tool.
In the context of the aforementioned organizations, we may define PMS as a balanced set of CSFs
and a limited number of KPIs that help in measuring organizational performance. Inadequately designed
performance measures, as observed by Neely et al. (1995) give rise to dysfunctional behaviour. Hence
effective design of the performance measures through appropriate identification of KPIs is more impor-
tant for the success of the PMS.
IMPORTANCE OF PMS
A system is a collection of parts (or sub-systems). All sub-systems are integrated into a system to
achieve the overall goal of the organization. Organization is a system of people. Systems have inputs,
processes, outputs, and outcomes, with continuous feedback among these various parts. Change in any
sub-system brings change to the entire system. Within the ambit of such a definition of a system, the
performance management process too qualifies as a system. Performance management sub-systems are
integrated to accomplish the overall goal of the organization.
Performance management involves thinking through various facets of performance, identifying criti-
cal dimensions, planning, reviewing, and developing and enhancing performance and related competen-
cies. It is simple, commonsensical and enjoyable. Therefore, performance management qualifies to be a
system, as it is a set of techniques and procedures for improving organizational performance. To sustain
competitive advantage, an organization not only requires recruiting the best people but also focusing
on their continuous development through an effective PMS. While development of people is possible
through ongoing training and development, and skill and knowledge renewal, it must succeed PMS, as
PMS, inter alia, establishes the basis for identifying training and development needs.
PMS in organizations are not always very effective due to differences in approach and applica-
tion. This is evident from various worldwide surveys conducted by Hughes and Watson Wyatt. Major
flaws in PMS, as could be identified by these surveys are: lack of focus on performance improvement,
ambiguous performance goals, poor feedback mechanism, and poor technology support, etc. All these
are attributed to poorly designed PMSs. Often organizations dilute the sanctity of PMS by making it
more personal.
FEATURES OF PMS
Performance management is the day-to-day management of the performance of an individual or a work-
group, by both the immediate manager and the individual employees themselves. To achieve this, orga-
nizations make use of a structured framework with a set of conditions to manage the performance. As
all these aspects are part of the system, i.e., sub-systems, performance management process qualifies
to be a system. In a globally competitive economy, organizations need to gain competitive advantage
by leveraging their non-substitutable resources, that is, the human resources. In view of this, the role
of PMS assumes strategic importance. It must uphold its commitment to employee development and
mutually agreed performance standards.
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In line with Bevan and Thompson (1992), the main features of PMS can be outlined as follows:
Focus on Objective Setting

Objectives are the targets, which an organization sets for its employees. They appear in the form of an
action statement which starts with a verb. Overall organizational objectives are decided at the strategic
or corporate level. PMS helps percolate these organizational objectives to the employee level and trans-
lates them into individual targets.
Systems for Review of Objectives

Through the process of periodic performance review, PMS helps keep track of achievement of objec-
tives. Such a review system largely depends on the type of PMS techniques used by an organization. It
may be an age-old Management by Objective (MBO) system or a 360 degree PMS (multidimensional)
or a more recent performance tracking technique like the BSC. Review of objectives helps in perfor-
mance control and initiates steps to correct deviation in performance or to revise the targets.
Developing Personal Improvement Plans

Since PMS helps in individual performance monitoring, it ensures developing of personal improve-
ment plans for the employees. A particular employee may lack in performance or he/she may exceed
the given targets. In both the cases, it is important to design the personal improvement plan. While
in the first case, it may be important to provide performance counselling, training, and development
reinforcement, in the second case, the employee may be motivated further through a proper reward
system.
Training and Development

As the focus of PMS is to manage and develop employee performance to sustain competitive advantage
of the organization through proper alignment, it helps in identifying training and development needs.
This further helps in developing need-based training and in measuring the return on investment (ROI).
Ensuring Formal Appraisal with Feedback

By introducing a formal appraisal system, PMS helps in giving performance feedback to employees.
Both negative and positive feedback sensitize employees and help them to objectively analyse their
shortfalls and positive aspects. While shortfalls can countered by reinforcement and setting the right
direction, positive aspects can be used to leverage further employee development and growth by setting
higher individual targets.
Compensation Review
Performance based pay is the prevailing concept. PMS used it in objective designing of compensation
packages for employees, thus rewarding good performance and reducing the variable pay (performance
linked) of non-performers. This optimizing of the cost of compensation helps the organization to remain
competitive.
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Developing Competence-based Organizational Capability

Competence based organizational capability helps in appropriate organizational change, keeping pace
with competition. It also helps in human resource (HR) planning. PMS through qualitative and quantita-
tive appraisal can assess the prevailing competency level of employees and thus helps in organizational
capability review.
PROCESS OF BUILDING PMS

A PMS helps an organization to obtain and analyse relevant performance data in order to track the
performance of employees both at the individual and at group level. Individual performances along with
the overall performance of the organization help measure the results or the level of achievement of busi-
ness goals. To do this, we have to first define the performance review process, which follows a combina-
tion of numeric and subjective rating approach. A good performance review process assesses employee
performance along with the organizational performance. After effective design of the performance
review process, it is desirable to decide on the review schedule which may be monthly, bi-monthly,
quarterly, six-monthly, or annual. It is always desirable to complete the performance reviews within the
pre-decided time schedule. Subsequently it is necessary to develop a system to gather reports and anal-
yse the performance data. Most of the organizations make use of customized software for such purpose.
Many software vendors develop their own software for performance review, which they call E-PMS.
However, it is advisable to avoid use of generic E-PMS software, as often it may not be in accordance
with the organizational needs. For example, effective performance reviews need to capture what is
going on in the business, and with the changes in the business need to assess how the existing PMS of
the organization needs to be altered or modified. A good performance review process also facilitates
objective HR decisions and avoids litigation.
DIMENSIONS OF PMS
Performance is what is expected to be delivered by an individual or a set of individuals within a time
frame. Such performance expectation can be stated in terms of results or effort, tasks, and quality, within
specified conditions under which it is to be delivered. PMSs have many dimensions as follows:
Output or result
Input
Time
Focus
Quality
Cost
Output or Result Dimensions

Results and outputs are the visible and measurable dimension of performance. These give the status
and summary of the finished and semi-finished products and services. They describe the results in
terms of the measurable standard, for example, achieving 95 per cent of the standard output in a shop
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floor engaged in production of plastic moulded rifle butts. Some examples of results and outputs are the
number of new customers, cost savings, production targets, sales targets, job accomplishments, meeting
deadlines, etc.
Input Dimension
The input dimension consists of tasks and activities accomplished by the individual. Broadly this is
concerned with the nature of activities to be undertaken, the time frame, the quality of inputs to be used,
etc. Input dimensions of performance can be better managed when the envisaged inputs are correctly
used, properly planned and implemented.
Time Dimension
This dimension of performance is defined in terms of time specific tasks, that is, tasks to be performed
daily, weekly, monthly, yearly, etc. Here the time factor is important, as achieving the desired perfor-
mance level within specified time frame is considered to be the target.
Focus Dimension
Focus dimension of performance is measured in terms of the performance focus, which could vary from
employee to employee depending on the nature of job responsibilities. For example, an HR executive’s
performance focus may be defined in terms of reducing the rate of attrition, cost-effective design of
compensation, developing employees’ competence, etc. Similarly, for a marketing executive, this could
be new market development, increasing the sales realization, etc. Thus depending on the nature of job,
performance focus may vary.
CONCEPTUAL FRAMEWORK OF PMS

Ferreira and Otley (2005) have defined the conceptual model of PMS. Often we consider this as the
generic model, although we have many other contributors. Three areas of this conceptual model are: the
focus of PMS, the context of PMS, and the culture of PMS. Integrating the three we get the conceptual
model of PMS.
The focus of PMS is to account for the performance of the organization. The accountability for a
specific task or job accomplishment relies on the relationship between the supervisors and the employ-
ees. It is instrumental in bridging the gap between the PMS objective and the actual performance.
Thus, the focus of PMS must ensure that the desired ends are achieved through the chosen means of
action. This implies three things. First, the objectives that the organization and its individuals intend
to achieve and the means to achieve the same should be clearly stated. Second, care must be taken to
involve individuals and the organization in achieving those objectives or goals. Third, all implicit and
explicit activities designed to achieve the objectives must be controlled through the PMS. PMS focus
must explain the values and the action elements to achieve the objectives (Habermas, 1987; Power and
Laughlin, 1996).
Ferreira and Otley (2005) relate the PMS with the context and culture of the organization. Its basic
purpose is to account for the information implications within the PMS, degree of its coherence, and the
degree of its adaptation to the changes in the organizations. Context indicates the location and nature of
the entity (for us it is the organization) to which the PMS relates, while the culture is the beliefs and the
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norms of the entity and relates to its performance. As contextual and cultural aspects of the organization
tend to change with the passage of time, PMS must take these into consideration and make necessary
adjustments to cope with such changes.
The PMS conceptual model explains the interdependencies or the interconnectedness of the organi-
zation with its individuals, emphasizes on the contextual and cultural aspects of the organization, and
gets influenced by the changes in the organization. Aspects of PMS design get moulded with contextual
change, that is, the change in the organization. Similarly social and cultural processes also rationalize
the PMS design and its conceptual model (Hasselbladh and Kallinikos, 2000).
PMS AND ORGANIZATIONAL STRATEGY

Strategy sets the direction and also defines the scope of an organization. While the direction helps the
people working with the organization to channelize their efforts to achieve the common goals, scope
limits the activities of the organization to focus such efforts. Both the direction and scope matched
with resource allocation help the organization keep pace with the changing environment, and meet-
ing the expectations of different stakeholders. Strategic human resource management (SHRM) is a
competency-based approach ‘that is tailored to the demands of the business strategy’ (Miles and Snow
1984). Also it is the ‘pattern of planned human resource activities intended to enable an organization to
achieve its goals’ (Wright and McMahan 1992).
PMS is one of the most important HR strategy factors. HR strategy factors largely encompass six
areas: recruitment and selection, career development, performance appraisal, training and develop-
ment, compensation designing, and HR planning. Career development and performance appraisal have
direct linkage with PMS. While career development considers career mapping, succession planning
and management development, and integrating career development with OD initiatives, performance
appraisal designs appropriate tools and aligns such appraisal with training needs, promotion, transfer,
and relocation.
PMS involves thinking through various facets of performance, identifying critical dimensions of per-
formance, planning, reviewing and developing, and enhancing performance and related competencies.
Thus performance is what is expected to be delivered by an individual or a set of individuals within
a time frame. What is expected to be delivered could be stated in terms of results or effort, tasks, and
quality, with specification of conditions under which it is to be delivered.
Therefore, PMS reinforces strategic HR management principles as it helps an organization to achieve
its strategic intent, that is, goals and objectives by ensuring and developing the desired set of compe-
tencies among people in the organization through various strategic interventions, as explained earlier.
ORGANIZATIONAL AND SOCIAL PERSPECTIVES OF PMS

Change is an inevitable part of any system, and as the organization is a system as a whole, it is also sus-
ceptible to change. With the globalization and the consequential increase in competition, organizations
now derive their unique competitive advantage leveraging their human resources. PMS with a strategic
focus make such human resources, as potential source of achieving the business goals. Managing the
performance of the people is enforced by organizations through the management of differences among
the people. Such differences among the individual employees of the organization in terms of skill,
knowledge and competencies, are assessed using various tools such as Myers-Briggs Type Indicator,
FIRO-B, and the DISC Behavioural Profile.
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Managers also manage performance through appropriate questioning and listening skills. Employees
by nature always prefer to have somebody who can indulge them to spell out their problems. They even
prefer discussions on their perceived line of actions on the problems and to get the managers’ sugges-
tions. Therefore, in order to obtain the expected level of performance from employees, managers too
need to show tolerance towards them and allow them to raise questions.
For organizations, effectiveness of PMS also depends on the managers’ degree of freedom from bias
and assumptions. Human behaviour, and so also the behaviour of managers, is prone to be culturally
biased. This also exerts influence during performance evaluation by managers. Organizations, therefore,
strategically manage their PMS with standard performance evaluation tools so that managers do not get
any opportunity to use bias or hunches while evaluating employees. Standardized PMS enhances the
quality of performance and also motivates people to perform better.
From the organizational perspective, PMS is holistic, hence apart from the performance deliverables,
PMS focuses on employee development in order to get their agreement on performance standards. In
Exhibit, 5.1 we illustrate a typical performance agreement of a hypothetical organization.
Managing the performance variation is also critical and requires special managerial skills.
Employees vary in their performance, and proper understanding of such variation makes the process
of managing the individual level performance much simpler. With the knowledge of performance
variation, managers can customize their approach to performance management and thereby obtain
better results.
PERFORMANCE CONSULTING
Performance consulting is a process in which a client and consultant partners to accomplish the strategic
outcome of optimizing workplace performance in support of business goals.
-Jim and Dana Robinson (2008)
Exhibit 5.1 Performance management systems map

Performance Goals of an
Organization/ Specific Business Individual Goals/Tasks Targets and Measures
Unit/Work Group/Key Process
Contribute to new product Manage employees to On time job execution
development involve them in new Meeting of performance standards
product involvement. Filing of reports on time
Execute assigned tasks On time job execution
and file reports. Meeting of performance standards
Filing of reports on time
Achieve technical effectiveness Contribute to the improve- On time job execution
ment of systems. Meeting of performance standards
Achieve operational effectiveness Contribute to the task and On time job execution
administrative roles Meeting of performance standards
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The terms performance consulting and high performance consulting are used interchangeably. It is
a sub-discipline of consulting that focuses on understanding and developing a holistic strategy to posi-
tively change the performance. The holistic strategy of performance consulting, apart from performance
improvement, also brings positive improvement in the performance introducing the changed measure-
ment strategy, developing employees and also ensuring performance-based employee selection. The
idea behind recruiting the right fit is to get the desired performance results, making the employees to
work smart. The seminal work of Dana Gaines Robinson and James C. Robinson, used the term per-
formance consulting, specifying the role of performance consultants to partner with the management to
identify and achieve performance excellence. The role of performance consultants is just like ‘keys and
locks’. It means it cannot work unless it fits. Thus, the performance consulting process helps organiza-
tions to bring positive change in the work environment.
Performance consulting follows certain defined steps. Being data-driven, performance consult-
ing facilitates people and their performance-related decisions. As a process, it requires the strategic
performance-focused approach, aligning people with the organization. Therefore, performance consulting,
as a process, focuses on business needs, performance needs, work environment, and capability needs.
This has been illustrated in Figure 5.1. There are three types of performance consulting—organizational
development, professional development, and personal coaching. Organizational development perspec-
tive helps to improve the overall effectiveness of the organization. Professional development empha-
sizes on the effectiveness of people, and coaching trains people to become more effective both at the
personal level and at the level of the workplace.
ROLE OF PERFORMANCE CONSULTANTS

Performance consulting is the transfer of new skills and competencies acquired through on-the-job
training, focusing on the performance needs of employees. The idea behind is to improve the overall
performance. The responsibilities of performance consultants are illustrated as follows:
To attain a balance between the needs of the organization and the employees.
To create synergy and teamwork.
To identify and solve the problems of the employees.
To assess and measure the actual performance of the employees.
Business Needs
Results
Performance Needs (Stategic Focus)
(Accomplishment and Behaviours)
Work Environment
Causes and Solutions
(Tactical Focus) and Capability
Needs
Figure 5.1 PMS model
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To identify and improve the internal and external factors affecting the performance of the
employees.
To motivate and support the employees.
To review and give performance feedback to facilitate performance improvement.
From this list of responsibilities and functions, it is clear that performance consultants in fact become
organization partners in facilitating goal achievement.
THE FOUR PILLARS OF PMS

Human resources is the only sustainable competitive advantage for any organization. Effective PMS
through the process of HR integration, individually and also in groups, with the organization, ensures
its appreciation. Proactive PMS, therefore, makes human resources more valuable, and with renewed
knowledge and skill, people become more competent to perform better to perpetuate competitive
advantage for the organization. Effective PMS, among others, also requires implementation of proper
performance measurement systems, which can successfully track the individual and group level per-
formances. According to Edward E. Lawler III, the four pillars of PMS focus on accomplishing the
following:
Define and agree on what performance the organization needs.
Guide the development of individuals so that they can acquire the skills and knowledge needed to
perform effectively.
Motivate individuals to perform effectively.
Provide data about the condition of the organization's human capital.
With these four pillars firmly in place, managers can successfully manage performance, ultimately influ-
encing the company's bottom line and overall success.
Pillar One—Defining Performance: The foundation of PMS is to determine what has to be done and
the process of doing the same. This is what we call the stage of ‘defining the performance’, that is, pillar
one of PMS. Clear definition of performance helps employees to focus their efforts, feel motivated and
achieve business results. PMS should explicitly identify the objectives and the ways of measuring the
objectives.
Pillar Two—Guiding the Development of Individuals: The second pillar of PMS is to develop the
knowledge and skills of employees, to enable them to perform better. At the outset this requires man-
agers to identify the required competencies, its availability and lack or gap in employees, and ways of
bridging such gaps through employee development. Without this exercise, it is not possible to assess
employer’s performance delivery.
When a CEO makes his own skill assessment
Michael Dell, founder of Dell Computers, performed his own skill assessment, asking his employees to evaluate
him as an executive. Interpreting the results of this survey, Dell realized that he is viewed as impersonal and
emotionally detached from the workforce. Dell met his top management team and committed that he
would change. Accordingly, Dell continued to change and kept his commitment to give the message to
his people that as CEO he also understands the need to meet the skill gap to perform better.
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Pillar Three —Managing the Motivation: The third pillar of PMS is motivation. Employees perform
only when they feel motivated. It requires direct linking of success to employee-valued rewards. Such
rewards, either intrinsic or extrinsic, can motivate employees. Rewards should be adequate enough to
make a difference in the minds of the employees.
Pillar Four—Providing Feedback: Effective PMS requires immediate feedback which helps employ-
ees understand their mistakes and initiate action to correct them thus avoiding major performance
disaster. To perpetuate a continuous ongoing performance feedback process, many organizations make
use of computerized or electronic PMS (E-PMS). The E-PMS can keep record of individuals’ skill
assessment and of all relevant information such as knowledge, competencies, performance goals, per-
sonal development requirements, etc. This E-PMS performance database becomes a useful source for
employee feedback; it also allows managers to keep track of changes in employee performance over
the years.
With these four pillars, PMS become effective in directing, motivating, and teaming up, and enhanc-
ing the performance of the organization.
PERFORMANCE MANAGEMENT THEATRE

Effective PMS maximizes organizational performance in core areas, success of which cascades to
performance improvement at all the levels of organization. The concept of performance management
theatre is based on the premise that communication is the key to any business transaction; therefore,
communication plays an important role in employee performance. Thus, good performance precedes
effective communication. Organizations need to improve both the internal and external communications
to meet customer expectations. Communication performance is defined as performance management
theatre. Performance management theatre follows certain stages:
Auditing of the existing strengths and weaknesses of communication.
Designing tailor-made communication style compatible with organizational requirements.
Analysis of existing communication abilities of people using a scoring device, and tracking the
changes required to meet customer expectations.
Designing communication performance development programme.
Ensuring that employees get trained on communication performance.
Evaluate post-training employee communication performance against standard scoring.
The term performance management theatre is used, as theatre, per se, is enjoyable and informative, and
when used as a tool for training and development, it becomes more effective. Theatrical art improves
the communication abilities of people, which can have tremendous value addition to employees’
performance delivery.
ANNUAL STOCK-TAKING OF PERFORMANCE

Annual stock-taking of performance is basically a performance audit function, which apart from
usual employee evaluations, emphasizes on measuring the proper alignment of performance results
with the organizational and employees’ growth. For organization stock-taking of performance
helps in achieving the goals by optimizing employee performance, duly identifying their strengths
and weaknesses. For employees, on the other hand, it helps in providing guidance to perform
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the jobs and also help in defining the career path. Performance audit is a more holistic term, as
it encompasses the examination, operation, and procedures of the management system to assess
whether the organization is achieving economy, efficiency, and effectiveness in the employment
of available resources.
Most of the organizations frame their own performance audit manual and conduct such audit through
their in-house resource pool. For major organizational change and development decisions, however, at
times, it may be necessary to hire external experts for decisional accuracy. Often we misconstrue per-
formance audit as performance measurement, but they are different. Performance audit is more holistic
than the performance measurement, as the latter is more activity focussed.
E-PERFORMANCE MANAGEMENT
E-performance management is the planning, implementation, and applifcation of information technol-
ogy in managing the PMS. E-performance management is a part of e-HRM or HR information system
(HRIS). Through IT enabled PMS, it is possible to integrate strategies, policies, and practices of the
organization with the performance management process. E-performance management is the relational
e-HRM function to support business processes. Relational e-HRM functions also facilitate training and
recruitment functions of an organization. The other two e-HRM functions are operational and transfor-
mational. Operational e-HRM accounts for supporting administrative functions like the payroll, staff
inventory, etc. Transformational e-HRM is concerned with strategic HR activities such as knowledge
management, etc.
Throughout the world, many vendors provide e-HR solutions, of which e-performance manage-
ment is a major area. Some vendors, however, specialize in e-performance management solutions.
E-PMSs offer flexible, secure, intuitive, paperless, and customizable solutions to align employee
goals, objectives, and actions with the overall business strategy of the organization.
Some of the important features of E-PMS are:
Automates the time-consuming employee performance appraisal process.

Accommodates any kind and combination of performance measures and KPIs and associates a
value to each indicator according to organizational goals and needs.
Defines performance standards.
Defines performance indicators.
Ensures distributed power to employees through empowerment and in the process fosters
collaboration among departments.
Customizes workflow to manage and execute jobs.
Ensures confidentiality and data security of work process and documents.
Provides real-time reports of performance evaluation, and other performance-related documents
and processes.
Provides flexible employee reviews to accommodate performance cycle.
Facilitates performance-based HR decision-making.
E-PMS, therefore, manages the PMS, balancing intuition, innovation, and strategy to achieve
excellence in the organization. Thus, E-PMS helps the organization in its growth and development.
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PERFORMANCE PRISM
The term ‘performance prism’ indicates innovative performance measurement systems, like BSC, various
business excellence models, six-sigma, stakeholders’ value analysis, etc. The word prism implies a
refracting transparent medium inclined to some angle. Therefore, performance prism is the measure-
ment system that successfully tracks performance for effective organizational decisions. In our chapter
on performance measurement, we have discussed about all the measurement systems, mentioned earlier.
SUMMARY
PMS is a set of techniques and procedures to under the structured conditions. But to do all these,
improve organizational performance. To sustain it is essential to develop a technology-intensive
competitive advantage, an organization not only PMS It is for this reason that organizations prefer a
requires recruiting the best people but also focus- structured PMS. Such structured PMS can help in
ing on their continuous development through an building productive and engaged workforce. More-
effective PMS. While development of people is over, technology-intensive PMS solutions help in
possible through ongoing training and develop- automating the entire performance management
ment and skill and knowledge renewal, it must suc- functions, including systematic appraisals, closing
ceed PMS, as PMS, inter alia, establishes the basis of skill gaps, and managing career and succession
for identifying training and development needs. plans.
A well-designed PMS ensures organizational This chapter after defining the concept of PMS
sustainability aligning employees’ compensation to explains the benefits and steps, importance of
their level of competency and contribution. PMS PMS, importance of E-PMS, various dimensions
provides opportunities for concerted personal devel- of PMS, and its conceptual framework. Further,
opment and career growth, bringing all the employ- the chapter also explains certain terms of PMS,
ees under a single strategic umbrella. It provides such as performance consulting, four pillars of
equal opportunities to all cross-sections of employ- performance, performance management theatre,
ees of the organization to freely express themselves annual stock-taking of performance, e-PMS, etc.
KEY WORDS
Time Dimension—This dimension of perfor- Focus Dimension—Focus dimension of perfor-
mance is defined in terms of time specific tasks, mance is measured in terms of the performance
viz., daily, weekly, monthly, yearly, etc. Here the focus, which could be anything, like; HR, market-
time factor is important, as achieving the desired ing, finance, etc. Depending on the organizational
performance level within the time frame is consid- practices, performance focus may vary.
ered as the target. Annual Stock-taking of Performance—Annual
Performance Management Theatre—The con- stock-taking of performance is basically a per-
cept of performance management theatre is based formance audit function, which apart from usual
on the premise that communication is the key to employee evaluations emphasize on measuring
any business transactions, hence in employee’ per- the proper alignment of performance results with
formance, communication plays the important role the organizational and employees’ growth.
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1. Define PMS. What are its main features? 5. Explain the concept of performance pillars.
How do performance pillars help in manag-
2. How can we develop a PMS? How is PMS
ing the performance?
linked with organizational strategy?
6. Explain how the concept of performance
3. Discuss PMS from organizational perspec- theatre relates to PMS.
tives. How is it different from social per- 7. Short Notes
spectives? (a) E-performance Management
4. Explain the concept of performance con- (b) Pay Review
sulting. What important roles do the perfor- (c) Competence-based Capability
mance consultants play? (d) Quality Dimension of PMS

8. Explain how different performance dimen- one FMCG organization and another service
sions vary with respect to the nature of orga- sector organization.
nization? Give your answer with respect to
REFERENCES
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view of Policy and Practice’, in S. Bevan and tive Action Volume 2: The Critique of Func-
M. Thompson (eds), Performance Manage- tional Reason, T. McCarthy (transl.) (London:
ment in the UK: An Analysis of the Issue, Part Heinemann).
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Bhattacharyya, D.K. (2007), Human Resource ‘The Project of Rationalization: A Critique
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agement (New Delhi: PHI Learning). Neely, A.D., M.J. Gregory and K. Platts (1995),
Collins, R. (1986), Max Weber: A Skeleton Theory ‘Performance Measurement System Design:
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and Use of Management Control Systems: An duction Management, 15(4): 80–116.
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Power, M. and R. Laughlin (1996), ‘Habermas, Townley, B., D.J. Cooper and L. Oakes (2003),
Law and Accounting’, Accounting, Organiza- ‘Performance Measures and the Rationaliza-
tions and Society, 21(5): 441–65. tion of Organizations’, Organization Studies,
Sanz-valle, R., R. Sabater-Sanchez and 24(7): 1045–72
A. Aragon-Sanchex (1999), ‘Human Resource Weber, M. (1978), Economy and Society (Berke-
Management and Business Strategy Links: ley, CA: University of California Press).
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655–71. agement’, Journal of Management, 18: 295–320.
CASE STUDY
Dabur—The Case of a People Integrated PMS

DABUR is a leading Indian conglomerate having interest in consumer goods, health care, personal care,
and foods. With its presence in 1884 onwards, Dabur is now a leading Indian MNC having its presence
in 50 countries of the world. Every product division of Dabur is under separate strategic business units,
which are grouped under separate product lines. With its vision to dedicate to the health and well being
of every household, Dabur always endeavours to provide innovative products to consumers, with profes-
sional management approach. Core values of Dabur are ownership, passion for winning, development of
people, customer focus, teamwork, innovation, and integrity. With an e-learning programme, known as
Employee Orientation on Web for Engagement and Reference (EMPOWER), Dabur today successfully
develops its human resources to achieve business results in competition. Realizing the importance of
human resources, Dabur focuses on effective PMS, which among others, focuses on nurturing a cohe-
sive work environment, to make people feel the compelling need to perform. The culture is such that
employees volunteer to perform. With such a performing work culture, Dabur is able to truly integrate
their PMS with the strategies of the organization. True alignment of people with the organization, at
Dabur takes place as presented in Figure 5.2
Even though the alignment process of people with the organization at Dabur takes place as per the
illustrated model, Dabur adopts the following multi-pronged action plans to make their people truly good
performers:
Career development of employees.

Career mapping and management development with OD initiatives.
Delegation and de-centralization
Identification of employee training needs to be done more frequently and followed more
diligently
Innovativeness and creativity of employees to be given more weightage and proper recognition,
and suitably rewarded
System of flexible rewards and choosing of incentives to be introduced
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• Leadership Development
• Workforce Development
• Organization Development
Scanning Long-term Long-term People

People Trends Strategy
Business
Strategy Gap Analysis Performance
Scanning Current Short Term Business/

Capability People Strategy
• Objective Setting
• Performance Metrics
• Rewards
• Short Term Traning
Figure 5.2 Integrated PMS of Dabur
Dabur’s Direct Touch Team Programme provides a platform to their employees for ‘whistle blowing’
campaign against malpractices that may be the deterrent for achieving business results. Any malprac-
tices like unethical behaviour, wrongful conduct, violation of organizational policies, ethics, etc., are
immediately attended to in order to restore confidence in the minds of the employees.
Questions: Critically evaluate Dabur’s approach to align people with the organization.
How can such alignment help Dabur become a good performing organization?
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CHAPTER 6
Strategic Performance
Management
Learning Objectives
Concept and definition of SPM Benefits of strategic performance management
Evolution of SPM and its characteristics Advantages and disadvantages of strategic
SPM and generic strategies performance management
Components of strategic performance man- Strategic performance management and the
agement process balanced scorecard
Strategy and performance management cycle Strategic performance management and
Link between individual performance and metrics
strategy Strategic performance management and the
Performance and strategy environmental threats and risks
Achieving Excellence, Aligning Strategies

with the Performance Management Systems
To survive in a competitive world with economic uncertainty and business upheavals, organizations
worldwide now focus on achieving excellence, aligning their strategies with the performance manage-
ment systems. It is now important for the organizations to adopt strategies to achieve their defined goals
and objectives. A well-developed strategy map for any organization gives the sense of direction to all
cross-sections of organizational members. Linking such strategies with the individual performance goals
in the form of KPA (key performance areas) and KRA (key result areas) benefits the organization to reap
the competitive advantage through the high performance level of organizational members.
Alignment of strategies with the people working in organizations could be best possible relating pro-
cesses, systems, and relationships to the performance management systems (PMS) of the organiza-
tions. Such strategy aligned PMS facilitates organizations not only to transform the people cascading the
strategic objectives; it can also facilitate effective utilization of corporate strategy, and in the process get
more from the people. To do this effectively, it is important for the top management of the organizations to
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be committed and involved with the process, including understanding of organizational vision, mission,
strategy, values, and life cycle. Using a balanced scorecard, organizations can pursue their strategy to
get unique edge in a competitive market.
Before alignment of strategies with PMS, it is important to identify, analyse, and prioritize the core
business processes and key customers. Effective analysis and definition of key customer requirements
ensure shortlisting of critical business drivers and measures, which can then be cascaded to individual
employees’ goals and objectives (against the identified key drivers) and a well-drawn scorecard can pro-
vide a measurement tool, using which the company can identify the gaps between their plans and execu-
tion. Thus, effective balanced scorecard of any organization should align their strategy with their perfor-
mance management systems, identifying their business process and definable customer requirements.
Human resource practices of the organizations are also aligned and integrated to business strat-
egy to ensure congruence and synergy within the organization. This requires a systematic and holistic
approach in ensuring that business strategy policies for managing human capital are all aligned with
baseline targets to all workgroups, teams, and individuals. A strategy-linked incentive system for reward-
ing performance is used. Team-based rewards are instituted to avoid individual ‘free-rider’ problems. By
doing so, people transformation can truly take place.
Personal scorecard measures and targets must be meaningful and directly related and attributable
to each individual employee. Job competencies are integrated into personal scorecards, translating the
same into non-financial goals and appropriate standards of behaviour. In the process, personal score-
cards can also function as job descriptions and performance contracts.
Thus, strategy alignment and implementation, rather than strategy content, differentiates successful
from unsuccessful organizations. Measurement is the key in transforming and maximizing employee
performance and productivity.
INTRODUCTION
Performance management systems (PMS) and processes have now become more integrated, continuous,
and strategic. Organizations today manage performance through the principle of mutual agreement, i.e.,
developing the performance goals, based on the business objectives through participative approach.
Obviously, it helps in achieving the results, as people feel more committed to deliver. PMS processes fur-
ther get reinforced with the integration of individual and organizational objectives. People in this process
become more self-managed and autonomously focus on self-development to build their capabilities to
achieve the results. This process, therefore, makes the traditional command and control redundant. Thus,
PMS is essentially a strategic and integrated approach to deliver sustained success to organizations by
improving the performance of the people developing the capabilities of teams and individual contributors.
Performance management is strategic as it is concerned with the broader issues facing the business,
including its response to the changing environment. Without a strategic approach, in a competitive and
ever-changing business environment, organizations cannot achieve its goals and objectives. Various
empirical researches could establish that strategic performance management (SPM) could add value
for the organizations. However, SPM can have both advantages and disadvantages. Advantages are
higher result orientation, better strategic clarity, higher people quality, higher organizational quality, etc.
Disadvantages are, however, badly aligned system, low information quality focus on control, too much
focus on strategy, etc. Therefore, it can be empirically established that SPM gives more advantages than
disadvantages. Thus, SPM is indeed beneficial for organizations.
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Strategic Performance Management 129
Particularly in business turbulence, to encounter the problem of increasing number of competitors,

changes in the regulatory environment, impact of technology, growing globalization, shifts in cus-
tomers’ behaviour and expectations, and low productivity, SPM can be a great advantage. So also in
managing the organizational change, SPM is of great importance. Hoopes and Hale (1999) observed
in managing organizational change, it is essential to get into the details of performance activities.
Similarly, Martinez (1997), Wall (1998), and Brooks and Weatherston (2000) observed that SPM
manages action to deal with the changes. It is for this reason, SPM is defined as a process to steer
the organization systematically defining the mission, strategy, and objectives of the organization.
Moreover, SPM as a process makes it possible for developing measurable critical success factors and
key performance indicators to take corrective actions to keep the organization on track (Waal, 2007).
The effectiveness of the process is defined as the achievement of financial as well as non-financial
targets, the development of skills and competencies, and the improvement of customer care and pro-
cess quality (Waal, 2007).
In organizations, SPM is used in numerous ways (Kaplan and Norton, 1996a; Chow et al., 1998;
Zairi and Jarrar, 2000; Niven, 2002; Andersen et al., 2006). A tentative list of such usages of SPM can
be listed as under:
To perform health checks throughout the organization.
To clarify and translate vision into operational strategy.
To communicate and link strategic objectives and business measures.
To enhance strategic feedback and learning to use performance levels.
To conduct detailed operational planning of activities and processes.
To establish an early warning system through monitoring of key indicators.
To influence and alter employee behaviour to promote desired changes.
Various research studies indicate that companies who have implemented SPM perform better than
companies that do not use SPM.
Strategic performance management practices can churn financial performance and success in orga-
nization. Strategic SPM guards the interest of various stakeholders, including the assurance of the
interest of the shareholders, and thereby provides the sustainable strategic advantage to the organi-
zations. Business systems and adaptability are the two key areas, which deserve attention to enable
strategic SPM to deliver the results. To achieve this, it requires first understanding of the business
systems of the organization and subsequently designs their performance management systems from
the business perspectives. This is why organizations master the principle of coordination to become
aligned, linked, and integrated. Huselid (1995) focused on the linkages between the human resource
management systems, corporate strategy, and the performance of the organization. Becker and Huselid
(2006) identified the key challenges facing strategic human resources management (SHRM) and dis-
cuss several new directions in both scholarship and practice. They argue for a clearer articulation of
the link between HR and firm performance and the importance of integrating strategy implementation
in this process. They also highlight the importance of a differentiated HR architecture within firms as
well as across them.
From the above introductory discussions, therefore, it is clear that SPM can help managers to improve
the performance management process in the organization. It facilitates pursuing of human resource
strategies and in understanding whether or not the effective use of performance management system can
really encourage the desirable work behavior.
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DEFINITION
Strategic performance management, sometimes also referred to as corporate performance management
or enterprise performance management, is a major focus for many organizations. The main goal of the
SPM is to provide clear guidance and help organizations to get results. Particularly, SPM benefits those
who already have a performance management strategy and who want to learn about current best prac-
tices to improve on it. In our introductory discussions, we have already defined SPM as a process to
steer the organization through the systematic definition of mission, strategy, and objectives of the orga-
nization, and making these measurable through critical success factors and key performance indicators,
in order to take corrective actions to keep the organization on track.
Performance management is strategic because of the following reasons:
It is strategic—it is about broader issues and long-term goals.
It is integrated—it links various aspects of the business, employee development, leadership, and
coaching principles for both individuals and teams.
It does focus on performance improvement—this includes both individual performance and team
performance that is linked to and in alignment with corporate strategy.
It embraces employee development—this helps create a culture of competence and accountability.
It becomes a tool for behaviour modification—individuals are encouraged to behave according to
core values and guiding principles, which leads to improve working relationships with each other.
Strategic performance management is the basis for success, especially during these most difficult eco-
nomic times. It is because now organizations can only achieve success leveraging the potentiality of
employees. SPM can make a difference between the success and failure of organizations.
EVOLUTION OF STRATEGIC PERFORMANCE MANAGEMENT

Strategic management, as a separate discipline, has emerged only in the 20th century. It is only at
this stage, we have started looking at performance management from strategic viewpoint. Browsing
through, it is possible to understand he linkage between the strategic, operational, and the individual
level performance management. The chronological evolution of strategic performance management is
documented in subsequent paragraphs.
During the 1920s, we used to focus on traditional performance measures, mainly relating it to finan-
cial ones. This is particularly tracked to the development of cost accounting during this period. With
financial measures only, it was naturally not possible to track holistic performance at the individual,
group, and organizational level. With the emergence of the concept of cooperation in 1946, pioneered by
the management Guru Peter Drucker, based on his observations with General Motors (1943), the ‘man-
agement by objective’ as a performance management process had development. As we have already
explained the concept of ‘management by objective’ in our introductory chapters, here we are not
recapitulating the same. But we can say, with this the concept of strategic performance management
matured. Management by objective (MBO) requires organizations to set the goals and objectives at
the corporate level and cascade it down to the departmental/divisional goals and objectives and then to
individual goals and objectives in the form of key result areas (KRA) or key performance areas (KPA).
The entire process can be made participative as in world-renowned organizations like CHEVRON,
Wal-Mart, McDonalds, etc.
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During the 1950s and 1960s, the concept of strategic planning had emerged. Systematic and analytic
framework of strategy formulation with the evidence from the corporate practices as in General Electric,
etc. could help us to identify the performance measures with strategic focus. The period thereafter
witnessed the extensive use of strategic perspective in managing the performance of the organization.
With the advancement of computer integrated management practices, it was gradually possible to track
non-financial measures of performance. The concept of critical success factors (CSF), pioneered by John
F Rockart (1979) further accentuated the pace of strategic performance management. Today, profession-
ally managed organizations try to integrate performance management into a cycle of planning and mea-
surement stretching from the corporate, through business unit down to the individual level performance
agreements and appraisals.
CHARACTERISTICS OF SPM
Some of the characteristic features of SPM are:
It can ensure that employees get clarity and understand what is expected of them.
It can improve the skills and ability to deliver on pre-determined expectations.
It can gain support from management to develop their capacity to meet expectations through given
feedback on their performance.
It can embrace the opportunity to discuss and contribute to individual and team goals and objectives.
It is also about ensuring that managers themselves are aware of the impact of their own behaviour
on the people they lead.
Strategic performance management is about establishing a culture where individuals and groups take
responsibility for the continuous improvement of business processes and of their own skills. It focuses
on success, behaviour, and sharing expectations. Managers can utilize SPM as a tool to clarify what
they expect individuals and teams to accomplish. Individuals and teams communicate effectively with
management and with each other about their individual expectations and how they view strategic initia-
tives and their personal contributions.
Strategic performance management bridges the gap as it interrelates and improves the quality of relation-
ships between managers and individuals, between managers and teams, between members of teams and the
introduction of accountability. Expectations are clearly defined through a joint recognition of the require-
ments for success by both management and the employee. This is critical because today, less than half of all
employees truly understand how their actions relate to the success of company initiatives. Most employees
don’t even know what’s expected of them or how the company evaluates their personal contributions.
SPM is important because it plays a pivotal role in any organization’s human resource framework.
There are clear benefits from managing individual and team performance to achieve organizational
objectives. Similarly, compensation in the form of pay, bonuses, stock options, and other benefits can be
linked to the achievements of particular goals. A well-designed performance management process stim-
ulates managers to develop high-quality strategic plans, set ambitious targets, and track performance.
All these activities help in achieving strategic objectives and consequently sustained value creation.
SPM AND GENERIC STRATEGIES

Michel Porter’s (1980) generic strategies are the most commonly identified syndromes in organizations.
Organizations worldwide make use of these generic strategies even in managing their performance.
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Porter (1980) proposed three generic strategies that can yield competitive advantage, namely cost
leadership, product differentiation, and focus. To ensure long-term profitability, organizations need to
embrace one of the generic strategies, rather than simultaneously following all. For example, cost leader-
ship strategies require the organizations to lower costs and cost advantages through process innovations,
learning curve benefits, economies of scale, product designs, optimizing the cycle time for production,
reengineering, and even through backward integration. Videocon’s acquisition of Thompson’s colour
picture tube manufacturing facilities provides cost optimization benefits to Videocon to manufacturing
colour television sets. Product differentiation strategies on the other hand, help in customizing custom-
ers’ needs. As it creates the niche, organizations can segregate them from other competitors, even when
offering the same goods and services, with some value addition. It may even require the organizations
to charge the premium price, but customers’ may show their eagerness, obviously for new value addi-
tion. Product differentiation strategy, therefore, can be effectively implemented adding some unique
or superior value. For example, Berger Paints have premier range of paints, for which they charge
higher prices. Berger Paints could differentiate them from their arch competitors, Asian paints. How-
ever, effectiveness of differentiation strategies depends on the extent of customers’ perceived differen-
tiations, which may not just limit to quality, features, or support services. It may even extend to brand
value and the image. The third generic strategy, i.e., focus is based on adopting a stand to withdraw from
the same line of business, shifting their focus to some new line of business. Such a strategy becomes
essential when the organization is unable to withstand the price competition. IBM, for example, has to
withdraw from desktop business, facing price competition from HP-Compaq and Dell and start their
new business line, i.e., the IT-enabled services (ITeS). According to Porter (1980), successful focus
strategy depends upon an industry segment that is large enough to have good growth potential but is
not of key importance to other major competitors. Market penetration or market development can be an
important focus strategy. Also focus can be based on (1) differentiation that targets a specific segment
of the market with unique needs that are not being met by others in the industry or (2) cost focused
where the company has access to specialized production and operations equipment that can save costs
in smaller production lots or runs.
Several research studies could address the relationship between generic strategy and performance.
Some research observations conclude that pure or generic strategies of cost minimization or differentia-
tion results in superior performance while some other studies could observe that combination strategies,
i.e., low-cost and differentiation can make the bigger differences. Dess and Davis (1984) examined
industrial products businesses and suggested that performance was achieved through the adoption of a
single strategy. Hambrick (1983) investigated capital goods producers and industrial product manufac-
turers and found support for generic strategies. Ross (1999) also supported two distinct focus strategies
including low-cost and differentiation—one aimed at distinct needs in terms of cost in a narrow target
market and the other at distinct customization requirements in a narrow target market.
For achieving performance excellence, according to Parker and Helms (1992) mixed and reactive
strategies and so also the focused generic strategies are usually adopted by the organizations. Various
research studies conducted by Gupta 1995; Slocum, McGill, & Lei 1994 have documented how high
performance level could be attained by the organizations with simultaneous focus on low cost and dif-
ferentiation strategies. Such combination strategies, i.e., the simultaneous use of low cost and differen-
tiation strategies can give higher returns on investment (Helms et al., 1997). Research work by Wright
and Parsinia (1988) could establish the success of combined generic strategies in banking, retailing,
distributing, and creative businesses. Hill (1988) also emphasized on the need for combination strate-
gies for cost leadership and product differentiation for long-term sustainable competitive advantage.
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PERFORMANCE AND STRATEGY LINKAGE

We have enough literature and research findings on strategy-performance relationships. Primarily,
strategy research has its roots in industrial organization (IO) theory. Within Bain (1956) and Mason
(1939), the IO framework of industry behaviour, organizational performance, or profitability is seen
as a function of the industry structure. Industry characteristics rather than organization-based issues
are found to determine firm performance (Barney, 1986). This structure-conduct-performance model
from IO and economics has been used in industries with high concentrations and in similar firms (Seth
and Thomas, 1994). Some studies, however, have not found a link between strategy and performance
(McGee and Thomas, 1986, 1992). Others have found the link between strategy and performance less-
ened by situational variables including a focus on manufacturing and profitability (Davis & Schul, 1993;
Zahra, 1993). To investigate the strategy and performance relationship, many researchers began utiliz-
ing approaches found to be generalizable across industries, specifically those proposed by Porter (1980,
1985, and 1987). Researches on strategy, therefore, reveals contradictory results on the link between
singular generic strategy and performance. As Campbell-Hunt (2000) points out, the dominant para-
digm of competitive strategy is now two decades old, but it has yet to prove its adequacy as a descrip-
tive framework or progress its propositions about the performance consequences of different strategic
designs. The type of reward practices used by the organization may influence the relationship between
strategy and performance. This may help to explain some of the confusing and contradictory findings
reported in prior strategy-performance studies. Thus, exploratory research on the relationship between
strategy, rewards, and firm performance is clearly established through research.
Reward Practices
Linkage of organizational strategy, human resource (HR) practices, and performance could be found
in several research studies (Balkin and Gomez-Mejia, 1987; Hambrick and Snow, 1989; Lawler, 1986;
Ulrich and Lake, 1990; Waldman, 1994; Zingheim and Schuster, 2000, etc.) All these studies suggest
that HR practices for an organization must be selected in conformity with the organizational strategy.
This applies for the organizational reward system and practices also. Organizational reward systems
should be so designed that it can motivate employee performance in line with its strategy and at the
same time can attract and retain the talents, who can truly contribute to the achievement of strategic
intents (Galbraith, 1973; Kilmann, 1989; Nadler and Tushman, 1988).
Further external and internal fit of organizational reward systems with the strategies can ultimately
facilitate in organizational effectiveness. HR practices, per se, can be the unique source of competi-
tive strategies (Becker and Gerhart, 1996). Gomez-Mejia and Balkin (1992), pioneers in compensation
management practices also suggested the importance of strategy-aligned reward systems, discarding the
conventional basis of compensation design, i.e., job analysis, job descriptions, etc. A strategy aligned
reward systems can achieve higher levels of individual and organizational level performance. However,
such assumptions are still in the theoretical domain for inadequate empirical exploration.
Firm Performance
Most of the research studies support the long-term benefits of strategic planning for the successful
performance of an organization or business unit. Studies on organizational performance use a variety
of success measures both financial and non-financial. Researchers employ financial measures such as
profit, turnover, return on investment, return on capital employed, and inventory turnover. Non-financial
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measures include innovativeness and market standing. When performance is measured at a variety of
levels (e.g., national, industry, company, and product), comparison of results is difficult.
Lusch and Laczniak (1989) define business performance as the total economic results of the activities
undertaken by an organization. Walker and Ruekert (1987) found primary dimensions of business per-
formance could be grouped into the three categories of effectiveness, efficiency, and adaptability. How-
ever, there is little agreement as to which measure is best. Thus, any comparison of business performance
with only these three dimensions involves substantial trade-offs; good performance on one dimension
often means sacrificing performance on another (Donaldson, 1984). Measures of firm performance,
generally, include such bottom line, financial indicators as sales, profits, cash flow, return on equity, and
growth. It is important to determine how a firm compares with its industry competitors when assessing
firm performance (Dess and Robinson, 1984).
PURPOSE OF PERFORMANCE MANAGEMENT STRATEGY

Performance management strategy aims to provide the means through which better results can be
obtained from the organization, teams, and individuals by understanding and managing performance
within an agreed framework of planned goals, standards, and competence requirements. It involves the
development of processes for establishing shared understanding about what is to be achieved, and an
approach to managing and developing people in a way that will increase the probability that it will be
achieved in the short- and long-term. Evaluating periodically, the human resource inside the organiza-
tion can increase the motivation and commitment of employees and enable individuals to develop their
abilities, increase their job satisfaction, and achieve their full potential to their own benefit and that of
the organization as a whole. Unfortunately, not all organizations provide opportunities for personnel
evaluation.
THE PROCESS OF PERFORMANCE MANAGEMENT

STRATEGY
Performance management strategy has to focus on developing a continuous and flexible process that
involves managers and those whom they manage acting as partners within a framework. This should
set out how they can best work together to achieve the required results. It focuses on future per-
formance planning and improvement rather than on retrospective performance appraisal. It provides
the basis for regular and frequent dialogues between managers and individuals or teams about per-
formance and development needs. Although, traditionally, performance management process applies
mainly focus on individual performance and development issues, it can also be made applicable for
teams (Armstrong, 2006).
Performance management measure outputs in the shape of delivered performance compared with
expectations expressed as objectives. In this respect, it is concerned with targets, standards and perfor-
mance measures, or indicators. But it also deals with inputs—the knowledge, skills, and competencies
required to produce the expected results. It is by defining these input requirements and assessing the
extent to which the expected levels of performance have been achieved by using skills and competen-
cies effectively that developmental needs are identified. The process of performance management strat-
egy, therefore, needs to focus on individual, team performance measurement, improvement, and future
performance planning.
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COMPONENTS OF STRATEGIC PERFORMANCE

MANAGEMENT PROCESS
Strategic performance management is the configuration of mission, vision, objectives, and strategy of
an organization which cascades to quantifiable critical success factors (CSF) and the key performance
indicators (KPI) of an organization. For its quantitative attributes, it can help the organization to quickly
tract the performance gaps, and, accordingly, initiate the corrective action. The process consists of vari-
ous sub-processes, which inter alia encompasses performance planning, budgeting, performance target
assignment, measurement, and compensation decisions. When these sub-processes are integrated, it
leads to performance-driven employees’ behaviours that contributes organizational excellence. Various
components of SPM can be listed as under:
Strategy development: Strategy development process leads to framing of strategic objectives and the
action plans. For performance management and its improvement, strategy development is done in measur-
able terms, duly identifying the critical success factors that lead to the achievement of competitive advan-
tage. Critical success factors are identified from the core business and non-business issues that are con-
sidered as the major drivers to achieve strategic objectives of the organization. Organizations often dilute
the strategy development process considering only the financial results, rather than emphasizing on the
value creation process. Also, strategy development process sets the premises on narrow consideration of
internal environment of organizations, rather than taking a holistic view on the real competitive advantage
and the external environmental issues. This, therefore, dilutes the basic purpose of strategy development.
Budgeting and target setting: The process of target setting and the budgeting results in developing
the actions plans, and, accordingly, allocate the resources so as to achieve the strategic intents of the
organizations. This process also helps in setting the financial targets for the coming year. However, for
obvious volatility of business, budgeting often becomes meaningless for less relevance in the chang-
ing environment. Often budgeting itself becomes a time-consuming cumbersome process for obvious
involvement of people at different hierarchical levels.
Forecasting: At this stage, stock of detailed execution of activities are taken to assess whether the
organization is on desired performance track, or require some corrective and so also the predictive
actions. The forecasting process, therefore, helps in solving the real-time and so also the predicted per-
formance problems in the organization.
Performance measurement: The process of performance measurement considers collection, consoli-
dation, and distribution of performance data to compile the performance information. Such performance
information then gets related to the critical success factors (CSFs) and/or the performance indicators
(KPIs). Quantitative values of CSFs and KPIs may include both the financial and non-financial infor-
mation, but may fail to track the behavioural attributes of the employees that might have led to the per-
formance results. Hence performance measurement can fail to track the right corrective and preventive
actions that may go into performance improvement (Wall, 2001).
Performance review: Unlike performance measurement, performance review process tracks the holis-
tic performance results periodically, considering both the qualitative and quantitative aspects of perfor-
mance. Being more elaborate and holistic, performance review process facilitate in taking the real-time
corrective and preventive action to pull the performance level to the set targets. Rather than limiting the
performance process impersonal, managers need to periodically conduct the performance review meet-
ings to guide the employees.
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Compensation design: Compensation policies of the organizations are aligned with the strategic and
operational actions for dual objectives to optimize the cost of compensation and to motivate the good per-
formers. Under performers also get the message that with scaling up of their performance they can earn
more. The process, therefore, emphasizes on desired performance-related behaviour from the employees.
Thus it must be emphasized that strategic performance management is not about establishing a top-
down, backward-looking form of appraising people. Neither is it just a method of generating informa-
tion for pay decisions. Performance management is a strategic process because it is forward-looking
and development oriented. It provides a framework in which managers can support their team members
rather than dictate to them, and its impact on results will be much more significant if it is regarded as a
transformational rather than as an appraisal process. To be successful in the long run, an organization
strives for organizational fitness, which is defined as an organization’s ability to adapt and survive in the
ever-changing business environment.
Organizations that have implemented a performance management system, and are using it, perform both
financially and non-financially better than organizations that are less performance management driven.
STRATEGY AND PERFORMANCE MANAGEMENT CYCLE

The cycle of performance management indicates the achievement of performance goals within a specific
time frame. Such cycle includes right from performance planning, to developing the performance goals
at the organizational level, division/department level, team/work group level, and individual level. Also it
includes performance review systems, performance monitoring, and employee development to ultimately
reach the performance goals. Corporate level strategy gives overall direction to divisional or departmental
strategic plans and, in some cases, to organization-wide functional strategic plans, viz., the performance
management systems. Strategic plans provide the organizational context within which the managers run their
businesses. They do so by devolving responsibility for implementing strategy to business units. The business
plans explain what each unit will do to implement it. Business plans cascade to form divisional business
plans. Thus, a business unit may take directions from a number of strategic plans. For work-groups/team and
employees’ at their individual level, divisional strategic plan shows how they need to perform. For example,
the marketing strategy may show the approach towards customers’ retention and new business development.
The operations strategy may explain the new or improved work processes and practices that can deliver the
products and services, meeting customers’ expectations. The human resource strategy develops approach
toward attraction, motivation, retention and development of people to implement the strategic plans.
Performance management systems have traditionally been viewed as instruments for’re-freezing’
the organization or consolidating gains resulting from a change programme. Unfortunately, for obvious
high rate of change, today’s organization often cannot invest the time required for re-freezing. In such a
turbulent business environment, often it is questioned, whether a performance management system can
be implemented. However, experiences from global organizations indicate that successful introduction
of performance management systems, making it an integral part of the change programme, can yield
better results. Such results would be more evident when we design the system addressing the specific
employees’ and organizational needs.
In any organizational change programme powered by performance management systems, strategi-
cally organizations involve line managers. Line managers for their obvious proximity with the operations
understand the importance of change within the deadlines, and accordingly are able to share the areas of
priority in employees’ performances.
The strategic approach to performance management cycle, therefore, requires organizations to
develop a performance-oriented culture that enhances the capability of the line managers, support them,
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so that they can motivate people to willingly work to achieve the organizational goals. They do both
with minimal control needed by management. This culture requires employees to commit to organiza-
tional objectives, achieve them and trust their organization to treat them fairly. An effective performance
management system meets all these requirements.
Change management must be led from the top of an organization and this leadership cascaded down
through every level of management. Individual line managers will have varying capabilities and inclina-
tions to accept this role as leader. An effective performance management system both encourages and
supports them as they do so. Both making them accountable for implementing the system and raising their
expectations of what it can do encourages them. Accountability is achieved by a stipulation in their own
performance agreement that they appraise their immediate subordinates before their own contract can be
reviewed. Unfortunately, past experience has caused many managers to have low expectations of a perfor-
mance management system. Unless they are made to value it as a useful management tool, they will not
commit sufficient time and energy to it and it will quickly degenerate into an administrative encumbrance.
DIMENSIONS OF LINKAGE BETWEEN INDIVIDUAL

PERFORMANCES AND STRATEGY
The link between business strategy and individual performance occurs in part through the organiza-
tional capability to create and embed people processes along a number of dimensions. These are vertical
linkage (to create alignment with short-term business needs), horizontal linkage (to create cohesion),
and temporal linkage (to transform to meet future needs). These clusters of people processes can be
described and observed across all the businesses. The strength of the linkage between people processes
and business strategy varies across the processes and across the businesses.
Vertical linkage expresses the most visible aspect, i.e., the linking of business goal to individual
objective setting, to the measurement and rewarding of that business goal. The concept of horizontal
linkage is more complex, as it establishes the links within and between the people processes. Because
of its static nature, the need for temporal linkage occurs.
Strategic performance management is established through the vertical, horizontal and temporal link-
ages. However, operationally we find vertical linkage, as it establishes the link between the business
goals, individual behaviour, and the ultimate individual team and organizational performance. Such
vertical integration is achieved through the procedures, policies, and processes, and is widely acknowl-
edged to be a crucial part of any strategic approach to the management of people (Schuler and Jackson,
1987; Tichy, Fombrun and Devanna, 1982; Truss and Gratton, 1994). It ensures the presence of an
explicit complementary relationship between internal people policies and processes and the external
product market or larger business strategy. It also creates and supports the individual behaviour and
competencies that have the potential to be a source of competitive advantage (Wright et al. 1994). Link-
age ensures a focus on what Jackson et al. (1989) have described as ‘needed employee behaviour’, that
behaviour which is central to the delivery of the business strategy.
BENEFITS OF STRATEGIC PERFORMANCE MANAGEMENT

Strategic performance management requires organization’s attention to focus on the strategic themes,
drivers, and objectives. A model of operational performance management showing different facets of
performance management is illustrated in Figure 6.1.
The model illustrates how strategic performance management links strategic planning and opera-
tional management. The strategy map and scorecard work within this approach to deliver the benefits.
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Future
Thinking
Continuous Interaction
Strategic
External Environment Choice and Design
Strategic Planning
Strategic Strategic
Strategic
Communication Learning
Alignment
Operational Mangement
and Execution
Continuous Interaction
Performance
and Delivery
Figure 6.1 Strategic management approach
Boundary System
Control System Belief System
Risk Controls Core Values
Strategy
Operational
Strategic Levers
Performance
Diagnostic Interactive
Control System Control System
Now/Past? Future
Steady State Changes
Figure 6.2 Strategic performance management process
However, when performance management becomes too focused on risks and control, it can only
provide operational detail but cannot support the strategy. A properly designed and implemented bal-
anced scorecard approach avoids these problems. It makes clear the directions for the organizations,
articulation of the strategies with the details of objectives, measures, targets, projects, investments, and
responsibilities. We can communicate it better, as strategic performance management process to deliver
results by using Figure 6.2.
Focusing on the strategic issues requires creating of performance culture. Performance culture is a
visible and explicit pattern of behaviour, action, and value, which facilitates in achieving the overall
objectives of the organization. Further good performance culture encourages honest evaluation, feed-
back, and appraisal. It ensures informed decision-making both at the individual and at the collective
level. With a self-regulating mechanism, good performance culture also ensures real-time response
to the changing environment and circumstances. It is important to understand that frameworks, meth-
odologies, and software do not create a performance culture. It can only play the facilitating role in
enhancing the performance culture.
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ADVANTAGES AND DISADVANTAGES OF SPM

SPM practices help the organization to derive many advantages. So also it leads to many disadvantages.
Hence it is desirable for the organization to balance the advantages and the disadvantages to make best
use of SPM. Some of the widely verifiable advantages of SPM are presented below:
Increase in output.
Increase in revenue.
Increase in profit.
Reduction in costs.
Such advantages improve the overall performance of the organization in the following ways:
Closer collaboration and better knowledge sharing and information exchange between organiza-
tional units.
Strengthened focus on what is important for the organization.
Higher quality of performance information.
Better strategic alignment of organizational units.
Higher operational efficiency.
Better understanding of organizational members of the strategy.
Improvement in the decision-making process.
Higher commitment of organizational members to the organization.
More clarity of people about their contribution towards achievement of the results.
Higher innovativeness.
Better achievement of organizational goals.
More pro-activity of organizational members.
More clarity for organizational members about their roles and goals to be achieved.
Higher quality of products and services.
More effective management control.
Higher employee satisfaction.
Stronger process orientation.
Strengthened reputation of the organization as a quality.
Better strategic planning process.
DISADVANTAGES OF SPM
It causes too much internal competition.
There are too many performance indicators.
The performance information is too aggregated.
There is not enough strategic information in the system.
The performance indicators are too subjective and, therefore, unreliable.
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There is too much historical information.

Stronger accountability.
Need for a broader set of measures of performance.
Better facilitation of cross-functional understanding.
Better goal setting.
Formalization of the strategic planning process.
Stronger individual accountability of employees.
Stronger commitment of top management.
Higher commitment to the strategy.
Handling the increase in complexity of the organization.
Better description of missions, strategies, and goals.
Improve the performance of the organization.
Obtain better understandings in knowledge and skills of people.
Better control and with that a better ‘obedience’ of people.
Tracking progress towards achievement of organizational goals.
Aligning employee behaviour with strategic objectives.
Better communicating of strategy to everyone in the organization.
Aligning the organization to the strategy.
Being able to measure people, projects, and strategies.
Being able to measure performance at various organizational levels.
Translating the strategy into operational terms.
Need to make strategy everyone’s job.
Need to correlate measures and actions better.
Linking rewards to performance.
Enforcing and monitoring regulatory compliance.
Requirement of a business opportunity.
Expectation of the stock market.
Requirement of governmental regulations.
Decision support at top management level.
Decision support at operational level.
Providing a better picture of customer and product profitability.
Making responsibility accounting possible.
Identity possible needs for changes in strategy.
Facilitate implementation of business strategy.
Provide information for external reporting.
Facilitate comparison with other, similar business units.
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Enhance quality of the organization.

Determination of the bonus of management and/or staff.
Monitor whether the business is creating value for shareholders.
Facilitate a process orientation.
SPM AND THE BALANCED SCORECARD

The balanced scorecard is the most important SPM tool to realize the strategic intents. The score-
card is so designed that it can track the overall performance in key areas and processes, which aggre-
gates to business results. Such key areas are divided into four perspectives, customer, internal-business
processes, learning and growth, and financials. When individual, group or organizational level per-
formance targets are translated into these four balanced scorecard perspectives, it gives more candid
details of performance, and helps the organization to understand how every member contributes to
strategic performance requirements. The balanced scorecard pioneered by Kaplan and Norton (1992)
needs to be developed for the individual employees, groups, divisions, and departments and also for the
overall organizations. The process involves, first deciding the overall scorecard for the organizations,
and then cascade the same to the division, department, group, and individual levels. Integration of the
performance results, ultimately, fits with the organization level scorecard. Assumptions of the balanced
scorecard are that every employee of the organization, irrespective of their functional areas and hier-
archical level, contribute to the four perspectives, and tracking such contribution helps to understand
the performance results. Separately, we have discussed various perspectives of balanced scorecard in
a different chapter.
SPM AND METRICS

We can’t improve what we can’t measure. Therefore metrics must be developed based on the priori-
ties of the strategic plan, which provides the key business drivers and criteria for metrics, which the
managers desire to watch. After developing the metrics, organizations need to develop the processes
to collect relevant information for these metrics and reduce to numerical form for storage, display, and
analysis. Decision-makers examine the outcomes of various measured processes and strategies and
track the results to guide the company and provide feedback. Such metrics can directly exert impact
on SPM as under:
The value of metrics provides a factual basis for defining: the performance.
Strategic feedback shows the present status of the organization from many perspectives for deci-
sion-makers.
Diagnostic feedback guides improvements on a continuous basis.
Track trends in performance over time.
Feedback can be traced with the measurement methods.
Quantitative inputs can be used for forecast methods and for decision support systems.
Again SPM as a process become more effective, when different metrics are used to understand how
the performance results of the individual employees, groups, divisions, and departments contributed
to realize the strategy of the organization. Well-designed metrics can not only track the performance
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results, it can also support the SPM process, as key performance indicators drawn in alignment with
the organizational strategy, can be quantified and measured to facilitate objective decision- making. For
SPM, we have different metrics. In a separate chapter on performance management research, we have
explained such metrics for better understanding of its usages.
SPM FOR ENVIRONMENTAL THREATS AND RISKS

Responding to the change faster than the competitors is what we consider as the important competitive
advantage for any organization. Environmental threats and risks for frequent change in the environment
alter the way the organization works. Some organizations even lose their market leadership to their
competitors. Effective SPM practices, can alter the adverse effects of environment on organization. It
requires monitoring, understanding, and if necessary even preparing for the following:
Industry Changes—new competitors, mergers and acquisitions, new suppliers, etc.
Political Changes—change in government, legislation, taxation policies, etc.
Economic Changes—inflation, interest rates, unemployment, stagnation, etc.
Social Changes—population trends, community attitudes, cultural, etc.
Technological Changes—breakthroughs, new products, enabling technologies, etc.
Thus SPM can, under the right conditions, be introduced during change. This, however, requires us
to understand the role of SPM in the organizational change programmes, and so also the nature of the
organization itself. Developing a vibrant performance culture becomes the important precursor for the
success of SPM even in organizational change environment.
SUMMARY
Strategic performance management practices strategic planning and operational management.
can churn financial performance and success in The strategy map and scorecard work within this
organization. Strategic SPM guards the interest approach to deliver the benefits. To develop SPM
of various stakeholders, including the assurance in organizations, SMART objectives are used for
of the interest of the shareholders, and thereby proper horizontal alignment, so that people can
provides the sustainable strategic advantage to work across the organization, sharing and integrat-
the organizations. Business systems and adapt- ing the objectives of the departments that inter-
ability are the two key areas, which deserve atten- face with one another. Such horizontal alignment
tion to enable strategic SPM to deliver the results. is important because employees must collaborate
To achieve this, it requires first understanding and rely on each other to achieve common goals.
of the business systems of the organization and In this chapter, we have discussed the basics
subsequently designs their performance manage- of SPM, introducing its concept and definition,
ment systems from the business perspectives. its evolution, characteristics, purposes, processes,
This is why organizations master the principle of linkage with generic strategies, its components,
coordination to become aligned, linked, and inte- benefits, advantages and disadvantages, usages of
grated. Strategic performance management links balanced scorecard, and metrics.
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KEY WORDS
Strategic Performance Management—It estab- Incentive Compensation—This process links
lishes a culture where individuals and groups take strategic and operational actions for key value
responsibility for the continuous improvement drivers, in a balanced way with compensation and
of business processes and of their own skills. It benefits policies. The main business issue that
focuses on success, behaviour, and sharing of drives organizations to improve the incentive com-
expectations. pensation sub-process is that this process is not
sufficiently aligned with the other sub-processes,
Generic Strategies—Michel Porter’s (1980) generic
therefore, it does not reward the right performance-
strategies are the most commonly identified syn-
driven behaviour of organizational members.
dromes in organizations. Organizations world-
wide make use of these generic strategies even in Performance Metrics—Performance metrics are
managing their performance. Porter (1980) pro- developed based on the priorities of the strategic
posed three generic strategies that can yield com- plan, which provides the key business drivers and
petitive advantage, namely, cost leadership, prod- criteria for metrics, which the managers desire to
uct differentiation, and focus. To ensure long-term watch. After developing the metrics, organiza-
profitability, organizations need to embrace one of tions need to develop the processes to collect rel-
the generic strategies, rather than simultaneously evant information for these metrics and reduce to
following all. numerical form for storage, display, and analysis.

1. Explain the process of development of 6. Explain how the balanced scorecard and
strategic performance management concept. metrics can strengthen the strategic perfor-
2. Discuss how strategic performance manage- mance management.
ment relates to Porter’s generic strategies. 7. Short Notes
3. Explain the purpose, process, and the compo-
(a) Performance Management Cycle
nents of strategic performance management.
(b) Environmental Threats and Risks
4. Discuss how individual performance and
strategy can be aligned. (c) Vertical Linkage
5. What are the advantages and disadvantages (d) Critical Success Factors
of strategic performance management? (e) SMART Objectives

8. Visit any technology-intensive Indian strategic performance management practices.
manufacturing organization and explain (Hint: Preferably choose some Indian car
how this organization could successfully manufactures like Tata Motors, Maruti,
respond to their recent changes through Hyundai,etc.).
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FURTHER READING
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CASE STUDY
Balanced Scorecard for Strategic Performance Management at Universal Bank

Bank Universal of Indonesia faced the unique crisis of organizational transformation after the Asian
currency crisis of 1997. At this point of time, most important management tools used in managing the
performance was the balanced scorecard. With the good corporate governance and alignment within
the organization, the performance measurement initiative of the bank reached to momentum. Customer
service, operational efficiency, and pro-active HRD practices were the three focus areas in the balanced
scorecard adopted by the Indonesian banks to overcome the crisis.
Bank Universal was established in the year 1990, merging three small banks. Initially, it focused on
corporate banking and later on expanded to retail banking, primarily in Jakarta and other major cities of
Indonesia. With 2200 employees and an asset size of $1.2 billion, the bank virtually collapsed during the
crisis of 1997. With the scientific performance management systems (using Balanced Scorecard) and
sustained HR initiatives, the bank ultimately could survive the crisis and is at present achieving double
digit return on equity. From a business point of view, the bank strategically focuses on sector-specific
financing like automotive sector (mainly refinancing the suppliers, dealers, and the end users of product
of the automobile industry), coal mining (supply chain side), traders, plywood supply chains, etc. Focus-
ing on niche retail banking, the bank has achieved expertise. Another reason to be sector specific is to
avoid mistakes in financing the large companies, who became the major defaulter and major contributor
to high NPAs of the bank during the period of crisis.
Introduction of balanced scorecard helped the bank to balance their focus on its process, customer
service, learning and growth, and finance. For banks without efficient process, quality of people who
serve the customers, it is not possible to get good return on investment. With initial implementation of
the balanced scorecard at the corporate level, the bank took this to the branch operation level and then
cascaded it to the individual employee level. In four stages, the bank could implement the balanced
scorecard, across the organization;with three strategic themes like handling of past problems (related to
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loan portfolios), embracing a new business model (to enhance profitability), and adopting a new market
strategy to develop the good banking image.
After implementation of the balanced scorecard the bank could observe that people can appreciate
each other. The marketing people can appreciate the service people and the service people can appreci-
ate the operational and process people, who in turn can appreciate the human resource people. All could
collectively contribute to the performance of Bank Universal. Effective coordination and communication
throughout the organization improved the performance and the bottom line.
Bank Universal’s Web site at http://www.bankuniversal.co.id.
Read this case carefully and relate it to any India organization, clearly segmenting individual areas of
activities and operations, particularly after the global meltdown. Explore the possibility of introducing bal-
anced scorecard. Also indicate how it can augment the business results of your selected organization.
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CHAPTER 7
Competency-based Performance
Management Systems
Learning Objectives
Definition and concepts of competency Competency mapping
Managerial skills and competencies Steps of a competency identification process
Skill inventories Steps to introduce competency-based systems
Multi-skilling
Developing competency models
Skills for the new millennium
Developing competencies for effective per- Examples of HR competencies
formance management Competency-based performance management
Types of competencies systems
Characteristics of competencies Elements of performance-based competencies
Competencies identification and assessment Competency dictionary
process
L&T Infotech—Competency-based PMS

Larsen & Toubro Infotech Limited (L&T Infotech) is a 100 per cent subsidiary of the technology-driven
engineering and construction major, Larsen & Toubro Limited. The company offers comprehensive, end-
to-end software solutions and services. Leveraging the legacy of the parent company, L&T Infotech, a
PCMM Level 5 company, could successfully introduce the competency-based human resource manage-
ment system. Successful mapping of job competencies could help the company to align all major HR
decisions like recruitment, training, job rotation, succession plans, and promotions on the documented
competency maps. Competency-based HR interventions could put the company on the highest per-
formance track. As a matter of strategic HR practices, the company made compulsory job rotation for
every employee. Such job rotation programmes need not always be within the job family, it may even be
cross-functional. To achieve excellence, the company used the expertize of PeopleSoft in competency
mapping. Systematically, the company reviews the job competencies to assess the gap, if any. As a
matter of practice, the company undertakes a minimum of two appraisals in a year. Another distinctive
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approach followed by the company is a systematic review of competencies after every project execution.
Competency development of employees, therefore, is an ongoing supportive initiative, in which employ-
ees of the organization volunteer.
INTRODUCTION
Organizational business practices are not getting distorted only for business discontinuities like deregu-
lation, globalization, technological convergence, the Internet, etc. In a globally competitive market land-
scape, today customers compete for value for their money. For organizations, therefore, ‘customers’ are
the ultimate source of competence. It is the customers who dictate their terms, and organizations need to
respond to such needs of the customers leveraging their core competencies. Organizational core compe-
tencies translate into core products and services, which create a niche in competition. Core competencies
are the collective learning in the organization, especially the capacity to coordinate diverse production
skills and integrate streams of technologies. First, companies must identify core competencies, which
provide potential access to a wide variety of markets, make a contribution to the customer benefits of
the product, and are difficult for competitors to imitate. Next, companies must reorganize to learn from
alliances and focus on internal development. Hence, organizations today realize that in order to harness
the boom time, competence of its human resources should exceed the expectations of its customers con-
sistently. Human capital is the ultimate weapon for achieving competitive advantage. Successful organi-
zations worldwide could achieve market leadership, systematically identifying, developing, rewarding,
and aligning people competencies with their unique differentiating organizational capabilities.
The concept of competency was pioneered by McClelland (1973). McClelland identified differ-
ent competency variables, which can help in predicting the job performance. The basic premise of
McClelland’s contention is that individual performance is not just the function of intelligence, knowl-
edge, and skill, rather it is the competencies. Competencies in addition to the knowledge, skill, and
abilities (KSA), also consider the behavioural aspects. Job performance becomes more effective when
employees with the right competencies perform the job. Thus, McClelland’s competency concept con-
siders both the KSA and the behavioural inputs for successful performance. Competency mapping is
the process of identification of competencies that contribute to successful job performance. Organiza-
tions do competency mapping following the work breakdown structure (WBS) concept, which breaks
the job into different elements and then relate such job elements into the required nature of activities
along with the requirements of competencies. Once this is done, performance measurement is done
against such competency maps to understand the competency gaps. Identified competency gaps are then
improved through various employee development initiatives. These apart, competency mapping can
be done through assessment centres, introducing the multi-rating systems, use of psychometric tools,
simulation exercises, interviews, role-plays, group discussions, etc.
MANAGERIAL SKILLS AND COMPETENCIES

Skills of the managers have now become important factors to address the global competitiveness at orga-
nizational and also at the national level. Obviously, imparting skills through training and development is
yet not recognized as an important initiative at organizational level both for the problem of quantification
of benefits, and in organizational beliefs that training can hardly help people to develop their skill. Skill
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is defined as a coordinated series of actions that serve to attain some goal or accomplish a particular task.
Operationally, skills are defined widely as overt responses and controlled stimulation. Overt responses
may be verbal, motor, or perceptual. Verbal response typically stresses on speaking (which requires mem-
orization of words); motor responses stress on movements of limbs and body; and perceptual responses
stress on understanding of sensory response. Controlled stimulation on the other hand, are energy inputs
to the workers, which we express in units of frequency, length, time, and weight. Technological change
and skill requirements have been made a subject of investigation in enormous studies across the world.
There is a general consensus that technological change alters the job but the observations differ in its
nature and form. Technological changes, per se, require broader variety of skills and higher average skills
from the workers. From another viewpoint technology is instrumental in fractionating and de-skilling
of jobs. Redesigning of jobs subsequent to technological change separates the planning and the concept
of job in its totality from the execution aspect of work. De-skilling and skill downgrading also occurs
due to differential growth of higher versus low skill occupations and industries. These phenomena are
especially evident in India. From the 1981 census reports onward, we find a major occupational shift of
workers from primary sector to secondary sector and from secondary sector to tertiary sector. Simultane-
ous structural change in occupational pattern is also evident, as the number of blue-collar workers has
been drastically reduced while the number of white-collar workers has significantly increased. Another
school of thought argues that de-skilling is a secondary consequence of de-industrialization, which again
is prompted by the technological change.
Thus, transformations in skill due to technological change occur along two tracks: (i) compositional
shift, i.e., structural change in occupational pattern due to creation or elimination of jobs of a given skill
level and the distribution of persons to job in sectoral economy and (ii) changes in work content (the
technical nature of work and the role relations surrounding work performance).
Internationally, the careers of the future will require greater education (more in the form of institu-
tionalized knowledge) at the job entry level and will also demand for continuing education to keep pace
with technological dynamism. Greater level of technological literary, even for lower skill and low pay-
ing occupations will be in demand in future.
Thus, in the era of technological change and globalization, through skill change or upgradation,
organization can also achieve effectiveness and excellence.
From the above perspective, we can categorize skill either as generic or technical, entry level or
advanced. Conventionally, skill can be defined as that knowledge or those attributes which are deemed
vital to organizational success.
There are four general types of skills as under:
Technical—which relates to specific concepts, methods, and tools specific to an organization.
Supervisory—which enables one to effectively supervise others.
Interpersonal—which enables people to communicate and interact effectively.
General business—lines of business and support infrastructure.
Technical skills are observable, demonstrable, and testable. The other skill types are softer, more
subjective, and difficult to quantify.
Any organization going for skill renewal or skill-change exercise needs to undertake the following tasks:
Profile the skills required for jobs.
Assess the skill levels acquired by individuals.
Conduct a gap analysis between required and acquired skill.
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Training should ideally occur before the skill is needed so that daily work can be reinforced through
training.
SKILL INVENTORIES
A skill inventory is a device for pin-pointing information about individuals and their suitability for
different jobs. Skills inventories include the name of the employee and a listing (or inventory) of job-
related skills, training, and/or experience which could prove useful in a future assignment. The purpose
of skill inventories is to provide the organization with quick, accurate information on all employees in
order that management can choose the best-qualified person for promotion or transfer. For example, a
skill inventory may consist of the following information: age, address, health, education, willingness
to travel, experience in the past and present jobs, and foreign languages spoken. If an overseas assign-
ment requires the speaking ability of people in a particular foreign language, a well-documented skill
inventory can quickly identify availability of those employees from the database of the organization and
select the suitable candidate for the job. Thus, maintaining a skill inventory is essential for achieving
organizational effectiveness and excellence, even in a changed situation.
MULTI-SKILLING
For effective employee performance, multi-skilling of people is very important. Multi-skilling is defined
as the process to train employees in a variety of skills, even crossing the traditional trade-specific or
craft-specific skill sets. Thus to develop multi-skills, employees require additional training to enable
them to perform more jobs within the same job family or to do the entire jobs from a holistic point of
view. Multi-skilling is often misconstrued to succeed downsizing. But downsizing occurs for skill obso-
lescence, among other reasons, while multi-skilling is for holistic development of human potentialities
to effectively address to the requirements of changing production process (more flexible and custom-
ized), organizational systems (decentralized control), and state-of-the-art technology (numeric control,
computer numeric control, direct numeric control, etc.). Multi-skilling facilitates intra-occupational and
inter-occupational job mobility and thereby reinforces organizational effectiveness and excellence.
SKILLS FOR THE NEW MILLENNIUM

In the changed global business scenario, organizations need to develop the following skills in all cross-
sections of employees to sustain in competition and to achieve excellence.
Partnership and collaboration skills: In the new millennium, managers across all levels need to
understand the importance of strategic associations. It is such a critical skill set that without master-
ing it, managers would not be able to identify partnership and collaboration opportunities, understand
the structure of working relationships with the partners or collaborators, negotiate the terms, and close
such deals. Both at the national and international level, organizations are forging strategic alliance to
strengthen their market position. Even in terms of domain of market, two companies can have alliance
of no-competition. For example, in India, IBM and PWC do not compete for the same product-mix in
the same market. Similarly, to reduce the rate of attrition, IT companies have made no-poaching agree-
ment with each other. Partnership and collaboration skills require managers to continuously scan the
environment and identify such opportunities to achieve the strategic objectives.
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Quick decision-making skill: Developing skills for quick decision-making is also very important.
Delaying response time to change will lead to the loss of market opportunities. Hence managers need to
master the art of quick decision-making, developing their capability to understand the change scenarios.
Managers need to understand; monitoring day-to-day operations is one aspect and making a strategic
move in the changed situation through quick decision-making is another aspect. In a situation of global
meltdown and market volatility, many organizations to ensure quick decision-making or response pre-
conceive the scenarios and structure the strategies, so that in a given scenario, they can quickly take the
desired decision. However, such decisions even though not always error free can benefit the organiza-
tion as an early mover. With the decisional flexibility, organizations can quickly reverse or change the
decision, adjusting with the situation. For example, IBM prefers to operate in rented accommodations
to smoothen their exit root, while many organizations prefer to add brick and mortars to expand their
business. This is an era of lean management, which requires organizations to operate in an environment
of flexibility. A quick decision-making ability of managers supports all such requirements.
Skill to attract and retain the talent: Only with strategic and innovative rewards or compensation
design, attraction and retention of talent may not be always possible. In a knowledge economy, people
prefer to stick around the job, which gives them opportunity to learn and grow, helps to align their
self-goals with the organizational goals, provides them the right platform to incubate and nurture their
creativity, and enables them to translate their creative ideas into action through innovative product or
process design. Thus, retention and attraction of talents would be best possible through nurturing of a
compelling workplace culture, which among others, provides opportunities to learn, grow, and innovate.
To build such an environment in the workplace, managers need to acquire the right skill, so that as a
coach and mentor to employees, they can help in the attraction and retention of talents.
Skill to predict the future: The rate of change in the new millennium being very fast, among others,
managers must also acquire skills to predict the future. Through different sources, managers develop
their insights to successfully predict the future in different time horizon. They can validate such insights
through networking, sharing diverse assumptions with each other, etc. To effectively predict the future,
many managers identify in advance certain trigger points and relate the same with different scenarios
to predict the future.
Skill to integrate technology with business: Managers in the new millennium must also gain skill and
familiarity with the new technology, to understand how such technology integrates with the business
process. For example, without understanding how ERP (enterprise resource planning) modules facilitate
in decision-making, managers won’t be able to succeed in the new millennium.
Skill to balance the stakeholders’ needs: For any organization, stakeholders are diverse, and their inter-
ests often conflict. Effective managers must have the requisite skill to balance such multiple and diverse
stakeholders’ needs through stakeholder analysis.
DEVELOPING COMPETENCIES FOR EFFECTIVE

Successful managers in the new millennium need to balance the demands of multiple and diverse stake-
holders such as members of their own team, colleagues from other units in the company, external
partners, customers, shareholders and convince them about the companies’ core competencies. Without
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this, companies are likely to lose their focus, and the resultant poor performance. Working in the
e-economy is challenging, managing there is even more so. HR as well as top managers must identify
the right characteristics required for recruiting in the new economy. Apart from the regular require-
ments, organization needs to keep an eye for soft skills, which are essential for success in the disruptive
new economy.
Competencies are important in human resource and knowledge management approaches. Boyatzis
(1982) and Spencer and Spencer (1993) define competencies as the capacities that exist within a person
and which predict superior performance. They are usually seen to encompass a personified knowl-
edge, skills, attitudes, and behaviours which predict competent performance in a certain job. Lucia and
Lepsinger (1999) differentiate competencies as aptitudes, personal characteristics, skills and knowl-
edge from the actual behaviours that people need to perform at the workplace. The distinction between
competencies as underlying human qualities on the one hand and observable performance outcomes on
the other has a long tradition in psychology. This distinction greatly influenced traditional approaches
of skills or competency management. Especially when it was first introduced as a human resource
management approach, for example by Spencer and Spencer (1993), Boyatzis (1982), and Lawler and
Ledford (1992), a certain combination of individual skills was seen as the determinant of competent job
behaviour. Knowledge management approaches, on the other hand, usually focus more on employees of
technical or professional knowledge, for example, when predicting whether an expert will successfully
solve a given problem, or effectively complete a given project assignment. However, they share the
same basic assumption with HR approaches that is to predict future performance from some personal
characteristics.
Within the above theoretical framework, therefore, we can say, a prerequisite for improved perfor-
mance both at the individual and at organizational level, is development of competencies. Competency
development first requires identification of competencies, and mapping the same for different jobs in
accordance with the changing expectations of the customers, and then listing the gaps, if any, in the
existing level of competencies of employees’ and finally focusing on various competency development
exercises, like training and development, etc. to close the gaps. Competency-based performance man-
agement, therefore, requires evaluation of performance results in accordance with the required set of
competencies, which even goes beyond the bottom line results.
TYPES OF COMPETENCIES
Daniel Katz (1955) has classified competencies into the following areas:
Technical or Functional Competencies—These are the knowledge, attitude, and skills-related to
technical or functional expertize required to perform a role.
Managerial Competencies—These are the knowledge, attitude, and skills required to plan, orga-
nize, mobilize, and utilize resources.
Human Competencies—These are the knowledge, attitude, and skills required to motivate, utilize,
and develop human resources.
Conceptual Competencies—These are the knowledge, attitude, and skills to visualize the invisible,
i.e., the thinking at abstract levels and use of the thinking to plan future business.
But competencies are not mere knowledge, skills, and abilities (KSAs) and should ideally include values,
motives and traits, and self-concept. Surface knowledge and skill competencies are easy to develop and
training is the most cost-effective way to develop them. Core motive and trait competencies at the base
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Visible
Knowledge, Skill,
Abilities
Hidden Traits and Motives

(possible to identify through
behavioural analysis)
Figure 7.1 Personality iceberg
of the personality iceberg are more difficult to assess and develop. In many organizations, we still focus
on hiring based on surface knowledge and skill competencies, but ideally the converse would be a better
option where the focus should be on recruiting based on core motives and competencies, and teach the
knowledge and skills required to do specific jobs.
Research conducted in 1999–2000 by three leading performance management companies world-
wide indicate that companies using competencty-based performance management programmes returned
20–30 per cent more to shareholders than companies using traditional methods like job descriptions,
salary grades, etc.
COMPETENCY CHARACTERISTICS
Based on the organizational experiences, we can identify the following characteristics of competencies:
Motives—The things a person consistently thinks about or wants and that which causes action.
Motives ‘drive, direct, or select’ behaviour towards certain actions or goals.
Traits—-Physical characteristics and consistent responses to situation or information.
Self-concept—A person’s attitudes, values, or self-image.
Knowledge—Information a person has in specific content areas.
Skill—The ability to perform a certain physical or mental task.
As explained earlier, knowledge and skill competencies tend to be visible and relatively ‘on the surface’
characteristics of people. Self-concept, trait, and motive competencies are more hidden, ‘deeper’ and
central to personality.
Surface knowledge and skill competencies are relatively easy to develop; training is the most effec-
tive way to secure these employee abilities. Core motive and trait competencies are more difficult to
assess and develop; it is most cost-effective to select these characteristics.
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COMPETENCY IDENTIFICATION AND ASSESSMENT PROCESS

To diagnose competencies, organizations adopt several approaches. A manual top-down-driven approach
is described in Wolfe and Grosch (1990). It starts out on the organizational level where core competen-
cies of an organizational unit are distinguished from competencies of individual employees. In order to
ensure that employee competencies are managed in line with the future needs of the organization, the
skills management initiative starts by looking at future developments of the market and the needs of the
customer and from these goes on to define the core competencies of the organizational unit.
At this stage the required competencies are identified and defined both for the individual job and
for the job family. The competency requirements are identified in terms of required technical skills
and knowledge, management skills, and social and personal skills (Faix et al. 1991). All these are
understood from the critical success factors (CSF) of job requirements and, accordingly, competency
models developed (Lucia and Lepsinger, 1999). After the process of identification and the definition
of competencies, assessment of existing competencies is made for individual employees. Competency
assessment process is so designed that it gets integrated with the performance evaluation process, and
also facilitates self-assessment by the employees themselves. Organizations using the software support
can make the competency assessment and renewal process on-line and transparent. The idea behind is to
make the employees aware where they stand vis-à-vis their competency requirements. The competency
integrated performance appraisal process also helps in strategic decision-making of the organizations,
as organizations can make future plans and programmes leveraging their employees’ capabilities. The
uniformity in the skill profiles and competency requirements helps the organizations to initiate the need-
based competency development to renew the organizations.
Yet from other perspectives, based on organizational practices, we can list the methods of compe-
tency identification through the process of competency mapping. Competency mapping is a process of
identifying key competencies for a company or institution and the jobs and functions within it. Compe-
tency mapping is important and is an essential exercise. Every well-managed organization should have
well-defined roles and list of competencies required for performing each role effectively. Such a list
should be used for recruitment, performance management, promotions, placement, and training needs
identification. The most effective method of doing competency mapping is through behavioural event
interview (BEI) techniques, conducted through a `competency requirement questionnaire. However,
any competency mapping exercise first starts with the job analysis that requires employees to describe
what they are doing, and what skills, attitudes, and abilities they need to have to perform it well. There
would be a situation to request them to list down the attributes needed to make it up to the next level,
thus making it behavioural as well as skill-based. Secondly, having discovered the similarities in the
questionnaire, a competency-based job description is crafted and presented to the HR department for
their agreement and additions, if any. Thirdly, having agreed on the job requirements and the skills and
attitudes needed to progress within it and become more productive one starts mapping the capability
of the employees to the benchmarks. There are several index points within the responsibility level. An
almost (but not quite) arbitrary level of attainment is noted against each benchmark indicating the areas
where the assessee is in terms of his/her personal development and achievement. These provide a fairly
good picture of the employee to see whether he (or she) needs to perform better or to move up a notch
on the scale. Once the employee ‘tops’ every indicator at his/her level, he/she moves on to the next and
begins there at the bottom—in short, he/she gets promoted.
This reasonably simple though initially (the first year only) tedious method helps everybody to know
what the real state of preparedness of an organization is to handle new business (or its old one) because
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it has a clear picture of every incumbent in the organization. It helps in determining the training and
development needs and, importantly, it helps to encourage the best and develop the rest. A win–win
situation for everyone!
The process of competency mapping makes use of different frameworks/models. Some of these com-
monly known frameworks/models are job competence assessment model (JCAM), single job competency
model, one-size-fits-all model, multiple job models, role set-based competency model (RSBCM), etc.
Irrespective of the models, all competency mapping approaches generally use a combination of:
Interviews
Work studies
Group work
Task forces
Questionnaire
Use of job descriptions, performance appraisal formats, etc.
Competency mapping is always done in the defined job context following a set of approaches, like:
Workforce skills analysis
Job analysis
Supply and demand analysis
Gap analysis
Situation analysis
Skill Analysis helps to describe skills required to carry out a function. However, this is a dynamic
approach, as it also considers nature of work changes in an organization.
Job Analysis focuses on tasks, responsibilities, knowledge, and skill requirements, which are required
for successful job performance.
Both the workforce skills analysis and job analysis are done from inputs collected from survey
(through questionnaire responses), interviews with managers and employees, and benchmarking infor-
mation with successful organizations. For technology-intensive and machine-enabled jobs, skill set
requirements and cycle-time for jobs (as printed in the literatures) also contribute as critical input infor-
mation for such jobs.
Supply Analysis is done considering workforce demographics (in terms of occupations, grades, struc-
ture, race, origin, gender, age, service experience, education, training, health status, retirement time,
and similar other information), trends, and present workforce competencies. This, therefore, helps to
understand the existing workforce status.
Demand Analysis on the other hand helps to identify workforce of the future in line with the vision,
mission, objectives, goals, and strategies of an organization. Critical inputs from demand analysis con-
tribute to development of competency model for workforce of the future.
With the above input reinforcers, organization undertakes gap analysis to understand the differences
between the workforce of today and the workforce of the future. After such identification of differences,
organizations need to plan to address those.
Addressing such gaps is done through solution analysis, taking into account both ongoing and
unplanned changes in the workforce. Solution analysis also weighs different options to get the work
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Performance Training & Career

Staffing Assessment
Development Development Management
Figure 7.2 Competency mapping process
done, either considering institutional or contractual employment. New recruitment, restructuring, train-
ing and re-training, redeployment and rightsizing, all are done, in the light of new competency model,
in this phase.
After suitable competency mapping, the next course of action for an organization, however, is to
decide whether to downsize/right size or to go for training, re-training, and redeployment.
Competency mapping, therefore, has now become essential for every organization to achieve excel-
lence, gain competitive advantage, and renew them through proper restructuring. Only focus on skill and
continuous skill development is not the answer for gaining competitive advantage for today’s organiza-
tion. It is essential to leverage the human potential in respect of competency mapping to understand both
the existing set of competencies and the gap if any. The process of mapping is illustrated in Figure 7.2.
STEPS OF A COMPETENCY IDENTIFICATION PROCESS

Based on the above discussions, we can list the steps of competency identification as under:
Examining the purpose and setting of competency modelling.
Selecting a position and a group of employees.
Selecting the set of performance outcomes.
Performing competency elicitations.
Obtaining individual competence-performance structures.
Obtaining organizational competence-performance structures.
Validating the results.
STEPS TO INTRODUCE COMPETENCY-BASED SYSTEM

Before going in for a competency-based system, it is advisable that one should study the organiza-
tional needs and its acceptance by all. This is very critical because competencies are contextual and can
change from time to time. One should never attempt to copy the competencies from other organizations
however similar the role may seem to be. We may look amongst many others, the following critical fac-
tors before venturing into competency mapping:
Vision and Mission of the Organization: This is very important and any system designed should be
in alignment with this.
Hierarchical Levels: You may need to look at the hierarchical levels of the organization since compe-
tencies differ from one level to another.
Role: You may need to split the roles to design competencies, which differ based on this.
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Organizational Life Cycle: Try to analyse which part of the life cycle your organization is currently
at. For example, the holistic life cycle model defines five stages like birth, growth, midlife, maturity,
and decline.
Culture: Organizational cultural diagnosis is critical and will give valuable inputs into the realm of the
value systems within an organization. This in turn can be helpful in getting the management’s attention
for driving the initiative.
ADVANTAGES OF A COMPETENCY-BASED APPROACH

Recruitment and Selection: Knowing the requisite competencies for a particular role helps the inter-
viewers in assessing the candidates better and maintains consistency in case of multiple interviews.
Performance/Potential Assessment: This would help map the current set of competencies of an indi-
vidual with the expected set of competencies required for him to perform his next role in a new position
or in a higher rank.
Compensation Management: Competencies can help in developing job families and linking it to job
worth can allow a better compensation management.
Training: This can help in identifying the training needs of an individual/role and help design and
evaluate it better.
DEVELOPING COMPETENCY MODELS

The key to gaining competitive advantages is the ability of the workforce of an organization to maxi-
mize the advantages of state-of-the-art technology, superior products, and steady source of capital to
enter into the marketplace. A company’s technological tools are only as useful as its employer’s abil-
ity to employ them; they are perceived in terms of how effectively the benefits are communicated
(McLagan, 1989).
Competency models are specific to jobs and so also specific to the persons or the job owners. Criti-
cal success factors for the job and so also the person who does the job widely varies. The reason is
attributable to behavioural dynamics. Job-related behaviour varies with the jobs and so the person. For
example, one male sales executive and another female sales executive doing the same jobs in the same
organization may have a different set of competency requirements, the reason being the person-specific
attributes and characteristics. The potentiality of a person in terms of aptitude, reasons, and inclination
to acquire a particular set of competencies are different. Therefore, for the same job, there may be two
different competency models. For protocol-bound operation-level jobs, however, competency mod-
els may be the same. Therefore, while developing the competency models, all these aspects deserve
attention. Well-developed competency models help organizations to identify the essential knowledge,
skills, and attributes needed for successful performance. Also the models integrate the job with the
organizational and human resource management strategies. It becomes ultimately the basis for recruit-
ment, compensation design, training and development, performance appraisal, and so also succession
planning.
Thus, competency model accounts for both the innate and acquired aspects. The typical pyramidal
structure of the model documents all the skills and knowledge that are possible to develop, and at the
same time all the innate behavioural attributes that are embodied with the job.
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EXAMPLES OF HR COMPETENCIES
Business Partner—Competencies include:
Knows mission
Understands business process and how to change to improve efficiency and effectiveness
Understands clients and organizational culture
Understands public service environment
Understands team behaviour
Communicates well
Possesses the ability to be innovative and create a risk-taking environment
Applies organizational development principles
Knows business system thinking
Possesses good analytical skills including the ability to think strategically and creatively
Possesses the ability to build trust relationships
Links HR to the organization's mission and service outcome
Change Agent—Competencies include:
Understands public service environment
Communicates well
Assesses and balances competing values
Applies information technology to human resource management
Designs and implements change process
Uses consultation and negotiation skills including dispute resolution
Possesses marketing and representational skills
Uses consensus and coalition building skills
Demonstrates customer service orientation
Leadership—Competencies include:
Communicates well
Assesses and balances competing values
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Uses consensus and coalition building skills
Understands values and promotes diversity
Practices and promotes integrity and ethical behaviour
COMPETENCY-BASED PERFORMANCE
MANAGEMENT SYSTEMS
David Martone (2003) defined a competency-based performance-management system as a documented
and well-structured model that considers the skills and behaviours for successful performance in the
present and so also the future job roles. By making it transparent, it helps employees to understand
the job expectations from their organizations. Also it becomes the competency-based performance-
management system and becomes the framework to align employees’ job performance with the orga-
nizational goals.
Achieving goals both for the individual employees and for the organizations are the key drivers for
achieving organizational success. A competency-based approach to performance management requires
the organization at the outset to define the organizational short-term and long-term goals and then
identify the skills and behaviour requirements. Such expectations are then weighed in terms of avail-
able skills and behaviours, and gaps, if any, are then addressed through competency development pro-
grammes. A competency gap helps employees to understand where they stand vis-à-vis the competency
requirements. With a self-introspection, employees can hone their own competencies and can comple-
ment with others in the organization, and accordingly both at their individual and collective level they
deliver the performance results for the organizations. A number of organizations build competency-
based programmes to develop the employees’ capabilities, so that they can meet the expectations level
of the organizations.
Operationally, all employees are expected to have certain core competencies and behaviours, based
on their skills and area of expertise. However, individual differences do not always make such com-
petencies uniformly available in all employees. It is for this reason that organizations need to make
good the competency gap for enabling employees to deliver results. However, developing competen-
cies and meeting the competency gap may not be always possible. Particularly in Indian organizations,
skill transition, either due to technological change or process changes, may not be always possible, for
knowledge specificity. Lack of skill interchangeability makes it difficult for skill renewal and so also
competency development. In such cases, however, organizations feel constrained to develop the per-
formance goals, keeping pace with the available competencies of employees. A glaring example is the
135 years old East India Pharmaceuticals, a company which exists without any product diversification,
mainly for their captive market share in government run hospitals. But this is not good, as in a com-
petitive world, today’s organizations cannot survive without their renewal, a precursor for which is the
competency development.
Competency-based performance management approach also helps the organization to develop the
performance criteria for all the cross-section of employees. This process then becomes the basis for
the employees to understand what competencies need to be mastered for their self-learning and career
advancement. With a competency-based performance-management system in place, organizations can
successfully manage the talent pool, do succession planning, and develop the bench strength for the
future. Additionally, it will create a basis for recognition and reward, merit increases, and promotions.
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ESSENTIAL ELEMENTS OF PERFORMANCE-BASED

COMPETENCY
Following are the key elements that should be considered in designing and implementing a competency-
based performance-management system.
Establish Competencies: Employers need to specify the set of competencies that they expect their
employees to possess. It is pertinent to mention that for the same job profile, competency requirements
may vary. However, there may be some commonality also. From organizational perspectives, we can
broadly classify competencies into two types—cultural and organizational. Cultural competencies may
encompass integrity, professionalism, accountability, quality, results focus, and profitability. These are
basically the traits that represent the culture of an organization. Organizations need to select three to
five cultural competencies, depending on the culture of the organization, define those duly listing the
expected behaviours and actions of employees, which is instrumental for achieving the desired perfor-
mance results. Like-wise, organizations need to select the organizational competencies like specific
skills instrumental to perform the job or the task assigned to the employees. Such competencies may be
categorized as customer service, business development, technical competency, interpersonal relational
competency, etc. Both the cultural and organizational competencies are essential to achieve desired
performance results.
Set Goals and Performance Expectations: After establishing the competencies and meeting the com-
petency gap, if any, of employees, organizations select goals not exceeding five for the employees,
keeping pace with the nature of work they need to perform and that helps organizations to achieve the
results. Some of the behavioural criteria for some competencies are illustrated in Table 7.1.
Competency-based performance systems, apart from achieving the organizational goals and meeting
the performance expectations also extend support to the process of recruitment and selection. Match-
ing with the competency maps, managers can pre-decide the requirements of skills, experience, and
behavioural pattern in a prospective employee, and accordingly recruit them. Some of the generic set of
individual competencies that can enhance the performance is listed in Table 7.2.
Table 7.1 Behavioural criteria for some competencies

Set of competencies Behavioural criteria
Integrity Honours commitments

Honest and complies with business ethics
Inspires people and becomes a model to them
Quality conscious Ensures control
Focuses on continuous improvement
Emphasizes on customer satisfaction
Delivers quality services
Cultured Communicates effectively
Focuses on continuous improvement
High morale
High standards of personal conduct and work
Believes in developing the subordinates
Supports employee development programmes
Complies with organizational policies
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It is important to note that the list of generic competencies is not exhaustive. Depending on the nature of
organizations, the requirement of generic competencies may vary. These competencies can be reviewed,
developing specific questions.
Let us hypothetically discuss some generic competencies and attributes that individuals are usually
expected to possess for the said set of competencies in Table 7.3.
Table 7.2 List of generic competencies
Analytic Proactive Attention to details
Can handle change Ability to coach Understands commercial applications
Effectively communicate Cost-conscious Innovative
Customer centric Ability to take decision Believes in delegation
Dependable Value diversity Can motivate people
High emotional intelligence Empathetic Can empower
Gives and receives feedback Ability to give leadership Has listening ability
Can perceive and judge Has patience Ability to plan and organize
Can manage stress Can solve problems Quality conscious
Result oriented Safety conscious Believes in self-development
Ability to be strategic Takes initiative and responsibility Believes in teamwork
Makes effective application of Ability to apply technology Can manage time
technology
Effective in written
communication
Table 7.3 Generic competencies and attributes

Generic competencies Set of attributes
Strategic/customer focus Anticipation/proactive thinking
Commercial awareness
Customer focus
Decision-making ability
Leadership ability
Perception/judgement
Results focus
Strategizing ability
Time management
Process/improvement focus Analytical ability
Change-handling ability
Creativity/innovation
Delegation
Persistence/perseverance
Problem-solving ability
Quality focus
Technology application
Written communication
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People/empowerment focus Coaching ability

Communication
Drive/motivation
Emotional intelligence
Empathizing ability
Empowerment ability
Feedback (giving and receiving)
Listening
Self-development
Risk/value creation focus Attention to detail
Cost-consciousness
Dependability
Diversity focus
Planning and organizing
Safety focus
Stress management
Taking initiative/responsibility
Teamwork ability
COMPETENCY DICTIONARY
For obvious popularity of competency mapping and developing the set of desired competencies in
employees, and for achieving the performance goals of the organizations, many organizations now
prefer to develop the job descriptions based on the competencies. A structured approach to compe-
tency definition for any specific set of competencies requires the development of a competency diction-
ary. Competency dictionary becomes a valuable guide for the organizations, for future references, like
recruitment and selection, training and development, setting of performance standards, etc. It brings
order to the system of interpretation of competency sets, behavioural and skill requirements, etc. This
also helps in strategic decision-making, goal setting, etc. Therefore, every organization after suitable
competency mapping develops the competency dictionary.
Some of the generic competencies in organizations are leadership, management, decision-making,
communication, proficiencies, etc. Here we are illustrating a competency dictionary for leadership and
decision-making for a hypothetical organization.
Generic competencies and its definition Specific attributes of generic competencies

Leadership—It is a valued competency which is not Coaching
just restricted for top level managers, but for all cross- Empowerment
sections of employees. People with high leadership Power of influencing others
competency can get the job done and ensure achieve- Teamwork
ment of organizational results. Vision
Decision-making—This is another generic competency Analytic
and the ability of people to make the right decisions can Decisive
benefit the organization in achieving the results. Innovative
Judgemental
Not risk averse
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SUMMARY
Skills, multi-skilling, and competency are the some empirical evidence to counter such appre-
major issues concerning performance manage- hension. A well-structured competency mapping
ment. The problem of skill obsolescence is now with systematic HRD intervention can success-
a global phenomenon. At organization level, skill fully renew the skill and contribute to competitive
renewal initiative is seriously lacking, as they are advantage. Skill renewal, among others, can avert
now more comfortable to opt for downsizing or manpower redundancies. It has now a strategic
rightsizing through redundancies. In India also, dimension for long-term profitability and growth
despite creation of the National Renewal Fund of an organization.
(NRF), organizations prefer to spend NRF money The competency-based performance manage-
(which are available on soft interest terms) more ment systems can work in any type of organiza-
on voluntary retirement schemes (VRS) than skill tion—large or small, and for-profit or not-for-profit
renewal and redeployment of existing workers. organizations. One can literally feel the difference
There exists a gross misconception that skills for in organizations where such a programme has
the Indian workers cannot be renewed for their been implemented: employees are enthusiastic,
obvious trade-specific and industry-specific bent. focused, energized, and clear about what they are
Moreover, existing workmen are by and large in working on and how their efforts contribute to the
their high age bracket. This misconception further overall goals of the organization. With a little plan-
accentuated due to the problem of quantification ning and vision to develop and implement such a
of benefits of skill development and change or process we can observe the differences in energy
renewal training. However, we have now more levels and contribution of employees and the cor-
developed tools for such quantification and at least responding improvement in business results.
KEY WORDS
Skill Inventories—A skill inventory is a device present workforce competencies. This, therefore,
for pin-pointing information about individuals and helps to understand the existing workforce status.
their suitability for different jobs. Skill inventories Technical or Functional Competencies—These
include the name of the employee and a listing (or are the knowledge, attitude, and skills related to
inventory) of job-related skills, training, and/or technical or functional expertise required to per-
experience which could prove useful in a future form a role.
assignment. The purpose of skill inventories is Multi-skilling—For effective employee perfor-
to provide the organization with quick, accurate mance, multi-skilling of people is very important.
information on all employees in order that man- Multi-skilling is defined as the process to train
agement can choose the best-qualified person for employees in a variety of skills, even crossing the
promotion or transfer. traditional trade-specific or craft-specific skill sets.
Supply Analysis—is done considering workforce Thus to develop multi-skills, employees require
demographics (in terms of occupations, grades, additional training to enable them to perform more
structure, race, origin, gender, age, service experi- jobs within the same job family or to do the entire
ence, education, training, health status, retirement jobs from a holistic point of view. Multi-skilling is
time and similar other information), trends, and often misconstrued to succeed downsizing.
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‘Competence’ and ‘Competency’—‘Competence’ formed, while competencies refer to the behaviour

means a skill and the standard of performance adopted in competent performance.
reached while ‘competency’ refers to the behav-
Motives—The things a person consistently
iour by which it is achieved. In other words, one
thinks about or wants and that which causes
describes what people can do while the other
action. Motives ‘drive, direct, or select’ behaviour
focuses on how they do it. Competences refer to
towards certain actions or goals.
the range of skills, which are satisfactorily per-

1. Explain the concept of competency. How pany, clearly showing the weight distribu-
does competency development help in tion to different competency areas.
effective performance management of an 6. What are the important sources of compe-
organization? tency information? How do you relate such
2. What is a skill inventory? How does skill- sources for competency development?
inventory help in competency mapping in 7. Explain the concept of competency diction-
an organization? ary. How does it help in effective performance
3. Discuss the process of competency identifi- management systems in an organization?
cation in an organization. 8. Short Notes
4. What are the important steps involved in intro- (a) Generic Competencies
ducing the competency-based performance (b) Behavioural Criteria
management system in an organization?
(c) PCMM
5. Develop a competency map for a marketing
(d) Competency Mapping
manager of a new generation software com-
(e) Supply Analysis

9. You have been retained by a multi-national ments for static metres are very high, with
static metre manufacturer operating in a maximum of ±1 per cent tolerance limit.
India. Static metres are used by the electric- The company requires a competency-based
ity boards to take the reading and bill the performance management system. Develop
customers. Quality conformance require- your line of actions.
REFERENCES
Bhattacharyya, D.K. (2006), Human Resource Bhattacharyya, D.K. (2010), Organizational
Management, 2nd edition (New Delhi: Excel Change and Development (New Delhi: Oxford
Books). University Press).
Bhattacharyya, D.K. (2007), Human Resource Boyatzis, R.E (1982), The Competent Manager: A
Research Methods (New Delhi: Oxford Uni- Model for Effective Performance (New York,
versity Press). NY: John Wiley & Sons).
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Faix, W.G., C. Buchwald and R. Wetzler (1991), in Organizations (San Francisco, CA: Jossey-
Skill-Management: Qualifikations planung fur Bass).
Unternehmen und Mitarbeiter (Wiesbaden: Martone, David (2003), ‘A Guide to Developing a
Gabler). Competency-Based Performance Management
Green, P.C. (1999), Building Robust Competen- System’, Employment Relations Today, 30(3):
cies: Linking Human Resource Systems to 23–32.
Organizational Strategies (San Francisco, CA: McClelland, D.C. (1973), ‘Testing for Compe-
Jossey-Bass). tence Rather than Intelligence’, American Psy-
Hogg, B. (1989), ‘The AMA Competency Pro- chologist, 28(1): 1–14.
gramme’, in Lee, Geoff and David Beard (eds), McLagan, P.A. (1989), Models for HRD Practice
Development Centre Relating the Potential (Alexandria, VA: American Society for Train-
of Your Employees through Assessment and ing and Development).
Development (London: The Tata McGraw Hill Parry, S.B. (1996), ‘The Quest for Competencies’,
Training Series). Training, July, 48–56.
Katz, R. (1955), ‘Skills of an Effective Adminis- Spencer, L.M. and S.M. Spencer (1993),
trator’, Harvard Business Review, 33: 33–42 Competence at Work: Models for Superior
Lawler, E., G. Ledford (1992), ‘A Skill-Based Performance (New York, NY: John Wiley &
Approach to Human Resource Management’, Sons).
European Management Journal, 10(4): 383–91. Wolfe, R.M. and J.W. Grosch (1990), ‘Personality
Lucia, A.D. and R. Lepsinger (1999), Competency Correlates of Confidence in One’s Decisions’,
Models: Pinpointing Critical Success Factors Journal of Personality, 58: 515–34.
CASE STUDY
Swadeshi Textile—Overcoming the Crisis Through Competency Renewal

Swadeshi Textile, a typical textile manufacturing organization, which had shown convincing growth rate
for successive years, now faces the problem of market saturation. The company had grown over a
number of years as a major player in its sector. It had a strong customer base and enjoyed effective
relationships built on a strong technical foundation for its products. But, as with many such organizations,
it faced an uncertain future as its main market had matured and was probably already beyond saturation
point. Over and above, technical developments in competing products are now threatening the original
way the product ranges of the company were built.
In ownership pattern, the company was typically a family managed one, and with recent IPOs (ini-
tial public offerings), it became a public limited company, with majority stake, however, still within the
family. Mostly from the forest products, the company produces the viscose staple fibre, the core raw
material for the textile industry. Sourcing of forest products for various environmental issues has now
become difficult for the company. They even face resistance from the local people, while they harvest
the forest products from their captive forests. Ultimately the company was forced to import the pulps
from other South-East Asian countries, which resulted in huge production cost over-run, reducing their
profit margin to a marginal level. The company then took the decision to increase the sale price of their
products. It was their belief that with the kind of brand image that they enjoy, it would be possible for
them to captivate their loyal customers even with the increased price. The result, however, was the other
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way round. Most of the textile manufacturers shifted their sourcing to imported synthetic pulp. With the
latest technology, they are now able to reduce the chemical hazards of synthetic pulp. Mixing synthetic
pulp with the viscose staple fibre, and by reducing the chemical hazards of synthetic, they are now able
to produce the fabrics, known as anti-crease cotton. In tropical countries like India, the product was an
immediate success. Gradually, the company entered into question mark category.
To overcome the impasse, the company then decided to move to the latest technology for blending of
imported synthetic pulp with the locally sourced viscose staple fibre to offer the ready-made solution to
their captive customers at a very competitive rate. But such decisions of the company were late, as most
of their customers shifted to their competing organization or went for backward integration to produce
the fibre on their own. It was at this stage that the company had to draw their strategy for survival. To
achieve the strategic intent, the company reviewed their core competency and how it cascades to the
individual level competencies of their people. To their utter surprise, they could identify huge competency
gaps in their production and marketing functions. With the prevailing labour laws and standards and
the replacement of existing employees, managing the redundancies was not possible. The company
then left with the only option to renew the competencies of the existing people and make them com-
petent enough to perform the phase of transition. Extensive competency-based training was imparted
both for the marketing and production people. In addition, the company also undertook organizational
development programmes, which together make their people competent enough to perform in changed
circumstances. Competency-based training and organizational development initiatives were reinforced
by introducing the mentor–mentee relations and a series of motivational programmes. With the renewed
competency, handholding by their superiors, and the series of motivational programmes, the company
could ultimately regain their position within a short span of time.
Question: Encyclopedia Britannica, a legacy-bound and more than 200-year-old organization, had to
go for distress sale to the present owners, for their inability to switch over from printed version of Ency-
clopedia to electronic version, primarily for Microsoft’s Encarta. From web-materials, collect the details
and suggest how competency development could have helped Encyclopedia Britannica to turn around,
avoiding the distress sale.
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CHAPTER 8
Performance-based Compensation
Learning Objectives
Concept of performance-based compensation Application of skill-based pay
Compensation design through job evaluations Competency-based pay
Various incentive schemes Obstacles to the introduction of performance-
Performance-based compensation design related pay
Benefits of performance-based compensation Performance guide charts
Performance-related pay Performance-based executive compensation
Compensation broadbanding using PMS Calibration of executive compensation to per-
Compensation design through skill-based formance
programmes Performance measurement in executive incen-
Obstacles to the introduction of skill-based pay tive programmes
Align Individual Performance with the Team Performance

High rate of attrition has all along been a problem for the multinational private sector bank, having business
presence in India. The CEO of the Indian outfit could identify the reasons for such attrition as the poor
performance measurement systems. The prevailing performance measurement systems emphasize too
much on the quantitative aspects, ignoring the qualitative aspects of employees’ performance. Each
employee gets their business target in the form of his or her key result areas (KRAs). A sizeable amount
of variable compensation is aligned with the target achievement. The CEO of the company feels high
rate of attrition is attributable to stretched quantitative targets, which not even the 50 per cent of the
employees could achieve. This resulted in substantial losing of their compensation part. It was at this
stage that the CEO of the company asked the HR department to come out with a new performance-
driven compensation plan that can increase the level of motivation for the employees, and at the same
time can contain the high rate of attrition. The HR department of the company could come out with
the new performance-driven compensation plan, which among others emphasized on the alignment of
individual and team performance with the variable pay, introduction of Scanlon plan for computing the
incentive pay, which can tap the ingenuity of the employees to improve production, etc. The results in
both the cases were outstanding, and the rate of attrition of employees gradually decreased.
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INTRODUCTION
Performance means the degree or extent with which an employee applies his skill, knowledge, and
efforts to a job assigned to him/her and the result of that application. Performance appraisal means
analysis, review, or evaluation of performance or behaviour analysis of an employee. It may be for-
mal or informal, oral or documented, open or confidential. However, in organizations we find formal
appraisal systems in documented form. It is, therefore, a formal process to evaluate the performance of
the employees in terms of achieving organizational objectives.
The term ‘compensation’, as a substitute word for ‘wages’ and ‘salaries’, is of recent origin. Litera-
tures on wages and salaries are enormous and consider the issues, more from the legal perspectives.
Wages as a cost factor has now become very significant, hence strategic management of wages, for
organizations, is now very important. Compensation, therefore, is viewed as strategic management of
wages and salaries. In India, particularly, we have very scanty literature on compensation, although it
has now become imperative for organizations to balance the cost of compensation and employee moti-
vation (for retention) to survive in a competitive world. Employee compensation is a better term than
employee benefits or wages and salaries. What the employee provides the employer is labour service,
usually called work. This labour service consists of many different kinds of employee behaviour, for
example, showing up regularly and on time, carrying out tasks dependably, cooperating with others,
making useful suggestions, etc. So pay or compensation represents an exchange between the employee
and the organization. Each gives something in return for something else. In the past, the compensation
issue was more confidential and governed by individual employer’s preference and choices. However,
in today’s competitive world, compensation issues are more transparent and every employee can make
an informed choice to join an organization based on the compensation packages. Thus, trading off
compensation cost optimization and employee retention have now become most important priorities
for today’s organizations. Introducing performance-based compensation can benefit the organization.
Performance-based compensation not only validates the compensation design, but also helps in optimiz-
ing the cost of compensation.
For all important decisions concerning people, like transfer and promotion, remuneration, reward,
training and development, so also for long-term manpower planning and organization development,
performance appraisal is necessary. A well-documented performance appraisal system helps in under-
standing the attributes and behaviours of employees. It is also necessary for motivation, communica-
tion, strengthening superior–subordinate relationship, target-fixing (key performance areas/key result
areas), workforce planning, and for improving the overall performance of the organization. One of the
important functions of performance management systems is to design suitable reward systems, relating
rewards to employees’ performance. Other human resource management-related performance-based
decisions also to a great extent influence the compensation decision, viz., a promotional decision based
on employees’ performance, etc.
DEFINITIONS
Operationally, we can hardly make any differences between the term compensation and wages. Both are
intended to price the efforts of the employees. However, the word compensation is used more holisti-
cally, to acknowledge the strategic importance of wages. Theoretically, the word compensation means
something, such as money, given or received as payment for damages. However, in HR literature, we
consider the term from broader perspective, i.e., strategic use of wages paid to employees. Even some
organization prefers to use the term rewards instead of wages or compensation. In HR, we do not
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Performance-based Compensation 171
consider reward just to acknowledge good performance, rather we consider it as strategic design of
compensation, so that when employees get it at end of the month, they feel they are not just getting their
wages, but being rewarded.
A compensation or wage structure in a given case takes into account the industrial adjudication and
considerations of right and wrong, fairness and unfairness. Because of the social conscience and the
welfare policy of the state, collective bargaining is now the most dynamic form of negotiation for decid-
ing the wage structure in a particular organization. Hence wage issues no longer remain a pure math-
ematical problem. However, in the new economy, we are now employing more and more knowledge
workers, for whom compensation design largely depends on the performance level.
VARIOUS CONCEPTS OF COMPENSATION

Wages is any monetary compensation paid to an employee for the services he/she renders. Primarily,
wages in any form provide financial support for the labour, or it is a price paid for the labour. In orga-
nizations, wages are divided into two broad categories: base wages and other benefits or allowances.
Benefits or allowances are essentially made available to prevent the erosion of wage income in real
terms. The basic salary is the real wages and the basic salary with allowances represents money wages.
Some of the allowances, however, are statutory in nature. Good organizations, however, voluntarily pay
more allowances over and above the statutory requirements. Although we make the distinction between
the terms wages and allowances; in India various Acts related to labour administration, defined the term
wages differently. The only commonality in the definitions of wages provided by different Acts is that in
all the cases definition of wages includes also the dearness allowances. The Workmen’s Compensation
Act, 1923, Section 2 (m), defines wages considering the ‘wages for leave period, holiday pay, overtime
pay, bonus, attendance bonus, and good conduct bonus’. The Payment of Wages Act, 1936 section 2 (VI)
considers wages as ‘any award of settlement and production bonus, if paid, constitutes wages’.
The legal connotations, therefore, do not consider alignment of wages or compensation with the
performance of employees.
Traditional theory of wages emphasize on its determination based on the market forces, i.e., the
demand and supply. The theory of negotiated wages on one hand, considers the basis of wage determi-
nation through the collective bargaining process. On the other hand, performance-based wages or com-
pensation emphasize on determination of wages based on employees’ performance. From the economic
perspectives, we find ‘marginal productivity theory’, subscribes to wage determination based on the
estimate of value that will probably be produced by the workers. At least in this case, we find certain
trace of wage determination is somewhat related to the performance level of employees. Performance-
based compensation design emphasizes on the individual work, i.e., the value of the individual employ-
ees’ performance to the organization.
DETERMINING COMPENSATION THROUGH

JOB EVALUATION
Before the introduction of performance management systems in organizations, job evaluation was the only
option, based on which compensation design used to be done. Job evaluation helps us to understand the
individual worth, and it is widely used. It is the process of determining the worth of one job in relation to
that of another without regard to the personalities. It analyses and assesses the content of jobs, to place them
in some standard rank order. The end-result is used as the basis for a fair and logical remuneration system.
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A properly devised job evaluation scheme provides management with definite, systematic and reli-
able data for working out wage and salary scales. Thus, logical wage negotiation reduces wage griev-
ances and dissatisfaction with wage differentials and ensures fair treatment for each employee. It also
provides a logical basis for promotion.
INCENTIVE SCHEMES
Incentives are paid to the workmen over and above the normal wages to reward their good performance.
In places, where piece-rate system of wages exist, payment of incentives is relatively simple as for
manufacturing additional units than the standard one, workers can be paid extra wages, which they are
supposed to get for each additional unit. This incentive scheme is known as straight piece-rate scheme. In
time-rate system, however, such incentives are computed following standard hour systems. To illustrate,
let us assume a given volume of job is given to a worker for standard 8 hours work. If the worker is able to
complete the job within 6 hours, then for the hours saved, i.e., 2 hours, he/she should be given the incen-
tives duly upgrading his hourly wage rate apportioning his 8 hours rate for 6 hours. Let us assume 8 hours
are needed as standard time for completing a job and the rate per hour is Re.1. If the worker finishes the
work in 6 hours, he will also get Rs. 8, which upgrades his hourly wage rate then from Re. 1 to Rs. 1.33p.
Yet in another way we can look into the nature of incentive schemes from the organizational practices.
For designing performance-based compensation, it is imperative to understand the theoretical con-
texts of various incentives. As the list is long, here we are listing those incentive schemes, which are
common for organization.
Barth System—Under this system, there is no minimum guaranteed wage. The formula (considering
hourly wage rate of Re. 1) is as follows:
Wage = Std. time 8 hrs × time-taken (6 hrs) × hourly rate Re. 1 = Rs. 7 (approx.)
Bedaux System—This system is also called ‘units’ or ‘points’ system. It has a guaranteed basic rate like
the Halsey and Rowan Systems. Under this system each minute of Standard Time is expressed in terms
of units or points after a detailed time study. The guaranteed basic wage is paid unto 60 points per hour
scored by the worker. Points earned above 60 are paid at 75–100 per cent of the basic wage rate (the
standard daily rate for the job which is always higher than the minimum guaranteed wage).
Taylorian System—In this scheme, there are two piece-rates: one lower and one higher plus a bonus
paid as a percentage of the time rate. Obviously such a system would automatically discourage low
production and would be installed where the average performance is well below expectations.
Merrick Differential Piece Rate System—Under this system there are three piece rates:
Up to, say, 83 per cent of the standard output—a piece-rate + 10 per cent of time rate as bonus.
Above 83 per cent and up to 100 per cent of standard output—same piece rate + 20 per cent of time rate.
Above 100 per cent of standard output—same piece rate but no bonus.
Gantt Task System—This has three stages of payment:

Below the standard performance, only the minimum guaranteed wage is to be paid.
At the standard performance, this wage + 20 per cent of the time rate will be paid as bonus.
When the standard is exceeded, higher piece-rate is paid but there is no bonus.
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The main objective of this scheme is to raise the performance up to the standard level which is the
task set before the workers.
The Emerson Empiric System—Under this system, standard time is established for each job. The effi-
ciency of the worker is determined by dividing the time taken into the standard time. Up to 67 per cent
efficiency the worker is paid at this time rate and from this point to 100 per cent, a bonus of 1 per cent
is paid for every additional 1 per cent output. At 100 per cent efficiency, a bonus of 20 per cent is paid.
Accelerating Premium System—This provides for a guaranteed minimum wage for output below the
standard. For low and average increase in output above the standard small increments in earnings are
allowed. Increasingly, large earnings are conceded for the above average output, the increment being
different for each 1 per cent increase in output.
Scanlon Plan—The Scanlon plan was designed to involve the workers in making suggestions for
reducing the cost of operation and improving the working methods and sharing in the gains of increased
productivity. The Rucker plan is similar to the Scanlon plan, the only difference being that in the latter
the incentive earnings are calculated on the basis of the ‘value added’ by the manufacturing process. The
Kaiser plan is also like these—a gains-sharing scheme. While the Rucker plan excludes all the supply
and material costs, the Kaiser plan excludes all costs over which the workers have no control.
Halsey Premium Plan—It guarantees a fixed time wage to slow workers and, at the same time, offers
extra pay to efficient workers. Extra pay in the form of bonus is given based on the amount of time
saved by the worker, which is calculated @ 33-1/2 per cent of the time saved. Thus the cost of labour is
reduced because of the percentage premium system.
Rowan Premium Plan—Under this plan, the time saved is expressed as a percentage of the time
allowed, and the hourly rate of pay is increased by that percentage of the time allowed, and the hourly
rate of pay is increased by that percentage so that total earnings of the worker are the total number of
hours multiplied by the increased hourly wages.
While determining performance-based compensation, it is imperative to consider various incentive
schemes, and select the appropriate one, keeping pace with the specific nature of work.
PERFORMANCE-RELATED COMPENSATION DESIGN

Employees are the backbone of any organization. Organizational growth and sustainability highly
depend on the quality of performance of the employees. Performance management system, therefore,
must objectively link the individual level performance of employees with the overall performance of the
organizations. Wages or compensation is the most important vehicle of performance management. Most
of the organizations, therefore, embrace the system of performance-linked compensation for its obvious
strategic dimension. It facilitates compensation cost optimization, as non-performers do not required to
be paid like the performers. Even with higher payment of compensation to performers, organizations
can optimize the compensation cost, as the variables, i.e., the part of compensation payable on perfor-
mance, need not be paid to the non-performers. Moreover, performance-linked compensation system
motivates good performing employees and increases the retention of talents.
The chapter at the outset discussed the performance management basics, delineating it from the
traditional precepts, and then discussed how performance-based compensation design can benefit
the organizations.
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Performance appraisal systems in any organization formally analyses, reviews, and evaluates
performance of an employee in achieving the organization’s mandated objectives. Like any other func-
tion, performance appraisal is also an important human resource management activity. Performance
management, on the other hand, is an integrated process. It sets objectives, appraises employees, trans-
lates objectives into individual key performance areas (KPA), helps in compensation design, and in the
process, benefits the organization to achieve its business goals and objectives. We call it a development
tool, as it facilitates performance improvement, career development, and training. Thus performance
management involves thinking through various facets of performance, identifying critical dimensions of
performance, planning, reviewing, and developing and enhancing performance and related competen-
cies. It is an ongoing communication process that involves both the managers and the employees:
To identify and describe essential job functions and relating them to the mission and goals of the
organization.
To develop realistic and appropriate performance standards.
To give and receive feedback about performance.
To write and communicate constructive performance appraisals.
To plan education and development opportunities to sustain improvement or build on employees’
work performance.
Performance appraisals are bundles of tools used to evaluate the effectiveness or otherwise of a perfor-
mance management system.
To sustain competitive advantage, organizations are not only required to recruit the best fit and sys-
tematically train and develop them, but also monitor the performance of employees and focus on per-
formance improvement through various HR interventions. Globally, it is now well established through a
series of empirical research that performance management is the most important area of an organization
and perhaps has started getting supreme priority now.
BENEFITS OF PERFORMANCE-BASED COMPENSATION

From compensation management point of view, performance management systems help in achieving
following critical goals:
It helps in recognizing the efforts and contributions of employees objectively and thereby facilitates
in effective job pricing, both through cost optimization and rewarding of talented performers.
It facilitates in suitable compensation design, rewarding employees based on the performance linkage.
It supports employee motivation (which leads to increased performance), helping employees to
receive their performance feedback, understanding their strengths and weaknesses. Employees can
develop themselves through self-introspection and thereby feel intrinsically motivated. So also
performance-based pay helps in getting extrinsically motivated. Both the motivational constructs
lead to improved performance.
It facilitates employees to develop their core faculty of goal achievement.
It retains good performers, through competitive compensation design, offering increased flexibility
to earn more, based on performance level.
It attracts good performers from competing organization.
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Introduction of performance-related pay in many organizations is difficult, as it directly conflicts

with the structured pay systems. In many organizations, it is also observed that the violation of prin-
ciple of seniority-based compensation leads to the stagnation of many senior level employees, who get
demotivated for stagnation in their pay scales. Such de-motivation lowers their level of performance
and many such employees gradually leave the organization. Steel Authority of India (SAIL) lost many
of their senior level employees when they launched their voluntary retirement scheme (VRS), for not
getting the seniority protection in pay scales. The same thing happened in case of the State Bank of
India. In both the cases, the private steel plants and the private sector banks got immensely benefitted
for ready-to-use manpower.
Another crude operational issue is designing incentives, aligning with the performance, without
specifying any minimum performance requirement. It means every one become eligible for the incen-
tives, as individual contributions is not factored in designing the compensation. While 100 per cent
factoring of individual performance is not desirable (as it culminates conflicts), total ignorance of it is
also not desirable. Performance-linked compensation in such cases provide for incentives for results
that exceed the stated goals, combining individual, departmental, and organizational goals.
In order to reap the strategic benefits of pay for performance, many organizations limit the increase in
the pay only to bare statutory minimum, while increasing the amount of salary for those who are good per-
formers. In both the cases, compensation decisions are based on realistic assessment of performance. Thus
in such cases, organizations do away with the traditional cost of living and seniority precepts for compensa-
tion design. However, such practices have both advantages and disadvantages. Advantages are it rewards
the merit, improves the teamwork, provides job satisfaction, and finally achieves the desired results. Dis-
advantages are difficulty to institutionalize the systems and monitor it, difficulty in identifying appropriate
performance evaluation tools, and dilution of loyalty of employees (as it ignores the seniority factor).
PERFORMANCE-RELATED PAY
The term performance-related pay (PRP) encompasses several company wide schemes, like employee par-
ticipation and share ownership schemes, etc. and general linkage with the compensation which the employ-
ees get. PRP schemes are designed and administered based on a view of what the businesses needs are. It
often fails to deliver because it is not aligned closely to business strategy. Secondly, performance-driven
compensation can support constant change and performance improvement, but they can’t deliver these
by itself contrary to popular belief. Third, line managers can muddle the process, unless they get the help.
Despite such difficulties in implementing PRP, organizations adopt this. We have listed some of the
important areas, which deserve attention from the organizations, while they implement PRP.
Competition and Cost Control: Performance-related pay enhances corporate performance in a com-
petitive environment. When we link performance and pay together, we also expect employees to behave
accordingly. For example, when organizations compete with customer satisfaction, we expect employ-
ees to focus on this aspect, ensuring quality of goods and services.
Individualization: Collective relationships in a workplace are a common organizational pursuit to

achieve teamwork. PRP is essentially driven by an individualization agenda. We can de-collectivize
the workplace and the employer relationship by individualizing things, particularly through the reward
mechanisms. Also we can use PRP in teamwork, i.e., in social partnership. The problem emerges; when
organizations go for merit only pay increases, i.e., the extreme form of compensation individualization.
Hence, effective PRP requires organizations to balance both the individualization and the collectivization.
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Mismatch with the Strategy: Organizations adopt various strategies, depending on their business
priorities. A common cost minimization strategy requires different range of behaviours. Although there
exist possibilities or co-existence of different compensation programmes for different functions and
divisions in the same organization, time dimensions may conflict with each other. Short-term focus,
individual effort, and so on need to be supported by a compensation policy, which is different from
long-term focus. Hence, effectively organization has to select PRP, keeping pace with the strategies.
Monitoring and Evaluation: This is really important and organizations often lack in this. It is not
enough to just introduce PRP systems; it is also important to understand how PRP actually benefits the
organization. Tracking changes after introduction of PRP through an effective monitoring and evalua-
tion system can do this.
Culture: PRP often runs into conflict with the organizational culture. Organizations, which support
diversity and pursue principles of equity, may not find it easy to implement, as PRP makes differentia-
tion in pay packages on merit criteria. Many organizations give priority on quantitative achievement of
results. However, some functions may demand high quality of performance. Quality cascades custom-
ers’ satisfaction. Again organizations’ compensation culture may assign maximum weights on the fixed
component, reducing variables to a bare minimum. Incentives and other variables also may be at a fixed
proportion, depending on hierarchical levels, independent of functional domains. Hence designing PRP
compatible with organizational culture may again be difficult.
Use of PRP as an Instrument of Management Control: Many organizations wrongly use PRP as an
instrument of management control, pay-roll control, or performance control. But this is not the right
approach. In true sense, an effective PRP can help in empowering employees. But using PRP as a con-
trol mechanism defeats such pursuit. Again in teamwork systems, linkage between the basic pay and
team contribution hardly exists. We have many interesting team performance bonuses and gain sharing
schemes. Thus organizations must use PRP for strategic benefits and not as a tool for control mechanism.
Problems in Monitoring the PRP

PRP clarifies employees what they are expected to do in their jobs. Organizations embracing PRP should
always try to set jointly clear targets and goals, which are stretching, challenging, and achievable. How-
ever, it is also important to make it monitorable. PRP initiatives of organizations often go wrong because
they are too complicated and line managers don’t know how to operate them. Often in organizations line
managers are not communicated properly. Line managers fail to make any connection between the PRP
and the things they need to manage, i.e., their business priorities. Thus to facilitate effective monitoring,
organizations need to train the line managers so that they can understand its basics and job correlation.
In many organizations, it becomes a perennial trade union issue also. Once it is understood properly, it
can be monitored effectively.
Selection of Appropriate Performance

Appraisal Tools
PRP initiatives can also fail due to wrong selection of appraisal tools. Many organizations assign over-
weight to such factors, on which employees hardly have any control. Some of the policies of the organi-
zations may limit the extent of customer services. But such deficiencies may have some adverse effects
on customer satisfaction, onus of which, organizations may wrongly assign to the individual employee,
which PRP systems even stretch to link with the customers’ feedback.
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Perceptual Differences Between the Managers

and the Employees
Employees often perceive senior managers’ compensation is disproportionately higher, hence PRP in
reality deprives them from their genuine pie, and while benefits the senior managerial employees, as
their contributions are more traceable. To obviate such apprehensions, it is essential to communicate to
the employees the mechanism of PRP design, so that they can also trace their contribution and matching
compensation.
LACK OF PARTICIPATION OF EMPLOYEES

IN DESIGNING PRP
In most organizations, PRP is designed by the top brass of the management and then imposed on down
the level. Since PRP system alters the existing compensation structure, participation and involvement
of all cross-sections of employees, line managers, trade union leaders, etc. can truly help. Organizations
can not only get new inputs from all these people, they also feel consulted, and hence they cooperate in
implementation.
Often organizations emphasize on improved performance through financial rewards alone, but this
again is not always right, as we also have other types of rewards. Financial incentives are necessary
but not sufficient to motivate and improve performance. Hence, we must have a stronger link between
reward strategy and business strategy.
We can design PRP either based on individual performance criteria like piece rate wages or collec-
tive performance pay schemes like profit sharing. The empirical literature shows that generally profit
sharing arrangement have smaller productivity effects than piece rate schemes. Also empirically, it was
established that PRP increases productivity of any organization substantially.
COMPENSATION BROADBANDING
USING PMS RESULTS
Systems of broadbanding in compensation design; helps to replace the multiple pay grades and ranges,
and operationally make the compensation administration process much simpler. In organizations with
multiple pay grades, employees reach the compensation progression through time scale (seniority based)
or performance-based promotion or upgradation. The system requires close administration of compen-
sation programme, raising the human resource overhead costs. With broadbanding, however, pay grades
and job titles being less, the process becomes easier, as pay bands can be directly linked with the perfor-
mance of individual employees. Broad banding is not just easy to administer, it also optimizes the cost
of compensation as the employees with less performance, even when work in the same position, may get
less compensation than their peers working in the same level and job. In typical seniority-based compen-
sation design structure, it is, however, difficult to implement for obvious resistance from the employees.
Many organizations still subscribe to the principle of equity in their compensation programme.
COMPENSATION DESIGN THROUGH

SKILL-BASED PROGRAMMES
Organizations that pursue skill-based compensation programmes reward their employees on attainment
of additional knowledge and skills. The underlying philosophy behind this is that on acquiring higher
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qualifications and skills, knowledge of the employees enhances and, accordingly, it exerts positive
impact on their performance. Some organizations, therefore, motivate their employees to acquire higher
knowledge and skill with additional increments or pay rise, as such investment reflects through incre-
mental performance results. With the increased knowledge and skills, employees can also improve their
competencies. To introduce skill-based compensation, at the outset, it is necessary to document the skill
requirements for various job components at different job levels, and make it transparent to employees.
With strong career planning and career development programmes, employees can autonomously under-
stand which skill enhancement programme(s) can help them to get a pay rise. The system can be better
institutionalized when organizations extend training support to the employees to acquire the new skill.
This is also a process of multi-skilling. Employees gradually become competent to perform in differ-
ent cross-sections of jobs. Many organizations have institutionalized the system by recognizing some
qualifications like CAIIB qualification in banks, PhD for college teachers, etc. However, skill-based pay
systems can generate competition among employees. Nevertheless, it ultimately benefits the organiza-
tion to accomplish its performance goals.
MAJOR OBSTACLES TO THE INTRODUCTION

OF SKILL-BASED PAY
Although skill-based pay provides multiple benefits, to introduce it, organizations encounter serious
problems. Some of the major obstacles to introduce the skill-based pay can be listed as under:
Defining skill sets—It is difficult to document the skill sets of a job. Even though organizations can at the
outset document skill sets for a well-defined job, it becomes quickly obsolete. Jobs are getting restruc-
tured every now and then with the changing technology and new product designs, rendering redundancy
of earlier documented skills. Another problem encountered by the organization is to narrow down skill
sets, jobs being highly interrelated. We, therefore, cannot identify job-specific competency differences.
Pricing skill sets—This is another major obstacle in introducing skill-based pay. Effective pricing of
skill sets is seemingly difficult for the organizations. Often we benchmark with the market pricing, but
many organizations may require some unique skill sets for their typical nature of job. In such cases,
price rationalization becomes difficult, as we have to depend on the subjective assessment. Some of
the skill price rationalization criteria could be competitive value of skill, amount and degree of effort
required acquiring the skills, amount and degree of effort required to implement the learned skills in
tasks and jobs, etc.
Validation of skills—This is also difficult to validate some skill sets. For some jobs, we can use job trial
or performance tests to validate the skills and competencies of employees, but for many others, we have
to depend on our hunches and subjective assessment. Hence, to achieve success in implementation of
skill-based pay, it is necessary to introduce a credible skill validation process.
Skill re-certification tests—For some skill sets, it is necessary to ensure that concerned employees are
able to sustain their skill, through a periodic skill re-certification programme.
Skill obsolescence—Technology changes render change of necessary skill sets. This makes earlier
learned skills obsolete, requiring organizations to renew the existing skills through sustained training
and development initiatives.
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High cost of training—To introduce skill-based pay, organizations need to focus on employees’
learning of new activities. Any training and learning initiatives enhance downtime, apart from usual cost
of training. Often the benefits accrue fail to recoup the expenses, resulting in failure of organizational
initiatives. Such possible threat outweighs the benefit of skill-based pay.
Increased payroll costs—Often, skill-based pay increases the overall payroll costs. This, however,
depends on the nature of the job. If the jobs are simple, employees can quickly learn the skill sets
required to perform the job and accordingly can maximize their earnings stepping up production, even
when organizations may require curtailing the same. This problem would be more acute for those orga-
nizations whose production planning is market dependent. It would be difficult for such organizations
to practice lean management or lean manufacturing.
Regulatory bottlenecks—Skill-based pay programmes, among others, require organizations to increase
the variables, which put the pay at risk. Thus, reduced fixed or basic pay at less than statutory minimum
wages may lead to legal complications for average or below average performers, who fail to earn the
variables for their inability to acquire new skill sets.
APPLICATION OF SKILL-BASED PAY

Despite having major obstacles to introduce skill-based pay, many organizations can make best use of
it for all cross-sections of employees, including managerial levels. To successfully apply, organizations
need to design it with technological considerations, so that identified skills do not get quickly redundant.
Identified skill elements should be relevant and accepted both by the employees and the management;
it should be consistent and implemented with integrity. A participative task force should be formed to
look into various aspects, right from development to implementation of skill-based pay. The task force
considers all the issues pointed out in the list of obstacles and then determine the relative value of skills.
The task force implements the skill-based pay in a phased manner.
COMPETENCY-BASED PAY
Theoretically, in today’s organizations we are more used to the term competency rather than skill.
Competency is more holistic, as it aggregates knowledge, skill, and abilities of employees, and even
integrates with the behavioural requirements. Instead of paying for the position and the job title, com-
petency-based pay emphasizes on the job accomplishments, much wider than job efficiency (outcome
of skill only). Competency-based pays directly measure knowledge and skills in terms of criticality
involved, amount of depth in the job content, and the skills breadth.
OBSTACLES IN INTRODUCING
PERFORMANCE-RELATED PAY
A major goal of any compensation programme is to motivate employees to deliver their best.
Resurgence of merit pays, though not new as technique, mainly focuses on employee performance.
Hence, in other words, the traditional merit pay can be termed as performance-linked pay.
However, at the outset, it is important to remember that performance-linked pay or compensation
is not the absolute criterion for compensation design; it can only be said as one of the criterion.
We have discussed all through this book, the various dimensions of compensation determination.
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Relating compensation directly to performance is not so easy. In fact, in some types of organizations
it may not even be desirable. Both the management and the employees need to agree to relate
compensation to performance.
PERFORMANCE GUIDE CHARTS

Organizations develop performance guide charts to introduce performance-linked pay programmes.
Such charts are prepared after performance evaluation and tentatively cover degree of performance,
i.e., the performance rating, recommended rate of increase in different quarters (where organizations
introduce quarterly review of performance), etc.
Notice here that employees have been ranked with a 5-point scale. Each employee’s present
performance ranking has been mapped using this scale and the recommended quarterly raise in the
compensation has been indicated. Also note that employees do not get any raise, when they fail to meet
the expectations. A tentative performance guide chart is presented in Table 8.1 below.
USE OF PERFORMANCE CRITERIA FOR DESIGNING

EXECUTIVE COMPENSATION
Use of performance criteria to design executive compensation, account for measurable performance
targets, behaviour, job requirements, and experience of the executives, job role, peer compensation,
market considerations, and the size of the organization. Table 8.2 clearly explains the same.
These criteria are then studied in the context of the time span and the nature of measurement. Time span
may be long- or short-term compensation. The nature of measurement, on the other hand, accounts for profit-
ability vs. market-based measures, qualitative vs. quantitative measures, etc. (Gomez-Mejia & Balkin, 1998).
CALIBRATION OF EXECUTIVE COMPENSATION

TO PERFORMANCE
The concept of calibrating pay to performance is the ‘market value measure’. On the ‘X’ axis we could
include shareholder value, revenue growth, or other suitable metrics of business performance. The key
Table 8.1 Performance guide charts

Name of the Performance First Second Fourth
Third Quarter
Employees Rating Quarter Quarter Quarter
Mr A Outstanding (1) 15% 13% 11% 9%

Mr B Exceeds 13% 11% 9% No increase
Expectations (2)
Mr C Meets 11% 9% No increase No increase
Expectations (3)
Mr D Meets minimum Token raise No Increase No Increase No Increase
expectations (4) to boost the
morale
Mr E Does not meet No increase No increase No Increase No Increase
expectations (5)
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Table 8.2 Measurement of performance criteria
Criteria Parameters
Performance targets Key result areas (KRA), key performance areas (KPA), key sales objectives
(KSO), or even some protocol-bound performance specification
Behaviour Performance impact
Job requirements Quality of actions in terms of job requirements, or fulfilment of a prescribed role
Experience of the executives Experience, talent, and skills
Job role Hierarchy and the role requirements
Peer compensation Pay differences between the executives
Market considerations Benchmarked compensation information
Size of the organization Large, medium, or small
Nature of the organization Public limited, closely held, family business
to the model is ensuring that the measures being selected are pertinent, so that the right set of behaviours
are being encouraged. To simply say that a particular executive is a high performer may not only be a
sweeping generalization, it may also be in reference to measures that are not currently important to the
organization. A pay calibration model is illustrated in Figure 8.1.
PERFORMANCE MEASUREMENT IN EXECUTIVE

INCENTIVE PROGRAMMES
In most of the organizations, executives are rewarded independent of company performance. Such prac-
tices, in fact, built the argument that executives get rich at the expense of shareholders. Because of
such negative perception, linking executive compensation to organizational performance, shareholders’
value creation has become extremely important. Effective performance measures ensure that executive
compensation is commensurate with performance. Regardless of the industry, there are certain criteria
that incentive performance measures should ideally meet. They should be:
Aligned with shareholders’ interests
Definable
Measurable
High Pay/ High Pay/High

Low Performance Performance
Low Pay/Low Low Pay/High

Performance Performance
Figure 8.1 Pay calibration
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Controllable
Easily communicated and understood
Assessing potential performance objectives against these criteria can help to ensure the appropriateness
of the measure or measures ultimately used.
As an indication of how certain measurement categories stack up, Table 8.3 briefly evaluates
shareholder return-based measures and company-specific measures against the criteria above. Total
shareholder return (TSR) has become a popular performance measurement criterion, particularly for
stock options plan. Some organizations, however, emphasize on other internal financial performance
criteria like ROE, EPS, and EVA.
Against the above criteria, there is merit for both shareholder return-based measures and
company-specific measures.
The important point from Table 8.3 is that in some cases company-specific measures may be more
appropriate than shareholder return measures, particularly in circumstances where executives have very
little influence over the market valuation of their companies. A thorough process, as laid out in the next
section, can ensure that the most effective and appropriate measures are used.
To choose an effective method, organizations need to consider various external and internal consid-
erations to identify the correct performance measures over time.
Some of the external inputs for performance measures could be:
Market practices for short-, medium-, and long-term incentives.
Identify external value drivers to understand the state of the economy.
Understand the relevance of any financial ratios that are generally attributable to industry situation.
Similarly, internal inputs for performance measures are:
Understand the internal value drivers.
Focus on key strategic objectives.
Link the executive behaviour and its relation with the business performance.
Both the internal and external value drivers significantly influence executive incentive payment
decision in any organization.
Table 8.3 Shareholder return versus company-specific measures

Shareholder return-based
Company-specific financial measures
Criteria measures (TSR, share price
(ROE, EPS, etc.)
growth)
Degree of alignment Directly aligned. Indirectly aligned. More emphasis on long-term

value creation.
Definable Yes. Typically definable. More concerned with the
financial reporting.
Measurable Easily measured. Easily measured and can be communicated peri-
odically.
Controllable Somewhat. More controllable.
Ease in communication When properly designed. When properly designed.
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SUMMARY
The purpose of performance-based pay is to strategic benefits like employee motivation and
reward employees for factors other than the value retention. Hence, introduction of performance-
of the job. This chapter discussed the methods of related pay requires the organizations to under-
designing performance-based pay, going beyond stand the basics of performance management
the traditional paradigm of compensation design, systems and its relations to other facets of human
which considers cost of living, and other statu- resource management issues. The chapter also dis-
tory wage provisions. However, the chapter also cussed many other performance evaluation tools,
focused on the possible dangers of designing com- but its selection highly depends on the nature of
pensation, solely on performance criteria, as often organization and its activities. Developing a per-
it may ignore other vital issues of people manage- formance standard for all types of job may be diffi-
ment aspects. It may not be always possible or even cult, despite having advanced mechanisms like bal-
desirable to introduce performance-related pay in anced score cards, competency-based assessment,
organizations. Many organizations embrace the etc. Thus, though it is effective, it requires adequate
system for their cost control, rather to derive the pre-work and feasibility study before introduction.
KEY WORDS
Minimum Wages—Wages, which are need-based education for his children, protection against ill-
and statutorily decided both by the central and the health, requirements of essential social needs and
state government. Payment of minimum wages is a measure of insurance against the more important
obligatory for the organization. misfortunes, including old age.
Job Evaluation—Process of measuring the rela- KRA—Key Result Areas to indicate the perfor-
tive worth of a job to decide the wage rate. mance target of individual employees of an orga-
nization, aligning with the business goals.
Fair Wages—It is the wage, which is above the
minimum wage but below the living wage. Thus ESOP—Employee stock options, offered as
the lower limit of the fair wage is the minimum incentives by the organization to ensure increased
wage and the upper limit is set by the ‘capacity of level of motivation and retention of employees.
the industry to pay’. Assessment Centres—One of the modern meth-
ods of performance appraisal. This method tests
Performance Management Systems—System
candidates in a social situation by a number of
of integrating individual employee performance
assessors, using a variety of criteria. This method
with the organizational performance.
is useful in measuring interpersonal skills, orga-
Living Wages—Wage rate which not only pro- nizing and planning ability, creativity, resistance
vide the bare essentials of food, clothing, and to stress, work motivation, decision-making
shelter but a measure of frugal comfort, including power, etc.
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1. Explain the concept of performance-based 5. Discuss how calibration of executive
employee compensation design. What are its compensation to performance management
significances. systems is practiced in organizations.
2. Explain how compensation broadbanding is 6. What is performance guide charts? How does
done using performance management systems. it help in compensation design?
3. Explain the concept of skill and competency-
based compensation designs. What are its 7. Short Notes
important obstacles? Broad Band Pay
4. Explain the concept of performance-based Compensation Benchmarking
executive compensation design. What are its Employee Rewards
important components? ESOPs

8. A particular organization, engaged in the relatively small competitors, for obvious
business of life-style drugs, already offers competitive compensation package. How-
best of the industry salary rate to its employ- ever, their talent flight has now become so
ees. Due to increase in the inter-industry job acute, the company now decided to go for
mobility, the company has already started introducing performance-based compensa-
losing talented employees. Initially, the com- tion system. You have been retained by the
pany did not give any attention to this issue, company to suggest them the line of action.
as they get skilled manpower from their Give your viewpoints.
REFERENCES
Arthur, J.B. (1994), ‘Effects of Human Resource Bhattacharyya, D.K. (2006), Human Resource
Systems on Manufacturing Performance and Management, 2nd edition (New Delhi: Excel
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Bardwick, Judith M. (1991), Danger in the Com- rial Grid: The Key to Leadership Excellence
fort Zone (New York, NY: American Manage- (Houston: Gulf Publishing Co).
ment Association). Boselie, P. (2002), ‘Human Resource Man-
Becker, B. and B. Gerhart (1996), ‘The Impact of agement, Work Systems and Performance:
Human Resource Management on Organizational A Theoretical-Empirical Approach’ (Thela
Performance: Progress and Prospects’, Academy Thesis, Tinbergen Institute Research Series
of Management Journal, 39(4): 779–801. 274, Amsterdam).
Bhattacharyya, D.K. (2009), Compensation Dasgupta, A.K. (1976), A Theory of Wage Policy
Management (New Delhi: Oxford University (New Delhi: Oxford University Press).
Press). Evans, W.A. (1970), ‘Pay for Performance:
Bhattacharyya, D.K. (2007), Human Resource Fact or Fable’, Personnel Journal, 49(9): 726–29.
Research Methods (New Delhi: Oxford Uni- Guest, D.E. (1997), ‘Human Resource Manage-
versity Press). ment and Performance: A Review and Research
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Agenda’, The International Journal of Human of Management Annual Meetings, Human

Resource Management, 8(3). Resources Management Division).
Gomez-Mejia and B. Balkin (1998), ‘Effective- Pfeffer, J. (1994), Competitive Advantage through
ness of Individual and Aggregate Compensa- People (Boston, MA: Harvard Business School
tion Strategies’, Industrial Relations, 28(3): Press).
432–45. Subramanian, K.N. (1987), Wages in India (New
Huselid, M.A. and N.L. Rau (1997), ‘The Deter- Delhi: Tata McGraw Hill).
minants of High Performance Work Sys- Verma, P. (1987), Labour Economics and
tems: Cross Sectional and Longitudinal Industrial Relations (New Delhi: Tata McGraw
Analyses’ (paper presented at the Academy Hill).
CASE STUDY
Performance-related Pay for Auto India

Performance-related compensation schemes are commonly used by organizations to reward improved
productivity through increased salary or benefits. Often this scheme is misconstrued as indirect man-
agement control systems. Auto India, a leading manufacturer of automobile spares, recently adopted a
bonus scheme, with the basic intention to reap the benefits of increased productivity. This significantly
called for alteration of existing compensation systems, making employees more accountable or respon-
sible for results.
Some of the high achievers of the company, in the succeeding months of new bonus scheme, could
significantly increase their compensation level, while a large number of employees, on the contrary,
faced significant reduction in their compensation package. The company, before introduction of a new
bonus scheme, explained to all its stakeholders the genesis and operational nitty-gritties. Individually, all
the line managers were trained to understand how it works and helps in achieving the business goals.
The company is 100 per cent unionized with representation from two major registered and recognized
unions. One of the union leaders collected payroll information for 6 successive months after the introduc-
tion of the new bonus schemes; its analysis indicated actual compensation costs have decreased over
the period. Both the union leaders jointly issued a notice to the management, explaining their under-
standing of the systems, an extract of which is reproduced below:
Performance-related pay is defined as a variety of systems linking pay to performance. It is based on
the assumptions that the organizations are able to measure individuals, team/unit, and organizational
outputs, as all these contribute to organizational performance. Also it should be administered in such a
way that organizations can capitalize the expected value from the employees who are recipients of per-
formance-related pay. Any performance-related pay initiatives should match with the organizational per-
formance budgeting, duly considering the economic constraints of the organization. Thus, performance-
related pay should attempt a trade-off between various options, taking into account the background and
culture of the organizations.
While designing new performance-related pay schemes, organizations should ensure its accept-
ability to all cross-sections of employees. In the heart of the systems we have the right fit performance
appraisal tools. It should balance the individual and team performance, bring changes in the human
resource management practices, understand the impact on employees’ motivation, develop a culture
of mutual trust, and leverage the organizational change. Organizations, after introduction, should also
ensure its periodic evaluation to understand its success or otherwise.
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We feel that our organization has failed to account for all these issues, leading employees to survive
in uncertainty and suffer from extreme financial hardships. Hence, we oppose the newly introduced
performance-related pay and appeal before the management to revert to the old compensation system,
which follows more the principles of equity, respect seniority, and also assigns some weights on seniority
without harming the collective interests of the employees.
While explaining the genesis of the new bonus scheme, the company did make it clear to both the unions
that the company wants to reward high achievers and differentiate them from others who fail to achieve.
This will enable the company to relate the compensation to market rates and at the same time to moti-
vate those who deliver their best.
Question: As a compensation expert, critically analyse the case and suggest, where the company went
wrong to introduce the performance-related pay?
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CHAPTER 9
Performance-based Career
Planning, Career Development,
and Succession Plans
Learning Objectives
Understand the interrelation between career Understand the importance and significance
planning, career development, and succession of succession planning
planning with the performance management Understand how internal supply of man-
function of an organization power can be strengthened by an organization
Understand the process of career planning through career planning, career development,
Understand how career development ini- and succession planning
tiatives extend support to career planning
activities of an organization
Career Development Through Performance Management

Effective human performance at all levels in an organization is instrumental for its growth. Self-development
and career development through work is now being viewed more importantly, more particularly for the
new generation of workers. There always exist gross incongruences between an individual’s own concept
of career progression and an organization’s own career progression path, barring a few whose goals are
always integrated with the organization’s goals thereby creating an enabling organization. Modern perfor-
mance management systems encompass career planning, career development, and succession planning.
With the technological obsolescence, organizations, on the one hand, are witnessing manpower
redundancy and, on the other hand, the problem of talent retention. To address both the issues, career
planning and development programmes can play a most crucial role. To increase the retention of talented
manpower, organizations make balanced use of intrinsic and extrinsic motivational reinforcers. Thus
to avoid the manpower redundancy for obvious skill and knowledge obsolescence consequent to tech-
nological change, organizations emphasize on career planning and development. Systematic renewal
of knowledge and skill obsolescence of employees through career planning and development helps
the organization to sustain their competitive strength, realize their strategy, and achieve their intended
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goals and objectives. Without career planning and career development, organizations cannot even retain
people, who may be otherwise satisfied with motivational cues. Career planning and development pro-
grammes also support the succession plans, to man future vacancy at higher levels. Many organizations,
as a matter of policy, prefer to man senior positions grooming people from within. Hence, it is always
desirable to develop successors within the organizations for future key positions. Increased job mobility
now reduces the employment span of good performers in organizations. Internationally, it is observed
that the top performers by and large go for job shift within less than 3 years time. This again substantiates
the need for career planning and development activities in alignment with the performance management
systems, as performance results are the most important determinants for such programmes.
INTRODUCTION
Effective performance management system encompasses career planning, career development, and
succession planning. The terms ‘career planning’ and ‘career development’ are used interchangeably
in most organizations. It is also correct that, but for their subtle difference in definitional context, their
process remains the same. We have, however, considered both the concepts more holistically, excepting
some discussions on their meaning.
Similarly, discussion on succession planning remains incomplete without relating the same to
management development and organizational development as succession planning immediately
succeeds it. Moreover, the success of one is dependent on the success of the other.
All the above decisions, i.e., career planning, career development, and succession planning highly
depend on performance management systems prevalent in organizations. Based on performance results,
organizations can chalk out action plans for talent development and talent retention.

Career is a sequence of attitudes and behaviour associated with the series of work-related activities over
a person’s lifetime. We can also define career as a succession of related jobs, arranged in hierarchical
orders, through which a person moves in an organization. Although we perceive career from an
individual employee’s perspective, it can also be organization centred. Thus, career is often defined sep-
arately as external career and internal career. External career refers to the objective categories used by
society and organizations to describe the progression of steps through a given occupation, while internal
career refers to the set of steps or stages which make up the individual’s own concept of career progres-
sion within an occupation. For such two different approaches, in organizational context, career can be
identified as an integrated pace of vertical and lateral movement in an individual’s career. Such inte-
grated approaches are intended to minimize diversity of hopes and expectations of employees matching
individually perceived careers with organization-centred careers.
IMPORTANT ELEMENTS OF CAREER

Analysing the definitional context, it is, therefore, clear that career has the following important elements:
It is a properly sequenced job-related activity. Such job-related activities vis-à-vis experience
include role experiences at different hierarchical levels of an individual, which lead to an increasing
level of responsibilities, status, power, achievements, and rewards.
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Performance-based Career Planning, Career Development, and Succession Plans 189
It may be individual-centric or organization-centric. Individual-centric (internal) career is an

individually perceived sequence of career progression within an occupation. For example, in the
medical profession, we have clearly defined stages of education—internship, residency, hospital
affiliation, or private practice. Similarly, in college teaching, we have stages like lecturership, reader-
ship, and professorship. In industrial occupation, those who get entry in the Indian administrative
and allied services also have such clearly defined stages of career. For example, in Indian ordnance
factories, Class-I officers start at assistant works manager level and gradually rise to the level of
works manager, deputy general manager, additional general manager, general manager, and so on.
These being clearly defined stages of career, an individual before joining such services can very
well perceive his sequence of career progression. But such clearly defined stages of career progres-
sion are not made available for all occupations or job titles both in public and private sectors. In
such cases, individuals nurture their own perceived stages of career progression.
It is better defined as an integrated pace of lateral movement in an occupation of an individual over
his employment span. Individual-centric career being not an objective or at times even realistic
description of career steps in a given occupation, it often goes against the hopes and expecta-
tions of employees as organizations may have a different perceived career plan for the employees.
Integrated approach, therefore, minimizes such dissonance and ensures a mutually acceptable and
satisfying career progression.
MEANING AND OVERVIEW OF

CAREER DEVELOPMENT
Career development essentially means the process of increasing an employee’s potential for advance-
ment and career change. In other words, it is a process of planning the series of possible jobs which
an individual may hold in the organization over time and developing strategies designed to provide
necessary job skills as the opportunity arises. Therefore, career development relates to the readiness for
progression through a series of positions during an individual’s career. Career development may be dif-
ferentiated from career planning and career management. Career development is a systematic process
of guiding the movement of human resources of an enterprise through different hierarchical positions,
whereas career planning is a process of establishing career objectives for an employee (or by the person
himself) and developing planned strategies to achieve them including activities which help in making
choices with respect to occupations, organization’s job assignments, and self-development measures.
Career management, on the other hand, relates to specific human resource management activities, such
as recruitment, selection, placement, and appraisal to facilitate career development.
IMPORTANCE OF CAREER DEVELOPMENT

Every organization needs to provide career development opportunities to its employees. Indian
organizations at present are facing major restructuring problems to keep pace with the economic restruc-
turing programme of the country. Market globalization, technology upgradation, import liberalization,
de-licensing, increased competition together have now prompted Indian organizations to restructure
their production vis-à-vis the organization. Redeploying the manpower, through proper training, in
restructured jobs is one of the important priorities for the organization, particularly for those who are at
the lower level. But employees with matching skill and knowledge now find them in better bargaining
position for increased job mobility. Most of the foreign and multinational companies are now winning
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away the employees with matching skill and knowledge from Indian organizations with better offer of
pay and career. Therefore, poor career development programme may affect an organization at least in
two ways:
High employee turnover, particularly those in their beginning of the career.
Decreasing employment involvement.
Recruitment expenses, training expenses, and reduced performance during orientation (loss of output,
increased wastages, etc.) together add to the cost of employee turnover. Decreased employee involve-
ment also affects functional efficiency and productivity of the employees. Other important reasons for
career development can be listed as follows:
The changing environment is now making jobs more complex. Suitable career development pro-
grammes enable employees to be better prepared for future positions in the organization. It also
gives the opportunity to identify prospective managers from within. Manning vacancies from
within is cost efficient and at the same time the system motivates employees.
Suitable career development programmes will enable the organization to receive maximum contri-
bution from employees. Since this helps employees to enhance their skills for higher positions, both
under-utilization of employees’ potential work energy and their under-employment can be avoided.
Career development makes employees more adaptable to changing requirements of the organi-
zations. Requirements of the organization may either change due to new technology [computer
numerically controlled technology (CNC), numerically controlled technology (NC), direct numeri-
cally controlled technology (DNC), and flexible manufacturing system (FMS)], or new management
philosophy and style (like, Just-in-time manufacturing, Total Quality Management, etc.).
It provides an objective basis to describe the steps of progression in a given organization and,
therefore, minimizes unfair promotion practices of employees reducing the change of ‘promotion
by discretion’. Thus suitable career development programme avoids employees’ resentment on
promotion issues, which has now become a major causal factor of industrial disputes in India.
Most of the organizations are now also manned by women and other minority classes of employees.
Career development programme ensures equitable opportunity for career progression of these
classes of employees also. Thus it meets the requirements of equal employment opportunities for all.
Career development programmes give opportunities to employees to acquire more skills, obtain
desired jobs, share increased responsibility, enjoy scope of job mobility, and derive increased job
satisfaction.
SIGNIFICANCE AND ADVANTAGES OF CAREER

DEVELOPMENT
The significance and advantages of career development both from organizations’ and employees’ view-
points can be summed up as follows:
It reduces employee turnover by providing increased promotional avenues.
It improves employees’ morale and motivation.
It enables organizations to man promotional vacancies internally, thereby reducing the cost of
managerial recruitment.
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It ensures better utilization of employees’ skills and provides increased work satisfaction to employees.
It makes employees adaptable to the changing requirement of the organization.
It reduces industrial disputes related to promotional matters and thereby provides opportunity to the
organization to sustain harmonious industrial relations.
Employees’ loyalty and commitment to the organization can be substantially increased and thereby
organizations can enjoy the privilege of increased employee productivity.
Career development programmes being an objective description of career progression, ensure equi-
table promotional decisions even for women and minorities in an organization.
PURPOSES AND OBJECTIVES OF

CAREER DEVELOPMENT
The purposes and objectives of career development programme, therefore, can be listed as follows:
To attract and retain effective persons in an organization.
To utilize human resources optimally.
To improve morale and motivation level of employees.
To reduce employee turnover.
To practice a balanced ‘promotion from within’ policy.
To make employees adaptable to changes.
To increase employees’ loyalty and commitment to the organizations.
To maintain harmonious industrial relations.
To inculcate equitable employment practices providing equal career progression opportunities to
women and minorities.
TYPES OF CAREER DEVELOPMENT PROGRAMMES

In an organization, there are different types of development programmes to enrich different skills of
human resource. These include organization development, employee development, management devel-
opment, and career development. Organizational development programmes are planned and managed
from the top, so as to bring about planned organizational changes and for increasing the organizational
effectiveness. Management development is concerned with upgrading the manager’s skills, knowledge,
and ability of the employees to enable them to accomplish additional process of guiding the movement
of human resources through different hierarchical levels.
Whatever may be the differences, career development is interrelated with other human resource
development functions.
DIFFERENCE BETWEEN CAREER DEVELOPMENT

AND CAREER PLANNING
Career planning process evaluates one’s abilities and interests, considering alternative career opportuni-
ties, establishing career goals, and planning practical development activities. Thus, from an individual’s
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point of view, it helps in making choices with respect to occupation, organization, job assignment,
and self-development measures. However, organizational career planning is different from individual
career planning, as organizational career plan is a map of sequence of jobs for an employee within the
organization itself, whereas individual career planning is a map of sequence of jobs of the individual
concerned without regard to the organization. Career development process, on the other hand, aims to
increase an employee’s potential for advancement and career change by providing necessary job skills.
Career planning, personnel skills inventories, career information systems, and career counselling
are different career planning activities in an organization. Thus, information of jobs to decide the skills
needed through effective system of job analysis and job descriptions are required. Suitable perfor-
mance appraisal system to monitor performance, clear career goals of employees, effective human
resource planning system, and designated career paths and job families enable career-planning process
to move logically and scientifically. In addition, career planning process being concerned with the
individual employees, an effective information system is necessary to make all these data available to
the employees concerned from time to time. Career development process, on the other hand, calls for
assisting employees in assessing their own internal career needs, developing and publishing available
career opportunities in the organization, and finally aligning employee needs and abilities with career
opportunities.
However, there cannot be an effective career development without career planning in the organiza-
tion. Therefore, career development is an integral part of career planning process as career planning
provides opportunity for assessing occupational and career choice of an employee, his performance
appraisal, and devising a suitable development programme for him. Conventionally in any given
organization, career planning process primarily deals with employees at lower hierarchy, whereas career
development entails objective description of career progression path for all levels of employees.
DIFFERENCE WITH MANPOWER PLANNING

Often career planning is considered synonymous with the manpower planning. Manpower planning,
among other things, provides higher management the data on the inventory of skills and potentials avail-
able in the organization, based on which, expansion, technology upgradation, etc., are undertaken by
the organization. Inventory of manpower resources, manpower needs in terms of number, types, skills,
levels and time, possible changes in functions and activities with the passage of time, desired behav-
ioural or attitudinal changes required meeting the manpower needs, training opportunities, resources,
and training time, etc., are the basic information required for manpower planning.
However, manpower planning also encompasses career development process as the latter provides
the basis of manpower planning by planning the series of possible jobs which an employee may hold
in the organization over time.
DIFFERENCE WITH SUCCESSION PLANNING

Succession planning involves identification of likely vacancies for higher level executives and locating
likely successors to man such vacancies. Career development on the other hand covers employees at all
levels including executives in an organization. Succession planning in reality, therefore, is management
development initiatives for the executives. Career development programme normally considers likely
career progression in a given occupation, while succession planning chart is a ‘runner up chart’ for
higher generalist positions like general manager, managing director, etc., who may be groomed up from
different specialist positions like marketing, production, personnel, finance, etc.
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DIFFERENT STAGES OR CYCLES OF CAREER

DEVELOPMENT PROCESS
In order to design suitable career development programme, it is necessary to understand the different
career stages or development cycles of an individual employee. Actual stages differ from individual
to individual for obvious difference in perceived internal career. However, career development cycle
or stages, keeping in view the general requirements of people at different hierarchical stages, may be
grouped under the following four categories:
Exploratory Stage
This stage starts when a new employee joins the organization. When an employee with his qualification
and knowledge joins an organization, and finds himself in an apparent mis-match condition which can-
not be set right even with induction programmes of the organization, it takes quite some time for him
after thorough training to become adaptable with the organization and more particularly with his job
assignment.
Therefore, it is essential for the organization to sustain the behavioural as well as operational defi-
ciencies to help him to develop in the course of time. The best solution at this stage is to allow the
new entrant to perform some specific job and to confer freedom in functioning. This will help the new
entrant to gradually develop to the requirements of the organization. Some companies even allow the
new entrant to undergo a compulsory job rotation for reasonable time period. The purpose of such job
rotation is to allow the employee to select his preferred job from a wide range of available jobs in the
organization. However, for obvious functional specialties and different educational requirements, such
scheme is not quite successful in Indian organizations.
Establishment Stage
After a new entrant chooses his career from different given alternatives (where such options are avail-
able), he needs to be provided with regular feedback on his performance. Such performance feedback
enables the new employee to understand effectiveness of his performance and at the same time he can
also initiate required corrective action to make good of his functional deficiencies. Performance appraisal
and its feedback have also motivational values as the new employee enjoy a sense of accomplishment
when he gets feedback on his assignment from management and specifically when he understands that
his promotional decision has been taken based on his performance. A successful career development
process at establishment stage, therefore, is important to retain employees in the organization and at the
same time to develop a sense of loyalty and commitment to the organizations.
Maintenance Stage
This is a mid-career stage for employees, who strive hard to retain their established name and fame.
Therefore, at this stage employees need to put their continuous efforts for self-development. For an
organization, career development process at this stage, therefore, calls for renewing and updating the
skills of employees particularly in the context of changing environment to help employees to over-
come their mid-career crisis. In many organizations, absence of career development programme makes
employees in this stage of their career to opt for job switch. Therefore, this stage is crucial and unless
the organization adopts suitable career development programme, it may face high employee turnover,
who are in their mid-age group.
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Stage of Decline
Employees at this stage are being prepared for retirement, get scared from possible threat of reduced
role of responsibilities in the organization. Such complexity is behaviourally associated with the old age
of the employee which, unless set right through suitable career development programmes, may even
render such employees inefficient or mis-fit for the organization. Career development process at this
stage, therefore, should aim at helping the employees to get mentally prepared for retirement rituals,
particularly to prepare them to accept a reduced role and responsibilities, so that they can find them-
selves accommodative with family and society in later part of their life.
ISSUES IN CAREER DEVELOPMENT PROCESS

Edgar H. Schein (1969) suggested the following issues to be considered at different stages or cycles of
career development process.
Exploratory Stage
At this stage an organization should
Ensure the availability of accurate information about the organization and the various occupations
existing in the organization to the new employee.
Create opportunities to enable new employees to get acquainted with the organizational careers
through job rotation, internship, visit to different units, seminars, etc.
Sponsor educational and training programmes for ensuring supply of potential talent in future.
Establishment Stage
At this stage an organization should ensure
Identification of the best possible talent for the organization.
Conveyance of correct and positive image of the organization to the employee.
Maximum learning and favourable attitudes of the employees towards the organization.
Assigning challenging jobs to employees to enable them to test their abilities and skills.
Providing adequate feedback on performance of employees to enable them to assess their strengths
and weaknesses.
Designing of development plan, identification of development needs, deciding next career steps, etc.
Maintenance Stage
This being a mid-career stage, the organization should provide
A continuing process of performance appraisals, feedback, career counselling, long-range career
planning to ensure proper deployment of the employees and also to enable them to feel challenged,
motivated, and committed to the organization.
Strategies to motivate plateaued employees, so that they can be productively utilized even without
promotion.
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Adequate opportunities for transition from specialist cadres to generalist positions at higher
echelons of the organization.
Adequate career-paths to enable employees to accommodate their personal and family needs, espe-
cially during critical phases of their life or family cycle.
Help employees to adjust to their changing role as their career shifts from active (operational) posi-
tions to advisory positions.
Help employees to prepare for retirement.
Decline Stage
This being a stage of separation, the organization should try to
Manage retirement without destroying the employees’ sense of self-worth.
Invent new and creative part-time roles for retired employees who can use their knowledge, experi-
ence, and wisdom.
At every stage of the career, employees also make an effort to develop their own information sources.
They analyse the feedbacks on their performance, seek opportunities for development, study the career-
paths available to them and provide organization details of their perceived needs, goals, and ambitions.
Thus career is as much the responsibility of the individual employee as it is the responsibility of the
organization.
CAREER ANCHORS
Career anchor is a syndrome of talents, motives, and values, which gives stability and direction
to a person’s career. Such talents, motives, and values give shape to certain attributes, which an
individual derives from his/her early experiences and which help him to conceptualize his/her own
perceived career. This perceived career anchor, therefore, often goes against organizational career
plans and thus, employees develop a sense of dissonance or incongruity about their career plans.
Many organizations, therefore, try to identify perceived career anchor for their employees to develop
matching career development programmes. Many empirical studies have so far been carried out to
identify the perceived career-anchor of different type of employees. Edgar H. Schein, summing up
the findings of empirical study on management graduates, identified five such career anchors for
employees.
Managerial Competence
This competence is a fundamental characteristic for those who prefer to rise to the top. Such employees
were found to have the following three areas of competence:
Interpersonal Competence: They have the ability and desire to handle a variety of interpersonal and
group situations. They exhibit leadership skills, resolve group conflict, and also feel at ease to tackle
unfavourable situations to their advantage.
Analytic Competence: This competence helps such employees to identify problems, analyse the same,
and develop situations to resolve the problems. Analytical skill being an important prerequisite for
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the success of managers, such competence naturally makes such employees befitting for managerial
positions.
Emotional Competence: Employees bestowed with such competence can bear high levels of respon-
sibility and even can afford to remain cool in difficult situations, which makes them competent to exert
leadership powers without much of a problem. Such competence develops empathetic skills in employ-
ees which develop a matured decision-making power even in situations of crisis.
All these competence together develop a matured personality in employees making them suitable for
managerial positions in an organization.
Technical/Functional Competence
Persons with such competence prefer to remain in technically satisfying jobs than rising to the higher
managerial level. Such technically satisfying jobs may be either engineering, systems analysis, or even
different functional areas of management like finance, personnel, marketing, etc. In manufacturing
units, some executives always prefer to remain in shop-floor as they derive satisfaction from such jobs
rather than general managerial jobs at higher echelon of management. These types of people are com-
mitted to the profession and consider their work as primarily important rather than the benefits and/or
future prospectus.
Security and Stability

Employees who are anchored in this competence will always get motivated for a career which ensures
job security and/or long range stability in the form of good retirement programmes. This type of people
get motivated only when they are ensured a stabilized career situation which may not even at times be
fitting to their level of knowledge and skills and even they may subordinate some personal needs (for
example, acceptance of less pay and amenities) to satisfy their perceived security. Effecting transfer and
promotion for this type of employees is quite difficult. Most of the employees under such category may
be identified in government and public sector undertakings.
Creativity and Challenge

People with such syndrome are very small in numbers. They always venture for starting their own busi-
ness to become an entrepreneur more for creating something new to have their own identity than for
making money. Such type of people when employed in an organization always want to be functionally
autonomous to exercise their own special talents and they have craving for independence. Such type of
employees being anchored for creativity and developing something new, they should always be given
challenging work assignments and scope for their identification through innovative product design.
Freedom and Autonomy

There are some people in the organization who always like to work at their own pace. Organizational
constraints like fixed working hours, lack of variety of work, defined working conditions, etc., pre-
vent them from becoming functionally autonomous and independent. Such people, due to absence of
freedom or independence in their organization, often leave the job to start their own consultancy and
freelancing. Teachers, professors, advertising professionals like artists and copy-writers, management
consultants, etc. fall under this category.
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Other Anchors
The complexity of behavioural parameters has of late identified some other career anchors which we
find is very much related to different occupations. A separate class of people may have a strong craving
for identity. Those who are in military organization get such identity as their occupational title, which
they use as prefix to their names, like, Major, Col, Brig., etc. Such identification is so visible that they
get special uniform matching their levels in the organization. Affiliate needs and interpersonal talents
to work for a cause is yet another anchor which we find in some persons. The search for power, influ-
ence, control, and job variety are examples for other career anchors which people try to achieve in their
occupational roles. Knowledge of this career anchors are essential for any organization to plan for career
development. Each employee who nurtures specific career anchors (internal motives and values), should
make it explicit to the organization so as to find matching occupational role without much of behavioural
dissonance. Such matching process, therefore, is the principal task of planning for career development.
CAREER DEVELOPMENT AND EMPLOYEE

EMPOWERMENT
Employee empowerment is defined as an extension of employee participation vis-à-vis involvement.
Such definition of empowerment is more explicit when we review the contribution of Judith Bardwick
(1991), who states that empowerment means giving everyone, instead of just people with certain posi-
tions or certain job titles, the legitimate right to make judgements, form conclusions, reach decisions,
and then act.
Some career development process ensures promotion of employees from one career path to another.
It gradually makes them independent functionaries at later career stages. Such system, therefore, often
makes managers uneasy to open up the organizational planning process to individual employees. On the
contrary, it will also develop a sense of misgivings as they may not really believe that the organization
is truly opening up its planning process to them.
ISSUES INVOLVED
The following issues need to be considered to empower employees through successful career develop-
ment process.
Commitment of the top management to ensure that organizational career planning process will
adequately consider individual career planning (which are internally perceived by the employees).
People need to be infused with a sense of confidence to enable them to work to their true potential.
Basic information like mission of the organization, its objectives and plans, career opportunities,
etc. need to be communicated to the people.
Available career planning resources in the organization should also to be communicated to the
employees from time to time.
The organization should help employees to make them competent to sort out data, formulate goals,
and overcome obstacles to realize the goals.
Employees also need to be communicated about the status of their present position, organizational
expectations, and their level of performance.
Individual managers should support their employees in career planning.
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The organization should be responsible to the individual career plans adopting an integrated career
development process, which accommodates both individual needs and organizational needs.
It is, therefore, amply clear that career development process can be successfully utilized as an empower-
ment tool by any organization if the above issues are duly taken care of.
INDIAN SCENARIO
In India, most of the organization seriously lack in scientific career development scheme for employ-
ees working at various levels. For absence of such objective schemes, career development as promo-
tional decisions often suffer from managerial discretion causing employee unrest and unfavourable
industrial relations situation. In some organization career development for employees at higher echelon
are all along existing, making such occupation group entitle for career development on regular basis.
Such organizations even do not have effective career development schemes for employees down the
level where such decision, as mentioned above, are exerted by managerial discretion. This difference
in career development approach, therefore, demotivates employees and, even at times, stands against
successful empowerment from which an organization can otherwise reap motivational benefits and
increased functional effectiveness and productivity.
CAREER PLANNING AND CAREER

DEVELOPMENT PROCESS
The dynamics and complexities of career development process have been made amply clear through
earlier discussions. It is clear that career development process cannot be undertaken in isolation. Some
issues are to be taken care of by the organization itself, while some others are concern the individual
employees. Thus an improved career planning process is the joint responsibility of both the organiza-
tion and the employee. Internal career needs (of individual employee), therefore, need to be integrated
with the external career opportunities (of the organization). Unfortunately, organizations do not inter-
act with the employees to understand their perceived career needs, instead they depend on guess-
work to assume the needs, motives, and anchors and move them around on discretion. Such practices,
therefore, lead to employees’ dissonance. Thus, for having good and improved career development
process, it is necessary both for the organization and the employees to understand each other’s needs
and opportunities.
INTEGRATION OF CAREER DEVELOPMENT PROCESS

WITH CAREER STAGE AND FAMILY ISSUES
Since career development process is a continuous one and encompasses the entire employment so also
the life span of an individual. It should also examine how the work, reward system, etc. can be inte-
grated with the personal and family issues of the employees at different career stages. Most of the orga-
nizations experience mobility or job switch of executives at their maintenance or mid-career stage. This
is because most employees at this stage experience structural changes or life plateauing for absence of
adequate career paths, which can accommodate their personal and family needs.
At this career stage, promotion and outstation transfers of employees often invite problems, unless
such decisions of the organization are favourable to the employee’s family. Moreover, at this career
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stage, employees prefer to have an advisory role. All these aspects, therefore, deserve adequate
attention of the organization, while it works out a career development plan for employees who are at
their mid-career.
DEVELOPING CAREER PATHS COMPATIBLE

WITH CHANGING NEEDS
Career development process should be made compatible to the changing needs of the employees in their
life cycle. This calls for creating flexible opportunity structures and career paths to enable employees to
identify them with such role positions at different stages of their life-cycle. New employees should have
adequate opportunities to gain on-the-job knowledge and experience, so also to undergo training and
education programmes for enriching job skills. The organization, therefore, needs to identify suitable
role positions for such employees, who are at their beginning of career stage. Similarly, organizations
should have adequate provision for renewals and updation of knowledge and skills for old employees,
particularly in the context of changing environment, so that they should not lose their self-worth. For
such employees, this is also to be followed by active pre-retirement planning and counselling so as to
enable them to accommodate nicely with their family and society.
Improved career development process should also appreciate changing social values with respect to
work, life, and leisure. Work, per se, is differently perceived by different people. For some, it is a source
of self-fulfillment, creative pursuit, future growth and development, rising to the higher corporate ladder,
etc. Different employees are at different places in the Maslow’s Hierarchical Needs ladder. Hence, dif-
ferent yardsticks should be employed for each employee depending upon his/her perception of values.
Education and occupational mis-match need not always be for reasons of non-availability of match-
ing jobs but for reasons which may be for perceived values of the individual. Many educated persons
may opt for low profile artistic or craftsmanship jobs purely to derive creative satisfaction. Similarly,
there are people who give more priorities for such work which do not demand much of their time and
effort. These people give more importance to their leisure time activities (hobbies, drama, music, etc.)
to seek self-satisfaction.
Career development process, therefore, should consider these aspects, or otherwise, the whole exer-
cise will suffer from the problem of employee dissonance.
STEPS OF CAREER PLANNING PROCESS

Career planning process involves different activities or steps in an organization. Such steps are listed
below.
Preparing Personnel Skills Inventories

The first step is to prepare personnel skills inventories. Such skills inventory is an information system
which contains data on employees’ skills and career goals. In addition, there are required data banks,
which provide the following information:
The organization structure and the persons manning different positions in the organization, their
age, education, experience, training and career goals, status, and duties and responsibilities.
The performance record and ratings, interpersonal abilities of the employees.
Their preferred location, desires, and constraints.
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Whether the present strength is short or surplus to the requirements. If it is short, the extent of short-
age at different levels and the organizational resources available to make good such shortages in
future. If it is surplus, the measures available to redeploy them through proper restructuring.
Future requirement of manpower for expansion or diversification of the company or for natural
wastages like death, disability, retirement, discharge and dismissal, resignation, etc.
In most of the organizations, such information are computerized and periodically reviewed and updated.
After preparation of personnel skill inventories and additional data, it is necessary to develop career
paths for employees.
Developing Career Paths

Career paths are logical mapping out of jobs, which represent a potential progression tract that an
employee may follow over time. Such mapping of job progressions is done in the form of career
ladders clubbing together similar lines of occupations in job families. Job families are groups of
homogenous jobs, i.e., jobs with similar characteristics. An illustrative model of career paths for mar-
keting jobs is presented in Figure 9.1, which shows a simple job ladder.
While Figure 9.1 shows the career progress track in a marketing department, Figure 9.2 illustrates
the model of career paths for a production department. However, in all cases, career paths are not so
simple. For example, in manufacturing jobs for having multiple feeder posts at the lower level, career
paths are more complex than the earlier one. For successful mapping out of career paths, at the outset,
it is essential to identify the job families. After such identification, requisite skills for all the posi-
tions along with these paths need to be determined. This helps in developing such skills in employees
where these are deficient and selecting the person with such skills for the different positions in the
General Manager (Sales)
Sales Manager Sales Manager

Domestic Sales Institutional Sales
Officer Officer
Domestic Sales Institutional Sales
Executive
Domestic Sales
or
Institutional Sales
Figure 9.1 Career paths for marketing jobs
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Work Manager
Assistant Manager Assistant Manager

(Production) (Maintenance)
Jr. Works Manager Jr. Works Manager Jr. Works Manager Jr. Works Manager
(Assembly) (Spares) (Machine Repair) (Electric Repair)
Supervisor Supervisor Supervisor Supervisor
Operators Grade-1 Operators Grade-1 Operators Grade-1 Operators Grade-1
Fitter Turner Welder Machinist Fitter Machinist Turner Cable Man Jointer
Grinder Machinist Miller Fitter Grinder Welder Electrician AC Plant Mechanic
Figure 9.2 Career paths for production department
organization. However, the most distinguishing feature of career paths is that it need not always be
linear or straight. Similarly, it also does not always indicate upward movement in the organization’s
hierarchy. Some organizations often re-designate employees at the lower level only to prepare them for
future promotion. For example, highly skilled workmen may be re-designated as master craftsmen in
a manufacturing organization without any effect on their pay packets only to elevate them gradually to
supervisory positions later. Thus, lateral movement within the levels is also a distinguishing feature of
career paths.
Put the Right Man at the Right Place

The third step in career planning process is to identify suitable employees who have the ability, poten-
tial, and willingness to take up higher responsibilities and rise to the organizational ladder. For this, most
of the organizations have performance appraisal and merit-rating systems. This system enables organi-
zations to compare the performance measures of different individuals in terms of job requirements and
help in identifying training requirements, selecting for promotions, providing financial rewards, etc.
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Impart Training
Subsequent steps in career planning process are the framing and implementation of training pro-
grammes. Training programmes are so designed, that it can meet the skill and knowledge gap, as could
be identified through the performance appraisal process. Those organizations which witness the crisis
of regular renewal to cope with the changing environment need to emphasize more on career planning,
else they may face the crisis of manpower obsolescence. Most Indian organizations today impart train-
ing to their employees on quality circles (small group activities), value engineering technique, total
quality management principles, ISO: 9000, etc. Most Indian organizations today impart training to their
employees on quality circles (small group activities), value engineering technique, total quality man-
agement principles, ISO:9000, etc.
Review and Counsel

In addition to the above, career planning process is also concerned with developing suitable promo-
tion and transfer policies, periodic review of career development plans, and career counselling. Career
counselling provides guidance to the employees on occupational training, education, and career goals.
Succession Planning
Growth and survival of the organization are the responsibilities of the top management. To fulfill such respon-
sibilities each organization needs to plan management succession. Succession planning is done in different
time frames to ensure the availability of right managerial personnel at the right time in right positions for
continuing organizational vitality and strength. Most of the organizations plan for immediate requirements
matching with their budgets and business plans. This short-sightedness leads them to an alarming situation,
when they find shortage of managerial manpower to man different positions in the organization, resulting in
organizational collapse. To avoid this, good organizations try to make succession planning in three different
time frames, i.e., immediate (within 1 year), intermediate (1 to 5 years) and long-range (beyond 5 years).
Prevailing managerial attitude, i.e., a potential threat from successor, which may not sustain the desire of the
managers to cling to their chairs, also stands against the success of the succession planning.
Steps of Succession Planning

The first step is to prepare and develop a management staffing plan for all anticipated needs in different
time frames. For important positions at the top managerial level, such planning should be done even for
shorter duration, keeping in view the potential threat from eventual natural wastages (death, disability,
premature retirement, etc.) and so also from job switch and change (which has now increased many
times for obviously enhanced scope of job mobility.) Other effects of external factors like, economic
factors, overall manpower factors should also be considered while making such plan. Each organization
has to review their business plans. Effects of such plans on managerial needs also need to be studied.
The second step is staffing and development. Staffing is concerned with recruitment, selection, and
placement. Selection and placement may be either done from outside or from within the organization
through promotion and transfer. Development of managerial personnel are done through training, job rota-
tion, creating ‘Assistant-to’ positions, projects and boards assignments, performance appraisal, counsel-
ling, and guidance. In many organizations, management adopts what they call grooming process for filling
up important managerial positions. A manager is ‘groomed’ by giving temporary assignments, attaching
him/her with the higher officer or sometimes designating the potential promote as ‘officer on special duty’.
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The third step is to ensure congenial organizational environment to retain the desired managerial
personnel. Unless this is done, the whole exercise of developing a successor may have to be repeated.
The fourth step is to develop a good performance appraisal system to get feedback on managerial
performance and to review their progress and shortfalls.
The final step in the succession planning is the preparation of management resource inventory.
Such inventory contains details of personal data, performance records, skills, potential, career goals,
and career paths of managerial personnel. To make the succession planning process effective, it is
important to strengthen it through management development programmes. It is a scientific training pro-
cess for managers and executives to enrich their knowledge and skills, so as to make them competent to
manage their organizations effectively. Unlike general purpose training, management development pro-
grammes aim at developing conceptual and human skills of managers and executives through organized
and systematic procedure. Apart from training, management development programmes in organizations
also make extensive use of job rotation, creation of assistant-to-position, assignment of identified suc-
cessors to various boards and projects, etc. Finally, organizations also undertake the strategy of organi-
zational development to bring about planned changes from the top for developing the future managers.
PMS CAREER PLANNING, CAREER DEVELOPMENT,

AND SUCCESSFUL PLANNING
We have already discussed about intrinsic motivation of managerial level employees and also to ensure
their retention. Organizations globally are now making use of career planning, career development, and
succession planning. This is particularly important for managerial level employees. Many organiza-
tions have their own structured career plans or career progression path. Employees depending on their
level of performance rise through the career ladders. However, today’s business volatility has increased
the pace of job mobility, particularly for those who are excellent performers. Effective performance
management systems can track such excellent performers and can further nurture their talent using vari-
ous human resource development programmes. Career development is in fact facilitating the employ-
ees to rise through the ladders, acquiring higher skills, and knowledge. Through succession plans,
organization can identify the successors for future managerial positions, and accordingly can develop
them through various human resource development initiatives. In all these cases, performance man-
agement systems play the most crucial role, as it systematically tracks the potentiality of people and
accordingly can develop them so that organizations can sustain competitiveness with the best possible
human resources.
SUMMARY
Career planning and development is a holistic both the terms more in general, rather than spe-
approach for objective description of career pro- cific. Since availability of internal manpower for
gression path for all levels of employees in an manning present and future vacancies is extremely
organization. Even though the two concepts are important for an organization to address to either
used with different connotation in some organiza- planned strategic move or uncertainties, without
tions, like career planning for non-executive level career planning and development, performance
and career development for executive and mana- management systems becomes meaningless and
gerial levels, for our purpose, we have considered shortsighted if it only focuses on operational issues.
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Retention of the key performers is an impor- appropriate succession planning, or else this may
tant strategic issue for organizations. Retention is jeopardize organizational plans. Succession plan-
best ensured for those organizations that have a ning succeeds management development and orga-
well transparent career planning and development nizational development. Performance management
initiative. Similarly for internal manning of mana- systems in organizations reinforce career planning,
gerial vacancies, organizations should also have career development, and succession planning.
KEY WORDS
Career Planning—A charted career progression potential successors among employees for future
path for various categories of employees in an managerial positions.
organization. Employee Empowerment— Process of involv-
Career Cycle—Career development stages of an ing employees in the decision-making and other
employee, more related to age group and promo- activities of an organization.
tional levels. Career Plateauing—Blocking of career progres-
Career Development—Process of creating sion path of an employees, either due to indi-
opportunities for employees to rise through the vidual employee’s incompetence or due to skill
career progression path. or knowledge mismatch with the organizational
Career Anchors—Career anchor is a syndrome requirements.
of talents, motives, and values, which gives stabil- Career Paths—Career paths are logical mapping
ity and direction to a person’s career. out of jobs, which represent a potential progres-
Succession Planning—Process of identifying sion tract that an employee may follow over time.

1. What is career development? Why is it management systems of an organization to
important for an organization? Does it differ track the career planning, developing, and
from career planning? succession planning?
2. Do you think career planning should be indi- 7. Performance aligned career plans create a
vidual centric or organization centric? Briefly win-win situation both for the individual
discuss the career planning programme of an employees and for the organizations. Do you
organization you know. agree with this statement?
3. What are the factors you consider important 8. Short Notes
for successful career planning? (a) Career plateauing
4. Discuss the important steps in career plan- (b) Career ladders
ning process? (c) Job families
5. Define succession planning. Enumerate the (d) Skill inventories
steps involved in succession planning. (e) OD intervention
6. Discuss why it is important for performance (f) Succession plans
M09_9788131754221_C09.indd 204 5/17/2011 12:14:44 PM


7. A knowledge intensive research and devel- services to draw a performance aligned career
opment organizations, engaged in contract development systems for their scientist. Sug-
research in pharmaceuticals, retained your gest how you will go ahead with the job?
FURTHER READING
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Association). December, 4(2): 97–105.
Ball, Kirstie (2000), ‘Interface Value’ People Bhattacharyya, D.K. (2001a), ‘Impact of Labour
Management, January 6, pp. 40–42. Earnings on Productivity’, Management and
Bhattacharyya, D.K. (1988), ‘Impact of Technology Change (New Delhi), January–July.
on Human Resource Management’, Personnel Bhattacharyya, D.K. (2001), ‘Managing Manpower
Today, January–March. Redundancy—A Strategic Human Resource
Bhattacharyya, D.K. (1993), ‘Promotion from Manager Approach for Rightsizing Employees’,
Within—A Positive Motivational Reinforce in Contemporary Trends on Human Resource
for White Collar Employees’ (a study on com- Management (Kolkata: SAS Consultants),
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Bhattacharyya, D.K., (1994), ‘Employees Leasing Management, 2nd edition (New Delhi: Excel
and Labour Market Flexibility—An Empirical Books).
Study of Its Problems in Selected Manufactur- Carl, C. Hoffmann, P. Kathleen, Hoffmann and
ing Units’, Indian Journal of Labour Economics, Emily, D., Eason (1992), ‘Complexities of
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Bhattacharyya, D.K. (1995a), ‘Employees November, pp. 49–57.
Empowerment—A Study of Selected Banking Carnegie Mellon University, Software Engineering
Organization in India’, in HRD Repositioning Institute (1995), The Capability Maturity Model
(National HRD Network, Conference Volume), (Addison Wesley Longman, Inc.).
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Bhattacharyya, D.K. (1995b), ‘Corporate Body Wave,’ Fortune, 26 September, pp. 77–82.
Builder—The Emerging Role of HRD Profes- Drucker, P.F. (1989), The New Realities (New
sionals—A Prescriptive Model for Success’, York, NY: Harper & Row), p. 175.
Indian Journal for Training and Development Eric, G. Flamholtz (1974), Human Resource
(New Delhi), April–June. Accounting (California, CA: Dicken Son Pub-
Bhattacharyya, D.K. (1995c), Manpower Obso- lications Co., Inc.).
lescence (a study in Indian ordnance fac- Ellen, Enst, Kossek, Willard Young, Debra C.,
tories, international Congress on economic Gash and Nichol Victor (1994), ‘Waiting for
transition with human face, Indian Indus- Innovation in the Human Resource Depart-
trial Relations Association, New Delhi, ment—Godot Implements a Human Resource
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Bhattacharyya, D.K. (1995d), Career Planning agement, 33(1): 135–59.
and Development (Kolkata: IIMS). Fombrum, C., M.T. Noel and A.D. Marry, (1984),
Bhattacharyya, D.K. (2000) ‘Competency Map- Strategic Human Resource Management (New
ping and Manpower Redundancy—A Macro York, NY: John Wiley).
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Falicia, Nathan (1987), ‘Analysing Employers’ in The Handbook of Human Resource Manage-
Costs for Wages, Salaries and Benefits’, Monthly ment (Cambridge, MA: Blackwell Publishers).
Labour Review, October pp. 3–10. Robert, E. Sibson (1992), Strategic Planning for
Hal, Glatzer (1995), ‘HR Systems Get Reengi- Human Resources Management (New York,
neering’, HR Magazine, July, pp. 44–47. NY: American Management Association).
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Lumley, John Morgan, and Mick Silver (1983), Role in Organizational Development (Reading,
Manpower Planning (New York, NY: John MA: Addison-Wesley).
Wiley & Sons. Steven, A. Larson (1993), ‘Selecting a New Pay-
John, Bramham (1994), Human Resource Planning roll/HRIS’, Management Accountant, October,
(Hyderabad: University Press (India) Limited). pp. 28–31.
Martin, Godfrey (ed.) (1997), Skill Development for Walker A.J. (1980), ‘A Brief History of the
International Competitiveness (Cheltenham: Computer in Personnel’, Personnel Journal,
Edward Elgar Publishing Company). 16: 33–36.
Michael, J. Kavanagh, Hal, G. and Scott I. William P. Antony, (1991), Strategic Human
Tannenbaum (1990), Human Resource Infor- Resource Management (Hinsdale, Illinois:
mation Systems: Development and Application Dryden Press).
(Boston, MA: PWS-Kent Publishing Company). William, E. Berry (1994), ‘The Human Resource
Paul, Miller (ed.) (1992), ‘Integrating Strategy and Information System’, Management Accountant,
Human Resource Management in Brian Towers’, January, pp. 56–57.
CASE STUDY
Sun Microsystems—Career Development Opportunities

In a rapidly changing work environment, talent retention is a great challenge for any organization. Without
retention of talent organization cannot sustain in competition. Creating career development opportunities
for the employees, companies can achieve success in talent retention. By aligning career development
with the individual employees self-development, organizations can get better results in talent retention.
Sun Microsystems, the arch competitor of Microsoft, right from their beginning (formed in 1982)
faced a major crisis of recruitment and retention of talents. The young entrepreneurs of Sun, right from
their beginning promoted the culture of innovation. Innovate and create the future; this is what Sun till
now subscribes to. Today Sun boasts to possess the most talent workforce of 30,000 and operate from
55 countries with $10 billion revenue. With its global headquarters in Palo Alto, California, the company
is a global leader in enterprise network computing, with its products ranging from Java, workstations, and
servers to other software services, with almost $10 billion in revenues.
The company follows the product-based divisional structure. Even though the product divisions func-
tion independently, they are well aligned. Each product division gets the support from the corporate
resources group in human resources (HR), finance, legal, and IT services. At Sun, HR always empha-
size on value addition, keeping pace with the change. Three C philosophy of Sun’s HR is competitive
workforce, competitive organization, and competitive workplace. To realize three C, Sun’s HR promote
the culture of career development, financial opportunity, work variety, and commitment to people. Career
development programme at Sun gets the highest priority, as the company works in a fast-changing
environment, and employees always need to learn new knowledge and acquire new skill to rise through
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the career ladder. Every employee of Sun knows their defined career paths; the company plays the role
of catalyst with their ‘figure it out’ career development programmes. Sun believes in career; employees
must feel self-reliant.
With a free agency model of employment relationship, Sun believes career development is the
employees’ responsibility; organization can only play the role of catalyst, i.e., providing support and
growth opportunities. The career services programme of Sun through several career action centre coun-
selors support employees’ career development. For Sun, career development is a long-term commit-
ment. Sun’s approach to career development started in 1991 with a built-in philosophy that career is
employees’ primary ownership; organizations can only extend support.
With continuous career development support, the company today benefits all cross-sections of
employees. Career action centre’s prime responsibility is to help employees to explore their career
opportunities, develop their attitude to rise through the career ladders, and support the employees to
realize their career aspirations.
Question: Study the career development systems in Sun and critically comment when the system is
worthwhile in today’s scenario of competition?
Adapted from: http://www.elsdon.com/case.htm.
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CHAPTER 10
Team Performance Management
Learning Objectives
Definitions and concepts of a team Work wheel and team performance
Principles of team performance management Measuring team performance
Methodology of team performance management Managing team performance
Types of teams Different stages of teamwork
Approaches to change team behaviours Team building exercises
Developing Team for Effective Performance

Developing team performance culture for one of the public sector banks in India was a major problem.
Besieged with high NPAs and reducing corporate clients have adversely affected the bank’s profitability,
and even in some of their product-mix, they have badly underperformed over the years. It was at this
stage, the bank had to initiate major restructuring of the work processes, and teamwork was one of their
priority areas. At the initiate stage of implementation, the major problem was to make the employees buy
the idea of teamwork, as the work systems are based on individually assigned job description, and every
employee is responsible for his/her part of job. Any financial loss for decisional errors makes the employ-
ees personally liable, and they need to make good such loss. This resulted in many bank officials losing
their pension, gratuity, and some had even to go for premature withdrawal from their provident fund
account to make the payments. Teamwork makes them collectively liable, but results are much better.
Realizing such infeasibility in institutionalizing the teamwork culture, the bank thought of restructuring
their work processes and introduced the incentive scheme for incremental business results. All cross-
sections of employees were taken through rigorous teamwork sessions and they were made to believe
that they are working to achieve a common goal. Through simulated exercises and business games,
they were convinced how a collaborative teamwork can significantly enhance their performance levels.
For the specific nature of banking services, the bank went for developing cross-functional teams. Every
employee of the bank, irrespective of their nature and level of activities, was exposed through the entire
banking operations. The relationship managers and executives were given the role of manning the
counters for customer services, the customer service people were taken through the field marketing
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Team Performance Management 209
duties. This process could make them understand each others roles and gradually they started working
together, forgetting their functional boundaries. The entire process worked well and within a year of its
implementation, the bank started getting better results. Team leaders were chosen by rotation, irrespec-
tive of their hierarchical level. They were given the freedom and autonomy to decide their targets, form
the team norms in line with Tuckman’s (1965) stages of team formation, i.e., forming, storming, norming,
performing, and adjourning.
Successful implementation of teamwork in the bank not only increased the performance level of
employees but also increased their earnings in the form of incentives and reduced the decisional errors.
INTRODUCTION
Organizational performance depends on factors like strategy, structure, technology, type of people
employed, and management style. Among all these, however, people factor or the behaviour of individ-
ual employees is most crucial. It is the people who make their contribution to achieve the expected level
of performance at the individual, group and at the organizational level. Various researchers on team
performance like Burns and Stalker (1966), Morgan (1993), Weber (1964) could relate the employees’
performance to the structure of the organizations. Herzberg (1968), McClelland (1988), Maslow (1943),
Roethlisberger and Dickson (1964), and Taylor (1947), however, focused on what motivates the indi-
vidual worker. However, the arguments on organizational down-sizing or right-sizing emphasize on
the empowerment of workers (Conjer, 1993; Moss-Kanter, 1993; Drucker, 1988; and Tjosvold, 1991).
Interdependence between individuals emphasizes on the work of the group (Smith et al. 1994) and the
work of the team. Brown (1995) emphasizes on the trend in pointing out the rapid growth in group-
based rewards as opposed to individualistic-based reward schemes. Likert’s (1961) linking pin theory
sees its expression in these ideas that everyone is part of one or more teams, whether production or
service oriented or part of the management.
Team performance enhances the organizational performance, as all the team members pursue the
common organizational goal, and their collective efforts give the benefit of synergy. Successful team
performance is attributable to positive teamwork and attitude of the team members. Team members
when work in a team pursue two roles, i.e., their individual functional roles and their roles as team
members. A marketing manager, when working with a team, is required to work in marketing areas in
terms of the assigned job descriptions. But the role of this marketing manager becomes common to that
team optimizing inventory and materials holding costs, just-in-time inventory planning, lean manage-
ment practices, etc. when working as a team member in inventory control and materials management
team. Similarly, operations managers of the said team in addition to the functional role of managing
the operations need to ensure flow of materials on time to continue the production or operations, etc.
The success of team performance depends on how effectively the team members behave and interact
with each other, to what extent they are convinced about the need for achieving the common goals, and
finally the presence of teamwork culture in the organization. In team performance management, the con-
cept of team role (Belbin 1981, 1993; Davis et al. 1992; Margerison and McCann, 1990; Spencer and
Pruss, 1992; and Woodcock 1989) requires the employee to perform his/her functional role. The concept
of team player (Parker, 1990), on the other hand, requires them to work in one or more team roles. For
example, an innovative team member can share new ideas with the team, gather important information,
and effectively coordinate with other team members’ jobs.
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Personality characteristics can also determine the team roles (Margerison and McCann, 1990; Parker,
1990), so also the behaviour and the attitudes of the people. Variation in the behaviours and attitudes of
the person in terms of the occupation could be observed by Belbin (1981, 1993). His study also authen-
ticates that team performance is knowledge dependent. Knowledgeable team members can successfully
play their respective team roles and, accordingly, achieve higher performance. Cohen and Ledford’s
(1994) study could establish the mechanism to measure the team performance using the objective data.
DEFINITION AND CONCEPTS

Teamwork trends are increasing visible in today’s organizations. To gain better performance results,
organizations are shifting from individual work systems to teamwork, and teams have now become the
main building block (Guzzo and Shea, 1992; Kozlowski and Bell, 2003) to achieve performance excel-
lence. However, this teamwork culture often goes against the pay for performance plan, which is more
individual centred (Prendergast, 1999). Such paradoxical situation, i.e., organizing work on teamwork
and pay for performance (individual rewards) often defeat the culture of teamwork in organizations.
A team represents a small group of people with a common purpose or goal. Each member of the team
plays the interdependent roles with their complimentary skills. A team may consist of both the members
with homogenous skills and work experiences or members with diversity of skills and work experi-
ences. The second one is known as cross-functional teams, and is more evident in today’s organizations.
Effective teamwork is an important prerequisite for effective performance management. Performance
management, per se, centres on individual performance to the best of their abilities. Any employee indi-
vidually achieves the performance goals or results meeting or exceeding the performance requirements.
Team performance management, however, on the other hand requires organization to develop a shared
understanding for the team members, to collectively achieve the business results for the company.
Effective team performance management makes the team members focused on their job responsi-
bilities and job performance, and produces better results in consistence with the organizational require-
ments. Also effective team performance management enables the team members to develop better
performance in their future tasks or job roles.
Performance management for teams is different from team building (and it is also different to per-
formance management for individuals). There are many different definitions of ‘team building’, but in
most of the cases, it refers to an activity that helps develop the team in some way or the other. It can
include a wide range of activities like
Outdoor activities.
On-site or off-site workshops.
Having lunch together.
Sharing an email list or bulletin board.
Meeting in the coffee lounge during work breaks.
All these activities are introduced with the belief that members of the team will improve the way the
group operates. However, its impact on collective performance is more intuitive rather than the actual.
It is only for this reason that team performance management is important. Team performance manage-
ment is focused directly on the achievement of the team’s key business objectives. It bridges the gap
between the team building ‘enablers’ and business performance results. It establishes a direct connec-
tion between collective behaviours and team performance.
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PRINCIPLES OF TEAM PERFORMANCE MANAGEMENT

Team performance management is predicated on the following three principles:
Team behaviours are different from individual behaviours

It is not important for us to understand what an individual does in a team, rather it is important to know
what team does collectively. The differences between the individual’s behaviour in a team, and the col-
lective behaviours of a team, depend on factors like the environment they work in, or the team processes
they use for communicating, deciding, rewarding, etc.
The behaviours that make a team successful vary

The behaviours of successful teams vary from team to team and from time to time. For example, a suc-
cessful R&D team behaviours may vary with the behavioural pattern of a successful marketing team.
Team behaviours can be changed using a team performance management process

The performance management process used in a team may be either similar or different than the perfor-
mance management processes for individuals. Again depending on the peculiarity of a team behavioural
goals and profiles of team members may vary.
Organizations usually follow the methodology for team performance management activities in the
following ways:
Establishing the behavioural goals aligning with team performance. This can be done using a team
profile questionnaire to track what behaviours can make the team successful.
Establishing the desired behavioural requirements using the management team roles indicator.
Comparing the target and current behaviours using a behavioural gap analysis.
Take action to close the gap, enforcing the behavioural requirements for the success of team.
Therefore, the difference between traditional team building and team performance management is
that while the former engages in activities in the belief that they will indirectly lead to improve-
ments in team performance (which in reality may or may not happen), the latter identifies the team
behaviours that lead to direct business success, and then change the process to elicit the desired
behaviours.
In a team performance management system usually organizations make use of two types of
measures—external and internal. External measures give us the performance results, while the internal
measures give us the internal behaviour.
External measures quantify the team results that involve assessment of the performance of the team,
the output and the contribution to business success. Some of the examples are:
Sales revenue achieved (sales team).
Reduction in man-days loss achieved (HR team).
Reduction in rejection rate achieved (operations team).
Internal measures quantify the team behaviours, which involve quantification of team behaviours,
involving the assessment of the means used to achieve the end results. Such measures speak about
how the team goes about its business? Therefore, internal measures need not only include the
individual activities, rather the activities that can be undertaken by the team or a sub-set of team
collectively.
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Examples of these collective behaviours might be:

The number of timely cross-selling opportunities passed between sales people (sales team).
The number of successful collective bargaining made in a period (HR team).
The time spent in fixing a maintenance problem (operations team).
It is important to reach to a consensus about the team standards and the measurement criteria right at
the beginning of the team performance management process. In a relatively stable nature of teamwork,
team standards need not be periodically revised. However, with the organizational restructuring and
change in the technology and business processes, team standards are expected to change.
Types of Teams
Depending on the specific requirements of the organizations, the following types of teams are formed
for achieving excellence in performance management:
Organizational teams—a ‘top management team’, bound together because it contributes to overall
objectives.
Work teams—self-contained and permanent, delivering output. They focus on achievement of com-
mon purpose and are a function of common purpose and are a function of individuals working well.
Project teams—brought together to complete a task. Once the task is complete, they disband.
Ad hoc teams—set up to deal with a problem. They are short-lived and operate as a task force.
Approaches to Change Team Behaviours

A systematic process for changing team behaviours in a way that leads directly to increased perfor-
mance and business benefits, follow certain principles as under:
Identification of behavioural goals: This includes compiling opinion from the team, customers, man-
agement, staff, peers, and others to list what behaviours will lead to team success.
Measurement of current behaviours: This involves assessment of the current behaviours of the team
for making direct comparisons.
Undertake a gap analysis: Identify the gaps between target and the current behaviours.
Close the gap: Adopt suitable training interventions and team actions to change the behaviour of the team.
Monitor: Monitor the team intervention programmes and take corrective actions, wherever required.
In any organization, performance management systems must focus on giving opportunities to the employ-
ees to perform their best. The system must facilitate employees to deliver even exceeding the perfor-
mance targets, and support free flow of communication between the employees and the leaders. Leaders
must also ensure and even nurture the development of employees through skill and knowledge renewal.
Team performance management now determines the success of any organization. Effective manage-
ment of team, in addition to the incremental benefit to performance results, ensures workers’ motivation.
Motivated workers volunteer to take higher performance targets and achieve the best quality level.
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Despite all these benefits of teamwork, managing the team performance is a great challenge for today’s
organizations. For example, giving too much negative feedback at quick successions, ultimately defeats
the purpose, as demotivated and demoralized employees start underperforming. The first requirement
for successful team management is to facilitate the team members to understand the team’s roles and
the roles of each team member. The second prerequisite is to ensure total transparency through ongoing
communication. Team members need to be informed about what they are expected to achieve. Managers
and leaders must immediately intervene to resolve any conflict and misunderstanding in the team.
Successful team management requires systematic training, constant monitoring of teamwork, and
motivation. Similar changes in the work environment or culture, emphasis on time management, etc.
can get better results from the team.
Team building is the most commonly used technique for organizational change and development. Team
building emphasizes on binding people together to achieve common goals of the organization and, in the pro-
cess, develop the shared vision to provide a common direction to all. In very simplistic terms, a team consists
of a group of people to work together to accomplish some common goals. In that context, a team has two
common aspects: the task aspect and the people or relationship aspect. Task aspect defines the task or the job
to be done or carried out, including its sub-sets. . People or relationship aspects focus on interaction and work-
ing together. It includes communication, mutual responses, leadership, conflict management, etc. In another
way, we can define the task aspects are those which cover the content aspects, while people or relationships
aspects focus on the process aspects of teamworking. Teams focus primarily on the following issues:
Intra-team task focus, i.e., the content aspect.
Intra-team people focus, i.e., the process aspect.
Inter-team task focus within the organization.
Inter-team people focus within the organization.
For organizational change and development team building helps as it eliminates many harmful inter-
personal relational problems, and, ultimately, strengthen the problem solving abilities of the people,
leveraging the benefit of synergy.
WORK WHEEL AND TEAM PERFORMANCE

Using the work wheel model of team performance, pioneered by the Margerison and McCann (1995),
we can understand the key work elements that focus in explaining why it is that some work teams work
effectively and achieve their objectives while others fail. The research has supported an understand-
ing of team performance in terms of nine team performance factors, summarized as the types of work
wheel, shown in Figure 10.1.
Effective teams continually demonstrate a focus on all nine performance factors. The eight factors
arranged around the spokes of the Wheel are known as the teamwork functions and show relative statis-
tical independence. The ninth activity, linking, is placed in the centre of the wheel as it is a characteristic
shared with the eight work functions. For example, inspecting work must be done in a ‘linking’ way
if it is to be shared with all the other functions. The importance of each work function to teamwork is
described in more detail below:
Advising
Advising work is concerned with giving and gathering information. It involves finding out what oth-
ers are doing in the organizational area of work and ensuring that the organization follows the best
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Promoting
Innovating Developing
Advising Linking Organizing
Maintaining Producing
Inspecting
Figure 10.1 Margerison–McCann types of work wheel
practices. For effective advising, organization generates information from articles, reports, or books, or
by meeting and talking with people. It means ensuring that we have all the information available for the
team to make the best decisions and deliver results.
Innovating
Innovating is a key aspect of teamwork and involves challenging the way things are currently being
done. Globally, technology is changing very fast, and among others it also changes the way we perform
our tasks. Through innovation we need to update our process of doing work. For every work team, inno-
vation is very important. It not only ensures a better way of doing work, but also enables organizations
to achieve cost competitiveness, quality, and overall excellence.
Promoting
Only innovation cannot make an effective team. It requires efforts from the team members to mobilize
reasons in terms of people, money, and equipment. This is what we call promotion of innovative ideas
in the organizations. Resources to implement new ideas need to be obtained by the team persuading
or exerting influence on the top management of the organization. Similar efforts need to be given to
promote the innovative products and services to the customers. Thus, without the capability to promote
new ideas or innovation, teams cannot achieve excellence.
Developing
Developing indicates the activities involved in moulding and shaping the ideas to meet the needs of the
customers or the end-users. It involves listening to the needs of the customers and incorporating those
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in organizational plans. Also in the process of developing, the team considers the resource constraints
of the organization.
Organizing
The process of organizing emphasizes on getting into action to make things happen. Team organizing
requires clearly spelling out to team members what they need to do and why. Also it guides the team
members in the process of doing their jobs, establishing clears goals and action plans within the time
and budget constraints.
Producing
At this stage of the work wheel, team members concentrate on producing the results on a regular basis
to the level of high standards to achieve both the effectiveness and the efficiency. Thus, it is a stage of
producing continuous output.
Inspecting
Simultaneous with the task of producing, team members need to ensure regular quality audits of their
products and services. The purpose is to deliver error-free products and services to the customers to get
their enhanced level of satisfaction. The process of inspecting also monitors the financial, safety, secu-
rity, and legal aspects of teamwork.
Maintaining
Maintaining is the process of upholding standards to ensure effective teamwork. The team can fail when
the team processes are not regularly checked and maintained. Maintaining ensures upholding quality
standards along with regular reviews of team effectiveness.
Linking
The linking process pulls the team members together and thereby stand the differences between a work
group and a team. Proper linking makes a team effective and efficient. The linking process encompasses
tasks, people, and the leadership.
Therefore, the work wheel model suggests that the work functions adjacent to each other are similar,
rather than those which are non-adjacent. To illustrate, the work of promoting requires skill sets which
are different from the work of inspecting. Also, the model suggests that all teamwork can be classified
into some key areas. This apart, the work wheel complies with the generally accepted criteria, i.e., gen-
eralizability, comprehensiveness, prudence, etc.
MEASURING TEAM PERFORMANCE

It is important to systematically measure a team’s performance through an objective review process to
understand the degree of effectiveness of teamwork. While it is important to measure the short-term
outputs, it is equally important to measure the long-term perspectives in terms of assessing the degree
of creativity of team members, ability to effectively promote the team for long-term sustainability, etc.
Such measurement need not always be objective. Most of the organizations make use of a questionnaire
and, using the multi-rater assessment, assess the team performance in all the nine team performance
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factors mentioned in the work wheel. We have many standard questionnaires available to measure team
performance. The most popular among them is the team performance profile questionnaire (TPPQ),
which has 54 items. However, this questionnaire fits well with the work wheel model. By profiling the
team performance, organizations can therefore gain in terms of:
Team performance assessment with a common and shared understanding of the critical factors that
are instrumental for high performance.
Team effectiveness improvement through team development ensuring that team members focus on
critical areas for achieving success.
Therefore, the work wheel model enables organizations to perform ongoing teamwork assessment and,
at the same time, ensures ongoing team development to constantly improve team performance.
MANAGING TEAM PERFORMANCE

Management of team performance, at the outset, requires developing a common language to facilitate
shared understanding. Shared understanding provides an opportunity to team members to develop suit-
able action plans for improving team performance. A tentative approach adopted by the organization to
manage team performance within the ambit of the work wheel model is to adopt an informal approach
in questioning the team members on certain aspects explained below:
Nature of information required.
What could be the best way of doing the job?
What type of stakeholders need to be influenced by the team?
Does the teamwork conform to stakeholders’ expectations?
In what way can the team be organized?
Are the team members aware in clear terms of the outputs and outcomes of the products/services?
What are the areas that require verification to understand that the team is working in right
perspectives?
Does the organization adopt best standards and procedures for effective teamwork?
What is the degree of internal and external linkage of team efforts?
Based on the consolidation of responses received against the aforementioned questionnaire, it is pos-
sible for the organization to identify where the team performs well and where it lags. To team members
also it provides an objective basis to understand what they are doing. Also it facilitates comparison of
different views of team members and others to strengthen the team focus on the team vision and mis-
sion. Thus, the major thrust in managing team performance lies in developing a common language for
shared understanding of team members to facilitate them to focus on critical success factors for achiev-
ing team results in terms of output and outcome. Also, in the process, organizations can measure the
gaps to develop suitable action plans to fix it and to improve team performance.
DIFFERENT STAGES OF TEAMWORK

Tuckman (1965) presented the four stages model of teamwork. Like the work wheel model, this model
is also widely used by organizations to form the work teams and also to measure their degree of prog-
ress. Figure 10.2 describes the model of the four stages of teamwork.
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Forming
Storming
Norming
Performing
Figure 10.2 Tuckman’s stages of teamwork model
After the formation of the team, it goes through the storming stage to set the ground rules and norms.
After this stage, the team starts performing. The entire cycle right from the formation of team to team
performance earlier (in the 1980s) used to take six-months time. However, with today’s complexity of
business, this cycle time for some organizations even got reduced to six days, or even less than that.
Using the work wheel model we can more reliably measure and manage team performance, both in
quantitative and qualitative terms. With the feedback information from team members and outsiders,
we can correctly diagnose the problems and initiate suitable action plans to successfully manage team
performance. Similarly, Tuckman’s model also reinforces the process of successful management of
team performance.
Models such as the types of work wheel provide a reliable and valid way of measuring and managing
team performance by generating qualitative and quantitative feedback data both from team members
and outsiders. Organizations can diagnose and even predict the problems much before they happen.
Using Tuckman’s model, often for unscrupulous team members, actual problems may remain uniden-
tified, as some of them deliberately avoid discussions, which can eventually bring out the real issues
during the stage of storming, and hence deciding the rules and norms at the stage of norming becomes
incomplete and the team remains non-performing at the final stages of norming. For these reasons, orga-
nizations prefer simultaneous use of work wheel and Tuckman’s model to effectively manage the team.
This problem was experienced by the author of this book while forming a cross-functional marketing
team for a start-up hotel. Stiff competition among hotels often requires them to go for price war to
attract and retain customers. In the present case, all possible avenues to price control in the hotel were
explored and management was literally left with no alternative to sustain in price competition. In his
role as a consultant, the author formed a cross-functional marketing team with the following members:
Marketing manager
Chef
Stewarts
Room service man
Door man
Front desk people
Room disposal crew
Procurement section people
The members were asked to brainstorm with a single point agenda, i.e., how to save on food cost with-
out deteriorating quality. All employees in the discussions shared their views and, ultimately, could not
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come out with any solution, excepting the room disposal crew who pointed out that almost 40 per cent
of the food items served in rooms get wasted. Further investigation revealed that food consumption rate
has been fixed almost 10 years before which is no longer sustainable in the present food consumption
rate of hotel customers. To start with, the hotel was asked to reduce the food quantity by 10 per cent to
study whether there is any complaint from the customers. Subsequently, it was reduced up to 30 per
cent without any substantial complaints from the customers. Gradually, this was embedded with the food
service norms, which could help the hotel to reduce the cost and achieve good performance results.
In this case, mere brainstorming approach could help identify the hotel performance problems using
a cross-functional team approach.
TEAM BUILDING EXERCISES

At an organizational level, various team building exercises are used that focus more on T-group, role
playing exercises, constitution of specific task analysis, etc. T-group or sensitivity training is a learn-
ing approach. Here, a small unstructured group of people learn from their own interactions their issues
pertaining to their interpersonal relations. With 10–12 participants, the T-group meets with a facilita-
tor without any specific agenda. For T-group, the agenda evolves during the course of discussion. The
purpose is to understand their interpersonal relations and how it is perceived by other members. The
group evolves like a learning laboratory, as knowledge is acquired in the process of experiencing (each
other), reflecting, hypothesizing, experimenting, and conceptualizing. Essentially, the T-group helps in
two different ways as follows:
Understanding about self and achieving personal growth (more interpersonal focus).
Understanding group dynamics and relationship between members.
Objectives of T-group
The primary objective of the T-group is to enhance understanding about oneself, gaining insight into
one’s own behaviour, and analysing its impact on others. One can understand how one’s behaviour
integrates or gels with others. This apart, other objectives of the T-group in the context of performance
management issues can be enumerated as under:
To enhance the understanding and awareness of group and inter-group processes.
To facilitate and inhibit group effectiveness.
To create greater awareness of self-behavioural processes.
To increase diagnostic skills in inter-personal and inter-group situations.
To help in discovering one’s dominant potential, transforming the learning into action.
Laboratory experimentation helps in developing new behaviours, which in the process benefits organi-
zations to bring the desired change, developing the capabilities of people to perform.
Benefits of T-group Training

In performance management, T-group benefits individuals, groups, and the organization as a whole.
Individual level benefits are spontaneous perception of behaviour with reduced levels of stress, which
releases the potentiality of mental and physical health, and decreases defensive behaviour. Perceptual
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clarity makes people more realistic and achievement oriented. It enhances self-esteem, develops the
capability of people to explore options, and enhances the power of decision-making. At an individual
level, people also feel motivated for obvious strengthening of their internal locus of control.
Group or inter-personal level benefits are developing insights to understand others. With enhanced
self-esteem, people can comfortably communicate with each other and can become more supportive and
productive in relationships. With the increase of mutual trust and respect, we can subdue our aggression
and develop better relationships, which pave the way for effective teamwork. Collaborative behav-
iour increases our inter-dependence and facilitates both individual and organizational growth through
improved inter-personal relations.
Organizational level benefits of T-group training are increase in openness, trust, and inter-dependence,
which together culminate to a conducive work environment to maximize the potential from all. With the
recharged or reinforced capabilities of people, organizations can successfully manage future challenges.
ROLE ANALYSIS
Role analysis clarifies and prioritizes role expectations, both from the role senders’ and the role occupiers’
perspectives. A role is defined as the pattern of behaviour expected from a particular job position in the
organizational hierarchy. A specific job position confers a job role, and the person who occupies such a
job position is the role occupier. A job position is conferred by the organization maintaining a specific
hierarchy. A particular role occupier works under some immediate boss, who becomes the role sender.
Role senders expect some specific performance and desired behaviour from role occupiers. Some of
the role expectations are task, job, work, and position. Task roles are the basic job element, job role is
the component of work; work role is the expected performance standards, while positional role is the
hierarchical level as per the structure of the organization, which clarifies to others and so also to oneself.
People in general understand their role and the tasks expected of them.
From the above perspectives, therefore, role can be differentiated from job description. The major
point of distinction is while job description is static and impersonal, role is dynamic and personal. Role
occupier’s personal qualities, growth, perceptions, motivations, ambitions, values, etc. are some of the
major determinants of his/her role. Hence, despite being in the same job role, role deliverables vary
from person to person.
Performance management through role analysis is important, as it helps in establishing clarity in
terms of expected level of performance and behavioural inputs in the changed circumstances. The idea
behind this is that in changed circumstances, organizations need to adjust the job role. Through role
analysis, such changed expectations can be measured and communicated to the role occupiers to deliver
in the changed circumstances.
Some of the important areas of role analysis are:
Detailed understanding of the coverage in terms of the function and level.
Setting up of a core task force to carry out the role analysis.
Selection of persons for specific task forces.
Understanding the role sender and the changing role expectations for preparation of key perfor-
mance areas (KPAs) for the role occupier.
Identification of required set of competencies for the specific job role.
Identification of performance gaps through competency mapping and developing plans for closing
the performance gaps.
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With all the aforementioned perspectives, role analysis is carried out either by engaging the consultants
or through in-house resource persons, or a combination of both. Accordingly, the core task force is
given the task to perform the analysis and suggest the changes in the role expectations keeping
in view the required level of organizational change and development. All these need to be done
within the budgetary constraints in a given time frame. Simultaneously with the role analysis, systems,
procedures, work instructions, etc. are developed or updated and, wherever necessary, powers are
delegated.
SUMMARY
The performance of the team is an important vari- that even team-based compensation plans have
able in the performance of the organization as a been adopted by many organizations to make peo-
whole. Team performance is the ability and behav- ple work effectively in a team. Team performance
iour of the team members, evident from the roles management is different from team building (and
that the team members play. Team roles could it is also different to performance management for
either be functional or based on the personality individuals). Team building means undertaking a
characteristics of the team members. Most orga- series of activities to build a team. Team perfor-
nizations make use of Belbin’s approach of team mance management, on the other hand, directly
profiling, and accordingly predict which team is relates to the achievement of the team’s key busi-
high performing or which team is likely to have ness objectives. It directly establishes the connec-
relatively lesser rate of success. Organizing the tion between the collective behaviours and team
work around teams is now a global phenomenon, performance. In this chapter, we have discussed
as collectively people deliver more. Team perfor- the process of team performance management and
mance management has now become so important have also reviewed some team building techniques.
KEY WORDS
T-group—T-group or sensitivity training is an linking process encompasses tasks, people, and
experiential learning approach. Here a small leadership.
unstructured group of people learn from their Work Wheel Model—Using the work wheel model
own interactions their issues pertaining to their of team performance, pioneered by Margerison
inter-personal relations. With 10–12 participants, and McCann (1995), we can understand the key
the T-group meets with a facilitator without any work elements that focus in explaining why it is
specific agenda. For T-group, the agenda evolves that some work teams work effectively and achieve
in course of discussion. The purpose is to under- their objectives while others fail. The research has
stand their inter-personal relations, and how it is supported an understanding of team performance
perceived by each other. in terms of nine team performance factors,
Linking—Linking process pulls team mem- Work Teams—These teams are self-contained
bers together, and thereby makes the differences and permanent, delivering output. They focus on
between a work group and a team. Proper link- achievement of common purpose and are a function
ing makes a team effective and efficient. The of common purpose and of individuals working well.
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1. Explain the concepts of team. Discuss how 6. In the light of Tuckman’s model, explain
teamwork helps in making the perfor- various stages of teamwork, and critically
mance management process effective in comment on the nature of differences of
organizations? Tuckman’s model with the work wheel model.
2. What are the important principles of team 7. What type of team building exercises is more
performance management? suitable for a knowledge-intensive IT organi-
zation? Give justification to your answer.
3. What methodology do organizations follow
for effective team performance management? 8. Short Notes
4. Explain in what way teamwork can change (a) Team Building
the behaviours of team members. (b) Project Teams
5. Explain the concept of work wheel model. (c) Innovating
How does it help in measuring team perfor- (d) Linking
mance management in an organization? (e) Role Analysis

9. Suomoto Enterprises, a large conglomer- and subsequently to practice the team-based
ate having presence in FMCG, Pharma, and performance management. Develop your
Textile segments would like to retain your action plans with justification.
services to develop the culture of teamwork
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Buccerworth-Heinemann). ior (Boston, MA: Allyn & Bacon), pp. 420–28.
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CASE STUDY—1
Transforming Through Teamwork—Case of DSP, Durgapur

Organizational effectiveness depends not only on the talent available in the organization but also on
the quality of leadership available at its disposal. An organization’s success depends on the ability of its
leaders to align individual goals to the business goals and objectives and to bring the best out of all the
members of the team through resolution of conflict and proper team building. The essence of team build-
ing is promoting the culture of group dynamics. Group dynamics promotes interactions between people,
where at least one person takes the lead in conversation to offer his or her thoughts and opinions freely.
In a teamwork culture, it is essential for the organization to promote group dynamics, so that people can
largely be involved in managing their discussions, which pertain to achieving the organizational goals.
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A successful transformation of attitude of employees is the prerequisite for the success of team-based
performance management systems. The positive attitude of employees cascades to the effective group
dynamics and ultimately enhances the decision-making capability of people and their competency.
Realizing this, Durgapur Steel Plant (DSP), a public sector steel manufacturing unit of the Steel
Authority of India Limited (SAIL), promoted the culture of teamwork. The integrated steel plant, one of
the largest industrial complexes in the state of West Bengal, spread over an area of 6.5 sq km, employs
a workforce of about 16,000 people. The plant has the rated capacity to produce 2.1 MT of hot metal,
1.9 MT of crude steel, and 1.6 MT of saleable steel.
With tremendous setback in their performance in successive years, DSP had huge accumulated loss
for years together. The problem mounted during the first phase of economic globalization and deregula-
tion with prince decontrol mechanism, announced by the Government of India. From a literal captive
market privilege, suddenly SAIL units, including DSP, witnessed a sea change in market dynamics
which, among others, required the company to quickly respond to the change thereby transforming the
entire organization including the attitude of the employees. To promote group dynamics, SAIL, at the
outset, emphasized on developing a shared vision, urging all its plants to quickly endorse their employ-
ees to nurture this and reflect it in their day-to-day work.
Let us have a close look at SAIL’s vision:
‘To be a respected as a world class corporation and as a leader in Indian business in quality,
productivity, profitability, and customer satisfaction’.
The guiding principle on which the vision statement is based is:
We build lasting relationships with customers based on trust and mutual benefit.
We uphold highest ethical standards in the conduct of our business.
We create and nurture a culture that supports flexibility, learning, and is proactive to change.
We chart a challenging career for employees with opportunities for advancement and rewards.
We value the opportunity and responsibility to make a meaningful difference in people’s lives.
DSP’s organizational objectives are based on the vision and reflect the organizational intents in its
journey towards excellence. Every employee of DSP was given the extensive message of change in
the market scenario and was systematically provided with the information on detailed stage-by-stage
change initiatives taken at the corporate level, to facilitate the understanding of organizational prepared-
ness to compete in the environment. Rigorous in-house training to all employees gave them a positive
outlook to the need for change. KIZEN with five S, total quality management (TQM), quality circles,
etc. reinforced their change initiatives, which, among others, also helped in transforming the attitude of
the employees.
Among all SAIL units, DSP today proclaims to be the most successful one in reaping the advantage
of transformation through attitudinal change and group dynamics. The year 2007–08 spells out the
results as under:
Four figure profit in 2007–08 for the first time in its history. The plant achieved a profit before tax of
Rs 1,009 crore—62 per cent more than the previous year’s growth of Rs 624 crore. The plant achieved
the highest ever sales turnover of Rs 5,275 crore—23 per cent higher over the previous year’s figure of
Rs 4,288 crore. Durgapur Steel Plant, according to the officials, had concluded the 2007–08 fiscal with ‘all
time best’ performance in all the major areas of production like hot metal, crude steel, and saleable steel.
Question: Among the public sector companies we have many such examples of successful teamwork.
Visit the Web sites of ONGC, SAIL, and Durgapur Steel Plant and make a comparison between them.
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CASE STUDY—2
Transforming Organization Through Teamwork

Any major organizational change involves three distinct conditions: the future state, where leadership
wants the organization to get to; the present state, where it currently is; and the transition state, where
the conditions and activities must be moved through to reach the future. The process usually starts with
a need or desire for a new future state, so initiative for self-managing teams usually comes from one of
these three sources:
A major shift in the external environment which forces the organization to find faster, cheaper, and
better quality ways of meeting customer needs.
A change in technology or a new factory which provides opportunities for breaking with the past.
A senior manager or executive team will introduce the concept, having discovered it elsewhere
(Hirschorn 1984).
The first two sources provide a valuable excuse for unfreezing the organization and can lead to a rapid
introduction of new working methods. By their nature, however, they are reactive, involving the organi-
zation in having to catch up. The third approach may well be the most difficult because it is proactive,
particularly so if there is no clear commercial imperative.
Whatever the source or change imperative, the greater the clarity with which an organization can
describe its future and current states, the more successfully will transition be managed.
However, describing the desired future for self-managing teams is complex because it typically goes
beyond the prevailing management or work paradigms and requires the creation and sharing of some
kind of vision for how the organization will operate.
Leadership capability also has to keep this vision open and powerful to avoid obstacles, which have
to be overcome if this is to be achieved, actually destroying it.
For all organizations going for a drastic change, this is always a worry, particularly in post-acquisition
phase. For an Indian MNC (consumer electronics major), this was also a major concern after they took
over two age-old plants of legacy-bound multi-national organizations in Kolkata. To give space to the
employees, who were in general reluctant to the merger with the Indian MNC, the company adopted
a multi-pronged approach to transform the work culture. Being legacy bound, workers of the old MNC
had the feeling that they are privileged class employees than other run-of-the-mill organizations in
India; hence, Indian organizations taking over them is always detrimental to their interest and general
welfare. A couple of erstwhile old MNC employees had left the job opting for voluntary retirement. Some
adopted a ‘wait and watch’ strategy and joined almost six months after acquisition. Around one-third of
the employees only joined the new entity right from the beginning.
The old MNC at the time of takeover was on the verge of bankruptcy running at a huge loss, costs
were beyond control, finished inventory were accumulating, while inventory for the raw materials and
spares hit a dangerously low level, taking the company to a state of shamble and shock.
To save the organization from the downward spiral, the new entity decided to transform slowly, fear-
ing that employees may otherwise make the transformation process futile. First, they made a thorough
assessment of their organization. It included a critical review of areas where they could retain expertise,
competence, and competitiveness as well as areas where they were disadvantaged.
The CEO of the Indian MNC, being associated with the organization over a long period, earned the
confidence of the president and the chairman, who gave him literally a blank chit to transform and grow.
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The expertise of dealing with the layoffs, handling diverse opinions, and making balanced judgements
helped the CEO to wing the approval of employees regarding certain decisions and finding the best
possible solution as quickly as possible under pressure.
The leadership qualities of the CEO and other senior officials also helped them to smooth the deci-
sion-making process. They reached out to their 1000 employees to assuage their confusion created
by the political parties and trade unions that the Indian company is incapable to turnaround and would
just grab the assets of the acquired MNC. They infused confidence and credibility through telephonic
conversations and massive one-to-one meetings during the initial phase of work culture transformation.
They kept employees abreast of the time-to-time progress to endorse their support for the change and
to motivate them to get involved in transforming the organization. With innovative operational styles to
scale new heights, the new entity could turn around within 1 year of their takeover.
Teamwork was the most important essence of their work culture transformation. A multi-disciplinary
team which is forward thinking, focused on innovation, and which values diversity, integrating technol-
ogy, economic and social developments, and interacting with the changing business environments and
markets of consumer electronics took the organizations to a new level of efficiency, unparalleled in the
Indian market. Using the team as incubator in the change process and promoting innovation capabilities
with the support of their research teams helped the company to tap the latent talents of erring employ-
ees who themselves promoted the culture of knowledge management and could come out with the new
market-friendly low price models of colour TV sets. While operational imperatives to continue with the
production deadline were all along their priority, they never subdued their initiative to promote creativ-
ity through extensive communication. Aligning the organizational architecture with the social (working
environment) and the market architecture, through teamwork, amidst the crisis of non-cooperation and
hostility in fact helped the company to transform the work culture in post-acquisition phase within a
time-bound schedule. Management promoted close relationships with internal customers, making it
compulsory for all senior executives to spend 80 per cent of their time to communicate with the people
during the initial phase of their transition.
Question: Study the case above and make a comparison between the earlier case and the present one
in teamwork approach.
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CHAPTER 11
Performance Measurements
Through Balanced
and HR Scorecards
Learning Objectives
Definition and concepts of balanced scorecard Approach to HR scorecard
Different perspectives of the balanced score- Process of developing HR scorecard
card Benefits of HR scorecard
Benefits of the balanced scorecard Need for implementation of the balanced HR
Concepts of HR scorecard scorecard
Managing Crisis with a Scorecard-based Performance Management System

Bank Universal was established in the year 1990, merging three small banks. Initially it focused on
corporate banking and later on expanded to retail banking, primarily in Jakarta and other major cities of
Indonesia. With 2200 employees and an asset size of $1.2 billion, the bank virtually collapsed during
the Asian currency crisis of 1997. With the scientific performance management systems (using balanced
scorecard) and sustained HR initiatives, the bank ultimately could survive the crisis and is at present
achieving double-digit returns on equity. From a business point of view, the bank strategically focuses
on sector-specific financing like the automotive sector (mainly refinancing the suppliers, dealers, and the
end users of product of the automobile industry), coal mining (supply chain side), traders, plywood sup-
ply chains, etc. Focusing on niche retail banking, the bank has achieved expertise. Another reason to be
sector specific is to avoid mistakes in financing the large companies, which became the major defaulters
and major contributors to high NPAs of the bank during the period of crisis. Introduction of balanced
scorecard helped the bank to balance their focus on its process, customer service, learning, and growth
and finance. Banks that do not have efficient processes and good quality service do not get good return
on investment. With initial implementation of the balanced scorecard at the corporate level, the bank took
this to the branch operation level and then cascaded it to the individual employee level. In four stages,
the bank could implement the balanced scorecard across the organization, with three strategic themes
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Performance Measurements Through Balanced and HR Scorecards 227
like handling of past problems (related to loan portfolios), embracing a new business model (to enhance
profitability), and adopting a new market strategy to develop the good banking image.
After implementation of the balanced scorecard, the bank could observe that people can appreciate
each other. The marketing people can appreciate the service people and the service people can, in turn,
appreciate the operational and process people who, in turn, can appreciate the human resource people.
All could collectively contribute to the performance of Bank Universal. Effective coordination and com-
munication throughout the organization improved the performance and the bottom line.
INTRODUCTION
Conventional performance measurement cannot accurately provide a comprehensive view about an
organization. The balanced scorecard approaches, linking the core financial goals of the organizations
with the other drivers that are a determinant of overall success of the organization, ensure a better and
comprehensive view about the organization. The balanced scorecard translates the organization’s mis-
sion and strategy into some quantified key performance indicators (KPIs). Such KPIs provide the frame-
work for measuring the performance through a well-designed balanced scorecard. KPIs are the base
elements of work that correlate with the strategic goals of the organization, and obviously on achieving
the KPIs, organizations can achieve its performance goals.
The basic contention of the balanced scorecard is that financial measures as a stand-alone indica-
tor cannot provide the total performance information about the organization. Rather by integrating the
financial measures with other important perspectives, i.e., customer, internal business processes, and
learning and growth, through a better combination effect, organizations can drive more successfully the
performance, including the financial performance. How such perspectives relate to one another can be
understood through KPI metrics. For example, financial perspectives are strengthened by the customer
perspective, as customers buy the products and services of the organization, and customers’ buying
determine the financial success. Better internal process supports the customer perspective, as it rein-
forces customers’ satisfaction. Similarly, the learning perspective reinforces the internal process, which
cascades to better customer satisfaction. Therefore, all the four perspectives of the balanced scorecard
help the organization for a conceptual mapping of KPIs, which ultimately provide the balanced mea-
surements of the performance of the organization as a whole.
In line with Kaplan and Norton, therefore, we can argue that the balanced scorecard for performance
measurement is in reality a mixture of financial and non-financial measures that ultimately leads effec-
tive assessment of organizational performance. A combination of the balanced scorecard metrics also
provides the opportunity to the organization to compare and benchmark products and services against
the competitors.
In a competitive business environment, it is important for an organization to align its business activi-
ties to strategy, resource allocation budgeting, and reporting. More importantly, human resource (HR)
management functions need to be managed strategically. Managing performance of employees is one of
the most crucial HR functions. The balanced scorecard in its true sense facilitates the strategic alignment
of HR functions Today, the scope of the balanced scorecard has even been extended to balanced HR
scorecard. As among all performance measurement tools, the balanced scorecard and the balanced
HR scorecard are the most crucial ones. In this chapter, we have discussed these two aspects separately.
The other performance measurement tools, however, have been discussed in a separate chapter.
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The balanced scorecard is a strategic management approach developed by Kaplan and Norton (1992).
The balanced scorecard clearly prescribes what an organization should measure to balance its finan-
cial perspectives. In its true sense, the balanced scorecard can be better referred to as a management
system rather than only a measurement tool to track the degree of balance in the financial results of
an organization.
Through balanced scorecards, organizations can realize their vision and strategies, translating those
into action plans. In the process of translating the activities into the balanced scorecard, organizations
can develop the strategic framework and achieve the performance goals. Also the scorecard can set the
direction to achieve the performance goals. Kaplan and Norton described that the balanced scorecard
while retaining the traditional financial measures, also helps the organization to measure the potential-
ity to create future value, accounting for the contributions in four perspectives, i.e., customers, finance,
internal business process, and learning and growth.
DIFFERENT PERSPECTIVES OF BALANCED

SCORECARD
After understanding the four perspectives, organizations need to develop metrics based on the analysis
and data collection.
The learning and growth perspective.
The business process perspective.
The customer perspective.
The financial perspective.
The Learning and Growth Perspective

This perspective requires organizations to emphasize on employee training and development for their
continuous development. Enhanced knowledge and skill of employees can bring positive change in
their performance, and so also benefit the organization to achieve competitive strength. In volatile mar-
ket conditions, and so also in the era of rapid technological change, systematic renewal of knowledge
and skill of employees through training and development is very important. For this reason, every
cross-section of employees of the organizations need to focus on self-development and also facilitate
the development of their peers and subordinates. This is why the development role of managers is now
recognized and given importance. Standard metrics are developed to measure employees’ performance.
Although for knowledge-intensive organizations this perspective is very important, Kaplan and Norton
emprise its need in every organization. They consider learning to be more important than training.
Learning requires in-house mentors and tutors, free flow of communication, and employees’ access to
their seniors when they face any problem in doing their jobs. Learning is also facilitated by the use of
technological tools, which Baldrige attributes to ‘high-performance work systems’. Through learning,
employees can grow and self-improve. Growth is a more holistic term than development. While devel-
opment is momentary, growth is permanent. With development, an employee can achieve one-time
performance results, while with learning reinforced growth employees can recurrently deliver better
performance results.
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The Business Process Perspective

Kaplan and Norton, two proponents of the balanced scorecard, suggest employees’ performance focus
on internal business processes. Knowledge of internal business process perspective enables employees to
understand the way that the business is conducted in the organization, the extent of conformance of prod-
ucts and services to customers’ needs, the mission of the organization, the process of strategic manage-
ment, etc. Theoretically, in organizations we see two types of business processes: the mission centric and
the support oriented. Employees’ performance can be traced to the internal business processes through
developed metrics. An employee achieves performance excellence when he/she contributes to positive
changes in the internal business processes, which cascades to increased level of future performance.
The Customer Perspective

When organizations are customer centric and are able to satisfy the customers, success can be achieved
at much ease. No organization survives with dissatisfied customers. Inputs from all cross-sections of
employees add to customers’ satisfaction. In other words, every employee adds value to the customers,
irrespective of their nature of work. A dissatisfied customer shifts to other suppliers and their dissatis-
faction also influences the other prospective customers of the organization. This culminates in business
failure. For all these reasons, employees must perform to meet the customers’ demand and make the
customers satisfied. Thus, to measure employees’ performance from customers’ perspective, it is essen-
tial for the organization to develop various metrics analysing the customers’ data.
The Financial Perspective

As has already been stated, Kaplan and Norton did not make the need for financial results redundant.
Finance and so also the financial results should continue to receive organizational priority. In fact, with-
out discarding the need to focus on finance, they had also incorporated the need for future value addition
potentiality of the organizations. Some of the important financial metrics like employees’ capability to
assess the risk, capability to justify cost benefit, etc. are the most critical performance indicators for this
perspective. Again, like in other perspectives, every cross-section of employee must also perform to
meet the financial perspective.
Thus, balanced scorecard translates strategy into action. The concept takes the cues from the organiza-
tional vision and strategies and then develops key performance indicators in all the four perspectives. Each
performance indicator is measured in terms of certain well-designed metrics against which the performance
of an employee is compared. Operationally, balanced scorecard can be organization, jobs, and individual
employee specific. Most organizations, based on the identified critical success factors (CSF), prepare a
generic balanced scorecard, and then assign weights to each performance factor, depending on the nature
of the job and the level of the employees. With the support of information technology, however, balanced
scorecards can nowadays even be cascaded to individual level employees and can facilitate scientific per-
formance appraisal. It is now the most scientific and effective strategic planning and implementation tool.
To create a balanced scorecard, organizations at the outset identify the vision, aligning their values
and philosophies. Then, through mission, organizations concretize this vision. Mission clarifies the
purpose of the organization. Objectives are then set within the ambit of mission, which then cascade to
specific strategies and action plans. Such specific action plans become the key performance indicators
(KPI), which become the ultimate performance goals for the organization. KPIs are translated into
measurable performance scorecards encompassing all the perspectives.
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BENEFITS OF THE BALANCED SCORECARD

Some of the benefits of the balanced scorecard can be listed as under:
It aligns key performance indicators with the overall strategy of the organization, and in the
process facilitates effective measurement of realized strategy vis-à-vis the performance goals of
the organization.
Balanced scorecard makes available the holistic picture of business results; therefore, it can also be
used as organizational health index.
It enforces a positive work culture in the organization, as in the process of its development all cross-
sections of employees need to get involved, communicate with each other, understand the business
imperatives and the strategies of the organization, irrespective of the nature of their activities and
hierarchical levels.
It makes available the strategic feedback and in the process provides the accurate and precision
level inputs for future decision-making.
It reduces the time for information search, as befitting information can be made readily available.
It makes the performance management process scientific.
It makes the performance assessment process transparent.
Employees can self-assess their performance and understand how their contributions fit with the
overall strategies of the organizations.
Management can take the corrective actions on a real-time basis to make good the performance gaps.
All the above benefits, therefore, motivate an organization to introduce the balanced scorecard to realize
the strategic intents.
HR SCORECARD
HR scorecard helps in measuring the efficiency and productivity of the HR department. It considers all
the quantifiable areas of the HR department, and accordingly grades the HR department. Quantifiable
variables of the HR department that can measure its efficiency and effectiveness depend on the choice
and selection of the respective organizations. It is impractical to assume that a standard HR scorecard
could be a panacea for all. Obvious reasons for variation can be attributed to goals and purposes of the
organizations. Some of the commonalities in HR scorecard are:
Scorecard that measures performance of employees to realize the goals of the organizations.
Scorecard that optimizes HR costs and helps in tracking the return on investment on people.
Scorecard that helps in aligning HR functions with the business of the organizations.
Scorecard that helps in aligning HR functions with the strategies and policies of the organizations.
Scorecard that helps in adopting appropriate HR practices, i.e., the quality HR practices.
Scorecard that ensures attracting and retaining the right HR professionals.
All these elements present in the HR scorecard, and the possibility of its quantification, by and large
helps an organization to truly understand how the potentiality of human resources are harnessed for the
best and efficient results of the organizations.
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Effective HR scorecard enhances the focus of the HR department to deliver quality, duly identifying
the weak areas and initiating the appropriate action. Also using the metrics, it is possible to appraise the
performance of individual employees and so also the performance of the organization. Because of its
transparency, people at all levels of the organizations can also track their contributions to the organiza-
tions and enforce self-control to improve and deliver the best. Hence from the employees’ point of view,
it is also motivating.
Some of the common areas where HR metrics can be developed using an effective HR Scorecard are:
Employee recruitment.
Training and development of employees.
Workforce management.
Evaluation of employee performance.
Promotions and transfer of employees.
Redundancy.
Employee relations.
Organization of data.
Total rewards.
Career development.
Competency mapping.
Time management.
Performance appraisal.
With all these elements present in HR scorecard, and possibility of its quantification, by and large helps
an organization to truly understand how the potentiality of human resources are harnessed for the best
and efficient results of the organizations.
The HR Scorecard Approach

Once integrated, the HR scorecard aligns support functions with the business strategy illustrating:
The strategic impact of HR services and projects and enabling HR to demonstrate its value through
more than short-term financial outcomes.
Adopting the HR scorecard as a strategic management.
System ensures that HR views all of its activities in terms of their contribution to the organization’s
goals.
By developing a strategic programme for measuring and managing human capital, HR executives
have the opportunity to spearhead the development of better strategic management.
Process of Developing the HR Scorecard

If structured properly, adopting the HR scorecard would allow the HR organization to take the initia-
tive, instead of being reactive to the demands of the enterprise. A comprehensive approach that creates
strategic alignment between HR and the enterprise at all levels including strategy, resource allocation,
budgeting, and reporting is absolutely essential.
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Developing the HR scorecard as a new management process provides the foundation to make HR
a true strategic partner and enable the enterprise to realize the full value of its human capital.
The first step in establishing HR as a strategy-focused organization requires the development of a
HR scorecard that can be linked to enterprise strategy and achieve perfect organizational alignment.
Successful project execution requires an HR scorecard, which is a management system project that
demonstrates a high level of user friendliness. All scorecard users should be able to manage scorecards
unaided by IT specialists or power users. Training must be straightforward to accelerate adoption, and
information must be accessible without a tedious navigation process.
The HR scorecard development process will entail the completion of several processes using the
following methodology:
Development of a Solid Strategy: Development of a solid strategy that is aligned with the enterprise
strategy is a keystone to success. Without a solid strategy, success is unobtainable. However, without
execution, a solid strategy is meaningless.
Strategy Mapping: Development of a strategy map, including selection of performance measures,
establishes targets and objectives, identifies initiatives and ownership to deliver the strategy.
Establish Measures for Each Objective: After translating strategy into objectives, managers and
employees must know if and when objectives are being achieved. Therefore, each objective is given at
least one measurement that is included in the key performance indicators.
Cascading of Scorecard: Keeping in mind operational, management and front line employees do the
actual work that makes strategies happen. Organizations must develop scorecards at every level so that
each person can see how his or her specific responsibilities align and contribute to the higher level goals.
Scorecard Implementation: Finalize scorecard designs and develop an implementation plan.
Post Implementation: After the scorecards are deployed, managers need to periodically re-examine
their existing core processes to ensure they are linked to the corporate strategy.
HR Scorecard at Tata Engineering

HR scorecard at Tata Engineering is used as a tool for simultaneously aligning all four perspectives to
achieve business objectives. It brings about a greater harmony of the business perspectives at functional
and divisional levels. Hence, each and every perspective should be evaluated on the returns generated.
It is integrated with the Tata Business Excellence Model (TBEM) to nurture the environment of high
performance and organization-wide learning and sharing. It serves as the guiding force for HR support
functions.
The company addresses HR’s role on four perspectives as under:
Financial: To improve the return on human capital.
Customer: To develop human resources to meet the expectations of internal and external customer.
Internal Processes: To align HR with the business goals meeting the stakeholders’ expectations.
Learning and Growth: To build HR capability to deliver results.
For all HR activities, quantifiable and objective measures are identified and, accordingly, performance
targets are assigned at the individual and team levels. Further, to facilitate the process, a strategic action
plan is drawn up to provide the sense of direction to the employees to achieve their performance goals.
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Benefits of the HR Scorecard

Some of the benefits of the HR scorecard can be enumerated as under:
Formulate HR strategy that is aligned with the overall corporate strategy.
Clarify the vision/mission of the organization.
Create a consensus and ownership of the strategy in the management team.
Improve communication of the strategy across the enterprise.
Prioritize HR initiatives by linking activities to business goals.
Help support functions identify and communicate their unique strategies.
Create a framework for initiative prioritization and budgeting.
Align measurement with business goal achievement.
Measure HR’s strategic contribution in concrete and clearly understood terms.
Provide real-time graphical display of key performance indicators.
NEED FOR IMPLEMENTATION OF BALANCED

SCORECARD AND BALANCED HR SCORECARD
Research conducted by the Harvard Business School demonstrates that overall only 1 out of every
10 companies that formulate strategy can effectively implement it. Many factors make it difficult to imple-
ment strategy today. The pace of change continues to accelerate, technology changes frequently, and the
workforce is more diverse and mobile than ever before. While the business world continues to evolve,
management systems cannot keep the pace of change. The majority of measurement and management
systems are designed to meet the needs of a stable, incrementally changing world, which cannot meet the
needs and expectations of the dynamic economy. Various researches could confirm that a balanced score-
card approach has now emerged as the most effective way of managing and executing dynamic strategy
of the organization. Subsequent development of the balanced HR scorecard could further reinforce this.
Obviously for such reasons, it has now become imperative for organizations globally to implement these
scorecards with a holistic focus on financial perspectives, which necessitates integrating the other three
perspectives with finance, and then cascade all these to specific performance elements in terms of KPIs.
For doing these, organizations need to understand the specific performance elements that can be
delineated to the four perspectives. It requires thorough understanding of the process and individual
functional elements. For example, to successfully develop the balanced HR scorecard, organizations
need to understand the HR competencies. Here we have illustrated some of the core HR competencies
that can form the part of KPIs for the HR functions.
HR Competencies
1. Business Partner—Competencies Include:
Knows mission
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Understands work environment
Communicates well
Can be innovative and create a risk-taking environment
Applies organizational development principles
Links HR to the organization’s mission and service outcome
2. Change Agent—Competencies Include:

Understands work environment
Knowledge of team behaviour
Good communication power
Ability to balance the competing values
Applies information technology to human resource management
Designs and implements change process
Possesses marketing and representational skills
Uses consensus and coalition-building skills
Demonstrates customer service orientation
3. Leadership—Competencies Include:
Knowledge of team behaviour
Good communication power
Ability to balance the competing values
Power of strong analytic, strategic, and creative thinking
Ability to influence people to reach to consensus
Value diversity
Promote and practice integrity and ethical behavour
Effective development of the balanced HR scorecard requires thorough understanding of the HR

deliverables in terms of performance drivers and performance enablers. Performance drivers are the
core HR KPIs, while the enablers reinforce the performance drivers. For example, training and develop-
ment is the good enabler that can drive the employees’ performance through competency development.
With a balanced HR scorecard, organizations can truly transform HR as a strategic partner, aligning HR
with all the levels of organizational activities. Subsequent measurement of HR’s performance, using the
scorecard, can also facilitate the organization to understand the degree of HR’s contribution in achieving
the performance goals of the organization as a whole.
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SUMMARY
The balanced scorecard is a powerful tool for Also, the balanced scorecard can be integrated
measuring organizational performance from the with the overall organizational performance
strategic and holistic perspectives. A narrow goals. Like the balanced scorecard, the HR bal-
focus on relating organizational performance anced scorecard helps HR professionals manage
only on the financial outcomes today no lon- their strategic responsibilities more effectively.
ger holds good. With the balanced scorecard, it To integrate HR into a business performance
is possible for the organization to successfully measurement system, it is important to under-
assess the important processes and set the perfor- stand, at the outset, the important HR deliver-
mance criteria for the employees at the individual ables and how it relates to organizational strategy
and team level in specific and quantitative terms. implementation plans.
KEY WORDS
Strategy Mapping—Development of a strategy corporate cultural attitudes related to both individual
map, including selection of performance measures, and corporate self-improvement. In a knowledge-
establishes targets and objectives, and identifies worker organization, people—the only repository
initiatives and ownership to deliver the strategy. of knowledge—are the main resource. In the cur-
Cascading of Scorecard—Keeping in mind opera- rent climate of rapid technological change, it is
tional, management and front line employees do the becoming necessary for knowledge workers to be
actual work that makes strategies happen. Organiza- in a continuous learning mode.
tions must develop scorecards at every level so that HR Enablers—HR enablers strengthen the HR
each person can see how his or her specific responsi- drivers, so that HR drivers can achieve the perfor-
bilities align and contribute to the higher level goals. mance goals. For example, training and develop-
Learning and Growth Perspective—This ment function is an important HR enabler to drive
perspective includes employee training and the employees’ productivity.

1. What is a balanced scorecard (BSC)? What 5. Explain HR scorecard. How can this be
are its different perspectives? developed? What are the key benefits?
2. Explain how a BSC can be related to the 6. How can HR be a strategically important
vision and mission of an organization? function?
3. What are the various benefits of a BSC? 7. Short Notes
4. Explain the term ‘HR competencies’ and (a) KPIs
detail areas of such competencies, which (b) Learning perspectives
can subsequently be the basis of developing (c) Leadership competencies
HR KPIs. (d) HR deliverables
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8. A very well-known software development scorecard for effective performance mea-
organization after obtaining P-CMM level surement of software developers. Suggest
5 certification wishes to introduce balanced how the organization can do so.
REFERENCES
Arthur, J.B. (1994), ‘Effects of Human Resource Agenda’, The International Journal of Human
Systems on Manufacturing Performance and Resource Management, 8(3).
Turnover’, Academy of Management Journal, Huselid, M.A. and N.L. Rau (1997), ‘The Deter-
37: 670–87. minants of High Performance Work Systems:
Becker, B. and B. Gerhart (1996), ‘The Impact of Cross sectional and Longitudinal Analyses’
Human Resource Management on Organiza- (paper presented at the Academy of Manage-
tional Performance: Progress and Prospects’, ment Annual Meetings, Human Resources
Academy of Management Journal, 39(4): Management Division).
779–801. Kaplan, R.S. and D.P. Norton (1992), ‘The
Bhattacharyya, D.K. (2006), Human Resource Balanced Scorecard Measures that Drive Per-
Management, 2nd edition (New Delhi: Excel formance’, Harvard Business Review, January–
Books). February, pp. 80–91.
Bhattacharyya, D.K. (2007), Human Resource Marr, Bernard (2006), Strategic Performance Man-
Research Methods (New Delhi: Oxford Uni- agement (Oxford: Butterworth-Heinemann).
versity Press). Marr, Bernard (2009), Managing and Delivering
Boselie, P. (2002), ‘Human Resource Manage- Performance: How Government, Public Sector
ment, Work Systems and Performance: A and Not-for-Profit Organizations Can Measure
Theoretical-Empirical Approach’ (Thela The- and Manage What Really Matters (Oxford:
sis, Tinbergen Institute Research Series 274, Butterworth-Heinemann).
Amsterdam). Marr, Bernard (2010), The Intelligent Company:
Evans, W.A. (1970), ‘Pay for Performance: Fact Five Steps to Success with Evidence-Based
or Fable’, Personnel Journal, September, Management (Oxford: Wiley).
pp. 726–29. Pfeffer, J. (1994), Competitive Advantage through
Guest, D.E. (1997), ‘Human Resource Manage- People (Boston, MA: Harvard Business School
ment and Performance: A Review and Research Press).
CASE STUDY
Murugappa Group—Where Excellence Is Achieved Through Performance

Management Systems
In India, we have very limited number of business houses having more than 100 years of existence.
Headquartered in Chennai, the Rs 13,617crore ($3.03 billion as on 31 March 2010) Murugappa Group
is one of India’s leading diversified business houses. The group started its journey in the year 1900,
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and since then it has had a growing with thriving presence in engineering, abrasives, finance, general
insurance, cycles, sugar, farm inputs, fertilizers, plantations, bio-products, and nutraceuticals. Presently,
the group has 29 companies spread across 23 states in India, with 32,000 employees in its payroll.
Though having predominant presence in India, the group truly reaped the benefits of globalization with
strategic alliance and partnering with global organizations like Mitsui Sumitomo, Foskor, Cargill and
Groupe Chimique Tunisien, etc. Meticulously, the group could embed the philosophy of win–win in
business and, accordingly, created a work culture of professionalism, which among others ensures
empowerment. ‘Be modest and be humble’ are the two core values, which the group enshrines on all
cross-sections of employees to follow.
For Murugappa, HR function is everybody’s responsibility. Every manager needs to be an HR man-
ager, and only then can he/she gain the support of the people. The group, like others, faces HR chal-
lenges, but with a common thread of values, the group is able to manage the HR function without any
major hassles of industrial relations. Continuous focus on leadership development, employee retention,
and quality HR practices are some of the thrust areas of the HR departments of the group. For its
excellence in HR practices, the group has been accredited with SA8000 certification. This certification
is awarded to recognize the efforts of the company for successful implementation of HRMS (human
resource management systems). Along with quality HR practices, the group has also embraced knowl-
edge management practices to strengthen the practices of quality HR through employee development.
Performance measurement systems in the company is primarily 360-degree, which is a standard
open evaluation system based on balanced scorecard. Performance evaluation is done both on-line
and off-line. Through performance evaluation training needs are identified, and the company extends
a minimum of 8 man-days training support for every executive. In reality, the group’s performance
management practices are holistic in nature, primarily to make positive and proactive impact on the
minds of organizational members. To respect everybody’s contribution toward the organization, perfor-
mance management process is differentiated across the hierarchy. While for executives and managerial
employees, the focus is more on overall business results and competencies, for entry level people, the
focus is more on tasks. For entry level people, individual contribution and for executives and managerial
employees’ team performance are given more importance. Also at the same, the group emphasizes on
alignment of the business processes with the performance management systems, using three dimen-
sions: context, commitment, and capability. For Murugappa, context is set by their performance culture
embracing the strategy, structure, and systems or processes. In this way, the company creates the
culture of employee engagement, where everybody feels part of the organization and contributes their
best for achieving the business results.
Question: Study the Web site information of Murugappa Group and elaborate how the group could
achieve excellence in their performance for pro-active HR practices.
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CHAPTER 12
and Mentoring
Learning Objectives
Definitions and concepts of performance Types of mentoring
mentoring Foundations of a mentoring programme
Characteristics of mentoring Ethical guidelines for effective mentoring
Mentoring and coaching Culture of mentoring
Benefits of mentoring Executive mentoring
Mentoring for Effective Performance

Lew Platt, the former CEO of Hewlett-Packard (HP), believed that mentoring is like educating our
children. It is both a business and social imperative. HP has a large number of K-12 level manpower,
and hence to make them to deliver results, HP emphasizes on continuous mentoring. Platt observed
that all the young faces of today are the faces of the workforce and customers of tomorrow. Hence, like a
teacher in a class, we must perform the role of a mentor for handholding of youngsters. In organizations,
we require business mentors who sincerely invest in others’ growth, capable to exert positive influence,
so that the mentees feel at ease to learn and grow. It requires inculcating a culture of mentoring. Men-
toring culture continuously develops the mentoring capacity, competence, and so also the capability of
the organization as a whole. Some of the important hallmarks of a mentoring culture are accountability,
alignment, communication, values, and visibility. HP practices successful mentoring culture, and in the
process, today they are widely visible in the global IT industry. With the HR vision of achieving organiza-
tional excellence through development of people.
ONGC in India also emphasizes on extensive mentoring programme. ONGC’s polices are employee-
friendly and encourage workers’ participation in management. The process is facilitated by informative,
consultative, associative, and administrative forum that encourages participation and foster innovative
culture. Also such practices, including the mentoring programme, could facilitate in building a positive
work environment to propel excellence in ONGC’s performance.
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Performance Management and Mentoring 239
INTRODUCTION
Mentoring is defined as those activities, conducted by a mentor to help another person to successfully
perform the assigned job and also to develop, so that the person, who is being helped, can rise through
the ladder. The person who helps is known as the mentor and the person who receives the help is known
as the mentee. Every organization that aspires to align their human resources to grow emphasizes on
mentoring, as such emphasis can benefit the organization, making people competent to perform. Usu-
ally, in organizations, mentors are chosen from those who understand the job better and who are capable
of guiding the new recruits to gradually adapt themselves to jobs and make them learn and develop.
Mentoring process is done using different approaches like coaching, training, discussion, counseling,
etc. According to Fred Nickolas (2002), a mentor requires to follow the patterned behaviour or process.
During the mentoring process, the mentor often needs to be informal, to inculcate a sense of confidence
in the minds of the people, so that they can volunteer to learn and develop. The Merriam-Webster
Dictionary defines a mentor as ‘a trusted counselor or guide’. From this perspective, it is often said that
the mentor needs to be an individual who is older in age and senior in organizational hierarchy.

The term ‘mentor’ originated in Greek mythology. However, in organizations it was first institutional-
ized with the seminal work of Kram (1985). Since then, several pioneering research works on mentoring,
popularized mentoring in organizations. According to Burke and McKeen (1989), Hunt and Michael
(1983), Zey (1988), and Scandura (1992), mentoring is an essential component of an effective training
and development process within organizations. It is defined as a relationship through which employees
of the organizations are exposed to practical knowledge, guidance, support, and feedback from more
experienced employees within a given setting (Haney, 1997). To upgrade skills and so also to enhance
the satisfaction of employees, in the era of competition and market uncertainty, mentoring is now con-
sidered as one of the most powerful tools to enhance employees’ development and performance. Also
to make employees compatible with the organizational culture, mentoring is considered as the most
useful means (Jossie, 1997; Gunn, 1995). In today’s workplace, employees need to be multi-skilled
and powered with a wide range of cognitive, interpersonal, and technical skills. The basic premise of
mentoring is to emphasize on the situational or experiential learning (Kerka, 1997). Employees of the
organizations attach meaning to the work constructs. Hence, they need guidance to learn contextually
in relations with others. Good mentors facilitate learning to help employees to understand the ways and
means of problem solving (Kaye and Jacobson, 1996). In the process, protégés internalize the process
and construct their understanding.
Mentoring offers primarily two types of benefits: vocational and psychosocial . Vocational benefits
are achieved in terms of acquisition of specific skills, viz., apprenticeship (Haney, 1997). Psychosocial
benefits are those which assist the employees to socialize, improve their interpersonal skills, and allow
them for collaborative critical thinking, planning, reflection, and feedback (Galbraith and Cohen, 1995).
It enhances employees’ collegiality (House, 1981).
Kram (1983) suggested four phases of mentoring relationship process: initiation, cultivation, separa-
tion, and termination. Creating a positive mentoring relationship is the prerequisite for the success of
any mentoring programme. Once the relationship is developed, a mentor can influence the mentee for
positive behavioural changes, and with this support the mentee can increase the level of performance.
Therefore, the mentoring programme can systematically develop the knowledge, skill, and the leader-
ship ability of every cross-section of employees of the organization (Murray, 1991).
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Mentoring programmes can be both formal and informal. Which type of mentoring programme is
suitable for the mentees or protégés can be mutually decided by the mentors and protégés (Chao, Walz,
and Gardner, 1993; Noe, 1988). Also for effective results in mentoring programme, it is desirable to give
the protégés the freedom to select the mentor (Scandura and Siegel, 1995). The success of mentoring
over training and other forms of employee orientation programmes is now well recognized, and most of
the organizations now extend support for such programmes.
The protégé’s perception of the value of the experience is strongly influenced by the actual or per-
ceived similarities between himself and the mentor (Ensher and Murphy, 1997). When a protégé sees
himself as having something in common with his mentor, a bond or trust develops more easily. A foun-
dation of trust permits the protégé to try out new ideas and roles with minimal risk (Kaye and Jacobson,
1996). The mentor’s beliefs about the relationship also influence its effectiveness. When a mentor has
a laissez-faire orientation or sees the relationship as a contingency connected to rewards, the mentoring
relationship is less effective than when the mentor sees himself as facilitating a personal transforma-
tional process for the protégé.
Among others, mentoring does help in maturing an organization by increasing the retention, developing
new leaders, creating a high performance culture, and so also providing career growth for the employees.
Thus, we can call mentoring a form of training, learning, and development, and so also a means to
reinforce personal development of employees. However, it is our assumption that mentoring can only
be done by those who are the best. But any organization that aspires to institutionalize mentoring needs
to involve all cross-sections of employees in the process of mentoring; hence, it can’t just be limited to
the people who are the best and top in the hierarchy.
CHARACTERISTICS OF MENTORING
In the context of the aforementioned discussions, we can outline the characteristics of mentoring as
under:
It supports holistic employee development.
It helps employees to manage their career and at the same time to improve their skills.
It provides an opportunity to employees to discuss their personal issues and truly learn the job for
better performance.
It helps in reaching both the organizational and individual goals.
MENTORING AND COACHING

Mentoring and coaching are often construed as synonymous. But this is not always true. Coaching is a
process of developing skills and knowledge of people to improve their job performance. Hence, coach-
ing primarily focuses on achieving the goals of the organization. In that respect, coaching is more spe-
cific to facilitate achievement of employees’ goals so that organizational goals are achieved—it is nar-
row in approach. Often organizations that expect their employees to deliver results even with stretched
goals limit their focus on coaching.
On the contrary, mentoring is more holistic. It facilitates employees’ total development, builds rela-
tionships, and even inculcates confidence in employees which autonomously compels to take higher
responsibilities and deliver the best results. In our country, the Gurukul system of learning was more a
mentoring approach, as Gurus used to empower learners (mentees) focussing on holistic development.
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An institutionalized form of the Gurukul system is the guild system in organizations, and from here the
apprenticeship concept had emerged.
Based on these definitions, most coaches and mentors agree that a good coach can also be a mentor
and a good mentor can also be a coach, befitting the situation and the relationship. In considering the
best fit, therefore, the two approaches should be regarded as synergistic and complementary rather than
mutually exclusive.
To successfully implement mentoring and coaching programmes in organizations across all the func-
tional levels, at the outset, commitment from the top management is essential. With top management sup-
port, results are miraculous. In the true sense, mentoring being a sustained effort for performance improve-
ment, often organizations may not be able to extend the support for resource constraint. In such cases,
coaching is considered as the better alternative. Results from the coaching programmes are immediate.
This is why most of the organizations prefer coaching over mentoring, particularly when they feel the
challenge of immediate change and growth. Through effective coaching, organizations can quickly build
the employees’ capabilities and empower them for autonomous problem-solving and decision-making.
Companies that commit to coaching and mentoring gain in terms of increased employees’ loyalty, partici-
pation, and commitment to improve the performance both at the individual and at the organizational levels.
Coaching empowers employees and makes them understand their potential. It also helps them to
achieve their potential. For obvious one-to-one interaction, the coach and the coachee can collaborate
with each other to set their performance goals, keeping pace with the needs of the organization. For
obvious personal level interaction both can understand when to stretch goals and what supports are
needed to realize the stretched goals. Coaching helps in developing goals and so also the steps involved
in realizing such goals in measurable and manageable terms. As coaching need not be on an ongoing
basis, it can adopt a bundle of approaches like personalized learning, on the job study and feedback,
telephones, e-mails, etc. Characteristically, coaching and mentoring may be considered as the same. But
they are different in many respects. The purpose of coaching is to motivate and empower employees,
while mentoring essentially focuses on skill development and transfer, orientation about the company’s
policies and culture, new technology adoption, sharing of technical expertise, etc. We can list the differ-
ence between coaching and mentoring in line with Alred et al. (1998) in Table 12.1.
Table 12.1 Differences between coaching and mentoring

Mentoring Coaching
It ensures long-lasting relationship. In this case, relationship is relatively for a shorter duration.
It can also be informal and can take place at It is more formal and structured.
any point of time and anywhere, depending on
the needs of the mentee.
The process considers the mentee from a It focuses on specific issues or specific areas of develop-
broader perspective. ment of the individual.
Mentor during the process of mentoring shares Coach shares his knowledge, specific to the occupational
his/her own experience. role.
Here the focus is on career and personal devel- Here the focus is on development/issues at work.
opment.
Revolves more around developing the mentee Revolves more around specific development areas/issues.
professionally.
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Benefits of Mentoring
Mentoring benefits the organization in many ways. Some of these benefits are listed below:
It exerts positive impact on recruitment and retention.
It is very effective for succession planning.
It makes organizations adaptable to change.
It increases productivity through better engagement and job satisfaction.
Also mentoring benefits the mentored person in several ways, as under:
By facilitating development of mentored person in terms of knowledge, technical skills, and behav-
ioural improvements.
By better management of career goals.
By developing wider network of influence.
By increasing the confidence and self-awareness which helps in building performance and
contribution.
Mentoring also benefits the organization as a whole, more particularly the line managers and the HR as
both of them benefit through better employee focus and engagement.
Types of Mentoring
Mentoring can take several forms, and depending on the specific requirements of the mentee, spe-
cific types of mentoring are chosen by the organization. Some of the widely used mentoring forms are
explained below:
One-to-one Mentoring: This consists of usually one but sometimes more than one mentee to each men-
tor, with each mentoring relationship existing independently.
Group Mentoring (or mentoring circles): This typically consists of a group of several mentees and
mentors, with the ratio of one mentor for every two to three mentees, but no individual mentor being
allocated to a mentee.
The advantages of group mentoring are:
Efficient use of mentors, with a higher ratio of mentees to mentors.
The mentees in the group can build a rapport and integrate with colleagues.
The mentees can receive multiple sources of feedback.
However, group mentoring has several disadvantages:
Some people do not work well in a group environment.
There may be concerns about confidentiality.
The mentee has less or possibly no one-on-one contact with a mentor.
Group mentoring has to be more structured than one-to-one mentoring as scheduling is necessary
in order to accommodate everyone.
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Remote Mentoring: Some organizations are geographically dispersed. For example, several software
engineers and project managers may be located in different countries for an India-based software devel-
oper. In such cases, it may not be feasible to conduct on-site mentoring programme. Mentors here need
to conduct the programme via e-mail, teleconferencing, or through telephone. This is also known as
e-mentoring.
FOUNDATIONS OF A MENTORING PROGRAMME

To develop the human resources, organizations use the mentoring programme as a tool. Through inter-
active formal and informal mentoring, mentors make the mentees understand their job and achieve
excellence in doing the jobs. Mentees also get the privilege of questioning and exploring the criticality
of jobs, whenever there may be the need. To conduct an effective mentoring programme, organizations
need to comply with the following assumptions:
Must enforce deliberate learning: Mentors should promote intentional learning, making use of sev-
eral methods like instruction, coaching, sharing of experiences, modelling and advising, with the
focus on building the capacity of the mentees.
Must share both the failures and successes: Sharing of such experiences of the mentor helps the
mentee to understand the dynamics of experiences and, accordingly, they can also count on their
practices with appropriate selection of right or wrong.
Mentors need to tell their stories: Telling to the mentees personal scenarios, anecdotes, and case
examples develop better insight for the mentees.
Mentoring should be ongoing.
Mentoring needs to be a joint venture between the mentor and the mentee.
Mentoring must provide a sense of purpose to evoke responses from the mentees.
ETHICAL GUIDELINES FOR AN EFFECTIVE

MENTORING PROGRAMME
To ensure that the mentoring programme of the organizations yields results, it is necessary to follow
certain ethical guidelines. Such ethical approaches may vary from organizations to organizations. Even
then, we can follow certain generic ethical guidelines:
Ensure discussion between the mentor and the mentee. Such discussions may be continuous, may
be conducted at length, so that the relations between the mentor and the mentee strengthens.
Both the mentor and the mentee should respect each other’s time.
The mentoring process should facilitate in achieving the mentees’ goals, and not the goals of the
mentors.
Mentors must be sensitive to diversity and cultural issues while mentoring.
With the above ethical protocol, it is expected apart from the ethical compliance, organizations can
also achieve the desired results.
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CULTURE OF MENTORING
Mentoring culture can be defined as certain beliefs and norms that are instrumental in shaping the
process of mentoring in organizations. With a positive mentoring culture, organizations can achieve
excellence in business. Mentoring culture primarily focuses on nurturing a positive environment of
mentoring within the organization, facilitating multiple mentoring opportunities, and building a sup-
portive environment to facilitate individual and organizational growth.
Some of the important constituents of mentoring culture are:
Accountability: To make people accountable, it is necessary to inculcate shared intention, sense of
responsibility, and ownership. All these make people committed for action and consistent in practice.
Also a sense of accountability makes people involved in goal setting, clarifying of expectations, defin-
ing of roles and responsibilities, monitoring of progress and measuring results, collection of feedback,
and formulation of action plans for achieving goals.
Alignment: This culture of mentoring focusses on the consistency in mentoring practices, keeping pace
with the culture of the organization. Cultural-fit between the mentoring and the makes the process of
mentoring more successful. Also it promotes shared understanding on the organizational values, prac-
tices, missions, and goals.
Communication: The culture of communication by increasing the mutual trusts and relationships,
achieve excellence and positive results in mentoring. Communication also creates value, promotes
learning, and strengthens mentoring within the organization.
Value and Visibility: For developing a sound culture of mentoring, mentors also make effective use
of storytelling, role modelling, rewarding, recognition, celebrating, etc. Such activities create proposi-
tion and also sustain the inculcated value and visibility. Mentees can also successfully emulate the best
practices.
Demand: The mentoring culture in organizations need to be developed in a way so that people autono-
mously demand mentoring support. Employees perceive mentoring as a way to strengthen and develop
them.
Multiple Mentoring Relationships: Sound culture of mentoring also ensures role reversal for the
mentees, i.e., mentors become mentees and mentees become mentors. Such multiple mentoring rela-
tionships facilitate reflective conversation and add value to the process of mentoring.
Making Use of Multiple Mentoring Opportunities: This combination approach also firmly reinforces
the culture of mentoring. For example, many organizations combine group and one-on-one mentoring
to reinforce the process of learning.
Education and Training: For improving the culture of mentoring, some organizations often emphasize
on strategically integrating the training and development function with the process of mentoring. This
type of integration facilitates the exchange the best practices and promotes peer learning.
All these cultural constructs of mentoring facilitate in augmenting learning, maximizing time and effort,
and better utilization of resources. Mentored people feel more aligned with the organization and, ulti-
mately, they create value for the entire organization.
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Mentoring at IBM
Mentoring at IBM is one of the critical employee development initiatives. IBM ensures clarity of mentor-
ing goals and objectives, access to mentoring relationships across different functional and expertise
areas, and employee input into the matching process. At IBM, traditional mentoring programmes are
strengthened by web-based experiential learning, through which even employees are exposed to cross-
functional aspects to develop them holistically. Mentoring relationships at IBM support the strategic
objectives, and also build trust establishing cross-country connections across the IBM people. For its
global presence, IBM’s mentoring programme emphasizes virtual learning on just-in-time basis. This is
what IBM calls speed mentoring. Speed mentoring at IBM emphasizes on virtual group mentoring to
solve specific problems and to share information having relevance for IBM.
EXECUTIVE MENTORING
Conventionally in organizations, mentoring programmes are used for operation-level workers to
make them understand the technology-enabled process of manufacturing. However, today’s complex-
ity of business also requires systematic executive mentoring. Executive mentoring is reinforced by
the management development and education programmes in organizations. Executive mentoring, by
stimulating the individual growth of the executives, builds their capabilities and enables them to deliver
the business performance. It benefits the executives and, indirectly, also benefits the organization in the
following ways:
It builds a solid personal foundation and inculcates strong confidence in executives.
It develops executives’ personal vision and uncovers their value priorities.
It enables executives to think strategically and inspires people down the line with a shared vision,
mission, and values.
It facilitates in determining appropriate goals, strategies, tactics, and action plans.
It enhances their management and leadership skills.
It identifies their personal winning strategies.
It helps executives to overcome their unhealthy habits, which are counterproductive for perfor-
mance.
It helps executives to change themselves positively and, accordingly, they can demonstrate high
commitment for achieving the performance results for the organizations.
SUMMARY
Performance mentoring in organization is used career and personal development. In a mentoring
primarily to develop leadership and build the process, the mentor helps the mentee to success-
capabilities of the employees so that organizations fully perform the assigned job and also to develop,
can sustain and grow. Through mentoring, senior so that the person who is being helped can rise
or more experienced persons of the organization through the ladder. Organizations emphasize on
guide and help the junior level employees for their mentoring to make people competent to perform.
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A mentor is a person chosen from the organiza- mentoring is now considered as one of the most
tion, among those who understand the job better powerful tools to enhance employees’ develop-
and who are capable of guiding the new recruits to ment and performance. Also, to make employees
gradually adapt to their jobs and make them learn compatible with the organizational culture, men-
and develop. The mentoring process involves dif- toring is considered as the most useful means. In
ferent processes, like coaching, training, discus- essence, mentoring develops the skills of self-
sion, counseling, etc. To upgrade skills and so leadership, understanding of the reality, and, more
also to enhance the satisfaction of employees, in particularly, the emerging situations in a competi-
the era of competition and market uncertainty, tive market scenario.
KEY WORDS
Protégé—Protégé is the mentee, i.e., one who gets Alignment—This culture of mentoring focuses
mentored. When a protégé sees himself as having on the consistency in mentoring practices, keep-
something in common with the mentor, a bond or ing pace with the culture of the organization. Cul-
trust develops more easily. A foundation of trust tural-fit between the mentoring and the makes the
permits the protégé to try out new ideas and roles process of mentoring more successful. Also it pro-
with minimal risk. motes shared understanding on the organizational
values, practices, missions, and goals.
Value and Visibility—For developing a sound
culture of mentoring, mentors make effective use Remote Mentoring—If the mentor and mentee
of storytelling, role modelling, rewarding, rec- do not work in the same location, the mentor-
ognition, celebrating, etc. Such activities create ing may have to be done over the phone or via
proposition and also sustain the inculcated value e-mail and/or some other method of electronic
and visibility. Mentees can also successfully emu- communication—also known as e-mentoring—
late the best practices. e.g. instant messaging or social networking.
1. Discuss the concept of performance mentor- 5. What are the important cultural constructs of
ing. What are its important characteristics? effective mentoring? How can organizations
2. Explain how mentoring and coaching can meet such requirements?
influence employees’ performance. In what
way does mentoring differ from coaching? 6. Short Notes
3. What are the important benefits of mentor- (a) One-to-one mentoring
ing? How can such benefits improve employ- (b) Multiple mentoring relationships
ees’ performance in organizations?
(c) Executive mentoring
4. Discuss the areas of priority for an organiza-
tion to introduce a mentoring programme. (d) Psychosocial benefits of mentoring
M12_9788131754221_C12.indd 246 5/17/2011 12:15:45 PM


7. Some of the major Indian organizations like Visit their Web sites, and based on Web site
NTPC, ONGC, Infosys, TCS, Tata Iron and information give an outline of mentoring
Steel, etc. make extensive use of mentoring. practices in Indian organizations.
REFERENCES
Bhattacharyya, D.K. (2010), Human Resource Jossi, F. (1987), ‘Mentoring in Changing Times’,
Development (Mumbai: Himalaya Publishing). Training and Development, 51(8): 50–54.
Bhattacharyya, D.K. (2009), Compensation Kaye, B. and B. Jacobson (1996), ‘Reframing
Management (New Delhi: Oxford University Mentoring’, Training and Development, 50(8):
Press). 44–47.
Burke, R.J. and C.A. McKeen (1989), ‘Develop- Kerka, S. (1997), ‘Constructivism’, Workplace
ing Formal Mentoring Programs in Organiza- Learning and Vocational Education, ERIC
tions’, Business Quarterly, 53(3): 76–99. Digest No. 181 (Columbus, OH: ERIC Clear-
Chao, Georgia, Pat Walz and Philip Gardner inghouse on Adult, Career, and Vocational
(1992), ‘Formal and Informal Mentorships: A Education).
Comparison on Mentoring Functions and Con- Kram, Kathy (1985), Mentoring at Work (Glen-
trast with No Mentored Counterparts’, Person- view, IL: Scott, Foresman & Co.).
nel Psychology, 45: 619–36. Karm, K.E. (1983). ‘Phases of the Mentor Rela-
Ensher, E.A. and S.E. Murphy (1997), ‘Effects tionship’, Academy of Management Journal,
of Race, Gender, Perceived Similarity, and pp. 608–25.
Contact on Mentor Relationships’, Journal of Murray, M. (1991), Beyond the Myths and Magic
Vocational Behavior, 50: 460–81. of Mentoring: How to Facilitate an Effec-
Galbraith, M.W. and N.H. Cohen (1995), Men- tive Mentoring Program (San Francisco, CA:
toring: New Strategies and Challenges (San Jossey-Bass).
Francisco, CA: Jossey-Bass). Noe, R.A. (1988), ‘An Investigation of the Deter-
Gunn, E. (1995), ‘Mentoring: The Democratic minants of Successful Assigned Mentoring
Version’, Training, 32(8): 64–67. Relationships’, Personnel Psychology, 41:
Haney, A. (1997), ‘The Role of Mentorship in the 457–78.
Workplace’, in M.C. Taylor (ed.), Workplace Scandura, Terri (1992), ‘Mentorship and Career
Education (Toronto, ON: Culture Concepts), Mobility: An Empirical Investigation’, Journal
pp. 211–28. of Organizational Behavior, 13: 169–74.
House, J.S. (1981), Work, Stress, and Social Sup- Scandura, T. A. (1998), ‘Dysfunctional mentoring
port (Reading, MA: Addison–Wesley). relationships and outcomes’, Journal of Man-
Hunt, D.M. and C. Michael (1983), ‘Mentorship: A agement, 24(3), pp. 449–467.
Career Training and Development Tool’, Acad- Zey, M. (1988), ‘A Mentor for All Reasons’,
emy of Management Review, 8(3): 475–85. Personnel Journal, 67(1): 46–51.
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CASE STUDY
McDonald’s—The Destination to Career Growth and Performance

McDonald’s develop their performance objectives and, initially, explain the performance objectives to the
employees. The process is done by the senior management, who then explain to the rank and file the
overall objectives of the organizations for the coming year, and then make them understand how their
contribution at the department and at the individual level would help the company in achieving the same.
Such traceability of individual performance to the overall objectives of the organization make people
feel responsible to deliver their best. The company essentially believes in teamwork. Hence, individual
team member’s understanding of their performance objectives and its cascading effect to the team and
the organization as a whole, when further spelt out by the managers in measurable terms, automatically
develops their self-esteem as they gain a sense of ownership. At this stage of performance goal setting,
managers also emphasize on mutual agreement. The compelling culture of performance makes every
member of the organization volunteer to achieve the results. Every employee of McDonald’s gets the
opportunity to choose in which skill areas they need more inputs, and accordingly they can choose their
learning and so also the option top renew their skills. Employees’ development is also facilitated by sys-
tematic mentoring programmes. Mentors help the mentees to acquire new skill sets on job and gradually
become a good performer. The primary focus of the mentoring programme of McDonald’s is to make
people gradually adapt to the culture of increased performance and sense of responsibility, and even
volunteer to develop their juniors. At McDonald’s, people are enthusiastic about performance, want to
learn new skills, and are even eager to take up new responsibilities and more complex work.
The compelling culture of performance has now made McDonald’s the ultimate destination for young
job seekers.
The global fast-food giant attributes its success to employee development and career paths. Globally,
many managers of McDonald’s started their careers with their restaurants. The company’s performance
development system is so designed that it drives consistent performance improvement of employees,
and so also their development and growth. The system includes individual performance and devel-
opment plans, employee reviews, and roundtables for performance calibration and talent review. The
founder of McDonald’s, Ray Kroc, believed that good performers need to be always taken care of.
The company’s name is so deep-rooted in the minds of the people that they get application from a
large number of prospective candidates. Employer branding for McDonald’s is so strong that a series
of research studies indicated that parents largely believe that their children must work at McDonald’s.
Parents believe that by working with McDonald’s, they could see positive changes in the minds of their chil-
dren, such as improved communication skills and increased confidence. On the other hand, McDonald’s
could also observe high levels of satisfaction and commitment among their young employees.
Question: From the above case study explain how McDonald’s has been so successful in branding itself
as the most favourite destination for young job seekers.
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CHAPTER 13
Performance Measurement
Learning Objectives
Definition and concepts of performance mea- Scales for evaluation of performance measures
surements Performance matrix and models
Measuring of performance
General and specific performance measures
Selection of performance measurement criteria
Key performance indicators
Integrated performance measurement systems
Statistical methods of performance measures Performance measures through productivity
indices
Performance measures through ranking and
rating
Linking Organizational Strategies to Individual Level Performance Goals

By aligning strategies with performance management systems, organizations achieve excellent per-
formance results. Organizations adopt strategies to achieve their defined goals and objectives. A well-
developed strategy map for any organization gives the sense of direction to all cross-section of orga-
nizational members. Linking such strategies with the individual performance goals in the form of key
performance areas(KPA) and key result areas (KRA), benefit the organization to reap the benefits of
competitive advantage through the high performance level of organizational members.
Alignment of strategies with people working in organizations could be best possible by relating pro-
cesses to the performance management systems (PMS) of the organizations. Such strategy aligned
PMS facilitate organizations not only to transform the people cascading the strategic objectives but it can
also facilitate effective utilization of corporate strategy, and in the process get more from those people.
To do this effectively, it is important for the top management of the organization to be committed and
involved with the process, including understanding of organizational vision, mission, strategy, values,
and life-cycle. By using a balanced scorecard, organizations can pursue their strategy to get a unique
edge in a competitive market.
Before alignment of strategies with PMS, it is important to identify, analyse, and prioritize core busi-
ness processes and key customers. Effective analysis and definition of key customer requirements
ensure short listing of critical business drivers and measures, which can then be cascaded to indi-
vidual employees’ goals and objectives (against the identified key drivers), which can be called as the
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key performance indicators (KPIs). Like KPIs, human resource practices of the organizations are also
aligned and integrated to business strategy to ensure congruence and synergy within the organization.
This is a holistic approach to align the organizational strategies with the performance goals at the indi-
vidual, group, department, division, and organizational level. It can also facilitate introduction of perfor-
mance linked compensation design and set the behavioural standards at the individual level.
INTRODUCTION
Measuring is the act of assigning numbers to properties or characteristics. We measure to quantify
a situation, to regulate, or to understand things we see. We measure with gauges and instruments
or simply by counting things. Managing performance is highly dependent on well-designed PMS,
which provides a clear link between strategy and human behaviour. Performance of the organiza-
tion is completely dependent on the performances of its processes. In fact, in any organization, its
performance is equal to the sum of the performance of its processes. Processes are the sequence of
cross-functional activities performed by people and machines, which combine valuable resources to
convert inputs into outputs. ISO 9000 documents define a process as a ‘Set of interrelated or interact-
ing activities, which transforms inputs into outputs’. These activities require allocation of resources
such as people and materials. It is processes, which provide the link between organizational level
goals and the work performed by employees. Processes can be measured effectively. Measurements
may be applied to many aspects and attributes of processes and the critical few are time, quality, cost
(financial), and scale.
Performance measures can help us understand and improve performance. It is exciting to measure, to
benchmark, and to stretch to do better. It is important that performance measures be as direct as possible.
Some of the important cardinal principles of performance measurements are as follows:
Measure performance parameters as directly as possible viz., to improve employees’ attendance
measure attendance. Similarly to improve cycle times, measure cycle times.
Perform both enumerative as well as analytical studies. Enumerative studies are those that show
how things are but cannot put any value in predicting. A census is an enumerative study. Analytical
studies are those that study the process and show what that process is capable of doing in the future
unless something changes that process.
Dr. Walter Shewhart (1931), a pioneer in statistical process control, said a process consists of equip-
ment, methods, materials, and people blended to produce output in a given environment. Hence to
improve performance, better process measurement techniques are most important. Statistical process
control helps to quickly detect the occurrence of assignable cause or process shifts so that investiga-
tion into the process and corrective action there upon can be taken before any non-conforming units
are manufactured. Assignable causes are those, which may occur due to improperly adjusted machines,
operators’ errors, and defective raw materials or other inputs. These cause some variability in the qual-
ity characteristics. A process that is operating under assignable causes over and above change causes is
said to be out of control.
That measurement of process is an integral part of performance management system, is evident from
Figure 13.1.
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Performance Measurement 251
Activity Benefit Potential
• Manage performance and continuous

Manage
improvements
• Execute actions to improve lead times,

Improve
optimize resources, etc.
Measure • Identify costs, lead time, quality, cost

and for non value adding activities,
Simulate improvement potential, problem areas
Document
• Improved routines, securing of quality
• Increased understanding, involvement,

Identify
ideas
Figure 13.1 Measurement process of PMS
MEASURING PERFORMANCE
Many types of methods can be used for performance measurement. Any performance measure focus
on three aspects, i.e., inputs (management, strategies, and resources), outputs (products produced and
services rendered), and outcomes (impact). We can further analyse inputs at more precise level in terms
of throughputs, i.e., timeliness and reach of the resources. Which method fits the organizational require-
ment has to be assessed by the human resource (HR) managers. Here, however, we have discussed the
general features and pros and cons of various methods for appreciation. Various measurement tech-
niques are listed below:
1. Qualitative or quantitative measurement.
2. Observation or subjective response.
3. Methods for collecting information.
4. Naturalistic observation of ‘behaviour stream’—what’s happening where, when, and at what frequency.
5. Structured observations.
6. Questionnaires.
7. Interviews.
8. Simulation.
9. Performance trials.
10. Fitting trials.
11. Observing traces of behaviour, etc.
(a) Evaluative criteria.

(b) Frequency of problems.
(c) Completion of tasks.
(d) Productivity.
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(e) Elapsed time.

(f) Rate of performance.
(g) Accident rate.
(h) Energy utilization.
(i) Accuracy.
(j) Complaints.
(k) Frequency of complaints.
(l) Independence.
Measurement Quality
Just measuring performance is not enough! As major HR and various cross-functional decisions are
taken based on the performance measurement, quality of measurement needs to be ensured. The follow-
ing terms are intertwined with the measurement quality:
Reliability—measurement technique does what it is supposed to do.
Sensitivity—technique is able to capture differences in performance.
Validity—applies to all the cases of concern.
Power—categorical, ordinal, interval.
Comparing results and methods ensure reliability, which may be inter rater and intra rater. If the mea-
surement is reliable then by default stability is ensured. Sensitivity is the test in different settings and
users. Validity avoids sampling bias and replicates the same results.
Selection of Performance Measurement Criteria

Most commonly used performance measurement criteria are:
Production counts.
Personnel data.
Judgmental methods.
Work samples methods.
Production counts measure what a worker produces on the job. The worker with the higher production
count is assumed to be the better worker. However, for many jobs, it may not be feasible to measure
performance in terms of production counts. This is more applicable for managerial jobs. Moreover there
is some possible dangers in production count method. It might change the behaviour of the worker. They
may get pre-disposed to achieve higher results at the cost of job related stress, which in turn may be
detrimental to decrease overall job performance. It may also create ‘The Hawthorne Effect’, i.e., deliber-
ate change of behaviour to create favourable impression. More important is that production counts by
default may not be attributable to workers’ performance. There may be other factors which influence
workers’ performance. In such cases product count as a performance measurement tool may utterly
defeat the purpose. For all these problems, production count should not be used as a stand-alone method
for performance measurement.
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Another popular way to objectively measure job performance of employees is to use information
from the personnel data. What could be the type of information that needs to be couched from per-
sonnel data largely depends on the raters’ way of interpreting good performance. It is necessary to
develop a personnel index based on the identified performance criteria and then match the information
to measure the performance based on the employee’s data. The biggest problem in this case is attribut-
able to raters’ failure to understand the criteria and too much leniency on some narrow parameters like
absenteeism, etc.
Absenteeism as performance measurement criteria is often used by many organizations and based
on the respective employees’ absenteeism data, performance rating is done. The biggest problem is to
define absenteeism by the rater. How it is defined may greatly affect the job performance. Secondly,
absenteeism may not be normally distributed and hence as a work performance variable, it may create
difficulty. Finally, measures of absence are largely unrelated—on a year-to-year basis and hence such
data has low reliability.
Apart from these, work samples as measures of job performance are also extensively used by many
organizations. This approach requires measurement of specific tasks associated with the specific job
title. Thus it considers developing of a job performance construct based on two factors, i.e., perfor-
mance of specific individual tasks (which forms part of workers’ job description) and behaviours which
facilitate the effective job performance for the said tasks. As this requires detailed analysis of job and
relates it with specific tasks involved, it requires strenuous testing, which may not be liked by the
organizations.
Integrated Performance Measurement Systems

The process of combining different attributes of the organization within a hierarchical structure is called
an integrated performance measurement framework (PMF). PMF establishes direct link between the
top-level measures (such as shareholder value added (SVA)) and the action plans of the entire organiza-
tion. These collectively add up to the achievement of the established goals. Performance measurement
criteria are different for various levels. Strategic measures capture the value of stakeholder’s investment
benchmarking with other competitors. Tactical measures are key performance indicators, which collec-
tively capture the overall performance of the enterprise and act as predictors of future success. Opera-
tional measures or in-process and output measures are used for monitoring, control, and improvement
of the basic work processes of the enterprise. This we have illustrated while explaining the performance
matrix.
STATISTICAL METHODS OF PERFORMANCE

MEASURES
Statistical methods can help us in performance measures, if we broadly adopt the process approach as
advocated by Dr. Walter Shewhart (1931). Two main aspects of statistical methods deal with statistical
distributions and statistical control.
At the outset, HR managers should understand statistical concepts on variation, including statisti-
cal distributions and statistical control. HR managers should also understand special causes, common
causes, and control charting. In addition, they should clearly understand the concept of manipulation
with a process.
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Workers perform the operations in the system. Variation study demonstrates how workers in a given
process are capable of performing. . This natural pattern of variation shows, what the process is capable
of doing to improve the work performance. If the process is in control, then performance of workers
would be in its natural capability, or else performance will be less than the expected levels or standards.
Use of Control Charts for Measuring Performance Variation

To measure the variation in performance, we can make use of statistical methods by developing control
charts. The control chart is a tool for on-line process control, widely used for the detection of assignable
causes of variation. It is a graphical display of a sample quality measure versus sample number (or time).
The chart shows a centre line that represents the average value of the quality characteristic, correspond-
ing to the in-control state. Two other parallel horizontal lines, called the upper control limit (UCL) and
the lower control limit (LCL) are also shown on the chart. Control charts compute control limits and val-
ues that fall outside the control limits (outside the UCL and LCL) are considered as signals of special
causes and must be investigated. Good performance measures are also assessed using statistical methods
like run charts. When the results are plotted, values are observed in relation to the centre (median) line.
In any process, proper checks through control charts are exercised at strategic points. In the case of
measurable quality characteristics a pair of control charts—one for X bars to control the average level of
the process and the other for R to control dispersion are used. Many quality characteristics are not mea-
sured on a numerical scale. In these cases, we may judge each unit of product as either conforming or
non-conforming on the basis of whether or not it possesses certain attributes, or we may count the num-
ber of non-conformities (defects) appearing on a unit of product. Control charts for number of defects
or defectives are used in such situations. As long as the points plot within the control limits, the process
is assumed to be in control and no action is necessary. However, a point that plots outside the control
limits is interpreted as evidence that the process is out of control and investigative and corrective action
is required to find and eliminate the assignable cause or causes responsible for this behaviour.
Control Charts for Measuring Performance Attributes

Similarly for measuring attributes, attribute control charts like p, np, u, c, are also used. The Proportion
Defective Chart (p-chart) is used to control the proportion of defective product in samples taken from a
process. This chart is also referred to as the fraction non-conforming or fraction defective chart. P-chart
or fraction defective chart is defined as the ratio of the number of defective items in a population to the
total number of items in that population. The sample fraction defective (p) is defined as the ratio of the
number of defective units (d) in the sample to the sample size ‘n’ , i.e., p = d/n, where ‘n’ is a sub-group
size. If LCL is negative, it is taken as zero.
The Number Defective Chart (np-chart) is an alternative chart that may be substituted for the p-chart.
The underlying distribution for the np-chart is the binomial. In the case of the np-chart, the sample size
must be constant. Rather than calculating the proportion of defective items in a sample for plotting on a
p-chart, the np-chart allows the actual number of defective units to be plotted directly. This eliminates
the need for one calculation (p) thereby decreasing the probability of an error. The np-chart also is some-
what easier for production operators to understand.
C-chart or control charts for non-conformities is used to control the average number of defects per
inspection unit in samples of fixed size. The inspection unit may be one item or multiple items. The
underlying distribution for the c-chart is the Poisson. A defective (or non-conforming) unit is a unit of
product that does not satisfy one or more of the specifications. Each specific point at which a specification
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is not satisfied, results in a defect or non-conformity. In this case, each sub-group consists of a single unit
and ‘c’ would be number of defects observed in one unit. It should be remembered that each inspection
unit must always represent an identical ‘area of opportunity’ for the occurrence of defects.
U-charts (sometimes referred to as ‘rate’ charts) deal with event counts when the area of opportu-
nity is not constant during each period. The steps to follow for constructing a u-chart are the same as a
c-chart, except that the control limits are computed for each individual quarter because the number of
standard units varies.
All these control charts, one way or the other help us to measure the performance standards in quan-
titative terms. Figure 13.2 illustrates these concepts in a detailed manner.
Apart from these, histograms (for spread of data), Pareto graph (80/20 rule, i.e., 80 per cent improve-
ment in performance can reasonably be expected by eliminating 20 per cent of the causes of unac-
ceptable quality or performance), process capability study, etc., are also very effective for quantitative
performance measurement.
Selecting the Proper Basic Control Chart(s)
Are Data Variables or Attributes?
Variables
Single Product Product Family

Single Process Variances not Attributes
significantly
different
Sample size Defects? Defective
Units?
n=1 n < 11 n > 10

Sample Size
x and x-bar and x-bar and

MR charts R charts S charts Fixed Variable
Delta and
R or S charts p p or np
chart chart
Sample Size
Fixed Variable
c u
chart chart
Figure 13.2 Control charts
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A histogram is a graphic display of resource utilization and it is shown using coloured vertical bars
to indicate over-utilization and under-utilization of resources over a period of time. Pareto principles
are based on ‘a vital few trivial many’. This is because of inter-dependence and inter-relationship in
motive strengths. HR managers can make extensive use of both histograms and Pareto graph in other
HR research areas also.
Process capability is a statistical measure of the inherent process variability for a given characteris-
tic. The process capability index is the value of tolerance specified for the characteristic, divided by the
process capability. Process capability indices include the widely used Cpk and Cp. A process capability
index can only be calculated from data collected while the process is in control. Hence when perfor-
mance variability is within control, we can develop a capability index measuring process capability as
–
P—the average proportion defective produced by the process when it is operating in control. Therefore,
–
if a P = 0.0016 it indicates that on average 99.84 per cent of the product produced by this process when
it is operating in control is acceptable, while 0.16 per cent are defective.
PERFORMANCE MEASURES THROUGH RANKING

AND RATING
Performance measurement through rating and ranking system is again another important area of con-
sideration. Rating systems measure worker’s performance compared to some set standard. The rating is
done listing desired objectives, skills or traits alongside a scale, which may be 1–5, ‘poor to excellent’
type. For making the ranking process simple, we normally make use of easy-to-read type of scale, keep-
ing in view the basic scale construction norms, as detailed earlier. This, however, significantly depends
on the judgment of the rater. Commonly we find use of subjective rating or observer rating scales.
Subjective rating scales are psychophysical and it measures response to environment quantitatively.
It is basically designed on ergonomic principles and developed through a process of empirical testing.
Because of ordinal measurement of response, reliability, and validity such type of scales can be tested.
Observer rating scales are used in real time for establishing a scoring algorithm for overall activity. This
scale requires task analysis to break down task into components and assign scoring algorithms for each
task component. To ascertain the degree of fit, one must obtain both an outside evaluation (observer
rating) and a subjective evaluation (subjective rating). Different types of scales which are used for per-
formance rating are as follows:
Graphic Rating Scales: This is the single most common way of evaluating worker performance. Here
the manager or the rater can directly judge quality of performance of employees on a specific response
scale. Response scales may be:
Continuous Scales: Which computes score measuring the distance from one end of the scale.
Verbally Anchored Scales: Here some discrete categories are anchored on either end of the scale
with the range of abilities. The nature of verbal anchor scales varies with the specificity of the
verbal anchors.
Numeric Scales: In this scale, verbal anchors with a numerical range within each category are
shown.
Graphic scales are simple to use and allow for computation of scores to compare workers’ overall job
performance. However, problems with graphic rating scales are enormous. If such problems are not
taken care of, the whole purpose of performance rating may be defeated. For not defining precisely the
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anchors, such scale may sometimes be ambiguous. Raters may use the scale in different ways, which
may raise the problem of validity (when two workers are rated by different raters). However, such
problems now-a-days are eliminated significantly by using various behaviour-based scales, which help
us to assess specific work related behaviours. Some of the behaviour-based scales are discussed below.
Several alternate measurement methods and systems have been developed over the years includ-
ing management-by-objectives (MBO), behaviourally anchored rating scales (BARS), the mixed-stan-
dard scale (MSS), quantitatively measurable performance criteria, and the use of multiple raters or
360-degree feedback.
Management-by-Objectives (MBO)
Performance management systems utilizing MBO strategies requires managers to set mutually agreed
upon, observable, and measurable objectives and goals for the employees and their bosses. ‘Each level
of the organization sets goals that complement those set at the next highest level. In many cases, indi-
vidual monetary rewards (bonuses, merit increases, etc.) are tied to MBO goals’ (Wright, 1994). One
criticism of the MBO strategy is that employees tend to focus on attaining their objectives to the detri-
ment of their other, non-measured responsibilities. Edwards, Borman, and Sproull characterize (1985)
MBO ‘as one of the greatest management illusions. The technique simply increases pressure on the
individual and is self-defeating’.
Behaviourally Anchored Rating Scales (BARS)

Behaviourally anchored rating scales are ‘descriptions provided on appraisal forms and surveys which
describe a precise level of performance’. These are designed to reduce the rating errors of conventional
scales. The scale includes number of performance dimensions like leadership, teamwork, communication,
initiative, adaptability, etc. BARS were developed with the hope of improving rater accuracy by providing
job-related behavioural anchors and altering the format of rating scales. BARS anchor each rating interval
with descriptions of a behavioural incident. BARS eliminate the confusion and common error caused by
open-ended rating scales (i.e., what is the difference between satisfactory and good?). Another advantage
provided by BARS is that they focus the appraisal on behaviour rather than personality characteristics
(Brown, 1985). Unfortunately, while behavioural anchors offer specificity in setting performance levels,
research has indicated that BARS offer no performance measurement superiority over conventional sys-
tems. They are also time consuming and difficult to develop, especially if there are many dissimilar job
slots. To develop BARS for just one job, that job must be separately and carefully analyzed and perfor-
mance levels must be described in detail for several of the job’s areas (Edwards et al., 1985).
BARS are similar to graphic rating scales, but uses specific behaviours to anchor the scale. The
development of BARS requires extensive input from supervisors in order to determine which behav-
iours are task relevant and assess some important aspect of job performance. The care taken in develop-
ing BARS helps to reduce across supervisor variability.
The Mixed-Standard Scale (MSS)

Mixed-standard scale is considered ‘superior to BARS in reducing halo and leniency errors. MSS dis-
guises dimensions and ordinal relationships among items so that the rater cannot detect an order of merit
in the items. In MSS, all items are presented in random order and raters must respond without knowing
whether a low, medium, or high rating for a particular item has a positive, neutral, or negative correlation
to performance. Raters are required to choose one of the following three responses for each item: the
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ratee’s performance is lower (or poorer) than the item description (-); the ratee’s performance fits the
item description (0); or the ratee’s performance is higher (better) than the item description (+). This
format provides for error counts that can be used to identify rater errors, systematic rating tendencies,
and ambiguous dimensions, thereby providing the opportunity for rater feedback. MSS can be used with
multiple raters. Despite its advantages, many raters experience frustration with this system, and it has
little industry support’ (Edwards and Sproull, 1983).
Mixed-standard scale (MSS): Good, average, and poor performance is assessed with respect to spe-
cific job related behaviours. A number of different items are used to assess each performance dimension.
For example, an MSS for police officers might measure the dimensions of judgement, relations with
others, and job knowledge. The advantages of MSS are they refer to concrete observable behaviour, and
they require relatively simple judgements on the part of the supervisor.
Behavioural Observation Scales (BOS)

Behavioural observation scales was developed by Latham and Wexley (1977) who believed that both
graphic rating scales and BARS require supervisors to make vague judgements. The BOS is a list of
‘critical’ behaviours which the supervisor has to rate in terms of frequency. Items indicate either desir-
able or undesirable aspects of work performance:
Worker never needs her or his work to be double-checked ________
Worker misses workdays ________
RANKING SYSTEMS
Ranking systems take a markedly different approach by comparing employees against one another and
then assign a rank order. This is similar to grading system in the classroom. Here we do not apply a set
standard to all employees and the best performer can determine where everyone else will fit in. This
system promotes healthy competition among employees and when reinforced by an effective incentive
programme, it even develops a cascading effect on productivity enhancement. There are various types
of ranking, which is primarily decided based on the organizational need and nature of data.
Forced Distribution: It divides the workforce into three categories: high performance, average
performance, and low performance. This distribution is known as forced, as only a small percentage
of workers can receive high or low rankings. The forced distribution helps to solve the problem of
supervisors who like to rate the vast majority of workers at the highest level.
Full Ranking: Here instead of sorting workers into general categories, we do a complete rank
ordering of all employees, so that no two workers are at the same level of job performance.
Paired Comparison Method: This method of ranking orders workers by comparing each worker to
every other worker, thus forcing the rater to make relative judgments. However, operational difficulty
may be experienced in case we have more employees.
Which type of ranking method is more suitable in a given situation will depend on number of factors.
For example, degree of efforts, which HR managers may like to put for ranking and the intended usage
of ranking results, are two primary factors to decide suitability of a ranking method. Forced distribution
may be extremely necessary in cases where decisions like lay-off, etc., need to be taken.
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Comparing Job Performance Rating Systems

We really do not have any consensus on effectiveness of a job rating system. Despite its numerous
flaws, graphic-rating scales are still considered effective. Perhaps for this reason, psychological thought
process of the individuals while filling out the rating forms has now become more important than the
type of rating system. Many organizations use only a single measure of job performance. In such cases,
it becomes difficult to find converging or diverging evidence to authenticate judgmental ratings. This is
why using inter-rater reliability to estimate validity is considered more appropriate for measuring job
performance. However, if we are able to define job performance very precisely, performance measures
are likely to become more accurate. HR managers need to take guard against possible rating errors like
halo, leniency, and range distortion. Halo errors stem from the general impression of the rater about the
person being rated. Leniency errors may either result in rating all very high or very low. Range restric-
tion errors fail to make fine distinctions between the performances of employees doing similar nature
of job. Apart from these, at times there may be memory distortions of the rater, in cases when a rater
requires to rate a large number of employees. To guard against all these problems, Schmidt et al. (1979)
have suggested quantifying the value of job performance, using standard deviation as a measure. This
method assesses the difference, in money terms, between the value of an average worker and the value
of an exceptional worker.
Multiple Raters/360-degree Feedback

Multiple-rater and 360-degree feedback instruments are better performance assessment alternatives to
eliminate errors in performance measurement. Multiple-rater feedback is different from 360-degree
feedback. 360-degree feedback collects and analyse inputs from the employees’ immediate boss,
peers, direct reports, suppliers, and customers (if applicable). Some organizations also do collect self-
rating inputs from the employee concerned. Multiple-rater feedback on the other hand consists of
more than one rater, usually four or more. It is not necessary for the multiple raters to collect inputs
from all sources, like what we do in 360-degree feedback. Numerous research studies like Pollack and
Pollack (1996) have proved that multiple assessment tools are more reliable and valid for performance
measurement.
Scales for Evaluation of Performance Measures

Here we will discuss some of the practical means of performance research using rating and ranking
system. While technical details of various validated scales have been discussed in general chapters, here
scale constructions and measurement tools are more need based for correct evaluation of performance.
Some of these are discussed below:
Results-based Scale: For this scale, we need to develop a statement on the critical result, which helps
us to get the expected output and then administer on the selected employees whose performance evalu-
ation is done. Using a yes or no type of statements, where ‘no’ indicates 1 and ‘yes’ indicates 5, we
calculate the average of critical results (CRs) and then compare the ratings on a 5-point scale.
Measurability Scale: For this scale, result or measure(s) are objectively quantified in terms of cost,
quality, and timeliness using a 5-point scale, where 1 indicates ‘not at all’ and 5 indicates ‘to a very
great extent’. Performance rating is done based on the score assigned for each such identified measures.
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Monitoring Scale: This scale is used to track the work to ensure that it is actually accomplished. For
example, in case of any critical results data it is important for the rater to authenticate the source of the
data, to understand whether it is just a sample or it need to be collected, who will collect the data, and
who will receive it. Here again a 5-point scale, starting from ‘not at all’ to ‘to a very great extent’ is used.
Feedback Scale: This 5-point scale measures performance feedback on the critical result areas to assess
an employee.
Exceeds Expectations Scale: The ‘exceeds expectations’ criterion assesses on a 5-point scale, whether
employee’s performance meets the expectation measure. This scale helps us to understand whether
more efforts or skill are required on the part of employees to achieve a high performance score. This
helps in better quantification of degree of efforts.
Linked with Goals Scale: This scale evaluates the extent to which the result is valued by the organiza-
tion. It compares the critical results and measures performance against organizational goals.
PERFORMANCE MATRIX AND MODELS

Developing a performance matrix and emulating examples of world class performance excellence mod-
els help HR researchers to scientifically list the action plans for improving the performance manage-
ment system of an organization.
Thomas F. Gilbert (2003) based on his research, contributed immensely in this area. Performance
matrix is a construct of performance system which sequentially illustrates decisions to be taken for
improving performance management systems in an organization. A simple model of performance
matrix deals with three levels—policy, strategy, and tactics. Some authors also call it performance-
engineering model (PEM). Like three levels, this simplified performance matrix or PEM has three
stages, i.e., stage A, stage B, and stage C. Stage A considers identification of accomplishments, deci-
sion on important requirements together with decision on unit of measurement, and finally developing
standards. In stage B, we consider measurement of opportunity, by identifying critical performance
improvement plans, measuring, and analysing it. In stage C we analyse methods of accomplishment
using environmental methods, people programmes, and management action.
Based on the above inputs, in line with Gilbert (2003), a sample performance matrix or performance
engineering model can be drawn as in Table 13.1. This is an excellent guide for managers to keep a
track of which decisions they must make and also in what sequence. Some other examples of perfor-
mance matrix for the whole organization can be drawn after excellence models of EFQM, Malcolm
Baldrige, and Shingo.
Shingo Prize Model

The Shingo Prize Model lists criteria, practices, techniques, and processes which can be incorporated
by an organization to achieve world class level of quality, cost, delivery, and business results. Such
suggested practices and techniques may not be applicable for every organization. It has to be strategi-
cally incorporated, keeping pace with organizational specific needs. In fact, it is a replication of Toyota
Production System, by a well-known Japanese industrial engineer, Dr. Shigeo Shingo. The model is
known as Shingo Prize Model, because this prize was established in 1988 to promote awareness of lean
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Table 13.1 Performance matrix
Stages A B C
Accomplishment Measures of Methods of
Levels
Models Opportunity Improvement
I Organization models: Stakes analysis: Programmes and policies:
Policy
Cultural goal of the Performance analysis Environmental programmes
(Institutional (data/tools/incentives)
organization Potential for
Systems)
Major missions improving performance (PIP) People programmes
(knowledge, selection,
Requirements and units Stakes
recruiting)
Exemplary standards Critical roles
Management programme
(organization, resources, stan-
dards)
II Job models: Job assessment: Job strategies:
Strategy Mission of job Performance measures Data systems
(Job Systems)
Major responsibilities Potential for improving Training designs
Requirements and units performance (PIP) Incentive schedules
Exemplary standards Critical responsibilities Human factors
Selection systems
Recruitment systems
III Task models: Task analysis: Tactical instruments:
Tactics Responsibilities of tasks Performance measure or Feedback
(Task Systems) observations
Major duties Guidance
Requirements and units Potential for improving perfor- Training
mance (PIP)
Exemplary standards Reinforcement
Specific deficiencies
Cost of programmes
(Based on the model of Praxis Corporation, 1979)
Notes: Exemplary performance is the worth of the historically best instance of the performance. PIP is a conceptual tool, which
gives us the basis for comparing potential opportunities to improve performance. Comparing two worthy indices expresses it,
i.e., exemplary (which is the standard) and exemplary worth index. Suppose we want to measure PIP for the outbound caller
in a call center. An average outbound caller makes 40 effective calls in a day and each call ensures business worth Rs. 80,
while the total cost per day for the company is Rs. 2,000. The exemplary index is indicated as Wav, which is (40 x 80)/2000 =
1.6. Suppose an exceptional outbound caller makes 80 successful calls in a day (with all other data remaining the same). In
that case the exemplary worth index is indicated as Wex = (80 x 80)/2000 = 3.2. In this case we can compute the PIP of the
average outbound caller as Wex/Wav, i.e., 3.2/1.6 = 2.
manufacturing concepts and world-class philosophy of business performance. Adoption of this model
in performance management practices enables an organization to focus on improvements of core manu-
facturing and business process to achieve world-class business performance. As per this model, there
are two prime enablers which influence the core operations of business. These enablers are leadership
and empowerment. Through these enablers organizations exert influence on the core manufacturing and
non-manufacturing operations. The model assigns weightage to each parameter and measures the same
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with the required systems and practices of the model. In core manufacturing, the model emphasizes on
the following areas:
Manufacturing vision and strategy.
Innovation in market service and produce.
Partnering with supervisors, customers, and environmental practices.
World-class manufacturing operations and process.
Non-manufacturing support function, etc.
Likewise, the model also examines the non-manufacturing support functions that go into the core manu-
facturing process.
As per the model, when the organization activates core manufacturing and non-manufacturing func-
tions, it can achieve improvement in quality, cost and productivity, diversity and service, and all these
cascade to overall improvement in the customer satisfaction and profitability of the organization.
EFQM Model
The European Foundation for Quality Management (EFQM) business excellence model is yet
another example of world class performance management model. This model is a nine-box business
excellence model, intended to help an organization to conduct self-assessment in measuring their
performance results in terms of financial, customer satisfaction, people satisfaction, and impact on
society. Leadership, policy and strategy, people management, resources, and process management act
as enablers to improve performance results. EFQM model is relatively simple to follow as the prime
driver for organizational improvement in this case is assumed as leadership. This leadership activates
those enablers that ensures performance results likepeople, policy, strategy, and partnership, to get
improvement in people results, customers results, society results, and ultimately the key performance
results.
Malcolm Baldrige Criteria for World-class Performance

ISO 9000 based documentation of quality management systems of an organization can be extended to
Baldrige criteria for performance excellence framework. Thus, this model enables an organization to
integrate their quality management system with their performance management system. Based on ISO
9001, this framework is explained as under:
Strategic planning process.
Customer focused operating system.
Operating system.
Teamwork structure and guidelines.
Administration of compensation and recognition systems.
Advanced quality-planning process for bringing new products to market.
The business management system (BMS) or performance excellence framework, using Baldrige cri-
teria requires the same documentation like quality documentation system of ISO 9000, excepting
some practices, which are additionally provided. Such additional practices in Baldrige criteria are as
follows:
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Strategic planning process.

Customer focused operating system.
Operating system.
Teamwork structure and guidelines.
Administration of compensation and recognition systems.
Advanced quality-planning process for bringing new products to market.
The existing corrective and preventive action system (ISO 9000), by default, evolves into a continuous
improvement system.
GENERAL PERFORMANCE MEASURES

Apart from job or function specific performance measurement, we have some general performance
measures as follows:
Quality addresses how well the employee or work unit performed the work and/or the accuracy or
effectiveness of the final product. Quality refers to accuracy, appearance, usefulness, or effectiveness.
Quality measures can include error rates (such as the number or percentage of errors allowable per
unit of work) and customer satisfaction rates (determined through a customer survey).
Quantity addresses how much work the employee or work unit produced. Quantity measures are
expressed as a number of products produced or services provided, or as a general result to achieve.
Timeliness addresses how quickly, when, or by what date the employee or work unit produced the
work. Organizations need to make sure to include timeliness measures when applicable; otherwise, it is
implied that the element must always be done and there is no margin for error.
Cost-effectiveness addresses cost savings to the organization. Organizations must develop measures
that address cost-effectiveness on specific resource levels (money, personnel, or time) that can be docu-
mented. Cost-effectiveness measures may include such aspects of performance as maintaining or reduc-
ing unit costs, reducing the time it takes to produce or provide a product or service, or reducing waste.
DEVELOPING SPECIFIC MEASURES

To develop specific measures, organizations after determining the general performance measures, indi-
cated above, determine the process of measuring the quantity, quality, timeliness, and/or cost-effec-
tiveness for each of the element. After determining the performance measures, organizations document
the factors to be appraised, and accordingly assign the performance measurement responsibility to the
respective managers or executives.
DECIDING THE PERFORMANCE STANDARDS

Performance standards are the performance thresholds, either decided by top management or decided
mutually. Performance standards spell out the performance requirements or the expectations from the
employees about what they are expected to achieve. For every critical performance element, organiza-
tions establish the thresholds and communicate the same to employees, to enable them to understand
what they need to deliver to ensure successful performance. Along with the documented performance
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standards, it is necessary to design the appropriate scale to measure the performance levels of employ-
ees. Anything at or above the threshold is considered most successful. Anything below is considered to
be unacceptable.
ANNUAL STOCK-TAKING OF PERFORMANCE

Annual stock-taking of performance is basically a performance audit function which apart from usual
employee evaluations emphasize on measuring the proper alignment of performance results with the
organizations’ and employees’ growth. For organization, stock-taking of performance helps in achieving
the goals by optimizing staff performance, duly identifying the strengths and weaknesses. For employ-
ees, on the other hand it helps in providing guidance to perform their jobs and also help in defining their
career path.
PERFORMANCE METRICS
Apart from evaluating employees’ performance using the ranking scale, organizations can measure the
performance against some standard performance metrics. By combining performance metrics and per-
formance narratives (tracked through scales), organizations can get better results. Performance metrics,
also known as key performance indicators (KPIs) need to be organization specific and also at times
unique for typical functions or jobs.
Key Performance Indicators (KPI)

Developing KPIs as performance measurement tools, at the outset requires the organizations first to
understand its directions and strategic goals. Thereafter, it is also important to understand the system
of internal operations, activities involved in it, and how non-performance of such activities affects the
strategic goals achievement. KPI defines the factors of influence, monitoring of which is possible by
measuring the performance level of individual employees, groups, and the organizations as a whole.
Therefore, KPI can be better defined as the effectiveness measurement indicators that help in achieving
the strategic goals of any organization. KPI is effective for performance measurement as it presents the
performance values.
Once KPIs are finalized, for its measurement, organizations make use of balanced scorecard, and
arrange such KPIs in four perspectives, i.e., financial, customer, innovation and learning, and internal
business process. All the KPIs become a part of one or the other perspectives. For example, KPIs for
financial perspectives may consider the cost indices, return on investment, net-worth, liquidity, sol-
vency ratio, cash flow, etc. Similarly, KPIs on customer perspectives include customer satisfaction and
marketing actions’ efficiency in terms of new customers acquired, number of customer complaints,
customer attrition, etc. For innovation and learning, KPIs consider the number of new idea generated,
number of new products developed, employees’ acquisition of new skill and knowledge, etc. Finally, for
internal business process, KPIs measure the degree of effectiveness of existing operational and admin-
istrative activities in terms of measurement of administrative expenses as percentage of total revenues,
cycle time from order to delivery, lead time for procurement of materials, etc.
It is, however, important to understand that KPIs cannot be universal, even though the perspectives
of the balanced scorecard are generic, i.e., applicable for every organization, irrespective of their nature
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of activities. Therefore, KPIs are organization specific and every organization needs to develop the
same. Some of the areas that need consideration while developing the KPIs are as follows:
Nature of business.
Organization development direction for business.
Organizations’ structure.
Features of organizational interfaces with the internal and external environment.
Expectations of the organizations from the implementation of balanced scorecard, etc.
Cause and Effect Relation Between KPIs: While developing KPIs it is important to first establish the
cause and effect relationship between KPIs and performance. Such relationships could be either clear or
unclear. Clear cause–effect relationships are those which are computable, and which facilitate the orga-
nization to calculate the KPIs’ values. Unclear (hidden) indicators present cause–effect relationships
between KPIs, which belong to different categories or subcategories. While building the conceptual KPI
map, it is important to limit the same to a manageable number of 15–20 numbers, for a specific manage-
ment level. For employees down the managerial level, however, it must be even less. Unnecessary and
more KPIs can muddle the purpose by providing conflicting information. Hence organizations need to
be extra careful while framing KPIs.
Also cause–effect relationship between KPIs needs to be considered, as it forms the structure of the
systems, and so also helps in balancing the scorecards. Determination of such relationships can be per-
formed using the following steps:
Evidence of logical interrelation between indicators.
Evidence of functional relations between indicators and the possibility of its attribution to math-
ematical formulas.
Evidence of attributing correlation between the indicators in terms of correlation coefficient.
Finally, creation and formation of KPIs map requires balancing of scorecards. This is done based on
relatively stable relationship between the KPI values and strategic intents of the organization. Although
KPIs need to be revisited on continuous basis to understand its efficacy, relatively stable relationship
between the strategy and KPIs value is important, or else organizations may not be in a position to cor-
rectly gauge its activity dynamics.
After the KPIs are finalized based on the above procedures, the next course of action is cascading the
KPIs, i.e., the process of distribution of authorities and responsibilities for indicators down the level,
among the managers, and other members of the organizations, who pursue the organizational goals and
objectives.
The cause and effect relationship between indicators cannot always be presented by any mathemati-
cal formulas. For example, achievement of desired performance value in the research and development
function (part of learning and development perspective) of any organization may not be directly attribut-
able to impurity segregation process of an iron foundry (part of internal process). However, it certainly
creates the strategic bases to achieve the results in improving the internal process. Before using the
molten iron in casting, impurities need to be segregated to ensure quality. Such segregation is done by
dropping the molten iron either manually or using the remote controlled machines. In the process of
dropping, impure properties get segregated.
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Classification of Indicators for Management According to Their Importance: While developing the
model of KPI, organizations need to consider the types of KPIs depending on its degree of importance.
KPIs can be either strategic or standard.
Strategic KPIs are linked directly with the organizational strategy. Achievement of target values of
such KPIs cause significant changes in the organization as a whole. Achieving such KPIs involve a
complex set of activities, and managers need to take the required initiatives and systematically monitor
across different hierarchical levels to achieve the intended target values. Organizations by achieving the
target values of strategic KPIs can substantially gain competitive advantages.
On the other hand standard type of KPIs is linked neither to strategic nor to operational management.
These are in-built with the performance management systems, and achievement of its target values
helps us to measure the present state of business in the organization. For example, ‘exceeds expectation’
level of customer satisfaction cannot be a target value, but its achievement certainly strengthens the
achievement of results from customer perspectives.
However, it is important to understand that choosing standard or strategic indicators depend on
respective organizational strategies. Therefore, what is strategic for one organization may be standard
for another.
Implementation of KPIs: After developing the KPIs, it is necessary to implement the same dividing
it to two types of indicators: indicative and imperative. The indicative KPIs correlate with the purposes
and processes, viz., ‘number of customer awareness programmes conducted in a week’, etc. Indicative
indicators can either be leading or lagging. Imperative (control) indicators are those which are created
by the top management, and cascaded to different hierarchical levels, and its value matches with quan-
tity or the targets fixed for each perspective of balanced scorecard. Aggregating the results obtained
from different categories and sub-categories, organizations ultimately measure the extent of achieve-
ment of their business goals. Imperative indicators are lagging in nature, as it requires control from the
top management to get results from down the line.
Performance Measures Through Productivity Metrics

Periodic monitoring and analysis of employees’ performance can also be done through productivity
metrics. Most commonly used measurement tools for employee productivity or performance are
various productivity metrics. Before making use of such metrics, it is important to understand the
purpose, method, and the desired outcome of any process that the organizations intend to imple-
ment. We need to get answers to the basic questions like why we want to measure? What could
be our courses of action after measurement? What goals and objectives we have set for the orga-
nization? Answers to these questions can ultimately lead us to the solution of effective employee
performance measurement through appropriate productivity indices. Goals and objectives of the
organization are vision and mission aligned and concretized through identification of critical suc-
cess factors (CSFs).
Successful identification of productivity metrics precedes understanding of contributing elements to
productivity. Such elements not only ensure peripheral information, but also shape the scientific basis
for performance measurement. After complete understanding of the productivity metrics, it is important
to list those as under:
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Name of the metric.

Metric description.
Measurement procedure.
Measurement frequency.
Thresholds estimation.
Current thresholds.
Target value and units.
The first two elements identify what the organizations need to measure. Measurement procedure and
frequency helps us to understand how the metric is to be measured and in what frequency such mea-
surement has to be done. Thresholds estimation helps us to understand the process of calculating the
thresholds, while the current thresholds clarify the current value range for the metrics that we consider
essential. Finally, the target value is what we assign to the employees to achieve. Table 13.2 illustrates
the process of developing the productivity metrics.
After successful identification of the key elements of any metric, best possible metrics are selected
to track the rate of employees’ productivity. To select the right productivity metric, it is important to
identify at the outset the goals and objectives, and the key factors involved in identification of such goals
and objectives. These key factors are the key performance indicators (KPIs). It is necessary for every
organization to develop its own set of KPIs to measure productivity. A tentative performance metrics
covering some of the critical areas can be illustrated as in Table 13.3.
By plotting the performance results (values) in relation to a median value, we can also get the statis-
tical signal of performance trend. When the performance outputs are in statistical control, we call per-
formance levels are in order. Further performance improvements from this level can only be achieved
through systems and process improvement. Baldrige Award Examiners use this approach as a model.
As it shows the performance trend data over a period of time, organizations can also benchmark such
performance results with their competitors. In Figure 13.3, we are illustrating such much-used perfor-
mance trend curve.
Therefore, it is evident, organizations can have wide choices in selecting the appropriate tools for
performance measures. Which performance measures and why need to be answered by the organiza-
tions themselves, keeping in view the broader perspectives of organizational performance goals.
96 World class from

94 another industry
Best competitor
Per cent
92
90 Average of group
88 good competitors
86 Industry average
84
87 88 89 90 91 92 93 94
Year
Figure 13.3 Performance trend curve
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Table 13.2 Process of developing the productivity metrics
Name of the Metric Metric Description Measurement Measurement Thresholds Current Target Value and
Procedure Frequency Estimation Thresholds Units
Sales performance Contribution to sales Number of sales Daily Ten units per Eight units per Two units extra
metric growth made per per- day day sales
son per day
Innovation metric Contribution to new Number of new Yearly Three ideas One idea per Two ideas per year
ideas ideas per person per year year
per year
Training metric Contribution to new Number of new Monthly Two new One training One training module
training design training modules training module per per month
developed per modules per month
month month
Quality metric Contribution to reduce Rate of rejection Monthly Two per cent Half per cent One-and-half per
unavoidable rate of reduction in reduction in cent reduction in
rejection rejection rate rejection rate rejection
per month per month
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Table 13.3 Tentative performance metrics

Quality Customer Employee Financial
Satisfaction Satisfaction
Rework Number of complaints Participation rates in ROI
Discrepancies Customer returns company sponsored CPI
events
Mean time between failures Customer survey SPI
Employee turnover rates
Failures per hour/day/week/month Referrals RONA
Employee exit interviews or
Customer returns surveys ETC/EAC
Customer complaints Number of employee
Mean time to repair suggestions
Mean time to respond Productivity metrics
Requirement change rate Incidents of violence
Revenue (or sales) per
employee
SUMMARY
Performance measurement is the process of ment of processes depends on various aspects and
assigning numbers to various identified perfor- attributes, which ultimately become the perfor-
mance elements and key performance indica- mance elements or the key performance indicators
tors (KPIs). Therefore, successful management (KPIs). Developing KPIs need to be direct, and
of performance depends on a well-designed require both the enumerative and analytical stud-
performance measurement system, which links ies. In this chapter we have discussed about vari-
organizational strategy and the behaviour of the ous types of performance measurement methods,
employees. As the employees’ performance relate focusing on the inputs, outputs, and the outcomes.
to the performance of the processes, for develop- Depending on the specific organizational require-
ing effective performance measurement systems, ments, performance measurement can be qualita-
it is necessary to understand the various process tive or quantitative, may be based on observations
of the organizations. Processes are the sequence or subjective, and may depend on the methods of
of cross-functional activities performed by people collection of information. The chapter outlines all
and machines, which combine valuable resources the important methods, leaving the choice before
to convert inputs into outputs. Processes provide the organization to select the appropriate one,
the link between organizational level goals and keeping pace with their specific requirements.
the work performed by employees. Measure-
KEY WORDS
Production Counts—Production counts measure managerial jobs. This apart, there is some possi-
what a worker produces on the job. The worker ble dangers in production count method. It might
with a higher production count is assumed to be change the behaviour of the worker. They may get
a better worker. However, for many jobs, it may pre-disposed to achieve higher results at the cost
not be feasible to measure performance in terms of job related stress, which in turn may be detri-
of production counts. This is more applicable for mental to decrease overall job performance.
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Integrated Performance Measurement Sys- in-control state. Two other parallel horizontal
tems—The process of combining different attri- lines, called the upper control limit (UCL) and
butes of the organization within a hierarchical the lower control limit (LCL) are also shown on
structure is called an integrated performance the chart.
measurement framework (PMF). PMF establishes
Behaviourally Anchored Rating Scales—
direct link between the top-level measures (such
Behaviourally anchored rating scales (BARS)
as shareholder value added (SVA) and the action
are ‘descriptions provided on appraisal forms and
plans of the entire organization. These collectively
surveys which describe a precise level of perfor-
add up to the achievement of the established goals.
mance’. These are designed to reduce the rating
Control Charts—The control chart is a tool errors of conventional scales. The scale includes
for on-line process control, widely used for the number of performance dimensions like leader-
detection of assignable causes of variation. It is ship, teamwork, communication, initiative, adapt-
a graphical display of a sample quality measure ability, etc. BARS were developed with the hope
versus sample number (or time). The chart shows of improving rater accuracy by providing job-
a centre line that represents the average value of related behavioural anchors and altering the for-
the quality characteristic corresponding to the mat of rating scales.
1. Explain various concepts of performance 7. Explain the difference between specific and
measurements. general performance measures in an organi-
2. Discuss how the performance measurement zation.
criteria are selected in an organization? 8. Define key performance indicators. How
3. Define integrated performance measurement key performance indicators are developed?
systems. In what way key performance indicators
become good performance measures for an
4. Explain the role of control charts in measur- organization?
ing performance.
9. Explain the concept of performance measure-
5. What are the different scales used for perfor- ment through productivity indices.
mance measurement? Which scale you con-
sider appropriate for measuring the perfor- 10. Short Notes
mance quality of a operation manager? (a) Work Samples Methods
6. Explain the concept of performance matrix. (b) Control Charts
Also explain how the Baldrige model of
excellence can be used in performance mea- (c) Process Capability
surement of an organization? (d) Response Scales

11. Develop some important KPIs for software ment criteria for such KPIs. Present your
developers. Also indicate tentative measure- information in a tabular form.
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FURTHER READING
Bhattacharyya, D.K. (1995a), ‘Corporate Body Gilbert, T.F. (1978), Human Competence: Engi-
Builder—The Emerging Role of HRD Pro- neering Worthy Performance (New York, NY:
fessional: A Prescriptive Model for Success’, McGraw-Hill).
Indian Journal for Training and Development, Hamel, G. and C.K. Prahalad (1990), ‘The Core
(April–June). Competence of the Corporation’, Harvard
Bhattacharyya, D.K. (1995b), ‘Manpower Obso- Business Review, (May-June) 68(8).
lescence—A study in Indian Ordnance Fac- Jonne, Cesrani and Peter Greatwood (2001), Inno-
tories’, (International Congress on Economic vation and Creativity (New Delhi: Crest Pub-
Transition with Human Face; Indian Indus- lishing House).
trial Relations Association, New Delhi, 3–6 Latham G.P. and K.N. Wexley (1981), Increasing
September). Productivity through Performance Appraisal
Bhattacharyya, D.K. (2000) ‘Competency Map- (Reading, MA: Addison-Wesley).
ping and Manpower Redundancy—Macro Nonka, Ikujoro and Hikjiro Takeuchi (1995), The
Level Study of Indian Organizations’, Man- Knowledge Creating Company, (New York,
agement and Accounting Research, (October– NY: Oxford University Press).
December) 4(2): 97–105. Paul, E. Plsek (1997), Creativity, Innovation and
Bhattacharyya, D.K. (2007), Human Resource Quality (New York, NY: Quality Press).
Research Methods (New Delhi: Oxford Uni- Peterson R., N. Napier and W.S. Shim (1996),
versity Press). ‘Expatriate Management: The Difference Role
Bhattacharyya, D.K. (2010), Industrial Manage- of National Multinational Corporation Owner-
ment (New Delhi: Vikas Publishing). ship’, International Executive, 38: 543–62.
Brewster, C. and H. Scullion (1997), ‘A Review Pollack, D.M. and L.J. Pollack (1996), ‘The-
and Agenda for Expatriate HRM’, Human ory-Based Applications and Directions for
Resource Management Journal, (7)3: 32–41. Research’, Personnel Psychology, 48: 803–39.
Brown, G. (1985) ‘The Discovery of Expressed Rosenzweig, P.M. and N. Nohria (1994), ‘Influ-
Emotion: Induction or Deduction?’ in J. Leff ences on Human Resource Management
and C. Vaughn (eds), Expressed Emotion in Practices in Multinational Corporations’, Jour-
Families (New York, NY: Guilford Press), nal of International Business Studies, 25(2):
pp. 7–25. 229–51.
Charles, Handy N. (1993), Understanding Organi- Schmidt, F.L., J.E. Hunter, R.C. McKenzit and
zations, 4th edition (New York, NY: Penguin). T.W. Muldrow (1979), ‘Impact of Valid Selec-
Christiansen, James A. (2000), Competitive Inno- tion Procedures on Work-Force Productivity’,
vation Management (London: Macmillan Busi- Journal of Applied Psychology, 64: 609–26.
ness). Schmidt, F.L., J.E. Hunter and K. Pearlman
Dunning, J. (1998 [1958]), American Investment in (1982), ‘Assessing the Economic Impact of
British Manufacturing, revised and updated edi- Personnel Programs on Workforce Productiv-
tion (London and New York, NY: Routledge). ity, Personnel Psychology, 35(2): 333–48.
Edwards, M.R., C.W. Borman and R.J. Sparoul Shewhart, Walter A. (1931), Economic Control of
(1985), ‘Solving the Double-Bind in Perfor- Quality of Manufactured Product (New York,
mance Appraisal: A Saga of Sloths and Eagles’, NY: D. Van Nostrand Company).
Business Horizon, 85: 59–68. Stolovitch, H.D and J.G. Maurice (1998), ‘Cal-
Gordon, Edward E. (2000), Skill Wars, Winning culating the Return on Investment in Training:
the Battle for Productivity and Profit (Boston, A Critical Analysis and Case Study’, Perfor-
MA: Butterworth-Heinemann). mance Improvement, 37(8): 9–20.
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Tahvanainen, M. (2000), ‘Expatriate Performance Wright, P. (1994), ‘Quality or Usability? Qual-

Management: The Case of Nokia Telecom- ity Writing Provokes Quality Reading’, in
munications’, Human Resource Management, M. Steehouder, C. Jansen, P. van der Poort and
(37)4: 267–75. R. Verheijen (eds), Quality of Technical Doc-
Trompenaars, F. and C. Hamden-Turner (1995), umentation (Amsterdam: Editions Rodopi),
Riding the Waves of Culture, (New York, NY: pp. 7–38.
McGraw-Hill).
CASE STUDY
AutoMart Achieves Excellence Through Well-designed KPIs

Customer service, excellence in operations, and profitability are three core business objectives of Pune
based automobile spares manufactures in India. With successive cross-country acquisition, the com-
pany is now in the forefront of global automobile spares market in the world. Name a car and you will
find AutoMart’s spares fitted with it. The company has now built its capacity for manufacturing spares of
premium ranges of car, including its customized editions. Building capacity for customized cars cannot
just be possible without the sincere efforts of ingenious engineers and technicians, not to talk about the
level of technology requirements. With its global success, the company is now prepared to emerge as a
global leader in automobile spares manufacturing. This requires the company to withstand the competi-
tion from German and US manufacturers, both in terms of price and quality. With strong focus on quality,
the company is now close to six-sigma compliance. A strong culture of innovation and creativity liter-
ally makes it possible for the company to come out with new cost-effective designs. Using AutoMart’s
spares, automobile manufactures are able to reduce their cost of production significantly. Every new
design attracts their attention, and they welcome the company for fitment trials on their vehicles. Such
pace of activities gave the company the opportunity to get global recognition.
The company now realizes that their employees are their renewable and sustainable assets in a
globally competitive market place, and the prime drivers for the company’s success in customer service,
operations, and profitability. To ensure employee retention, the company used the balanced scorecard
and other human resource tools to affect significant and measurable increase in employee loyalty and
satisfaction rates.
The company developed a set of metrics for all the perspectives, and for their obvious ‘employ-
ees first’ philosophy focused on improving the retention, satisfaction, and advancement rates among
workers, to get their loyalty and performance excellence. To measure the areas of improvements in
employee retention and satisfaction, financial growth, organizational efficiency and customer relation-
ships, the company developed the KPIs aligning with all the four perspectives of the balanced score
card. Goals were developed for each perspective, along with a series of measurements to help them
determine how close they are to achieving each goal. Because employee engagement was consid-
ered to be the basis upon which excellence in each perspective was built, the learning innovation and
growth perspective was prioritized, with a host of new tools created to engage employees and measure
improvements in the workforce. These new measurement and engagement tools included:
Employee survey—This survey lists series of employee benefits, and employees are required
to first short-list these and prioritize. Management on studying the survey results, identify the
commonalities, and based on the score values introduce those in the employees’ benefits
packages.
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Birthday greetings and interview—This is done by the respective supervisors, when they enquire
employees’ employment satisfaction levels, and accordingly make good the gaps, if any on the
support services.
Leadership survey—This survey gives opportunity to the employees to spell out the respect and
support they receive from their supervisors.
Training and certification programme—This encourages employees to renew, improve, and
acquire new skill-sets, and in the process they make them capable to avail the career development
opportunities.
Performance review meeting—This ensures a thorough and holistic performance review,
individual counseling, setting of future goals, enriching the personal and professional lives of the
employees.
The balanced scorecard with suitable KPIs, focusing on people issues and more so on customer sat-
isfaction, could help the company to measure the effectiveness, and to take stock of the situation to
perpetuate their pursuit of customer service, excellence in operations, and profitability. In this process
also the company exceeded their human resource goals, like high satisfaction, excellent performance,
and increased level of retention.
Within three years of implementing a balanced scorecard with solid KPIs, AutoMart could achieve
excellence in human resource goals.
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CHAPTER 14
International Performance
Management
Learning Objectives
Concepts and definitions of international per- Performance management in international
formance management assignment
Structure and strategy of international perfor- Globalization and international performance
mance management management practices
Compensation and international performance
Expatriates’ performance management
management practices
Effect of culture Appraising performance
Influences on performance appraisal Managerial practices in China, Korea, and Japan
Cultural Congruent International PMSs

For business imperative an Indian paints major needs to establish its factories in eleven countries. For
paints industry, market proximity is very important as paints shipment from far off manufacturing loca-
tions is not at all cost effective and even the quality of paints deteriorates. Even during the process of
shipment companies suffer huge losses due to evaporation and normal wastage. The company is a
pioneer in premium quality paints manufacturing and is the leader in India in this market segment. For
the mass (low price) variety, however, it is in second position.
The company follows the traditional hybrid structure, which ensures the functional autonomy at each
factory location, keeping administrative issues however within the domain of Mumbai-based headquar-
ters. The human resource (HR) director of the company sits in Mumbai head office and enforces control
in each unit of the group, located in eleven different countries. The performance management system
(PMS) of the company is scorecard based. For every employee the company has developed key per-
formance indicators (KPIs). The production system being highly automated, performance tracking with
the use of KPIs can be done in quantitative terms. Employees with low performance scores are taken
through the performance counselling session with their immediate supervisors and divisional heads.
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International Performance Management 275
The company insists on achieving the performance goals and even arranges training for those who lag
in performance results. In line with the global best practices in performance measurement systems of
General Electric (GE) and Nestle Waters (NW), the company introduced integrated PMS organization
wide. The idea behind was to follow the same approach in all business entities. The result, however, was
not encouraging; rather it witnessed resistance in some of the countries from employees who took it as a
threat to their jobs. Such apprehensions of the employees are tenable due to the obvious organizational
practices prevalent in those countries, where a non-performer is shown the exit door in no time. To solve
this problem, the company then started a culture congruent performance measurement system, which
required the employees to come forward to explain his/her performance results, leaving to the manage-
ment responsibilities limited to recording and taking corrective actions to remove performance blocks.
When the employees continued to under perform even after removing the blocks, the company resorted
to firing. The entire process was documented and communicated to the employees. The process worked
well. Reducing the role of the manager to a listener in performance measurement process is a typical
psychological syndrome of employees of Brazil, Mexico, and Portugal units of the company.
INTRODUCTION
Before the emergence of global competitiveness in business, demand used to exceed supply. Obviously in
such a situation, management attention was more on efficient production processes and efficient resource
utilization to achieve internal efficiency. During that era the financial control based PMSs were the prime
focus. Organizational efficiency used to be defined in terms of objective financial results. Financial control
based management system at General Motors in the industrialized economies (beginning in the 1970s),
used to focus more and more on quality, differentiation, and customer satisfaction rather than only on cost/
financial efficiency. The ability to create a positive effect for customers from their subjective perspec-
tive—and increasingly for other stakeholder groups that today have power over the ‘license to operate’ of
an organization—became the critical success and survival factor for any business or non-profit organiza-
tion (Daum, 2002). Efficiency, per se, cannot improve organizational performance. What is important
is the effectiveness from the stakeholders’ perspectives. Efficient performance emphasizes too much on
quantitative performance details, that is, financial outcomes. In this process, it ignores the interests of
the stakeholder. For this reason, performance management also needs to consider subjective evaluations,
using different measurement scales, and to understand how it influences the interests of all stakeholders.
For example, in the process of achieving high return on investment (ROI), organizations may meet the
needs of the investors, but unless customers’ interests are taken care of, they cannot sustain it in the
long run. Performance improvement that leads to satisfaction of all parties—stakeholders, investors, and
customers—can be achieved only when subjective as well quantitative measures are taken into account.
Others have very little knowledge about the performance appraisal system used by host country man-
agers. These latter are usually isolated from their reporting bosses, and for obvious reasons experience
difficulties in the conduct of the performance appraisal. Traditionally, performance appraisal process
was influenced by bottom line results. However, international performance appraisal emphasizes on
improving the bottom line results along with employee-supervisor relationships, giving due cognizance
to the multinational’s parent strategy, structure, and nationality. Managers of the host country often
experience difficulties in performance appraisals for obvious lack of opportunities for career devel-
opment and advancement in the organization. Such lack of opportunities naturally exerts influence
in managing performance of the subsidiary. For this reason international PMSs emphasize on some
modifications, to motivate the employees of the subsidiary to deliver better performance.
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Apart from this, international PMSs also need to emphasize on managing the performance of
expatriates. In such cases, performance dimensions need not be always job-related. PMSs extend to
cross-cultural issues, responsiveness to the norms, laws, and customs, etc. Often the degree of adaptabil-
ity to uncertainty and unpredictable conditions is construed as important determinant of performance.
However, the degree varies with respect to the job profile of expatriates.
In a globalized business environment, multinational companies literally dominate the global com-
petition, spreading their business across the world through their subsidiaries. For this reason, man-
agers of the host country (HCMs) feel more responsible for employee performance along with their
responsibility to strategically implement critical tasks. It is through these HCMs that multinational
corporations (MNCs) exert control over their subsidiaries through the process of central integration
(Chang and Taylor 1999). Through effective international performance management practices, an MNC
continuously evaluates and improves individuals, subsidiary units and corporate performance against
clearly defined preset objectives that are directly linked to the company strategy (Dowling, Welch, and
Schuler 1999). Thus, effective international PMS ensures that the HCM and their overseas subsidiaries
are acting in accordance with the parent MNC’s interests. Any mismanagement of international PMS,
primarily due to information asymmetry and goal incongruence between the parent company and its
subsidiaries (Shen, 2005), leads to poor performance.

Dowling, et al (1999) observed that very little research was conducted on international PMSs. For this rea-
son, it is difficult to understand the contributing factors underlying job satisfaction of employees of MNC
subsidiaries. Major problems in international performance management are lack of understanding the cri-
teria of performance measurement and identification of satisfactory and effective appraisal system. To a
great extent international performance management depends on MNCs’ nature of requirements. However,
it is obvious that MNCs measure attributes and behavioural parameters of international employees more
than those of parent country employees. Even though it is often criticized, it is also important for us to
remember that performance dimensions of international employees in MNCs extend beyond the bottom
line results. Some of the interesting findings of international performance management research suggest
that qualitative criteria like the employees’ attitude, adaptability and acceptance are more important. Also
the effectiveness of international performance management depends on the degree of ratee (subordinate)
satisfaction which largely depends on regular communication and positive relationship with the rater
(supervisor). Such satisfaction may be achieved when the PMS ensures that both the subordinate and the
supervisor clearly understand the purpose of the performance evaluation. In other words, not only should
the subordinate’s and supervisor’s expectations be aligned, but also both need to be in congruence with
the MNC’s rationale for conducting the performance evaluation (Milliman et al., 1998; Shen, 2005).
Another important aspect of international performance systems is the feedback to employees.
Employees of the subsidiaries often feel that they are unable to deliver results to their best performance
level due to lack of opportunities to discuss their career goals, personal needs, views, and feelings. This
occurs due to lack of performance feedback from their supervisors. Performance feedback, therefore,
plays a vital role in the success of international management. It is seen as one of the important ways in
which an MNC can extensively use and develop the talent of its diverse employees, as well provide a
sense of direction (Milliman et al., 1998,). Interestingly, the reluctance to give feedback does not appear
to lessen as managers become more experienced and work internationally. For example, Longenecker
and Gioia (1992) illustrate this point by advancing the idea that the more a manager is promoted,
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the less likely will he/she provide quality feedback. When people receive feedback frequently, they
perceive it to be more precise and timely (Milliman et al., 1998). Where a subordinate and supervisor
are geographically distant, regular feedback has been found to be imperative (Cascio 2000, Milliman,
et al. 1998). However, due to practical and logistical reasons, frequent, timely, and accurate feedback,
particularly face to face feedback, may be challenging for the supervisor of the HCM. For instance, the
HCM’s supervisor in general looks after a large geographical territory (Harvey 1997), which usually
demands extensive travelling for the supervisor.
STRUCTURE AND STRATEGY OF INTERNATIONAL

International performance management practices are influenced by the parent organization’s HR strategy
and structure (Ghoshal and Bartlett 1998). Parent organizations pursue the process of internationaliza-
tion following certain stages. At the initial stage the subsidiaries are considered as extensions, special-
ized centres, or hubs for cost-effective manufacturing. Therefore, at this first stage, the same human
resource management (HRM) policies and strategies continue to be followed (Ghoshal and Bartlett
1993). They tend to be centralized and inflexible. In the second stage, subsidiaries being considered as
centres with specialized capabilities (like Germany’s pharmaceutical companies’ research and develop-
ment centres in India), MNCs differentiate their HRM strategy and policies, making them subsidiary
specific (Harvey et al., 2002). Finally when subsidiaries are considered as independent business enti-
ties, MNCs give more autonomy for HRM strategy and policies. Subsidiaries in such cases enjoy more
autonomy and get full cooperation from the MNCs to run as independent business entities. The last case
is more applicable for Hindustan Unilever and IBM. To accommodate such variations in HRM strategy
and structure, performance management practices too vary.
Depending on the nature of internationalization, MNCs vary the pattern of structure and staff in
subsidiaries. Here again we observe four different approaches in staffing and structure. MNCs that pur-
sue ethnocentric approach do not give any autonomy to subsidiaries. In such subsidiaries (Mitsubishi
Chemicals in India), MNCs man the key positions from expatriates from their own country. MNCs
that pursue polycentric approach consider subsidiaries as separate business entities and accordingly
give them decisional autonomy. Such subsidiaries can recruit the people on their own to form host
country management (HCM) team, but MNCs never allow such persons to get elevated to the head-
quarters. With a geocentric approach, MNCs consider the subsidiaries as potential value adding centres,
and recruit staff from the global pool of talent. With a region-centric approach, subsidiaries can enjoy
region-specific autonomy in recruiting staff for managerial positions. Such differences in approach
again greatly influence performance management practices.
Perceptions on structure and strategy issues of MNCs again vary widely. Birkinshaw and Hood (1998)
observed that MNCs and transnational corporates frequently change their approach over time. From this
perspective, the prevalent performance management practices in the MNCs also vary. Research work
suggested that it is necessary for MNCs to understand the process of subsidiary evolution in order to
better manage PMSs across their subsidiaries.
EXPATRIATES’ PERFORMANCE MANAGEMENT

Expatriates are mostly poorly managed (Dowling et al., 1999; Tung, 1998); so also the expatriates’ per-
formance management, particularly in goal setting, training, feedback and development, and motivation
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(Mabey and Salaman, 1995). Most of the studies on expatriates’ performance management either focus
on single organization or the culture of a single country. For example a number of studies have been
conducted on Nokia’s stand-alone performance management practices in a particular country. How-
ever, expatriates’ performance management in the context of cultural variables is largely ignored by the
researchers.
Therefore, it may be presumed that the performance management process becomes more complex in
expatriate assignments. Performance management characteristics significantly change across national
and cultural boundaries. Scholars like Black et al. (1999) and Caligiuri and Day (2000) observed that
headquarters-based performance management practices in expatriate assignments often lead to incor-
rect and even misleading information. On the contrary, when in expatriate assignments local managers
are involved in performance goal setting, its degree of acceptability become much higher. In expatriate
performance management it is also important to provide feedback and train the managers to conduct
the process. Training before the expatriates’ assignment significantly minimizes the cultural shock and
reduces problems. For example wide congruity in Indian and German managers’ performance manage-
ment practices could establish hardly any differences in expatriates. In both the cases, performance
management is not only used as a tool to identify employee strengths and weaknesses but also as an
important vehicle for employee development.
Another common area where performance management is used is compensation design. In India,
though, it is apparently used more as an instrument to plan development activities. In this context,
it is interesting to note that performance management use may differ from country to country. For
example, while German managers use performance criteria for compensation decision, Indian man-
agers use it primarily to assess employee promotion and development. Such perceptive differences
basically lie in the respective countries’ management practices, more specifically attributable to parent
organization’s culture.
EFFECT OF CULTURE
International performance management practices also vary with respect to the culture (Milliman, et al.
1998). For example when the subsidiary of an MNC is located in a country that pursues individualistic
culture (Hofstede, 1980), the performance evaluation process pays adequate attention to employees’
feelings. With cultural distance, subsidiaries therefore enjoy higher autonomy and benefit from the dif-
ferentiated culture congruent performance management practices.
Again the performance management practices vary with respect to the MNC’s country of origin.
The reason is attributed to the specific HRM practices prevalent in the parent country (Hofstede,
1980; Ghoshal and Bartlett, 1993; Schuler et al., 1993; Harvey et al., 2000; Harzing, 2001; McGraw,
2002; Shen 2005). McGraw’s study (2002) could observe variations between the HRM practices of
USA and European countries. US-based multinationals are more likely to impose their HRM prac-
tices, while the European firms are not. Again there is a variation between Germany and other Euro-
pean countries. German MNCs emphasize on the traditional authority structure and value techni-
cal expertise, while France-based MNCs value employees’ political and technical skills. The most
elaborate study (200 MNCs in 23 different countries) on international HR practices was conducted
by Harzing (2001). The study could identify variations in HR practices of MNCs headquartered in
different European countries.
The aforementioned documented research applies to international HRM practices as well; based on
the cultural differences of various countries international performance management practices also vary
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widely. Although for business imperatives, MNCs may try to enforce control, geographical dispersion
and cultural incongruence often require MNCs to compromise with host countries’ managerial abilities
to conduct the performance evaluation process.
Influences on Performance Appraisals

The nature of MNCs’ influence on HCMs varies in three respects. These influences naturally vary
the performance management practices of MNC subsidiaries. The three are: MNCs’ typical focus
on the bottom line, employee relationship, and the nature of control. However, the bottom line effect
is more important than other influences. This is why most of the MNCs in China focus more on enjoy-
ing the cost competitiveness, making effective use of the Chinese labour laws, which are yet far below
International Labour Organization’s (ILO) mandated standards.
PERFORMANCE MANAGEMENT IN INTERNATIONAL

ASSIGNMENT
Variation in international performance management practices can also be related to the job context. The
job context changes with respect to task, organization, culture, and development dimensions. However,
in all international assignments, change in the job contexts may not be the same. When TCS deputes its
software project managers on international assignments, it emphasizes more on cultural and develop-
mental dimensions. But Nike in Thailand focuses more on tasks and organizational contexts. In the first
case long-term sustainability is important, while in the second cost efficiency to improve the bottom
line is more important.
Let us now review the different performance dimensions in international assignments. In most
international assignments, technical performance receives the first priority. Technical performance is
measured with respect to the specific assigned tasks given to the assignees. Here the performance mea-
surement is specific to the task achievement. The assumption here is that the outcome of performance
should be the same as has been mandated, irrespective of the cultural differences of the country where
the assignees are asked to execute the task. Japan and China both emphasize more on this dimension of
performance in international assignments.
Organizational performance, on the other hand, emphasizes on the broader aspects, that is, confor-
mance to the safety norms, ethics, integrity, etc., in conformity with the organizational practices. Here
the emphasis is more on leaving a positive impact rather than mere profitability.
Intercultural dimension of international performance assignment emphasizes on intercultural com-
munication. In many cases, MNCs are required to form cross-country teams for new product launches,
research and development activities, etc. Here intercultural dimension is more important as its effective-
ness ultimately helps MNCs to realize their strategic intents.
Developmental dimension of international performance assignment focuses on knowledge acquisition,
and understanding of the language and culture, so that assignees can be developed as global managers. For
example, negotiating with the Chinese and Japanese would be seemingly difficult, unless the assignees
acquire knowledge through real life cases. This dimension of performance literally helps the assignees to
develop their competencies through international assignments.
It is very important to understand these performance dimensions as changes in the dimensions lead
to changes in international PMSs and assignments.
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GLOBALIZATION AND INTERNATIONAL

Globalization has brought about many changes in the landscape of business and non-business organi-
zations across the world. Arguments are still persistent about the positive and negative effects of such
changes. One such effect is the economic slowdown that has severely affected manufacturing and ser-
vices. Higher education is no exception. The management of educational institutions today demand cost
optimization and rigorous checks on the performance of every system and process. The use of standard
models of PMS in such institutions is sparse, creating the need for a common platform which would
provide an opportunity for management representatives to come together, ponder over, and prepare
customized models for their respective institutions.
With globalization, MNCs focus more on collaboration and coordination among the HCMs located
in different countries. The pre-cursor to collaboration and coordination is the formation of global work
teams. Success of globalization is highly dependent on the success of teamwork. Teamwork among the
HCMs in fact complicates the performance management process. This is because HCMs widely vary
in their viewpoints on HR practices, encompassing areas like compensation plans, training, employee
development, etc. Hewlett-Packard (HP) for example could successfully create a corporate culture to
bind their HCMs and other employees across several countries. The basis of this conscious corporate
culture of HP rests on three core philosophies, that is, respect for others, community feeling, and simple
hard work (Fortune Magazine, May 15, 1995). HP is able to sustain conscious corporate culture through
extensive training of all cross-sections of employees. The company’s lesson in binding the corporate
culture despite their globalization plans is unique.
Another illustration of corporate culture is Southwest Airlines. It is one of the most profit making
airlines in the USA Southwest’s CEO, Herb Kelleher, defines the airline culture in the following words:
Well, first of all, it starts with hiring... If you start with the type of person you want to hire, presumably you
can build a work force that is prepared for the culture you desire. Another important thing is to spend a lot
of time with your people and to communicate with them in a variety of ways. …the way you appear and the
way you act—is a form of communication. We want our people to feel fulfilled and to be happy, and we want
our management to radiate …that we are proud of our people, we are interested in them as individuals and
we are interested in them outside the work force, including the good and bad things that happen to them as
individuals.
Likewise there is also the case of Dresden (East Germany) based Advanced Micro Devices (AMD).
AMD is the configuration of three cultures, that is, American, West and East German. These countries
are culturally apart. To create the conscious corporate culture AMD blended together the go-getter
American, analytic West German, and innovative East German cultures. Such cultural convergence
could help AMD to achieve global success. The specific strategy followed by AMD was to make the
employees believe that no one should take defences, rather focus on mutual learning, keeping aside
the ethic issues. Lessons of AMD have developed the Dilemma Theory (Trompenaars, F., Hampden-
Turner, C., 1998), which is also known as THT Theory. The basic premise of this theory is that insidious
culture clashes and changes our habit strengths. Such cultural clashes help to reach a consensus.
Another example of global congruence of corporate culture is the case of Sears. Sears globally
pursues a 3 C philosophy, that is, the compelling place to work, compelling place to shop, and compel-
ling place to invest. In the process of pursuing this 3 C philosophy, Sears achieves growth and stabil-
ity, which among others also require Sears to follow uniform PMSs in alignment with 3 Cs. Likewise
Wal-Mart and McDonald also could achieve culture congruence for their specific corporate practices.
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Wal-Mart believes in total empowerment of their employees (they call them associates), even to the
extent of sharing strategic information. McDonald with their uniformity in quality and service also
could achieve the consensus culture.
All these international examples, illustrate how successfully managing the culture of an organization, it
is possible to become effective in international operations, and in international performance management.
Indian conglomerate like Aditya Birla Group could also metamorphoses itself into multi-cultural
transnational with more than 72,000 people spread over 20 different countries.
They also illustrate how a conscious culture in the work place can contribute to the growth and pros-
perity of a global organization. PMSs of all these organizations being culturally congruent; they hardly
encounter any problems in their globally dispersed units.
To illustrate further we site the example of Jack Welch, CEO, GE, who created a new corporate
culture to meet the business objectives. Key elements of GE’s corporate culture are as follows:
Re-designing the role of the leader in the new economy, creating followers through communicating
a vision, and establishing open, caring relations with every employee.
Creating an open, collaborative workplace where everyone’s opinion is welcome.
Empowering senior executives to run far-flung businesses in entrepreneurial fashion.
Liberating the workforce; making everybody a participant through improving vertical communica-
tion and employee empowerment.
COMPENSATION AND INTERNATIONAL

PERFORMANCE MANAGEMENT PRACTICES
Multinational organizations’ compensation management practices vis-à-vis their relation with the per-
formance management are one of the key issues in international performance management practices.
While it is a common trend for every organization to align their performance management practices
with compensation plans, such practices vary from organization to organization. This variation is mostly
attributable to the organization-specific strategic focus on HRM practices, more specifically on the
corporate culture. Compensation design in alignment with the performance management practices is
primarily viewed by the MNCs, as their important vehicle for deriving international competitive advan-
tages (Rosenzweig and Nohria, 1994).
Nationality of ownership has been seen as a major factor influencing the kind of pay and perfor-
mance (P&P) policies that MNCs adopt. American companies, for example, have long been regarded as
HR ‘innovators’ in such aspects of P&P as productivity related pay bargaining, individual performance
appraisal, performance-related pay, and employee share ownership (e.g. Dunning, 1998). National
influences stem from the characteristics of the parent-country business system; the USA, for instance,
has had a long history of pay innovation. This can be traced to the attempts of organizations to deter
unionization by providing innovative terms and conditions to employees, and by linking pay to individ-
ual performance. In Japan, by contrast, large firms have typically linked pay to seniority. In Germany,
sectoral pay bargaining and company-level employee representation through work councils has tradi-
tionally limited the scope for individually-focused forms of pay and appraisal systems. In recent years
forms of performance-related pay have become more widespread in German firms. Due to the absence
of statutory regulation on compensation systems, and taking advantage of equal opportunities and mini-
mum wage legislation, foreign subsidiaries in the UK have the choice to reflect parent-country practices
or to adapt to local (or other) norms. Most of the UK organizations experiment with the compensation
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systems, and are not averse to embrace even the practices of low-compensation cost countries for their
migrant workers.
In UK too, except for foreign subsidiaries, organizational size, sectoral dimension, adherence to the
principles of payment by results, and group-based performance-related pay are major influencers in
compensation management practices in alignment with the PMSs. In general, international structure
plays a very crucial role.
New PMS for an International Retailer

Many multinationals today prefer enterprise performance management (EPM) systems for optimizing
their global performance. Numerous vendors develop IT enabled EPM systems and automate their
PMSs globally. The same was the case of an Indian retail major, which has recently gone for globalized
operation. Retailing is a structured job process, and mostly documented in the company’s standard oper-
ating process (SOP). The company systematically trains its employees on SOP for gaining uniformity in
performance results globally. Being automated, performance results of the employees are traceable in
specific quantitative terms. Every performance laggard is taken through the rigorous process of counsel-
ling and specific action plans for improving performance are suggested. Even after successive counsel-
ling some employees continued to underperform despite their presence in the stores, and attention to
the customers. To understand the nature of performance problems with more specificity, the company
then started video-recording employee actions and dealings with the customers. The selected perfor-
mance laggards’ video clippings were then extensively studied to map their attitude and suggest ways
to help them focus on change. Although there was no intention to intrude upon employee privacy, the
move was opposed by employees particularly those located in the American and European countries,
alleging snooping to intrude privacy. The lesson from this case is that performance systems need to be
culturally congruent.
APPRAISING PERFORMANCE
While the expatriate is on assignment, the individual performance must be appraised (Dowling, Welch
and Schuler 1999; Tahvanainen 2000). Many comparative research studies on British, German, Japanese,
and US multinationals established that expatriate performance appraisal systems are different from the
parent countries’ systems. Performance appraisal mechanisms varied from quantitative (e.g. graphic
scale) to qualitative (e.g. MBO or narrative). Depending on the nature of expatriate assignments, job
performance dimensions varied widely. Multinational organizations, with respect to the expatriate
assignment, need to evaluate such performance dimensions which need not always be job-related. They
may concern issues such as cross-cultural interpersonal qualities, sensitivity to foreign norms, laws, and
customs, adaptability to uncertain and unpredictable conditions, and the degree of integration of host
country’s unit with the multinationals.
However, for short-term assignments, such as special technical projects, performance management
approach for the expatriates essentially becomes operational and task focused. Large multinational orga-
nizations pursue different strategic missions for the expatriates, within the constraints of different legal
conditions and competitive situations. This requires MNCs to keep pace with differing environmen-
tal conditions while adopting performance management practices. Designing a suitable performance
appraisal format that accommodates situational differences can benefit the MNCs to track, evaluate, and
compare the performance of expatriates.
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To increase the international competitiveness leveraging human resources, we can draw lessons from
the success of Japanese automobile and electronic manufacturers of the 1970s and 1980s. Japanese
employers embrace HR practices, which substantially enhance labour productivity and foster innova-
tion at the same time. Large Japanese multinationals like Toyota and Matsushita primarily owe their
success to such HR practices. Some of the characteristics of Japanese HRM practices are:
Emphasis on rigorous selection and recruitment.
Increased focus on training (both induction and on the job).
Emphasis on teamwork.
Continuous skill upgradation and multi-skilling.
Free flow of communication between the management and workers.
Motivating employees to participate in small group activities (quality circles).
Promoting innovation.
Encouraging employee suggestions.
Removing hierarchical barriers in sharing common services.
All these HRM practices in Japan created the organizational culture which allowed workers to identify
their own success with that of the corporation. This is how organizational culture became instrumental
in enhancing employee performance. Achieving organizational excellence through employee perfor-
mance is now an established observation globally (Peters and Waterman, 1982).
Human resource functions of Morris India underwent sea change for expansion of its activities in the
USA and European countries. It has now become imperative for the company to depute their Indian
employees to overseas assignments, and also to transfer US and European employees on short-term
basis to Indian units of Morris. While cultural sensitivity in both the cases is most important, the company
in its HR practice encountered a major problem in compensation planning and design, particularly in
cases of deputations abroad. The Indian employees started complaining that they are facing financial
stricture in their foreign assignments, while their counterparts from USA and other European countries,
in their India assignments, get doubly benefited due to the difference in currency valuation. Morris then
decided that for all foreign assignments, employees will continue to get their home country salaries while
getting additional allowances to ensure their standard of living. It means when Indian executives are
posted in the USA, the befitting standard of living of the Indian executives in India would be protected.
This arrangement ultimately settled the impasse. Thus was changed the Morris compensation policy for
overseas assignments.
This is a typical example of resolving international HRM issues.
INTERNATIONAL PERFORMANCE MANAGEMENT

PRACTICES
Globally PMSs focus on improvement in internal performance, and to extend support to the management
to achieve business goals. Effective performance management also increases organizational responsive-
ness to change. Australia for example embraced performance management to improve public services.
Counties like Canada, Denmark, and Finland use performance management to build organizational
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capabilities and to bring desired cultural changes. In the USA and several European countries, performance
management is more focused on controlling employee performance rather than on employee and capa-
bility development. We observe a similar trend in China and Korea. Japan, however, emphasizes on team
performance, and lets the team compel members to achieve results. The Japanese perception of people
makes them believe that all employees are capable of delivering. In India and Germany, performance is
used more as a tool to understand the relative strengths and weaknesses of employees, and their relative
abilities in goal achievement. In Germany, the trend is to use performance management for compensa-
tion decisions and employee promotion. In all countries, performance management is by and large used
as a vehicle for enforcing accountability and control. With clear definition of objectives and performance
targets, members of the organization are urged to achieve results; when they fail, they are provided train-
ing to develop and deliver. PMS is also widely used for effective salary administration.
Now let us focus on three Asian countries, which have made their vibrant presence felt globally.
China has become a member of the World Trade Organization (WTO) in 2001 and since then opened its
economy to MNCs. To reap the advantages of the Chinese market and also to gain cost competitiveness,
many organizations (including several Indian) have now relocated their manufacturing hubs to China.
After the liberalization move, private sector participation in China has increased. Chinese global majors
such as Legend, Haier, China Mobile, etc. are large enough to compete with any multinationals across the
globe. Corporatization of Chinese industry has compelled it to embrace professional management prac-
tices. PMSs in China, however, are still in a nascent stage. The primary reason for this can be attributed to
the Chinese management system, wherein managers work more as employees of the organization rather
than as entrepreneurs. Ownership and control are distinctly separated. Chinese organizations treat manage-
ment practices, including performance management practices, as mere legal compliance tools.
Korea, however, is worth examining. Unlike the Chinese economy, the Korean economy embraced
professional management practices after witnessing the economic crisis of the late 1990s. Greater
emphasis on promoting positive organizational culture and structural change reinforced HRM practices
in Korea. Korean companies emphasize on individual performance measurement rather than on team or
collective performance measurement. This is because of the typical Korean social system. But for this
exception, Korean organizations follow professional management practices.
Japan is known for its emphasis on social collectivism. After losing their business ground in global mar-
kets in the early 1990s, Japan started focusing on strategies and embracing western managerial practices.
Haslam et al. (1996) could document stupendous performance in Japanese organizations in the 1970s and
1980s. To keep pace with international competition, Japan has become more innovative in HRM practices.
More focus on product reengineering rather than processes alone, unparalleled inventory management
systems (which literally leads to zero inventory holding), teamwork, etc., could put Japan back on track
in business performance. As in production, Japan follows participative approach in deciding performance
goals. A consensual decision-making system makes every stakeholder accountable for achieving results.
SUMMARY
International performance management is a criti- formance management. Additionally, international
cal business tool for MNCs in translating strategy PMSs need to be flexible enough to accommo-
into results. PMSs, per se, influence critical organi- date cross-country cultural issues. For this rea-
zational outcomes, such as financial performance, son, managers are required to be trained in inter-
productivity, product or service quality, customer national PMSs. Internationally it is observed that
satisfaction, and employee job satisfaction. All MNCs with effective performance measurement
these are equally applicable to international per- systems can anticipate the future and are likely to
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lead in the changing business environment. Suc- enhances the employee willingness to take risks.
cess of international performance management International performance management practices,
depends on the degree of agreement on strategy, though following more or less generic performance
clarity of communication, focus on alignment of management practices, may vary widely from
efforts, and finally organizational culture. Strategic country to country and also from organization to
alignment is a business imperative, as it ensures organization. Particular HRM strategies of MNCs
realising of objectives. Communication ensures a and their subsidiaries are the major determinants
clear message and provides a common language of international PMSs. While it is common for
for all. Alignment of efforts ensures that individual MNCs to adopt a universal approach in manag-
performance matches the performance of busi- ing the performance of cross-country employees,
ness units and that of the organization as a whole. we also have a couple of examples of MNCs who
Finally, promoting a strong organizational culture adopt subsidiary-specific PMSs. This chapter dis-
with focus on cooperation and teamwork promotes cusses the core issues of international performance
self-monitoring of individual performance and management.
KEY WORDS
Expatriates’ Performance Management—Expa- They may be ability-based, such as learning how to
triates’ performance management considers the lead a team, negotiating, conducting a meeting or a
context of cultural variables. Particularly in the product launch, instituting a process in another
context of goal setting, training, feedback and country.
development, and motivation, expatriates’ perfor-
mance management is crucial. Structure of MNCs—Multinational corporations
structure and staff their subsidiaries in four dif-
Performance Management in International ferent ways. When an ethnocentric approach is
Assignment—Performance management in inter- adopted, subsidiaries have little autonomy and key
national assignment is a job context and not a job positions are filled by expatriates from the parent
description. Most international assignees’ perfor- country; in a polycentric approach, the subsidiary
mance dimensions are considered within four broad is treated as a distinct entity with some decision-
categories: task, organizational, intercultural, and making autonomy, but the HCM is rarely pro-
developmental dimensions. moted to the head office; in a geocentric approach,
Developmental Performance—This dimension the company recognizes the unique contribution of
of international performance is not always an orga- each subsidiary and managerial positions are filled
nizationally-desired outcome of the assignment. from its worldwide pool of employees; a region-
Developmental dimensions may be knowledge- centric approach provides subsidiaries with some
based, such as language acquisition or understand- autonomy within their region and uses employees
ing the worldwide structure of the organization. from within the region to fill managerial roles.

1. Define the concept of international perfor- 3. Explain the concept of expatriate perfor-
mance management. How is it different mance management.
from national level performance manage- 4. What are the important cultural effects on
ment? international performance management?
2. Explain how international performance man- 5. Discuss the changes in the international per-
agement is different in the contexts of struc- formance management practices in the con-
ture and strategy. text of globalization.
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6. Discuss the differences in international per- (a) Inter-cultural performance management

formance management practices with respect (b) International assignment
to compensation management practices. (c) Performance management in China
7. Write short notes on the following: (d) Performance management in Korea

8. Essex is a noted US-based R&D organization, sation packages, which the Indian outsource
which outsources its research projects to India agent needs to comply with. However, of late,
under contract research programme. Contract it is observed that there exists a wide incon-
research outsourcing is different from other gruity in Essex’s performance evaluation pro-
conventional low skill job outsourcing. Essex cess. Indian scientists are highly disgruntled
needs to maintain close contacts with the with the system and resigned. At this stage,
Indian scientists, who perform the research Essex hired you to suggest a performance
work. Based on their annual performance management model for Indian scientists.
review, Essex requires to plan the compen- Suggest your action plan.
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CASE STUDY
Developing a High Performance Work Culture: A Study on Siemens AG

Siemens AG is a global major in electrical and electronics goods with a turnover of £60 billion and more
than half a million people on the payroll. Based in Munich, Germany, Siemens has business presence all
over the world. Today Siemens is inseparable from our lives, as its product lines extend from traffic signal
lights to MRI scanning machines. Due to its global presence, Siemens needs to address cross-cultural
issues and include them in its management practices. Siemens high performance work culture is shared
by everyone from top to down the line. High-performance culture is a way of working and a set of values
which Siemens nurtures to encourage people to achieve high results.
For its sophisticated range of products, Siemens employs people with high level of competency.
Some of the skill-sets required by Siemens are not even available in the market easily. For example,
information technology specialists, researchers, new product developers, etc., who are available do not
easily fit the Siemens manpower requirements. However, because of high employer branding and preva-
lence of performance culture, Siemens could edge over other competitors in sourcing the requisite skills.
To sustain performance culture, Siemens adopts HR development strategy and helps people to fulfill it at
work. The choice for development is given to the people. They are encouraged to identify ways to improve
their careers, attend training programmes, do interesting work and maintain better work–life balance.
Siemens believes total engagement of people in the workplace develops the commitment towards
organization. People become the citizen of the company. When people are managed well, they feel
motivated autonomously and do a good job! This is Siemens core value on HRM. Siemens refers its
plan as business strategy, which among others emphasizes on performance, operational excellence and
responsibility towards the organization. With specific reference to people management areas, Siemens
emphasizes on people excellence, building and sustaining culture of high performance. People can
achieve excellence when they are given the responsibility. The sense of responsibility motivates them,
and they feel their efforts are valued. A strong sense of loyalty and belongingness, even in a technol-
ogy intensive organization like Siemens, made their employees innovative. Innovation and creativity of
employees today are Siemens’ greatest competitive advantages. The increasing sense of value and
engagement of people can be best ensured by sustaining a high-performance work culture.
Engagement both as a feeling and as a reality is possible through teamwork. Siemens’ teamwork cul-
ture is very strong, as all operations are assigned to various teams. Siemens expects true involvement of
all cross-sections of people in the business of the organization. A high-performance team is one in which
all members of the team work towards shared responsibility to achieve results. Siemens HR development
strategy is drawn around the following four main areas:
Achieving a high performance culture

Increasing the global talent pool
Strengthening expert careers
Siemens’ Leadership Excellence Programme (SLE)
A high-performance culture is the way of working at Siemens and it involves everyone. The global talent
pool is made up of all Siemens employees. Within Siemens everyone has the opportunity to develop
their own specialization and to acquire further expertise. The SLE provides the highest calibre leadership
and management training. Siemens’ talent management philosophy involves making sure that every
employee is provided with the guidance and support to achieve his/her full potential. This aids them to
do their best, every day. Everyone works together to achieve the organization’s objectives as well as
meeting their own personal goals. Everyone shares the same vision and dreams. Within this culture they
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are able to progress and take on greater responsibility within the company. People excellence involves
developing everybody who works for the organization—not just the high-fliers. Everyone has talent. For
Siemens, matching talent with tasks produces competitive advantage. Each individual at Siemens can
make best use of their talents, whatever they may be. Talent management enables both:
Job enrichment, where individuals are encouraged to take on extra tasks and responsibilities within an
existing job role to make work more rewarding, and
Job enlargement, where the scope of the existing job is extended to give a broader range of responsi-
bility, plus extra knowledge and skills development.
Talent management is a global philosophy that is the key to all supporting elements of Siemens’ busi-
ness strategy. Talent management enables Siemens’ managers to engage and motivate employees
throughout the organization. By applying talent management to all staff:
All customer-facing staff are engaged, so all customers benefit
Everyone has the opportunity and choices to achieve their full potential
The pipeline of high-fliers is sustained.
Siemens has created a standard process for managing the performance and development of all employ-
ees. This is referred to as the Performance Management Process. The process creates a direct link
between the strategy of the whole organization and plans for each individual. Every individual is given
targets based on their role and responsibility within the organization. It is through meeting personal
targets that the individual is best able to help the organization to achieve its targets. Performance man-
agement is a systematic process that creates trust and open communication by:
Setting objectives
Monitoring progress made
Creating an ongoing dialogue between each team member and his/her manager
Enabling forthright discussion
Performance management in Siemens is the engine that drives talent management. It is the corner-
stone of its high performance culture. When carried out in a consistent way, this system makes sure
that everyone is told honestly about their performance. Employees are clear about the impact of their
performance and what the consequences are for their development. Everyone within the organization is
pulling together to achieve the business strategy.
Question: Write a detailed note on performance management practices at Siemens.
Source: Adapted from www.siemens.co.uk, www.thetimes100.co.uk
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CHAPTER 15
Performance Audit, Human

Resource Valuation,
Accounting, and Audit
Learning Objectives
Concept of performance management and its Methods and techniques of performance audit
scope Process of human resource valuation
Differences between performance appraisal Human resource accounting
and performance audit Various aspects of human resource audit
Structure of performance audit Relation between HR audit and HR personnel
Steps in performance audit record keeping
Tracking Performance Excellence Through Performance Audit

Performance audit examines the function, operation, or the management systems and procedures of an
organization to assess whether it is achieving economy, efficiency, and effectiveness in its resource uti-
lization. Worldwide, we have many institutional templates for undertaking performance audit. However,
these are more applicable for government organizations, where bound audit procedure protocol is
very important. In business organizations, however, performance audit methods need to be custom-
ized, keeping pace with the individualized needs and expectations. Many software vendors have now
come out with the e-performance management systems, which can better facilitate the performance
audit functions. E-performance management, apart from conducting the performance audit and tracking
the performance records also helps in implementing HR strategies, policies, and practices in organi-
zations, making effective use of web-based technology. E-performance management is often offered
as a separate module under e-HRM package. However, in many cases it is a stand-alone solution
for the organization. E-HRM solutions can be operational, relational, or transformational. Operational
e-HRM solutions facilitate maintenance or administrative functions of HRM like payroll, employees’
personal record keeping, etc. Relational e-HRM solution, on the other hand facilitates development
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Performance Audit, Human Resource Valuation, Accounting, and Audit 291
and some support functions of HR like; training, recruitment, performance management, etc. Finally,
transformational e-HRM is concerned with strategic HR activities such as knowledge management,
strategic re-orientation, etc.
Summarized features of e-performance management are the automation of performance manage-
ment process, accommodation of performance measures and key performance indicators assigning
values to each indicator, keeping pace with the organizational goals and needs, and customizing the
workflow to manage its execution. Through real-time reports and information, e-performance man-
agement solutions facilitate the organizational decision-making, strategy framing while leveraging the
employee-related information.
INTRODUCTION TO PERFORMANCE
MANAGEMENT AUDIT
Performance management systems manage the entire workforce of an organization to ensure optimum
performance. It is the process of evaluation of employees’ performance, in alignment with the organi-
zational strategy and business goals, benchmarking with the best practices. Performance audit ensures
development, management, and retention of talent in the organization. The scope of performance man-
agement audit, among others emphasize on formal performance evaluations, incentive assessment,
career development programme assessment, succession planning programme assessment, goal setting
assessment of the organization, assessment of coaching and mentoring programme of the organization,
work environmental issues assessment, etc. It helps the organizations to diagnose the major issues of
bottleneck in employees’ performance. Using a participative approach, performance management audit
process can successfully track the issues and areas of organizational performance improvement. Perfor-
mance audit process and its results become more credible when it makes use of questionnaire, scaled
comparison method, and when these can be reliable and valid statistically. Administering a question-
naire, performance audit can be conducted in a more cost-effective and time efficient manner. It can
either be conducted using a traditional paper pencil mode or on-line. Thus, the performance audit is a
systematic performance measurement approach to identify the best performance improvement oppor-
tunities within the organization. Apart from the sales and revenues figures, performance audit should
look at quality and so also the quantity. For example, organizational performance occurs at different
hierarchical, functional, and divisional levels. It considers total sales and other revenues, production,
purchase, and so also individual level specific tasks achievement.
Successful performance audit facilitates in prudent business decision-making. Using the scalable
information, performance audit can provide information in measurable terms. With the dashboards and
the balanced score card, such audit information even become more authentic. For example, IBM’s cog-
nos is a performance management solution, used by organizations.
SCOPE OF PERFORMANCE MANAGEMENT AUDIT

Among other the performance management systems consider issues like:
Performance expectations.
Frequency of performance evaluations.
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Participative goal setting.

Job-profile matching, keeping pace with the skill of people.
Promotion of team work and group activities.
Practice of performance-based promotions.
Career development through succession planning.
Assessment of performance.
Introduction of fair performance appraisal process.
Practicing performance-based compensation design.
A comprehensive performance management audit assesses the degree of economy, efficiency, and effec-
tiveness in the use of human, financial, and material resources at individual employee’s level, at the
group or team level, departmental level, division level, and finally at the level of the organization.
Unlike financial audit, it is not statutorily required, but organizations need to undertake such internal
audit for assessment of their current situation and for designing the possible action plans for future
development. Aligning the performance audit with the organizational strategies, and business goals,
organizations can gain substantially, as it sets the direction for the people and so also for the organiza-
tion as a whole.
DIFFERENCES BETWEEN THE PERFORMANCE AUDIT

AND FINANCIAL AUDIT
Although procedurally, performance audit and the financial audit have many things in common, they are
not alike. Basic difference between the two, while the performance audit focuses on efficiency measure-
ments, financial audit focuses on the accuracy and correctness of accounts. Other areas of difference
between the two can be listed as under:
Financial audit is a routine job. It does not focus on any specific problem. Performance audit, on the
other hand focuses on problems and the process of identification of its causes.
In financial audit, attention is more on figures, in performance audit, however, the attention is more
on people, and other resources.
For obvious focus on specific requirements and expectations, financial audit is having a narrow
focus, while performance audit is essentially broader and more elaborate for judgement and inter-
pretation.
Financial audit is conducted for a specific financial period, while performance audit is on-going and
it can even extend over a cycle of several years. However, organizations may also carry out perfor-
mance audit annually, matching with their financial year results. But such approach to performance
audit is rather narrow, and time specific.
Unlike financial audit results, performance audit reports are more elaborate, diverse and
interpretative.
Performance audit requires more detailed preliminary surveys, for developing the actual audit plan.
In financial audit, however, this is not required.
Financial audit is more protocol-bound, while the financial audit is not.
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Performance audits measure efficiency of an organization, processes and elements, to determine whether
inputs are reflected into outputs in an optimal way, considering, particularly the costs. The final perfor-
mance audit assesses the real value of outputs, comparison of outputs against the identified standards,
and finally the overall effectiveness of the organization.
Some of the common terms of performance audit are input, objective, effect, output, economy,
efficiency, effectiveness, purposefulness, targets, results, feedback, performance standards, unit costs,
benchmarking, etc. All these terms we are already familiar with, save and except the term effect, which
indicates the outcome or consequence of performance measures, as a whole.
CHECKLIST OF PERFORMANCE AUDIT

It is difficult to design any universal checklists for performance audit, as the process is highly orga-
nization specific. Performance checklists determine whether the employees deserve incentives, promo-
tions, rewards, areas of their performance improvement, quality of their work, employees’ willingness to
undertake the work assignments, errors in terms of performed work duties, etc. Also a job performance
checklist is prepared on general attendance, tardiness, more use of sick leave, propensity to leave work
early and increase the time of lunch break, etc. Job performance checklist considers the general work
performance of the employees, like conforming to general operating procedures, adherence to the safety
measures, implementing the training knowledge, complying with the previous suggestions to improve the
work performance, etc. The job performance checklists, therefore helps the organization to assess how
employees perform, and so also the degree of compatibility of the organization with the employees’ needs
and expectations.
STRUCTURE OF PERFORMANCE AUDIT

Depending on the scope of performance audit in organization, it can be structured as under:
Measuring the degree of professionalism.
Measuring the efficiency.
Measuring the economy.
Professionalism audit emphasize on the identification of any possible lapses in terms of personal bias
and methodological issues while conducting the audit. Efficiency audit emphasizes on the objective
achievement and effectiveness measurement. While the economy audit measures the economy or cost
effectiveness of performance.
Professionalism in performance audit is understood in terms of quantification and actual definition of
performance results, considering various alternatives. It is understood measuring whether performance
measures help in achieving the goals, or changing the status quo, whether the time frame for implement-
ing the measures is reasonable, and adequately explained, the extent of data availability to conduct the
performance audit, to what extent such information can be rated, etc. It can be understood answering
the following questions:
What is the degree of professionalism in designing the performance audit process?
What are the deficiencies that exist in preparing the performance measures?
With such deficiencies can the performance audit be carried out?
Are the performance indicators adequate and auditable?
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Efficiency audit consists of audit of achievement of goal, and the audit of effects or the causality. Audit
of goal achievement can be done answering the following questions:
Was the defined goal achieved?
To what extent was the defined goal achieved?
To what extent the comparison of planned results or goals with the achievement actual results or
goals can be made?
Audit of effects or causality answers the following questions:
Can the goal be achieved with the adopted performance measures?
To what extent performance measures are the right fit for achieving the performance goals?
Apart from the adopted performance measures, what else could influence the circumstances that
facilitated in achieving the performance goals?
Are there any other effects (especially the adverse one) in audited performance measures?
What is the degree of actual effects with the planned ones?
For better results it is always advisable to adopt multiple methods like empirical and economic, while
conducting the performance audit. With the application of more than one method, results of perfor-
mance measurement can be correlated and subjected to statistical tests for its reliability and validity.
Economy audit evaluates the costs incurred in measuring the performance of the individual and the
organization. Capitalized value methods like the net present value, internal rate of return, etc. are the
important areas of consideration for economy audit in performance management. Also the economy
audit identifies whether any unnecessary expenses incurred during the process of performance audit.
STEPS IN PERFORMANCE AUDIT

Performance audit process in any organization follow certain steps. Most commonly used steps are
indicated below:
Development of assessment criteria.
Preparation schedule.
The choice of audit tasks.
The choice of audit objectives.
Preparatory work.
Performance audit planning.
While developing the performance assessment criteria it is important to consider the aspects of econ-
omy, efficiency, and effectiveness. Accordingly, it needs to be translated into specific assessment crite-
ria to facilitate the measurement of the organizational performance. While developing the assessment
criteria, it is also important to conform to the test of relevancy, operative, and consistent. In the next
step, preparing the schedule of performance is important. Performance schedule guides us the process
of gathering information, determination of the audit tasks, and decision on when to begin the audit, and
at what frequency, etc. The choice of audit tasks or the scope of performance audit depends on the spe-
cific requirements of the organization. Similarly, choosing of performance audit objectives, preparatory
work like review of information availability, financial information like trend analysis, ratio analysis,
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predictive analysis, i.e., operating data to predict the sales volume, etc., need to be organization-specific.
The final step in performance audit is the planning, that requires collection of relevant background
information. Assessment of the presence of relevant management and control systems to guard against
the performance irregularities, etc.
METHODS AND TECHNIQUES

OF PERFORMANCE AUDIT
Methods are the ways and procedures that lead to achieving the goals of performance audits. Techniques
are the tools used to measure the achieved performance goals. Performance audit methods could be an
analysis, synthesis, sorting, comparison, or a generalization. The process of analysis is defined as the
method of breaking down the whole performance goals and objectives into different parts, and then
examining each part separately. Through analysis we can get into the root of a given fact. Analysis
reveals the nature of the managed processes, pinpointing the causes behind the variances from the
desired state. As the process of analysis reveals the substance of audit facts and then explains the links
and relations, it is considered as the most important method of performance audit. Analysis also facili-
tates the benchmarking duly comparing the performance achievement of one organization with another.
The process of synthesis starts after the analysis ends. Synthesis combines the parts and elements
with the overall performance of the organization. Synthesis assesses how the results relate to causes and
helps in designing the effective measures to correct the deviations and so also to establish the preventive
conditions to achieve the desired results in future. Sorting enables us to better the facts explored and
reveal their interrelations. Sorting could be both quantitative and qualitative. Quantitative sorting can be
expressed in numbers, while the qualitative sorting helps us to establish the logical interrelations based
on facts. Based on these results we can make comparison of the performance data. Generalization makes
it possible to capture the extent of certain action in terms of ratio. It is closely related to the methods of
sorting and synthesis. Yet, the other terms used to define the performance audit methods are statistical,
accounting, mathematical, etc. The commonly used statistical methods for performance audit are Index,
time series, mean values, probabilities, and correlation. Accounting method is the basic audit method
used to perform the audit function. Mathematic methods help in detecting the undesirable facts and in
tracking the trends.
Performance audit techniques, as already explained above are the tools used to measure the degree
of performance goal achievement. Such techniques could be observation, simple document study,
interviewing, and questionnaire administration. Observation is a planned and targeted analysis of
material aspects of an activity. The document study examines facts in flow, the study of all available
records on a given fact is both vital and effective, and the audit would be inconceivable without it.
The nature of the documents studied depends on the aim of the audit. Interview is an auxiliary tech-
nique to understand the issue with the interview results clues. Finally, the questionnaire is the structured
approach to track the performance information based on the responses of the respondents.
PERFORMANCE DATA RELIABILITY AUDIT (DRA)

Data Reliability Audit (DRA) is basically performance audit to ensure accuracy and precession level
of observations. Performance audit assesses the degree of economy, efficiency, and effectiveness in the
use of human, financial, and material resources at a level of organization unit, organization, or certain
actions. This type of internal audit examines processes and systems of an auditee in particular.
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Performance audit and financial audit have much in common. These two types of audit may involve
the same kind of tasks, namely, the measuring and explanation of the performance of an auditee. They
also rely on similar data collection methods. While performance auditors have their sights on effi-
ciency, financial auditors focus on the accuracy and correctness of accounts. However, there are some
differences between performance audit and financial audit as well. These differences we have already
explained. Using the DRA, performance audit also fulfils the requirements and the correctness of per-
formance measurement results.
HUMAN RESOURCE VALUATION, ACCOUNTING,

AND AUDIT
A resource is defined as an object which can provide expected future services. Hence, objects which
do not have expected future service potential cannot by definition, be resources. People being capa-
ble of rendering future services, such potential services constitute a form of capital. Human Resource
Accounting (HRA) is the process of identifying, measuring, and communicating data about human
resources. Flamhoitz (1974) defined HRA as ‘Accounting for people as an organizational resource. It
involves measuring the costs incurred by business firms and other organizations to recruit, select, hire,
train and develop human assets. It also involves measuring the economic value of people to the organi-
zation’. HRA, therefore, shows how the organization makes investment in its people and how the value
of the people changes over time. Value of the employees increases by training (the core HRD activity)
and experience over a time period. Such information on human resources facilitates effective manage-
ment within an organization.
According to Likert (1971), HRA benefits organization in the following ways:
It furnishes cost value information to facilitate the management to take effective decisions on man-
power acquisition, allocation development, and retention to sustain cost-effective competitiveness
in the organization.
It ensures effective utilization of human resources.
It facilitates human assets control duly tracking its appreciation or depreciation.
It helps in the development of management principles.
This method attaches money estimates in the value of manpower of an organization. The process
is somewhat like estimating the goodwill value and can be appraised by developing a procedure to
undertake periodic measurement of certain variables. Such variables are either categorized as key
variables or intervening variables. Key variables are policies and decisions of an organization, its
leadership strategies, skills, behaviour of an employee, etc. Intervening variables are loyalties, atti-
tudes, motivations, interpersonal relations, communication, and decision-making. Measuring such
variables over several years, quantification of human assets are difficult for the obvious problem
in developing the accounting procedure. It is not a very popular method of performance appraisal.
However, this system is more appropriately used for evaluating the collective performance of an
organization, rather than individual appraisal of an employee. This method is useful for organi-
zational development, as it helps in identifying the changed areas more scientifically than any
other method. We have discussed this method in a separate chapter. HR is the valuable asset and
HR accounting helps to understand the relative value of HR. While doing the HR accounting, it
is important to account for quantitative value of employees’ performance. From such determined
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quantitative value, all forms of employees’ costs are deducted, to accurately understand the value
addition by the employees. This forms the basis of human resource accounting.
Certain information on the human capital can be reported by an organization in their annual reports.
In the process of developing such information, organizations can address to the requirements of
HRP integrating their HRIS. Information pertaining to employees can be listed under the following
broad heads as mentioned in Table 15.1.
However, the extent of disclosure of such information depends on the respective organizational prac-
tices. For example, Engineers India Ltd. (EIL) widely disclosed information on its human capital on all
the areas mentioned above and reported the human valuation during 1998–99 in Table 15.2 and 15.3.
Table 15.1 HRIS information

Basic Information HR Acquisition HR Development HR Maintenance HR Separation
About Human
Resource
Number of employees, Number of All information Cost related to Cost related to
categories, grades employees acquired pertaining to HRD HR maintenance HR separation,
Total value of human during the year activities of the attrition rate
resource and Cost of acquisition organization Details of
value per employee Levels for which benefits provided
they were acquired to the employees
Table 15.2 Employee details of EIL

Category No. of Employees as on 31 March 1999
Senior manager and above executives up to 613
the manager level
Technical 2097
Non-technical 295
Supporting staff 719
Total 3724
Table 15.3 Human valuation of EIL

Category Human Valuation During 1998–99
(Rupees in lakhs)
Category-wise total Value per employee

HR Value
Senior manager and above executives up to 24151 39.39
the manager level
Technical 65007 31.00
Non-technical 9145 —
Supporting staff 16264 22.62
Source: Annual report of EIL
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VARIOUS METHODS OF VALUATING HUMAN

RESOURCES
Different approaches to the valuation of human resources may be broadly grouped under two categories:
Non-monetary measurement
Monetary measurement
Non-monetary Measurement
Such methods involve the classification of human resources in terms of skills (skills inventory), perfor-
mance evaluations, potentiality for developments and promotions, attitude surveys, and subjective values.
Skill is a coordinated series of actions to attain some goal. Operationally, skills are defined widely
as overt responses and controlled stimulation. Overt responses may either be verbal, motor, or percep-
tual. Verbal response typically stresses on speaking (which requires memorization of words). Motor
responses stress on movements of limbs and body while Perceptual responses stress on understanding
of sensory responses. Controlled stimulation, on the other hand, are energy inputs to the workers which
is expressed in units of frequency, length, time, and weight.
Basic concepts of rest of the method have already been introduced in relevant chapters, excepting
the ‘subjective value’. ‘Subjective value method indicates a subjective evaluation of approximation of
the likelihood of an event’.
Monetary Measurement
There are number of monetary measurement techniques. Each such technique has its relative advan-
tages and disadvantages. Here we will discuss such techniques very briefly as under:
Capitalization of Historical Costs Method: This method was developed by Likert. It capitalizes
all costs of recruitment, hiring, training, and other initial costs involved in developing of human
resources, i.e., the employees. The amount so capitalized is written off over aperiod an employee
remains with the organization. If he leaves before the expected service period, the amount remaining
as an asset is written off in its entirety in the year of leaving.
Replacement Cost Method: This method measures the cost to replace an organization’s existing human
resource. It indicates what it would cost the concern to recruit, hire, train, and develop human resources
to match the present level of efficiency.
Opportunity Cost Method: Under this methods, the value of human resources is determined on the
basis of the value of an individual employee in an alternative use. If an employee can be hired easily
externally, there is no opportunity cost for him.
Economic Value Method: Under this method, human resources are valued on the basis of the contribu-
tion they are likely to make to the organization during the period of their employment. The remuneration
to be paid to an employee is estimated and discounted appropriately to arrive at the current estimated
value.
Present Value Method: This method measures human resources; measuring by attributing employee’s
value to the organization as an equivalent to the present value of his remaining earnings. Organizations
like MMTC, ONGC, BHEL, ACC, Neyvell Lignite Corporate, etc., have already adopted this concept.
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From HRD point of view, human resources accounting helps to understand many pertinent issues like
developing skill inventory, performance appraisal, assessing the individual’s capacity for development,
attitude surveys, and subjective appraisal, as discussed above. Hence, for designing a human resource
information system (HRIS), we need to consider the following factors:
Personal Profile: This includes name, sex, range, age, marital status, address and phone number,
service date, etc.
Career Profile: Education, training, certificates, licenses, degrees, skills, hobbies, requisite training,
interests, etc., are combined in the skill profile.
Benefits Profile: Insurance coverage, disability provisions, pension, profit-sharing, vacation, holi-
days, sick leave, etc., are covered in the benefits profile.
Practice Assignment
Visit any organization and study how they assess their human resource value. (Note: Not many orga-
nizations do human resource valuation. Hence recommend visiting Web sites like BHEL, TCS, and
Infosys, and study their method of human resource valuation).
HR AUDIT
Personnel/Human Resources or HRD audit is a systematic survey and analysis of different HR functions
with a summarized statement of findings and recommendations for correction of deficiencies. Basically,
it examines and evaluates policies, procedures, and practices to determine the effectiveness of HR
function in an organization. HR audit ensures that sound and cost effective policies are implemented.
However, purposes and objectives of HR audit can be listed as follows:
Objectives of HR Audit
1. To determine the effectiveness of management programmes, which facilitate management to
develop, allocate and monitor human resources.
2. To analyse the factors involved in HR and develop a statement of findings with recommendations
for correcting deviations, if any, on the following issues:
(a) The extent of deviation from HR policies.

(b) To what extent objectives are spelt out.
(c) To what extent performance standards have been established.
3. To seek explanations, information, and answers to the above questions such as: What happened?
Why did it happen?
4. To study the extent to which line managers have complied with HR policies and as such the opera-
tional problems in implementing the existing HR policies.
5. To study the current manpower inventory and identify shortfall or excess, if any.
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Job/Role of HR Auditor
From the above stated objectives, the job of HR Auditor can be enumerated as follows:
1. To get the current facts.
2. To study the effectiveness of the present system by answering the following issues:
(a) Why was the practice introduced?
(b) What would be the result if the practice is discontinued?
(c) What were the needs intended to be fulfilled and have those been fulfilled or not?
(d) What could be the best possible alternative for fulfilling such needs?
(e) What changes can improve effectiveness of existing practice?
(f) Are such intended changes economically and operationally viable?
(g) Are such changes sustainable from union’s point of view?
(h) What should be the time frame for introducing the change?
Importance of HR Audit
To keep pace with the changing environment, importance of periodic HR audit has increased in recent
years. Recent economic restructuring programme of the Government of India, as discussed earlier,
prompted the need for restructuring of the organization, which, inter alia, calls for restructuring of pro-
duction, manpower, strategies, management practices, philosophies, etc. All such possible reasons for
periodic HR audit can be enumerated as follows:
Technological changes, inter alia, are calling for renewal of knowledge and skills of existing man-
power. Training function, therefore, has assumed importance. Periodic HR audit can help to iden-
tify the changing training needs and development of new training modules for effective utilization
of manpower.
To keep pace with the environmental changes, management philosophy and practices at the organi-
zational level also need to be changed, like participative management (through quality circles and
value engineering teams), employee empowerment, total Eemployee involvement, etc. The need
for all these can be understood only when we periodically undertake HR audit.
Similarly, changing role of trade unions (which is now more pro-active than reactive), govern-
ment (which is now more liberal than restrictive), emergence of new working class (who are more
enlightened than their predecessors), emergence of international quality system requirements
(which calls for scientific documentation of different corporate functions and infuse attitudinal
changes), changing expectations of customers (which calls for more customer orientation), new
statutory requirements (pollution control), etc., are now influencing HR functions at the corporate
level, the effectiveness of which can only be understood by periodic HR audit.
Records Used for HR Audit

Records provide ready reference and serve as future reference and guide. Reports, on the other hand,
describe an incident, event, or situation. Depending upon the organization, the following records/reports
are usually checked for HR Audit. Time study records and time standards, cost records, records on
scores obtained in test and other examination, medical and accident reports, attitudinal survey reports,
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grievance reports, turnover reports, data on work stoppages, performance reports, payroll data, labour
costs data, etc.
Methods and Techniques of HR Audit

HR audit can be carried out either by attitudinal survey or by interpreting data. Details of attitudinal
survey have already been explained in a separate chapter. Interpretation of data can be done either by
simple comparison over a period or by ratio analysis or by graphical or pictorial displays. The following
examples illustrate the data interpretation method.
Checklists for HR Audit

T.V. Rao and Udai Pareek (1996), to measure the effectiveness of people management, developed a
set of 20 questions mostly to suggest linking of HR to the corporate objectives, goals, and strategies;
effectiveness of free flow of HR information down the ranks; application of knowledge of behavioural
science; industrial psychology for HR, etc.
For other HR sub-systems too, they have developed similar sets of questionnaire, adding responses,
which can help an organization to audit their HR activities. However, using same general checklists
for all organizations may not be very effective to audit human resources for its obvious uniqueness in
functional practices and philosophies.
HUMAN RESOURCE RECORDS

Human resource records, also called personnel files, are recorded information about employees, which
are kept by an employer, usually in the form of and under the name ‘personal files’.
Information is one of the most important inputs for an organization. A boundary spanning sub-system
of open organization collects information inputs from outside the organization, to bring changes in techni-
cal and managerial sub-system. This process enables an organization to remain competitive in the market.
In-house information, more particularly those pertaining to employees, also serves as a valuable input for
decision-making. Some of the personnel records are maintained more for statutory reasons. However, true
benefits of maintaining personnel records can be derived, only when these are used for both routine and
strategic decision-making. Personnel records can be maintained in one of the following basic systems:
Manually (in file cabinets without a computer).
With an integrated payroll/human resources system.
With a standalone human resource information system (HRIS).
Any combination of the three.
Manual personnel record systems exist in almost all companies. Organizations, which are not fully
computerized, integrate such manual personnel record system in conformity with the computer sys-
tems requirements. This type of organizations maintains their integrated computerized payroll or HR
systems. Some organizations, however, maintain stand-alone human resource information systems, to
ensure that HR information become effective input for routine and strategic HR decisions.
Personnel records thus include all information collected, assembled, or maintained by the organization
and relevant to the employment relationship of the individual with the organization. Organizations main-
tain personnel files for individual employees to record and document relevant events and discussions with
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the employees regarding performance, recognition, promotion, demotion, compensation, leave, absence,
disciplinary issues, training, and conduct. Routine documentation in personnel files pertains to personal
demographics of the employees. Maintaining some personnel records are statutory and such records need
to be preserved for a longer time frame. While some other personnel records may be voluntarily main-
tained by an organization to derive the benefit of strategic decisions like succession planning, competency
mapping, etc.
LIST OF PERSONNEL RECORDS

For organizational convenience, a tabular list of personnel records, which should be maintained in
employees’ personnel file, is reproduced here.
Personnel File Contents Document/File

a. Application Details Yes/No
Application for employment form

Employee CV
Employee I.D. document or permanent residency (Photostat)
Employee driver’s license (Photostat)
Interviewing notes
Interview correspondence
Offer of employment
Employee acceptance
Employee orientation checklist
Employee contact numbers, address, and next of kin
b. Salary Details Yes/No
Employee salary advice

Monthly salary advices
Complaints of indebtedness
Stop Order and other salary deduction authorization forms
Retirement fund and medical aid membership forms
Beneficiary forms
c. Leave Record Yes/No
Leave schedules
Annual
Casual
Sick
Study/sabbatical
Others
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d. Performance and Development Yes/No
Position descriptions
Training records, including formal training plans
Performance plans
Performance ratings
e. Disciplinary Procedures Yes/No
Pending personnel actions, awards recommendations, etc.

Disciplinary/adverse action backup materials
Disciplinary file documentation checklist
Objective: To provide a clear audit trail of all actions taken and leading up
to a formal disciplinary action. Copies of notice of proposed action
Employee response (or notation that no written response made)
Summary of response when made orally (including employee’s
or representative’s signature as to accuracy of memorandum)
Notice of decision and reasoning behind decision (specifically addressing
Douglas factors)
Supporting documentation such as:
1. Witness statements
2. Affidavits
3. Documents
4. Investigative reports or extracts of them
5. Pertinent regulations
6. Personnel actions
7. Reports on personal interviews/group meetings
• Evidence of delivery of notice letters
• Completed case sheets, with all items filled in
(noting ‘N/A’ if necessary)
f. Grievance Procedures Yes/No
Objective: To provide a clear audit trail on all actions taken and leading up to a
final decision on each grievance. This checklist applies to both negotiated and
administrative grievances.
Written grievance
Designation of representative
Witness statements
Memos on discussions with grievant/supervisor/rep/witnesses
All grievance forms and notices
Chairperson (all levels) report of findings and recommendations
Union letter invoking dispute
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Request for arbitration or application to Labour Court (Memos regarding meetings

with union to select arbitrator/schedule arbitration, etc.)
Brief
Arbitration notes
Post-hearing brief
Arbitrator’s or Labour Court decision
Record of implementation of arbitrator’s decision
Other supporting documentation such as:
Applicable regulations
Official documents (e.g., performance plans, performance ratings)
Documentation regarding requests for and approval of extensions/waivers of any
steps in the process.
g. Personal Medical Information Yes/No
Note: Medical documentation, including injury compensation forms, suitability and/or security information should not be
maintained in this folder. Other official folders must be established for this purpose.
Recommendations for Personnel Record Keeping

Some of the recommendations for personnel record keeping are presented below:
Review applicable laws with regard to required records.
Review employment application forms, evaluation forms, and other similar documents to be sure
they are non-discriminatory.
Review with supervisors the kind of disciplinary documentation, which should be maintained in
all employee files.
Know to what extent state laws mandates employee access to personnel files and establish a system
for controlling such access.
Do not disclose information on employees except to those who have a legitimate need to know the
information.
Do not discuss charges or complaints against individual employees with more people than abso-
lutely necessary.
Get consent before disclosure where possible.
Have one person responsible for all disclosures to ensure consistency of treatment.
Provide ‘neutral’ references for former employees.
Maintain adequate security over all employment records.
Use of Human Resource Information System (HRIS)

for Maintaining Personnel Records
An HRIS is a systematic procedure for collecting, storing, maintaining, retrieving, and validating data
needed by an organization about its resources. The HRIS is usually a part of the organization’s larger
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management information system (MIS). The HRIS need not be complex or even computerized. But
computerization has its own advantage of providing more accurate and timely data for decision-making.
Thus, human resource information systems (HRIS) are defined as the range of computerized technology
that is used to store, record, and link, analyse, and present data about the human element within the busi-
ness. Connections to the external environment through the Internet are significant in this definition, as are
Intranets, which allow organizations the potential to communicate from within more rapidly and effectively.
HRIS will assist in the provision of high-level customer focus and lowering an organization’s operational
costs. Although HRIS includes hardware and software, it also includes people form, policies, procedures,
and data. The areas of application of HRIS are many. Some of them include training management, risk
management, turnover analysis, succession planning, flexible benefits, compliance with government and
legal requirements, attendance with governments and legal requirements, attendance reporting and analy-
sis, HRP, accident reporting and prevention, strategic planning, financial planning, and other related areas.
Application of computers in modern organizations can help in processing organizational data, job
data, and personnel (people) data. Organizational data include market for competitive information, e.g.,
the life cycle of a company’s products, the mission, and values, strategy of the company, its structure
and culture, management style, employee attitudes, and its output results. Job data include the proposed
duties and responsibilities, performance standards, compensable factors, and competency requirements.
People or personnel data may include current and potential employees’ demographic information, work
history education levels, training and development history, competency assessments, performance
appraisal data, and career path.
Practice Assignment
Visit an organization that has adopted computerized human resource information system (HRIS). Study
their personnel record keeping.
SCOPE OF HR AUDIT
For integration of personnel management with HR functions, HR audit now encompasses all the areas
like review and integration of corporate mission, goals, policies and objectives, manpower planning,
career planning and development, promotion and transfer policies, performance appraisal systems,
training and development functions, recruitment and selection, etc.
The audit will take stock of the degree to which HR delivers its four key roles. The following infor-
mation indicates the aspects to be audited for each role. The sequence in which this information is
presented also approximates the sequence in which the audit needs to be conducted. Each step in the
process will produce information and conclusions about HR that is used as an input to guide each suc-
ceeding phase of the stock-taking.
Audit of the Functional Role of HR: A model was formulated for the American Society for Training
and Development by a task team headed by Patricia Mclagan in 1990. This model was used to develop
an audit questionnaire to assess the following four functional areas defined below.
Human Resource Development Systems and Procedures (HRD): Audit whether there is the integrated
use of training and development, organization development, and career development to improve individ-
ual, group, and organizational effectiveness. These three areas use development as their primary process.
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Training and Development: Identifying, assuring, and—through planned learning—helping develop

the key competencies that enable individuals to perform current or future jobs
Organization Development: Assuring healthy inter- and intra-unit relationships and helping groups
initiate and manage change
Career Development: Alignment of individual career plans with the organizational career-management
processes to achieve an optimal match of individual and organizational needs.
PURPOSES OF HR AUDIT
Dave Ulrich (1996) and his associates chalked out the methodology of HR audit based on four key prin-
ciples. Primary purposes of personnel audit can be aligned with existing HR systems and procedures of
an organization, keeping in view, however, that HR systems and procedures are line manager-friendly,
accommodate various labour laws and procedures, in line with the HR strategy and the entire process
runs at optimal cost. All these assumptions Ulrich and his associates translated into some critical roles
that HR professionals must play if they wish to be seen to make a real contribution to a business’ success.
Human Resource Management (HRM)

Audit whether the HRD systems and procedures are aligned with the HRM systems and procedures to pro-
mote staff competence, confidence, and performance standards. These areas are closely related to the three
primary HRD areas. In them, development is important, but it is not the primary orientation or process.
Organization Job Design: Defining how tasks, authority, and systems will be organized and integrated
across organizational units and in individual jobs.
Human Resource Planning: Determining the organization’s major human resource needs, strategies,
and philosophies.
Performance Management Systems: Assuring individual and organization goals are linked and what
individuals do every day supports the organizational goals.
Selection and Staffing: Matching people and their career needs and capabilities with jobs and
career paths.
HR Information Systems (HIRS)

Audit whether these areas support the achievement of results in the area of HRD and HRM; audit whether
HR maintains performance indicators that help management keep track of HR costs and benefits.
Compensation and Benefits: Assuring compensation and benefits fairness and consistency.
Employee Assistance: Providing personal problem-solving and counselling to individual employees.
Union/Labour Relations: Assuring healthy union/organization relationships.
HR Research and Information Systems: Assuring an HR information base is in place that provides on
time management information assuring HR functional performance indicators are in place.
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Table 15.4 Framework for audit of the service role of HR

Service Role Dimensions of HR
Tangibles/ The appearance of physical facilities, equipment, personnel, and communication
Appearance materials the HR function uses/supplies.
Reliability Ability to perform HR functions and service dependably and accurately.
Responsiveness Willingness to help line/employees and provide prompt service.
Assurance Knowledge and courtesy of HR staff and their ability to inspire trust and
confidence.
Empathy Caring individualized attention the HR function provides its customers (line and
employees).
Audit of the Service Role of HR

Human resource functions have traditionally played a service role to compliment their functional activi-
ties. Therefore, any audit, to be complete needs to examine the service responsiveness of HR. Although
we have different models for service role dimensions of HR, here we are discussing a very commonly
applicable service role model, keeping in view of the common organizational practices in Table 15.4.
Audit of the Compliance Role of HR

In our country, we have many labour laws to regulate employment relations. These apart, we have sev-
eral rules and regulations. All these put great deal of pressure on employers to improve the standard of
their people management policies, practices, and procedures. Compliance with the labour laws is now
a business imperative and this requires periodic audit to optimize the risk of violation, which not only
make employers liable for penalty (and even imprisonment in some cases), but also affect the organi-
zational image. The main thrust of this part of the audit will be to assess whether the required policies,
practices, and procedures exist, and to what extent management and labour have been trained to enact
these codes of best practice.
Audit of the Strategic Role of HR

Each has an implicit or explicit people management strategy to increase the value of employees to the busi-
ness. This strategy is to a large degree implemented through the major HR functional available to manage-
ment and HR. The choice of workforce strategy may also be tempered by the leadership and management
skills within each organization. Hence, auditing these functions enables an organization to understand
whether the implicit or explicit human resource strategy is appropriate for the organization and whether the
HR policies, systems, and procedures are aligned to achieve business plan results, and workforce strategy.
Organizations need to mandate a particular HR strategy, aligning their management, leadership, and HR
practices/workforce strategy to support the achievement of the business plan mission, goals, and values.
Audit of the Financial Management Role

of HR (Financial Ratios)
A comprehensive audit of HR systems and procedures needs to go beyond the ‘check and tick/inspec-
tion’ level. Basic financial ratios/scorecard measures appropriate for a staff function like HR need to be
put in place to audit the efficiency of the various functions. Different functions of HR act as a system of
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levers for optimizing employee, team, and organizational performance results over time. Organizations
can select from the following list of customer, financial, business process, and growth and learning
measures that will be calculated to round off the audit.
Planning and staffing Special recruitment programmes (e.g. universities)

Interviewing costs
Special event analysis (Rush assignments)
Response time analysis (Speed)
Time to fill analysis (Quality)
Job posting response rate (Internal)
Job posting hire rate
Internal cost per hire/make

Internal hire rate
Interviewing time
External cost per hire/buy

Source cost
Staff time
Management time
Processing cost
Travel and relocation
Recruitment efficiency Interview time (internal and external appointments

Recruitment agency costs
Recruitment effectiveness Staff requisitions

Requisitions opened
Requisitions filled
Optimizing staff levels

Actual versus projected staff levels (by function/department)
Compensation measures Cost control

Distribution patterns relative to evaluation of performance
Employee pay Attitudes
Benefits
Total cost
Orientation cost per employee Departmental orientation cost (Personal walk through by mentor)
Counselling/disciplinary costs Departmental counseling factor

(early warning measure) Counseling topic factor
Counseling topic time
Lost time costs Absence rate

Absenteeism cost
Negotiation time cost factor
Strike/downtime cost factor
Turnover rates Length of service

Transfer cost (internally across departments/functions)
Termination by department or job category/reason for leaving
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Training and development costs/ Cost per learner (classroom)

measures Cost per learner (on-job-training)
Knowledge change benefit
Skill change benefit
Performance change benefit
Organization development Satisfaction

measures Adaptiveness
Development
Risk taking
Creativity/learning
Job stress
Job flexibility/multiskilling
Leader behaviours
Commitment measures
BENEFITS OF HR AUDIT
From our foregoing discussions, it is thus clear that HR audit in any organization provides many ben-
efits. However, here we are discussing only some of those benefit points:
It helps to find out the proper contribution of the HR department towards the organization.
Development of the professional image of the HR department of the organization.
Reduce the HR cost.
Motivation of the HR personnel.
Find out the problems and solve them smoothly.
Provides timely legal requirement.
Sound performance appraisal systems.
Systematic job analysis.
Smooth adoption of the changing mindset.
Practice Assignment
You have understood the personnel or HR audit process. Collect one HR audit report and relate the
same with your learned theories.
SUMMARY
Performance audit assesses the degree of econ- audit examines processes and systems through
omy, efficiency, and effectiveness in the use some kind of tasks to measure and explain the
of human, financial, and material resources at performance of an organization, as a whole.
individual, unit, departmental, divisional, and Although performance audit has certain simi-
finally at the organizational level. This internal larities with the financial audit, these two are
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different in terms of their scope and areas of contributes to employees’ fatigue, monotony, bore-
investigation. dom, accidents, safety, morale, and grievances. As
In addition to the performance audit, this chap- HR manager, each such micro-effect needs to be
ter elaborates on several HR application areas in managed, or else organizations will lose its busi-
an organization for a holistic understanding of the ness focus and nurture unproductive and demoti-
audit functions. For a HR manager, understanding vated workforce, which only add to the financial
organizational environment both in the context of burden of the organization. The chapter finally
internal and task related issues, and external envi- concludes with elaborate discussions on personnel
ronmental issues are now considered very impor- record keeping, duly focusing on both from statu-
tant. Organizational environment, per se, affect the tory and voluntary perspectives. Personnel audit,
performance and productivity of the employees, HRIS, and human resource accounting are some
hence its effective management is now an important other important areas discussed in this chapter to
priority for HR managers. Many organization envi- add value to HR managers to understand how all
ronmental issues (more particularly task related), these contribute to effective decision-making.
KEY WORDS
HRIS—Human Resource Information System, Personnel/HR Audit—Systematic evaluation of
used by an organization primarily with computer personnel or HR functions to understand how it
support to utlize such information for strategic and contributes to organizational business goals and
routine HR decisions. meet statutory compliance.
Human Resource Accounting—Valuation of Opportunity Cost—Cost of foregone opportunities.
employees and understanding their potentiality Skill Development—Developing the skill to meet
to suit present and future organizational require- the changing job requirement.
ments. Synthesis of Performance Data—Synthesis
Replacement Cost—Cost incurred for manpower combines the parts and elements with the over-
replacement. all performance of the organization. Synthesis
Performance Data Reliability Audit (DRA)— assesses how the results relate to causes and helps
Data Reliability Audit (DRA) is basically perfor- in designing the effective measures to correct the
mance audit to ensure accuracy and precession deviations and so also to establish the preventive
level of observations. conditions to achieve the desired results in future.

1. Explain the concept of performance manage- justification) for carrying out the perfor-
ment audit. How is performance management mance audit in a knowledge intensive R&D
audit different from the financial audit? organization.
2. Discuss the structure and the steps involved 4. Define human resource accounting. For
in performance audit. designing human resource accounting system,
3. What are the different methods and tech- what are the factors needed to be considered?
niques used in performance audit? Select 5. Define HR audit. What are its objectives and
some specific methods and techniques (with importance?
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6. What is the scope of HR audit? What are the 9. Short Notes

records needed for it? (a) HR audit
7. Briefly explain methods and techniques of (b) Career profile
personnel audit. (c) Present value method
8. Explain the nature of HR records. What type (d) Sorting
of HR records will you recommend for an
(e) Economy audit
organization?

10. To conduct performance audit in a manu- and workers), develop your action plans with
facturing organization mainly for operation checklists with adequate logic.
level employees (executives, supervisors,
REFERENCES
Bhattacharyya, D.K. (2007), Human Resource Likert R. (1971), ‘Human Organizational Mea-
Research Methods (New Delhi: Oxford Uni- surements: Key to Financial Success’,
versity Press). Michigan Business Review (May) pp. 1–5
Davenport, T.O. (2000), ‘Workers Are Not Assets, Strohmeier, S. (2007). ‘Research in e-HRM:
Across the Board’, 37(6): 30–34. Review and Implications’, Human Resource
Flamholtz, Eric G. (1999), Human Resource Management Review, 17(1): 19–37.
Accounting: Advances in Concepts, Meth- Swanson, R.A. and D.B. Gradous (1988), Fore-
ods and Applications, 3rd edition (AA Dor- casting the Financial Benefits of Human
drecht, The Netherlands: Kulwer Academic Resource Development (San Francisco, CA:
Publishers). Jossey-Bass).
Grossman, R.J. (2000), ‘Measuring Up’, HR Mag- Ulrich, D. (1996), Human Resource Champions:
azine, 45(1): 28–35. The New Agenda for Adding Value and Deliv-
Head, G.E. (1985), Training Cost Analysis ering Results (Boston, MA: Harvard Business
(Washington, DC: Marlin Press). School Press).
Lepak, D.P. and S.A. Snell (1998), ‘Virtual HR: Walker, J.W. (1998), ‘Are We Using the Right
Strategic Human Resource Management in the Human Resource Measures?’, Human
21st Century’, Human Resource Management Resource Planning, 21(2): 7–8.
Review, 8(3): 215−34.
CASE STUDY
Valuing Human Resources—The Infosys Way

The human resource accounting concept was pioneered by the Indian public sector companies. It was
first introduced by two public sector majors, i.e., Bharat Heavy Electricals Limited (BHEL) and Steel
Authority of India Ltd (SAIL) in the 1970s. At Infosys, the concept was started in the year 1995–96.
Infosys basically utilized the Lev & Schwartz Model of human resource accounting. Later with the
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acceptance by Infosys, started under the initiative of Shri Narayan Murthy, the then Chairman of the
company, human resource accounting started gaining importance in India.
Infosys’ HRA model was based on the present value of the employees’ future earnings with the fol-
lowing assumptions:
An employee’s salary package included all benefits, whether direct or otherwise, earned both in India
and in a foreign nations.
The additional earnings on the basis of age and group were also taken into account.
To calculate the value of its human assets in 1995–96, all the 1,172 employees of Infosys were divided
into five groups, based on their average age. Each group’s average compensation was calculated. Infosys
also calculated the compensation of each employee at retirement by using an average rate of increment.
Human resource accounting information for Infosys for the current year is reproduced below:
Human Resource Accounting Information of TCS

2010 2009
General Efficiency
Sales per support staff
$ million 0.84 0.94
Rs crore 4.00 4.35
General and admin expenses/revenue (%) 7.15 7.51
Average proportion of support staff (%) 5.36 5.04
Stability
Average age of support staff (years) 30.4 29.6
Competence—Our people
2010 2009
Growth/renewal
Total employees 1,13,796 1,04,850
Added during the year
Gross 27,639 28,231
Net 8,946 13,663
Laterals added 4,895 5,796
Staff education index 2,96,586 2,72,644
Employees–Number of nationalities 83 76
Gender classification (%)
Male 66.5 66.6
Female 33.5 33.4
Number of non-Indian national employees 6,064 4,698
Efficiency
Value-added/employee (Rs crore)
Software professionals 0.21 0.20
Total employees 0.20 0.19
Value-added/employee ($ million)
Software professionals 0.04 0.04
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Total employees 0.04 0.04
Stability
Average age of employees (years) 27 26
Attrition—excluding subsidiaries (%) 13.4 11.1
Attrition—excluding involuntary separation (%) 10.4 9.1
Note: The above figures are based on consolidated financial statements (Annual Reports of TCS).
At Infosys, it is always believed that information asymmetry between the management and shareholders
should be minimized. Accordingly, the company is in the forefront in practicing progressive and transpar-
ent disclosures. Infosys is the first in India to adopt the US Generally Accepted Accounting Principles
(US GAAP). Further, the company is the first foreign–private issuer in India to file primary financial state-
ments with Securities and Exchange Commission (SEC) in accordance with the International Financial
Reporting Standards (IFRS) as issued by International Accounting Standards Board. Thereafter, the
company rapidly progressed to additional disclosures that give deeper insights to the way the company
runs their business and into their value creation. The company continues to provide additional informa-
tion even though it is not mandated by law because the company believes that it will enable the investors
to make more informed choices about their performance.
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CHAPTER 16
Ethical and Legal Issues of

Learning Objectives
Concepts of ethical and legal issues involved Benefits of ethical practices in organizations
in performance management systems
Implementing code of ethics in workplaces
Ethical perspectives in performance appraisal
systems Ethical dilemmas in performance manage-
Objectives of performance management ethics ment
Code of ethics and code of conduct Legal aspects of performance management
Code of Ethics on Corporate Governance of Infosys, India

Infosys is one of the pioneers in information technology in India. The company is recognized for ethical
compliance and always emphasizes on achieving performance with integrity. Known internationally for
its best practices in corporate governance, Infosys always put endeavours to respect minority rights in
all its business decisions.
The company’s corporate governance philosophy is based on the following principles:
Satisfy the spirit of the law and not just the letter of the law. Corporate governance standards should
go beyond the law.
Be transparent and maintain a high degree of disclosure levels. When in doubt, disclose.
Make a clear distinction between personal conveniences and corporate resources.
Communicate externally, in a truthful manner, about how the company is run internally.
Comply with the laws in all the countries in which the company operates.
Have a simple and transparent corporate structure driven solely by business needs.
Management is the trustee of the shareholders’ capital and not the owner.
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Ethical and Legal Issues of Performance Management 315
As a part of commitment to follow global best practices, the company complies with the Euro share-
holders Corporate Governance Guidelines 2000, and the recommendations of the Conference Board
Commission on Public Trusts and Private Enterprises in the USA. The performance management sys-
tems at Infosys are considered to be one of the best in the country, for its transparency and employees
acceptance.
Adapted from: http://www.infosys.com/investor/corporategovernance.asp.
INTRODUCTION
Compliance with the ethical issues by any organization is possible when they balance the bottom-line
and the social welfare. Such a process of balancing may not always be without conflict, because of the
differences in the stakeholders’ interest. Obviously for this reason, organizations feel constrained in
the process of balancing opposing objectives. Being multi-dimensional, an organization has to meet
such opposing expectations of stakeholders, who even encompass society, culture, religion, diversity
issues, religions, socio-politico-economic issues, or for that matter any possible issues which may have
direct or indirect linkages with the organizational activities. Ethical practices cascade to compliance
with the corporate social responsibility (CSR). Today CSR has become the managerial responsibility;
it is in-built with the organizational effiiciency. In practice, many organizations show their concern for
social responsibilities, but indulge in generating profits only. Therefore, organizations need to get a
model which can make a trade-off between the profit, ethics, and social responsibility. While doing such
trade-offs, it is often difficult for the organization to quantify the direct impact of social responsibility
vis-à-vis profit motive.
A mid-sized pharmaceutical company in India, started by an entrepreneur was trying to introduce
performance culture to weed out the deadwoods and non-performers and reward the good performers.
The company initially started as a family business, but for subsequent business expansion had to go
for professional management practices, hiring professional managers and employees. The owner CEO
gradually distanced himself from the nitty-gritty of day-to-day work, to play the figure-head role in the
organization. In the process of introducing the performance culture, the organization could identify seri-
ous ethical issues involving the marketing team members who in the name of achieving the sales targets,
indulged in unethical and even illegal means. While the business performance is achieved, adding to
the bottom-line of the company, the organization faced with the dilemma whether to comply with the
legal and ethical issues, or just keep quite to allow the things to continue to achieve the results. At this
stage, the owner CEO of the company, keeping in view the long-term perspectives, developed the code
of ethics in compliance with the law of the land. The CEO then ordered for listing of the issues involv-
ing managerial ethics and challenges to ensure its compliance. To do so, the first attempt was made to
list the factors, which contribute to the compliance of ethical behaviour, and then develop the suitable
mechanisms for ethical control and compliance.
An ethical organization can achieve better business results. This maxim is now making more and
more corporate leaders accept their social responsibilities and organizational ethics. Organizations
indulging in unethical business practices or in unethical dealings with their employees are now quickly
identified and become globally transparent in this era of technology-intensive communication systems.
Organizational activities require redesigning and updating, keeping pace with public expectations and
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ever-rising standards. The pattern of organizational behaviour, injustice, corporate dishonesty, exploita-
tion, and negligence being more visible, and attracting public opinion and criticism, ethical violations
are carefully avoided. We all know City Toy’s case, which used to manufacture toys, using child labour
in China to offer it as gift item to the customers of McDonald. It was subjected to criticism interna-
tionally to such an extent that McDonald had to withdraw the practice. The Indian carpet industry and
Bangladesh garment industry faced similar predicaments in terms of export restrictions for using child
labour. Even suppressing facts on products and services become an ethical violation from customers’
point of view.
For organizations, ethical issues encompass every citizen of the world. The definition of stake-
holder is no longer limited to shareholders, investors, and partners. Stakeholder is any group, which
has an interest in, involvement with, dependence on, contribution to, or is affected by the organization.
A stakeholder is any individual or group who could lose or gain something because of the actions of the
organization.
Unethical corporate practices can be classified into immoral category, that is, a deliberate violation
of ethical issues to harm the stakeholders. This apart; there may be unknowing violations of ethics by
the organization, which we can be categorized in amoral type. Negative consequences of unethical
corporate cultures in human resource management or organizational behaviour pervade selection and
staffing, performance appraisal, compensation, and retention decisions. Thus, human resource systems
and ethical corporate cultures should be considered partners in the process of creating competitive
advantages for organizations. According to Zadek (1997), while complying with the ethical issues in
the organizations, managers must also be able to get the flexibility in aligning performance, ethics, and
accountability.

Ethics are moral principles about what is good, defensible, and right. Although operationally ethics need
to be integrated with our behaviour and actions, we often treat ethics as an afterthought. Ethics and ethi-
cal reflection need to be integrated through all organizational practices. A common philosophical defini-
tion of ethics is the science of conduct or values of management. Moral values such as respect, honesty,
fairness, and responsibility are important constructs of ethics. Application of such ethics is ensured by
organizations by adopting some code of ethics. Thus, ethics includes the fundamental ground rules and
organizations give an informed choice to the employees to understand whether something is right or
wrong and then take decisions making the right choice. Ethics, therefore, is the framework of values
for moral behaviour. It is a social glue to ensure that an organized society prospers and everybody’s
interest is served. The Ten Commandments of the Christians or the teachings of the Bhagwad Gita for
Hindus are sources of directions for ethical behaviour in life. Today, we are concerned with the issue of
ethics in two aspects of life, namely, business and profession. Business represents the entrepreneurs and
profession represents those who are employed in an organization or who work for an employer. In other
words, ethics are equally applicable for the employers and the employees. In India, we find reference
to ethics in the Bhagwad Gita. Our traditional guild systems laid down the ethics of business or profes-
sion. This sacred text emphasizes the need for internalization of the ethical codes by the individuals, so
that they can reflect the same through their behaviour. Organizations can benefit in the best way when
they make their people internalize the ethical codes and values. However, external forces now also
compel organizations to comply with ethical issues. External forces always need not be the regulatory
authorities alone, they could even be stakeholders, whose changing expectations require organizations
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to step up their ethical standards and conducts. In the case of a profession, it could be the professional
association or the guild and in the case of a society where there is a government, it is the government
agency, which ensures that the laws are obeyed. In fact, in a secular society, it is the law that lays down
what is acceptable conduct and what is not. Acceptable conduct would be encouraged and unacceptable
conduct would be considered illegal and punishment meted out.
When performance management systems are abused in organizations, we call it a violation of ethics.
It not only speaks on poor corporate governance, but also creates unhealthy work environment, where
every employee feels demoralized. Reduced performance and productivity, and employees’ dissension
even ultimately weakens the organizational competitive strength. It is necessary to ensure transparency
in performance evaluation process and communicate to employees, whose interests get prejudiced for
any performance aligned decisions like promotions, transfer, salary raise or increments, training, etc.
Some organizations even ask the poor performers to quit. Violation of ethics in performance manage-
ment systems may not always be deliberate for the managers. It may be just for their self-understanding
of the process in the absence of any guidelines. Managers often feel they are skillful and knowledgeable
enough to rationally use the performance management process.
Sometimes, major miscommunications occur in performance review sessions due to basic differences
in ethical orientation. For example, the reviewer may say, ‘Reviewing the employees’ performance is
a requirement, and we need to follow the rules of the organization’. The person being reviewed may
reply, ‘I contribute to the organization very significantly, but I don’t get the rewards or appreciation.
I am being treated equally like my other colleagues who underperform. The reviewer is concerned with
decisions and actions that conform to basic principles and rules (adherence). The employee appears to
be oriented towards the outcome, the ends justify the means (results). They are talking on two different,
non-connecting planes. Unless the employee and the reviewer are successful in negotiating an ethical
balance, each may view the other as taking unfair shots—and the battleground will be the performance
review process.
ETHICAL PERSPECTIVE IN PERFORMANCE

APPRAISAL SYSTEM
The American Heritage Dictionary elaborates the term ethics as certain set of principles of right con-
duct, moral values, philosophy, and rules or standards that govern the conduct of a person or the mem-
bers of a profession. Ethical issues become more challenging in human resource management issue,
which encompasses performance management as well. Performance evaluation, generally, consists of
multiple factors like punctuality, attitude, conforming to dress codes, good interpersonal relations with
the customers, peers, and subordinates, language, neatness, congeniality, and finally the performance
output, among other things. The evaluation process will be considerably different between service and
production employees and between general employees and professional employees. The ethical chal-
lenge arises when, after all the factors have been considered, the decision is made on a factor or factors
other than those by which all the employees have been evaluated.
Performance appraisal processes is susceptible to ethical issues. Ethical violation occurs when per-
formance evaluation is done based on biased observation and judgement. Even at times of appraisals,
managers often emphasize on unrelated factors like race, religion, argumentative, etc. Ethical perfor-
mance review is the most important aspect of the performance evaluation process. It requires managers
to conduct the review process with honesty and mutuality. Honesty requires honest assessment of per-
formance, while mutuality requires mutual development of performance plans that can ensure improve-
ment of performance.
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OBJECTIVES OF PERFORMANCE
MANAGEMENT ETHICS
The overall objective of performance appraisal is to provide an honest assessment of performance and
to mutually develop a plan to improve the individual’s effectiveness. Prerequisites for the same are
to make people understand where they stand in terms of their performance achievement. To ensure
compliance with the performance ethics, structured performance objectives are laid down, keeping the
following points in the backdrop:
Adequate definitions of the objectives and the purpose of the organization.
Issues of priority, like values or achievement of performance goals.
How the employees contribute to the achievement of organizational results.
Focus of the organization in terms of achieving the performance results like individual, group, or
organizational.
Degree of compatibility of employees with the job position.
Many effective, high-ethics managers invite such inputs to ensure that performance management pro-
cess becomes ethic complaints. Managers help the employees to understand how their contribution
leads to mutually beneficial performance outcomes. Often during the process of performance review,
managers face the paradoxical situation, where the employees allege their performance review is mean-
ingless as they see no future in the organization and hence they have made an informed decision to leave
the organization. In such cases, most of the managers commit the blunder of immediate recommenda-
tion for promotion, even going to the extent of tampering of performance results for the retention of the
employees when they feel employees are valuable for the organization. However, ideally in such cases,
managers instead of insisting the employees to stay need to allow the normal separation, despite the fact
that such separation is painful.
Some managers again, while reviewing the performance of employees, emphasize on conformance
with legal aspects. They nurture this impression wrongly, as legal compliance is not the adequate taste
of ethical performance evaluation process. Adhering to the rules and regulations and documentation of
the entire performance review results may put them in perceptive secured and defensible position, but
may make them liable for ethical violation. Managers need to appreciate that the performance review
process is not just an annual ritual, but rather a human resource development initiative in terms of inject-
ing the spirit which enables the individuals to recognize and strive for performance improvement.
Again a mechanical performance review process may not violate the ethical requirements, but may
imbibe feelings in the minds of the employees being reviewed, that their feelings are ignored. Employ-
ees with such feelings lose their personal worth. Again the managers’ propensity to stereotype the per-
formance review process is not desirable, as managers in such cases often try to please the subordinates
with overrating, without considering the differences in their performance levels. Such erroneous perfor-
mance review, in reality, make the organization prone to high turnover of best performers. Therefore,
performance appraisal process needs to balance between the ethical, legal, and business issues. Without
the proper trade-off, the process is meaningless. Self-esteem of employees is the most critical issue. The
review process should not damage the self-esteem of the employees for the coercive behaviour of the
managers.
Contrarily, when the performance appraisal process helps employees to understand how their con-
tributions relate to the overall objectives of the organizations, they perform better and with proper
feedback, they can even autonomously develop themselves and renew their capabilities to improve their
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future performance levels. With such continuous development of employees, organizations can achieve
long-term sustainability and a high degree of competitiveness.
Thus, the primary objective of the performance appraisal process is to develop the employees, and
through employees’ development and capability enhancement to gain the competitive strength. Ethical
consideration of the managers becomes evident from the explicit understanding that making people
understand their self-worth autonomously make them deliver better performance results.
CODE OF ETHICS AND CODE OF CONDUCT

Code of ethics and code of conduct specify the ethical standards that a group (e.g., staff or a professional
group) should follow in order to continue as a member of the group. They are generally formally stated
and members are required to accept them as part of their membership of the group while accepting
employment/membership. Values vary between individuals and across cultures. Hofstede’s four value
dimensions (1980) help us understand cultural value clashes. Long-term versus short-term values affect
many aspects of organizational life. The four key ethical principles are egalitarianism, utilitarianism,
individual right, and distributive justice. Organizations following the utilitarianism approach in ethics
make decisions based on their outcomes and consequences. Ethical behaviour is influenced by moral
intensity, ethical sensitivity, and the situation. A code of ethics serves a number of key roles.
A code of ethics is different from a code of conduct. Code of ethics for an organization or for a pro-
fession is developed more in the form of statement of values and beliefs that defines an organization
or a group. Value statements are aspirational, while rules or principles are the beliefs, which individ-
ual members of an organization should subscribe to in order to continue as members of the organiza-
tion. These are listed in different sections in the code, regarding specific relationships with employees,
customers, shareholders, suppliers, and competitors, as well as the society in general. Because of the
increasing importance of ethical compliance, professional organizations emphasize on imparting train-
ing on ethics.
The code of conduct, on the other hand, translates the values (documented in the code of ethics) into
specific behavioural standards, keeping in mind the possible reflection on the stakeholders’ interest. It
outlines a fundamental set of principles, explains why members of an organization should behave in a
certain way, what actions are prohibited, and also how to determine which action is ethical or unethical.
Therefore, codes of ethics are general guides to operational values and decisions, while codes of con-
duct are more specific or formal statements of the values and practices of a business. Codes of conduct
for any organization are better understood through the mission statement of the organization.
A common philosophical definition of ethics is the science of conducts or values of management.
Moral values are respect, honesty, fairness, and responsibility, and these values are translated into a code
of ethics, according to Carter McNamara (2002), a Minneapolis consultant, specializing in leadership
development and strategic planning ethics ‘includes the fundamental ground rules by which we live our
lives’. As it pertains to business, ethics is generally considered the act of learning what is right and what
is wrong in the workplace and then making the decision to do the right thing.
Benefits of Code of Ethics

It is now clear that merely having by default a code of ethics or conduct will not solve the ethical prob-
lems. However, having a developed code of ethics will certainly be beneficial to the organization and to
the society as a whole. For the organization, a clear code of ethics or standards provides concrete guide-
lines necessary to deal with situations both within the company as well as in external relations. Internal
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ethical dilemmas always need not be straight and simple; it may be complex, requiring well-defined
policies to facilitate fairness and moral management. In external relations with suppliers, customers,
and shareholders, a solid code is the best way to avoid decisions that can lead, in extreme cases, to gov-
ernmental intervention and prosecution.
A clear statement of ethics policy of an organization also helps employees to align their personal
values with those of the organization, creating a stronger workplace bond with both fellow workers and
company leaders. Also, a code of ethics provides individual workers with security that protects them
from possible violation of ethical practices by unscrupulous organizations. Society also benefits when
the organizations comply with the ethical codes. Some such areas may be organizations’ decision to
comply with environmental hazards, and improving the quality of work life (apart from the benefit to
the people who work with the organization, it also benefits the society through improved infrastructural
facilities). Also, a code of ethics benefits future corporate leaders, as these prospects can improve their
moral standards right from the beginning, to rise to the future expectations of ethical standards in their
higher role positions.
Hence, a developed code of ethics benefits all types of organizations and businesses, irrespective of
their size and nature of activities. Such a code not only transcends business practices, but also encour-
ages employees to be upfront about problems, which they may encounter in the workplace.
Benefits of Ethical Practices in Organizations

By behaving ethically, organizations can derive huge advantages. Even though the primary constructs
of ethical practices are humanity and compassion for the stakeholders, it can provide the following
advantages to organizations:
Competitive advantage—Customers favour those organizations which are known for their ethical
practices. Hence, ethical violation reduces the market share, reduces their sales and revenues, and
ultimately adversely affects the bottom line of the organization.
Better staff attraction and retention—Ethics compliant organizations also develop their brand
image and such employer branding helps them to attract and retain the best people, which eventu-
ally contribute to their sustainable competitive advantage. On the contrary, ethical violation means
high attrition rate of employees, recruitment of average performers, and overall cost inefficiency.
Investment—Ethics compliant organizations can also attract investors as people repose their confi-
dence only on those who show integrity, a sense of responsibility, and who are trustworthy.
Morale and culture—Ethics-compliant organizations also create a workplace, where employees
feel compelled to work. Ethical organizations develop high integrity, become socially responsible,
and globally considerate. All these, make such organizations less prone to stress, attrition, and dis-
satisfaction. Therefore, complying with the ethics, organizations develop a work culture, free from
stress, which makes employees feel happier and become more productive.
Reputation—Building organizational reputation takes years of efforts and ruining it hardly
requires one violation. Ethically responsible organizations are less prone to scandals and disasters.
They become more sensitive to any such practices, which may adversely affect the reputation of
the organization.
Legal and regulatory reasons—Even though compliance with ethics still now voluntary and orga-
nizations comply with these for their long-term business interests, globally ethical issues are likely
to come under legal and regulatory norms, making it compulsory for organizations to comply with
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the same. Hence, early preparedness of the organization will benefit them in the long run, when
ethical issues become legally enforceable.
Legacy—It is human nature to be good. Ethical consideration changing our percept of legacy,
which is not to pile up money at the cost of others’ sufferings, but decisions and business practices
which are beneficial to mankind. Hence, organizations believe the test of real legacy is ethical
decision-making.
IMPLEMENTING CODE OF ETHICS

IN THE WORKPLACE
Once a decision is made to develop a code ethics or a code of conduct for an organization, the next
step is to decide what it will include, what it will aim at, and who will prepare it. Carter McNamara, in
the guidebook, The Ethics Toolkit for Managers, points out ‘codes should not be developed out of the
human resource or legal departments alone, as is too often done’. Rather, he says, ‘All staff must see the
ethics programme being driven by top management’.
The Institute of Business Ethics recommends these general steps to be followed in the initial plan-
ning phase:
Find a champion—preferably a very senior level management person.
Get endorsement from the chairman and the board.
Find out what bothers people—talk to both employees and management to find out topics that are
sensitive issues or require guidance.
Pick a well-tested model, looking to other organizations’ codes to develop ideas and to understand
what could be appropriate for meeting own organizational needs.
Develop your own organization’s code of conduct, document it with due care to customization to
deal with the problems that are likely to arise in all areas of organizational relations.
Pilot test it both within and outside the organization to understand its suitability.
Issue the code—publish the code and make sure it gets sent directly to all employees, shareholders,
suppliers, and customers. It’s also a good idea to post it on the company’s Web site.
Introduce examples of the code in action into company’s training programmes.
Enforce the code and regularly review it, and assess whether it continues to remain a good fit for
your needs.
Ben and Jerry’s (1978) code begins with a mission statement: The code goes on to state the company’s
mission, relating to the product quality, economic mission, and the social mission of the organization.
Similarly, Gap Inc’s (1998) code contains specific statements for each group with whom the company
has relationship, viz., ‘commitment to ethical sourcing’, ‘code of vendor conduct’, ‘code for global
compliance team’, etc. Such elaborate codes for specific groups, the company feels, are necessary
because of globally expanded operations and outsourcing.
ETHICAL DILEMMA IN PERFORMANCE MANAGEMENT

In the process of performance evaluation, the following ethical dilemmas are experienced by perfor-
mance reviewers.
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Emphasis on trait-oriented and subjective performance evaluation criteria, which are difficult to
quantify—It is always desirable to use objective criteria for performance evaluation. Subjective
evaluation often becomes discriminatory. Using the SMART approach, and so also BARS (behav-
iourally anchored rating scales), many subjective performance attributes can be quantified (Barrett,
1966, Campbell et al., 1970, and Smith and Kendall, 1963).
Ambiguous performance standards and KPIs—This restraints accurate assessment of performance.
Performance standards need to be quantitative; time bound, realistic, and job related. Such stan-
dards need to be developed by the managers in such a way, so that it can encapsulate the critical
performance dimensions of the job. Again while developing performance standards, managers also
need to understand that too much emphasis on quantitative performance criteria may not help them
to track the important qualitative skills of the employees that facilitate them to manipulate a situa-
tion to get the results, without, however, ethical violation. More careful approach of the managers
in writing the performance standards may reduce the errors.
Simultaneous use of different performance appraisal tools—Often, managers to reduce the rating
errors use this approach of multiple uses of performance appraisal tools. But this practice may
lead to ambiguous performance results, as different raters for their different use of performance
appraisal tools, may come out to different rating results for the same individual, leading to the
problem of consolidation.
Difference in approach in using the performance results—Essentially, performance management
system is an employee development tool. It must facilitate the human resource development, which
includes succession planning, promotions, compensation design, training, human resource planning,
etc. Arbitrary use of performance results information is detrimental to the interests of the employ-
ees only, and ultimately makes the performance management process incredible to the employees.
Gradually for this performance management systems in an organization loses its sanctity.
Non-participative approach in developing performance standards—Ideally, managers need to adopt
the practice of mutuality in terms of discussing the performance standards with the employees. If
required, managers also need to make changes in the performance standards, based on the inputs of
the employees. Employees’ participation in performance goal setting, designing the performance
standards and the KPIs, substantially enhances their level of performance commitment and facili-
tates the organizations to achieve the business goals. Once it is ethically agreed by the managers
to involve employees in the performance appraisal process, the scope of employees participation
can be extended to performance goals setting, performance standards development, performance
criteria development, data collection, self-rating, problem solving, and feedback (DeVries et al.
1980). Form of such participation may be in terms of mutual problem solving (Maier, 1958), in
MBO process (Meyer et al., 1965), and ‘rap session’ formats (Meyer, 1977).
LEGAL ASPECTS OF PERFORMANCE MANAGEMENT

Performance management and decisions thereupon, per se, is the prerogative of management, unless it
prejudices the interest of the appraisee. Prejudicing of interest occurs when decisions on promotions,
pay raises, and other career development of the employees are taken by the organizations, affecting
their interests. The premise of prejudicing the interest of employees, however, is the perception of the
employees. Hence legally, it is the onus of employees to substantiate that their interests have been preju-
diced. In India, we have many labour law provisions to enforce the mandatory requirements that the per-
formance evaluations, or for that matter any work-related behaviour be based on objective, job-related
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criteria, to ensure that mangers are free from biases. Biases in performance evaluation of employees
affect the interests of the employees and become a legal issue. Therefore, legal consideration is one of
the most important aspects of performance evaluation systems.
Performance evaluation results are used to select present employees for merit pay, promotion, train-
ing, retention, transfer, discipline, demotion, or termination. The nature of the employment relationship,
as well as the nature of the employment decision, must be considered to determine the potential for
performance evaluations. Where there are no express contract terms that govern performance apprais-
als, courts have allowed employers a good deal of latitude to determine how to evaluate their employees
(Gomez-Mejia et al.1995). However, even in an employment at will relationship, under which either
the employer or the employee may terminate the employment relationship at any time, an employer’s
discretion is not entirely without limits. As Keys et al. (1987) have pointed out, courts vary by juris-
diction in their recognition of the at will doctrine as a matter of state contract and labour law. More-
over, courts have found employers liable under numerous exceptions to the doctrine. These exceptions
include implied contract (as where an obligation to terminate only for just cause arises based on verbal
promises or those contained in an employee handbook) and violation of public policy (as where an
employee is terminated after complaining of harassment or accusing the employer of other misconduct).
Potential liability for defamation or negligence also may restrict, in practical terms, the manner in which
employers can manage and appraise performance. As the following examples illustrate, performance
appraisals also may figure in determining the very nature of the employment relationship.
Some of the legal principles that may govern the performance appraisals and the nature of employ-
ment relationsips, based on the global trend can be listed as under:
Employment at Will—It indicates the employer or the employee may terminate the employment
relationship at any point of time, viz., in India in the letter of appointment, many organizations
endorse the statement, ‘This employment may be terminated from either side giving one-month
notice, or one-month pay in lieu of notice, without assigning any reason’. In such a situation, the
employer gets considerable latitude in determining whether, when, and how to appraise the perfor-
mance of employees.
Implied Contract—Such assumptions in employment relationship restrict the employer to appraise
the performance with a structured and documented approach with adequate transparency. Employment
termination decision, based on the performance results, often becomes the litigation issue. Hence, per-
formance evaluation process needs to be considered by the managers very carefully.
Violation of Public Policy—Determination that given action is adverse to the public welfare and is,
therefore, prohibited. Public policy may restrict the manner in which an employer can use appraisal
results (e.g., may prevent retaliation for reporting illegal conduct by employer).
Negligence—Breach of duty to conduct performance appraisals with due care. Potential liability may
require employer to inform employee of poor performance and provide opportunity to improve.
Defamation—Disclosure of untrue unfavourable performance information that damages an employee’s
reputation. Potential liability may restrict the manner in which negative performance information can
be communicated to others.
Misrepresentation—Disclosure of untrue favourable performance information that causes risk of harm
to others. Potential liability may restrict willingness of employer to provide references altogether, even
for good former employees.
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Labour Standards—Employment relationships in India and in other countries are largely governed by
various laws and regulations. All these impose obligations to the employers in matters of termination,
even when performance level may not be up to the mark.
Some of the important suggestions while drafting the appointment letter, employees’ handbooks,
employment standing orders, human resource management policy manuals, which can minimize the
problem of future litigation, alleging biased performance evaluation can be listed as under:
That employment is understood to be at will.
That the employer expressly reserves the right to discharge the employee at any time for any reason
with or without any cause and with or without any notice.
That nothing in the employer’s policies, practices, or procedures, including performance appraisals,
should be construed to confer any right upon the employee to continued employment.
That the employer expressly reserves the right to unilaterally alter the terms and conditions of
employment, including the manner in which performance is or is not appraised.
That the employer is under no obligation to appraise performance.
That neither the fact that appraisals are or are not conducted, nor the manner in which they may
be conducted, should be construed to give rise to a ‘just cause’ requirement for terminating the
employment relationship.
That performance appraisals and other evaluation procedures should in no way be considered in
any other manner in determining the existence or nature of any employment relationship that may
be found to exist between the parties.
Some of the legal aspects of the performance evaluation systems are listed as under:
Punitive or retaliatory attitude of managers while evaluation of employees’ performance. This
problem occurs when managers fail to become impersonal, and even a trivial disagreement with
the employees occupies their mind, while they make the performance evaluation of employees.
Disregard of diversity issues while evaluating the performance of employees. Managers while per-
forming their duties of performance evaluation, often discriminate employees on the basis of race,
religion, age, gender, disability, culture, etc.
Doing performance evaluation of employees without adequate backup or evidences. While tak-
ing decisions based on poor performance evaluation reports, it is important for managers to keep
backup support; else it may affect the morale and the motivation level of employees. For example,
in 360-degree performance appraisal systems, peers views may be recorded as evidence to avoid
any future litigation.
It is important to give adequate cognizance to the employees’ views. This can be done by giving
adequate opportunities to the employees to express their feelings, while commenting on their per-
formance appraisal reports.
Hundred per cent weight, or absolute performance-based decision on promotion, compensation,
transfer, career development opportunities, and even termination, to the extent possible should be
avoided by the managers, else such decisions may become legal issues, particularly when it affects
the interests of the employees. Many organizations while appreciating the performance-based or
for those matter merit-based decisions, also give importance to other multiple factors, for holistic
study of the employees.
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Employees with poor performance need to be given fair chance to improve the performance. If,
however, the employees continue to underperform, they can then be asked to leave.
Sharing of performance feedback with the employees, time to time, and giving them the guidance
through the performance counseling sessions, make the performance appraisal process more cred-
ible, and can avoid litigation.
Retention of performance records to avoid future litigation is important. Charges of discriminatory
performance appraisal can be mooted by the employees, even afterwards.
Auditing of performance evaluation results by outside experts for validation may be necessary to
avoid any possible litigation.
Performance evaluation needs to be specific to job requirements, hence it must be written in dispas-
sionate style.
Training the managers and supervisors, on the nitty-gritty of performance evaluation systems, can
reduce the rating errors and make the process immune from litigation.
Records and reports on performance appraisal need to be kept in secured condition. This ensures
zero tampering of performance records, and minimizes the chances of litigation.
Keeping in view the legal complications involved, performance appraisal criteria need to conform to
the following:
Should be objective rather than subjective.

Should be job-related or based on job analysis.
Should be based on behaviours rather than traits.
Should be within the control of the ratee.
Should relate to specific functions, not global assessments.
Should be communicated to the employee.
Procedural recommendations for legally sound performance appraisals need to conform to:
Should be standardized and uniform for all employees within a job group.
Should be formally communicated to employees.
Should provide notice of performance deficiencies, and opportunities to correct them.
Should provide access for employees to review appraisal results.
Should provide formal appeal mechanisms that allows for employee input.
Should use multiple, diverse, and unbiased raters.
Should provide written instructions and training for raters.
Should require thorough and consistent documentation across raters that includes specific examples
of performance based on personal knowledge.
Should establish a system to detect potentially discriminatory effects or abuses of the system
overall.
Nevertheless there are principles of equity and fairness that should be upheld in any good performance
evaluation process.
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SUMMARY
Performance management is a systematic data- Now-a-days, conforming to ethical and legal
based approach to manage human behaviour in issues in managing the performance of employees,
the workplace. It is systematic as it emphasizes organizations can not only achieve the business
on the laws of behaviour, i.e., the lawful relation results, but also earn the respects and social prestige,
between the employees’ performance behaviour which goes a long way in employer branding. With
and the environment. In the process of comply- a properly designed code of ethics, organizations
ing with the laws of behaviour, employees also encourage ethical practices in all spheres of its activi-
need to conform to the ethical issues. Effective ties, including the performance management process.
performance management process needs to bal- This chapter introduces the basics of legal
ance legal and ethical issues to conform to the and ethical aspects in performance management,
social and environmental principles to deliver the adhering to which managers need to do the per-
best performance results. Organizations adopting formance assessment, to conform to the social,
a code of ethics pursue activities ethically while environmental, and legal norms, while at the same
conducting their business. time address the business needs.
KEY WORDS
Code of ethics—Specify the ethical standards Ethical culture—The ethical environment of an
that a group (e.g., staff or a professional group) organization, which influences ethical or unethical
should follow in order to stay as a member of the behaviour of the members of an organization.
group. They are generally formally stated and
Ethics of intellectual property, knowledge and
members are required to accept them as part of
skills—Organizations while doing business, need
their membership of the group while accepting
to comply with these. Even though these are diffi-
employment.
cult ownable objects, ethical violations can drag the
Ethical decision-making—Decision making organization into a difficult phase. Ethical violation
in compliance with the ethical issues, providing in these areas may come from patent infringement,
transparency, effect, and fairness. copyright infringement, and trademark infringement.
CONCEPT REVIEW QUESTIONS

1. Discuss the ethical perspectives of perfor- performance of employees? How can such
mance appraisal systems. dilemmas be addressed?
2. What are the important points of consideration 6. What are the important legal aspects of per-
for developing performance ethics? Discuss formance management systems? List some
some of the paradoxical situations that managers of the legal principles that govern the per-
face while pursuing the performance objectives. formance appraisal systems and employment
3. Discuss the benefits of code of ethics and the relations in organizations.
ethical practices in organization. 7. Short Notes
4. Discuss the steps involved in implementing (a) Moral and culture
workplace ethics. (b) Legacy
5. What are the important ethical dilemmas (c) Code of ethics
faced by the managers in evaluating the (d) Employment at will
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8. Visit some recent press reports on ethical tion to avoid such ethical violation. Study
violation in performance appraisal systems any ethical compliance report of an Indian
of any organizations. Critically examine organization. Relate their degree of compli-
those and suggest what could be the possible ance with their business achievement along
courses of action for your chosen organiza- with your comments and observations.
REFERENCES
American Heritage Talking Dictionary (1997), elec- Hofstede, G. (1980), Cultural Consequences:
tronic edition (The Learning Company, Inc.). International Differences in Work-Related Val-
Barrett, R.S. (1966), Performance Rating (Chicago, ues (Beverly Hillls, CA: Sage).
IL: Science Research Associates). Jerry, White (1978), Honesty, Morality and Con-
Bhattacharyya, D.K. (2007), Human Resource science (Colorado Springs, CO: Nav Press).
Research Methods (New Delhi: Oxford Uni- Key, D.J., S. Briggs and J. Grenig (1987), ‘State
versity Press). Court Disparity on Employment-at-Will’, Per-
Bhattacharyya, D.K. (2009), Organizational sonnel Psychology, 40: 565–77.
Behaviour—Concepts and Applications (New Maier, N.R.F. (1958), The Appraisal Interview:
Delhi: Oxford University Press). Objectives, Methods, and Skills (London:
Bowie, Norman (1982), Business Ethics (Engle- Wiley).
wood Cliffs, NJ: Prentice-Hall, Inc.). Meyer, H.H. (1977), ‘The Annual Performance
Campbell, J.P., M.D. Dunnette, E.E. Lawler and Review Discussion... Making It Constructive’,
K.E. Weick (1970), Managerial Behavior, Per- Personnel Journal, 56: 508–11.
formance and Effectiveness (New York, NY: Meyer, H.H., E. Kay and J.R.P. French Jr. (1965),
McGraw-Hill). ‘Split Roles in Performance Appraisal’,
Carter, McNamara (2002), ‘An Ethical Toolkit for Harvard Business Review, 43: 123–29.
Managers’, Journal of Business Ethics, 35(1): Smith, P.C. and L.M. Kendall (1963), ‘Retransla-
35–49. tion of Expectations: An Approach to the Con-
DeVries, D.L., A.M. Morrison, S.L. Shullman and struction of Unambiguous Anchors for Rat-
M.L. Gerlach (1980), Performance Appraisal ing Scales’, Journal of Applied Psychology Al,
on the Line (Greensboro, NC: Center for Cre- 149–55.
ative Leadership). Zadek, S. (1997), ‘Balancing Performance Eth-
Gap Inc’s Code of Ethics (1978), www.gapinc. ics and Accountability: Emerging Practices
com, accessed on 7 July 2007. The company of Social Ethical Accounting, Auditing, and
created these codes in 1978. Reporting’, available at http://dnwe.unirostock.
Gomez-Mejia, L.R., D.B. Balkin and R.L. Cardy de/e97wza.htm
(1995), Managing Human Resources (Englewood
Cliffs, NJ: Prentice Hall).
CASE STUDY
United Technologies Corporation (UTC)

UTC is a global conglomerate with multiple business units like Carrier Corporation, Hamilton Sund-
strand, Otis Elevator, Pratt & Whitney, Sikorsky, UTC Power, and the Chubb. With more than 2.5 lakh
employees, UTC has presence in 4,000 locations, spread across 62 countries. UTC’s most challenging
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role is to orient its new recruits on its global ethics programme. Integrating the global ethics programme
in cross-cultural and cross-country work environment literally made UTC design the programme that
conforms to the global workplace. Most of UTC’s business units are almost a century old. UTC’s busi-
ness presence being ranges from aircraft engines, helicopters, security and fire protection, air control
systems, detector lock, machine tools, etc. compliance with ethical issues are especially important, as
many regulatory norms embrace UTC’s manufacturing ventures. As a major vendor to US Government
Department of Defense in the 1980s, in one of the UTC units, there was serious allegation of ethical
violation, which was like making super-normal profit in defense contracts.
All these prompted UTC to increase there self-regulating through formal Code of Ethics, which UTC
had adopted since 1990. UTC’s code of ethics articulates standards of conduct surpassing even the
legal requirements. UTC could successfully embrace the code of ethics into their corporate culture and
business practices.
Documented Code of Ethics of UTC Shareowners

UTC’s code of ethics encompasses certain generic Commitment to provide higher returns to the shar-
principles and philosophies, within the ambit of eowners to protect and improve the value of their
which the activities of the organizations are man- investment, conforming to legal and ethical con-
aged and controlled. duct of business.
Corporate Principles Competitors

United Technologies commit to high ethical stan- Commitment to fair competition putting all busi-
dards that encompass the overall business con- ness efforts on merits.
duct and the company’s relationship with all the
stakeholders, including their own employees. Communities
These ethical standards show the commitments Commitment to become a law-abiding corporate
and the responsibilities of the company, covering citizen for national and global communities, with
the following areas: emphasis on improving their well-being. Encour-
age and promote employees’ participation in civic
Customers affairs.
Lawful and ethical dealing with customers, com- Standards of Conduct

mitment for highest quality value, fair prices, and
honesty in transaction are the ethical codes of In UTC, the code of ethics governs their business
the UTC. decisions and actions. It represents the fundamen-
tal values, which form the basis of decisional frame-
Employees work. The company communicates and explains
the code of ethics through circulars and corporate
UTC is committed to fair employment practices, policy manuals. For UTC, business results are the
respecting equal employment opportunity, valuing outcome of ethical actions of all members of the
diversity, and offering safe and healthy working organization. Each UTC member is made person-
conditions. ally responsible for ethical compliance.
Suppliers Performance: In performance management, UTC

believes in emphasizing on customer feedback
Commitment to fair dealing with suppliers for long- and calibrate the employees’ performance extend-
term business relationships. ing all support to them.
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Pioneering Innovation: UIC believes in inno- social responsibility maintaining highest ethi-
vation and research and development activi- cal, environmental, and safety standards.
ties. The company promotes the culture of
Question: Study the code of ethics of UTC, one
seeking and sharing ideas and encourages
of the stable globally diversified conglomerates,
diversity of experience and opinion.
having business presence in some of the areas
Personal Development: The company empha- over more than a century. Relate the company’s
sizes on employees’ development through life- code of ethics with the performance manage-
long learning to constantly renew their knowl- ment systems (collect input visiting their Web
edge and capabilities. site information), and explain how with these
sets of code of ethics, the company would be
Social Responsibility: UTC is committed to able to comply with their performance ethics.
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CHAPTER 17
Contemporary Issues in
Learning Objectives
Various contemporary organizational improve- Toyota production system
ment tools as drivers of performance manage- Quick response manufacturing
ment systems Total quality management
Business process reengineering Six-sigma practices
Lean management practices Innovation and creativity
General Electric—Achieving Excellence Through Six-sigma

General Electric Company (GE) is one of the largest diversified companies in the world. Even some of
GE’s strategic business units (SBUs), because of their size and volume of activities, can independently
figure out among Fortune 500 companies. With business volume of almost $150 million, the company
operates in more than 100 countries, and has over 250 manufacturing facilities across the globe. With
diversified product portfolio ranging from plastics to locomotives, GE could also transform into the busi-
ness of services and solutions. GE, a quality in name itself, is powered by the world’s largest scientists’
pool, whose R&D work continuously give GE the edge over other competitors. GE’s R&D is the centre
point for strategic cost effective technical innovations. Jack Welch the legendary ex-CEO of the com-
pany never used to believe in quality programmes, branding it as theoretical. His quality philosophy
rather was more deep-rooted, as he used to consider quality an integral part of any business. However,
Motorola’s six-sigma quality initiatives impressed him and for obvious opportunity of objective assess-
ment of achieved quality level, he had embraced the six-sigma practices in the company in 1995.
Six-sigma, per se, is a structured data-driven approach to eliminate defects, wastage, etc. recreat-
ing the process. While recreating the process, six-sigma emphasizes on factors critical to quality as
perceived by the customers. Primarily, it is based on a combination of statistical quality control tech-
niques, assuming that the output of most of the physical processes follows a normal distribution, with the
processes centred at the mean. Theoretically, any process would have a natural spread of three sigma
(standard deviation) from the normal distribution mean on either side of the centre.
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Contemporary Issues in Performance Management 331
This spread contains 99.9999998 per cent of the process output. Thus, only 0.002 parts per million
are out of the design specification. At six-sigma level, defects get reduced to 3.4 per million opportunities.
While introducing six-sigma in GE’s operations, it was observed that GE could achieve 3–4 sigma
level, i.e., about 35,000 defects per million opportunities, which per se indicates that almost $7–10 billion
are avoidable expenditure for the company, which can be saved introducing six-sigma.
However, GE’s premise for implementation of six-sigma was getting ready from 1988 onwards for
its ‘Work Out’ programme. Even though it was not theoretically known as six-sigma, this programme
gave every employee the opportunity to influence and improve GE’s operations. Among others, GE’s
‘work out’ programmes emphasized on building trust, employee empowerment, etc. Therefore six-sigma
implementation in GE was relatively much hassle free.
Within few years of six-sigma implementation, GE’s annual savings went up to $2.5 billion, and above
all GE could achieve customer satisfaction and improve the stakeholders’ value.
INTRODUCTION
In today’s complex business environment, performance improvement is the most challenging task for
any organization. In this concluding chapter, we have discussed various contemporary performance
improvement tools. The major drivers for organizational performance improvement are business
process re-engineering (BPR), Toyota production system (TPS) and lean management, six-sigma,
total quality management (TQM), and quick response manufacturing (QRM). Successful use of these
tools depends on the specific requirements of the organizations. Business process reengineering (BPR)
in organizations is now considered essential to keep pace with global competition. Among others,
BPR requires organizations to align with change, which altogether requires them to revisit their mis-
sions and reinvent with the changing business focus. When Dell reengineered themselves from a
computer-renting business to a reseller with their K-12 workforce, everybody was skeptical if Dell
would be able to run the show with the same soldiers! Today, Dell is a success story, so much so that
IBM was unable to withstand the price competition and had to change its business focus, withdrawing
from desktop manufacturing and selling. But all these are not so simple and linear. Most of the organi-
zations fail in their BPR because of their overfocus on issues concerning structure and process. BPR,
among others, involves adoption of new strategies, redesigning of organizational structures, manage-
ment style, and external relationships. But, more importantly, the culture of an organization has to be
considered, as BPR also requires people to change. Globally, we have many examples of organizations
which have failed in theprocess of transformation for not adequately addressing people’s issues. We
all know the case of the collapse of the more than 200-year old legacy of Encyclopedia Britannica.
Resistance from their employees could not allow them to redesign their product (from printed volumes
to CD version of Encyclopedia) to respond to Microsoft’s Encarta. Or, for that matter, consider the
case of Phillips in India. They hived off their business (TV and other consumer electronics divisions
in Kolkata, West Bengal) selling their stake to Videocon. Today Phillips is planning to re-enter the
Indian market. For Videocon, putting back erstwhile Phillips employees to business was not so easy.
It was a sustained cultural alignment initiative, which ultimately could make them a right-fit to pursue
Videocon’s business objectives.
All these, therefore, justify that any performance improvement initiative, be it through BPR or any
other initiatives, would not be a success unless we also suitably address the cultural issues. McKinsey’s
7S model (Henley, 1991) provides a generic model of organizations. The 7S model has shared values at
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its heart. If BPR has significant impact on all of the other six dimensions, then it would be reasonable to
conclude that BPR involves significant organizational change through performance improvement and
that it has a significant impact on, or dependency on, organizational culture.
The introductory discussion, therefore, substantiates that performance management systems of any
organization, among others, also depend on practicing a number of organizational change tools and
techniques, in addition to its core focus on basic issues. The chapter, therefore, introduces these con-
cepts with a brief discussion on its application related to performance management issues.
BUSINESS PROCESS REENGINEERING—CONCEPTS

AND DEFINITIONS
People and processes are the two cornerstones for any organization. Making people to work hard alone
cannot increase the business performance. It requires simultaneous restructuring of the business pro-
cesses too. Globally, it is now proved that BPR can dramatically improve the organizational perfor-
mance. Through BPR, organizations achieve radical improvement in productivity, cycle times, and
quality, all by redesigning the business processes. With a customer-centric approach, BPR eliminates
unproductive activities, introducing the culture of cross-functional teams and using the technology sup-
ported information dissemination for better decision-making.
To understand BPR, at the outset, we need to understand the business process. In line with Davenport
and Short (1990), we can understand it as some ‘logically related tasks’ that helps the organization to
achieve defined business results. A process, per se, is a certain set of activities. Davenport and Short
considered three dimensions of a business process: entities, objects, and activities. While doing BPR in
any organization, all these dimensions need to be taken care of. Organizational entities could be inter-
organizational, inter-functional, or inter-personal. Objects may be both physical and informational,
while the activities are managerial and operational. For successful reengineering of the business pro-
cesses, Hammer and Champy (1993) suggest introduction of teamwork and employee empowerment.
These, among others, require bringing the change in the culture of the organization.
For achieving improved organizational performance through BPR, it requires organizations to take
the following major steps:
Redefining the organizational strategy to meet customer needs.
Redesigning business processes to achieve performance improvement.
Supporting restructuring process with information technology.
Developing cross-functional teams for improved performance.
Rethinking core organizational and people issues.
Holistic improvement of business processes across the organization.
Empirical studies indicate that globally organizations can get incremental results in performance through
BPR. Such performance improvement could exert positive impact on customers. Also by implement-
ing BPR, organizations can reduce costs and cycle time by eliminating unproductive activities and the
people who do such activities. BPR is constructed as a process without human face for making people
redundant who perform unproductive activities. But BPR never reduces manpower who is engaged in
productive activities. By reorganizing the work structure and introducing team culture, BPR paves the
way for lean management practices, enhances the flow of information, reduces quality problems and
avoids rework. All these significantly improve organizational performance.
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BPR practices were earlier considered generic by its major proponents like Hammer (1990),
Hammer and Champy (1993), Earl (1994), Davenport (1995), Kettinger and Grover (1995), Stoddard
and Jarvenpaa (1995), and Harkness et al., (1996), as the one and same across various organiza-
tions, irrespective of their size, nature of activities, etc. However, Kettinger et al. (1997) observed the
variation in BPR practices with respect to the nature of BPR projects that varies with the nature of
organization.
Although for business imperatives, and so also for performance improvement, organizations today feel
compelled to do BPR, organizational approaches to BPR may vary in terms of three different elements:
quick hits, incremental improvement, and reengineering. Organizations with quick hits approach focus
on achieving immediate results through BPR. Hence, such organizations select those areas of restructur-
ing which are relatively simple to address and results are immediately achievable. Incremental improve-
ment approach also focus on immediate results with BPR efforts. But characteristically it is different
from quick hits as it addresses the small issues on specific performance gaps. It is only reengineering
which emphasizes on achieving dramatic business results. Reengineering is more focused on total orga-
nizational change for holistic organizational development and performance improvement.
Two global organizations, Ford Motor Company and Proctor and Gamble Corporation (P&G), could
achieve excellence in business performance through business process reengineering.
Ford’s reengineering process helped them to manufacture quality cars only. This could help the
company to save substantially on recalls and warranty repairs. Ford reengineered the car manufacturing
process by introducing bar codes to trace any missing parts in the assembled cars. A foolproof reengi-
neered process helped Ford to offer unparallel extended warranty of 3 years.
Procter and Gamble Corporation reengineered their brand management activity by introducing selec-
tive innovative brands pacing with the market demand. Also the company introduced the digital score-
card to perform R&D in virtual mode. This substantially reduced the response time for new product
design, after the selection of innovative ideas.
M C KINSEY 7S FRAMEWORK
McKinsey 7S framework developed by Tom Peters and Robert Waterman also helps the organization
to improve performance. The framework also helps the organization to examine the effect of future
changes for mergers and acquisitions or any other changes per se. The central focus of the model is
shared values. With shared values, organizations can achieve business excellence, i.e., improvement of
overall performance. The typical shape of the model (Figure 17.1) illustrates the interrelatedness of all
the seven items, indicating any change in either of the item or items can bring change in the organiza-
tion. McKinsey’s 7S model helps the organization to pull the people together to achieve performance
goals. Each item of 7S model is explained as:
Strategy: It defines the scope of organizational activities to manage the situation of uncertainty.
Also through strategy organization allocates scarce resources. Based on the strategy, organizations
draw specific action plans to achieve performance goals.
Structure: It distributes the activities of the organization into hierarchical levels, and also illus-
trates how the authority flows from top to down the line in the organization.
Systems: Defines various processes and procedures of the organization.
Staff: Defines the people and groups to undertake the tasks of the organization.
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Strategy
Structure Systems
Shared Values
Staff Skills
Style
Figure 17.1 7S model
Style: Defines the way the managers must behave to achieve the performance goals.
Super-ordinate goals (shared vision): Guides the people of the organization to pursue the com-
mon performance goals.
Skills: Determines the abilities of people for achieving the performance goals.
The concept of 8S has now been introduced, which includes streaming. Streaming directly or indirectly
influences all the 7S, i.e., through streaming, change in any of the 7 S can be brought to order.
Peters and Waterman (1982) the proponents of 7S model suggested certain specific performance
improvement plans that can help the organizations to achieve the excellence. These are explained as
Bias for action.

Customer proximity.
Autonomy and entrepreneurship.
Productivity.
Value-driven management.
Stick to the knitting (dealing with strength).
Lean staff.
Simultaneous loose–tight properties (decentralize but enforce strict control).
TOYOTA PRODUCTION SYSTEM (TPS)

AND LEAN MANAGEMENT
Two global organizations, Toyota and Tesco, successfully implemented lean management to achieve qual-
ity and efficiency in their business processes. Lean management practices aim to achieve effectiveness
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through efficient systems and processes. Very appropriately we can define efficiency as how to do the
things correctly, while the organizations achieve effectiveness doing the things correctly. From that per-
spective, while efficiency guides the way to achieve excellence through its successful implementation,
organizations achieve the effectiveness. Lean thinking is the efficient way of thinking to improve the
business process and lean practices lead to achieve effective results. Toyota by introducing a standard-
ized yet adaptive and agile process successfully embedded their lean management practices into their
organizational DNA. This could help the company to achieve excellence. So from the operational point
of view, we can define lean management as an ‘adaptive continuous improvement’ process.
Toyota’s lean management practice is also known as Toyota Production System (TPS). The company
adopts the following approaches in implementing the lean management:
Analyse the biggest problem and develop strategy-based solution path to solve the problem.
Achieve stability through problem solving.
Ensure continuous flow through interconnected processes.
Assign meaningful work to all (Jidoka).
Make standardized yet adaptive (to change) work and workplace.
Level production (Heijunka).
Introduce demand pull manufacturing.
Ensure material and information flow through value stream mapping.
TPS is based on two main premises, i.e., ‘Just-in-time’ and ‘Jidoka’, which advocates the philosophy
that ‘good thinking means good product’. Some of the commonly used terms in lean management are:
Andon
Visual displays of present status of work, indicating alarming situation, if any, various work instruc-
tions, progress of job, etc. It acts as a control device and is used as one of the major tools of Jidoka.
Genchi Genbutsu
The basic principle is ‘see the problem to know the problem.’ It means experiencing a job is more
important that understanding the job theoretically.
Heijunka
It is leveling of production schedule for just-in-time delivery.
Hoshin
It means setting goals pacing with the business priorities, i.e., leveling performance to achieve growth.
Jidoka
It is one of the major pillars of TPS. It is the process of stopping production to avoid quality problem.
It requires identification or fixing of quality problems for reasons likemalfunctioning of machines, late
work, etc. and correct the problems and build in quality in the production process.
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Jishuken
It is a management-driven initiative to stimulate Kaizen activity for continuous improvement and
spreading its awareness to all members of the organization.
Just-in-Time
It is another major pillar of TPS. It requires organizations to produce keeping in pace with real-time
demand. The key control of just-in-time production is Kanban. Kanban, the small sign, gives instruction
for production, checks irregular production, and identifies irregular speed of processing.
Kaizen
It is a system of continuous improvement eliminating the Muda (wastage). It simultaneously improves
the performance and minimizes the costs. We can define Muda as non-value-adding activities which in
reality adds to waste. Muda may be for overproduction, waiting, conveyance, processing, inventory,
motion, and time for correction.
Nemawashi
It indicates cross-functional and cross-sectional participation in discussions to address the common
issues and policies.
Pokayoke
It supports Jidoka preventing production of defective parts through mistake-proof method.
The TPS or lean management practices, therefore, ensure efficient organizing of the production
sequence without any Muda using three elements, i.e., Takt-time, working sequence, and standard
in-process stock. Takt-time decides the monthly production schedule considering 100 per cent operating
efficiency with full working hours. It also permits flexible response to change in sales position. It is decided
by dividing work time with the required number of production based on demand. Working sequence is
the sequence of operations in a single process to produce quality goods reducing overburden and main-
taining the security and safety of workers. Standard in-process stock is maintaining of minimum stock
for ongoing processing and between different sub-processes. TPS requires implementation in all areas of
organizational activities, known as Yokoten. The literal meaning of Yokoten is ‘across everywhere’.
PERFORMANCE IMPROVEMENT THROUGH

QUALITY MANAGEMENT PRACTICES
Organizations can also improve performance through quality management practices. To understand
quality management practices, at the outset, we need to understand the concept of quality. Quality is
now defined as the totality of features and characteristics of products or services which satisfy stated or
implied needs of customers. It means for today’s organizations, customers define the quality. The tradi-
tional percept of quality was to consider conformance to defined standards. Modern concept discards this
and considers quality as in-built features of products and services that customers only can understand
while they use the same. To achieve performance improvement, organizations focus on quality man-
agement practices that encompass cost reduction, productivity, teamwork, communication, training on
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problem-solving, decision-making, organizational dynamics, and interpersonal skills development. All

these can significantly bring positive changes in the organization, and thereby can contribute to perfor-
mance improvement. Quality management practices can give better performance results when aligned
with the organizational goals. For performance improvement, quality management programmes empha-
size on developing the capability of people to troubleshoot quality problem and to develop quality as an
essential in-built attribute of products and services. The concept of total quality management (TQM) has
now become an accepted principle for achieving quality improvement in organization. A literal definition
of TQM, among others, is that it considers an organizational improvement strategy through development of
people. Therefore, quality is intertwined with the people development activities of an organization.
To institutionalize quality management, almost every organization declares in their mission statements
that achieving quality is their important priority to grow in a globally competitive market. To establish
their quality icon, organizations are now getting International Organization for Standardisation (ISO)
Certification. Although ISO certification alone cannot bring positive changes in the business results, but
in the process of getting it, organizations bring many positive changes in the way they work by revisiting
their processes and systems, and understanding their priorities for quality management practices.
Performance Improvement Through Quality

Organizations achieve performance improvement through quality from different perspectives. The first
obviously is achieving customer satisfaction, which increases customer retention and future churning
of customers for better business results. A satisfied customer becomes a captive customer and he/she
has compelling reasons to buy again and again. Such repeat buying obviously benefits organizations.
Moreover, one satisfied customer can influence new customers through referrals. Quality management
practices can also improve performance through enormous savings in the cost of quality. By waste
minimization, process simplification, and customer-focused approach it can exert many performance
improvement issues and thereby achieve increased business results. Over and above, as quality manage-
ment prioritizes the development of people, with renewed capabilities, people can also perform better.
Cost of Quality
To analyse the cost of quality, it is necessary to first classify the nature of cost under three sub-headings
as follows:
Cost of Failure: Quality may fail either internally (within the organization) or externally, i.e., within
the customers’ premises (outside the organization). Therefore, failure cost can be grouped either as
internal failure cost or external failure cost. Cost of re-work, cost for additional raw-materials, addi-
tional payments required to be made to workmen, eventual scrap arising, etc. can be accounted under
internal failure cost. In case of external failure, we also consider the cost incurred for re-transportation,
re-packaging, servicing and handling of customer complaints,and cost for loss of goodwill, in addition
to the cost to be incurred for internal failure. Experience shows cost of failure itself absorbs 70 per cent
of the total cost of quality.
Cost of Appraisal: For verification of quality, organization has to incur expenses toward inspection, for
maintaining an inspection team. Also for carrying out inspection, certain inspection gadgets and tools
are required. All the expenses incurred toward this account are considered as cost of appraisal. On this
account usually organization spends between 28 and 29 per cent of the total quality cost.
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Cost of Prevention: This type of quality cost is incurred to reduce the other two quality costs indicated
above. Such expenses are amount spent for Research & Development and Human Resource Develop-
ment. Expenses on this account normally vary between 1 and 2 per cent.
Although in Indian organizations, we are yet to make serious study about computing cost of quality,
from international perspective, it is seen that such cost, even though not accounted under any separate
head, is as high as 40 per cent of the cost of production. In Indian organizations, we typically assume
that in the normal manufacturing process we are supposed to have some natural rejection, which may
be as high as 22 per cent (at least in some cases), which we call as unavoidable rejection rate (UAR).
Contrarily, in developed countries, more particularly in Japan, they are subscribing to the philosophy
of zero defects.
Experience shows that a mere 1–2 per cent more expenditure on cost of prevention can substantially
reduce the expenditure on other two sub-heads of cost of quality. In fact, the rate of such incremental
cost benefit is as high as 70–80 per cent for a mere additional of 1–2 per cent expenses on cost of pre-
vention.
Thus, it is evident that cost of quality, even though not apparent from the books of accounts, is a
significant wasteful cost factor, which can be reduced substantially to increase the profitability of an
organization. In fact, ISO documentation process helps to prune cost of quality in addition to augment
internal efficiency of an organization. It also helps to achieve total quality management in a phased
manner.
Quality Management Principles

With growing global competition, quality management is becoming increasingly important to the
leadership and management of all organizations. Quality management principles provide understanding
and guidance on the application of quality management. By applying the following eight quality man-
agement principles, organizations can produce benefits for all its stakeholders.
Customer-focused organization.
Leadership.
Involvement of people.
Process approach.
System approach to management.
Continual improvement.
Factual approach to decision-making.
Mutually beneficial supplier relationships.
Teamwork Through Quality Management

Quality management practices can institutionalize teamwork. When TQM is successful, employees at
every level participate in decisions affecting their work. The most common vehicle for employee partic-
ipation is a team. Teams range in scope and responsibility from problem-solving groups to self-managed
work teams that schedule work, assign jobs, hire members, and set standards and volume of output.
A participative work culture is encouraged when quality becomes everybody’s responsibility.
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Employee involvement practices in any organization may differ in terms of organizational policies
and strategies. Common employee involvement practices are:
Suggestion system.
Survey feedback.
Quality circles.
Formation of quality of work life team.
Job redesign.
Formation of self-managed teams.
Formation of TQM team.
Participative management is used as the most important approach for introducing TQM culture in any
organization.
Employee Empowerment
Employee empowerment means to confer legitimate right to employees, irrespective of their nature
of job and hierarchical level to make judgements, to take decisions on their own. Hence employee
empowerment can facilitate development of problem solving abilities of the employeesand in the pro-
cess enhance their performance ability. Operationally, in organizations, we empower employees first by
developing their capabilities and second by giving them indulgence to commit mistakes. Unlike other
quality management approach, empowerment not only calls for employee participation in the opera-
tional area, but also allows them to participate in corporate level decision-making, so that employees
emerge as a total man. An empowered employee, in other words, is not a mere seller of his time and
labour for a contracted sum of money. The empowered employee acquires necessary skill and authority
to own. Employee empowerment, involvement, and participative management as important corporate
practices have been experimented in several multi-national and national organizations. In all these cases,
it was identified that the employee ownership and commitment (which is possible through employee
empowerment) are the two ingredients that achieved efficiency and productivity. Some organizations are
even empowering their employees at the strategic level rather than confining their involvement only to
limited operational activity. With full empowerment, organizations achieve excellence in performance.
Quality of Work Life (QWL)

QWL is most conventionally defined as those perceived important personal needs, which an individual
tries to satisfy by working in an organization. Its conceptual foundations, though laid by a host of behav-
ioural scientists, were in reality advocated by Chris Argyris (1975) in his famous work on Personality
and Organization. The socio-technical Systems Theory, pioneered by Tavistock Institute of Human
Relations, London during the 1960s is considered as an important QWL construct. Basic conceptual
criteria for QWL consider growth and security as important personal needs for an individual. The pos-
sibility of furthering one’s career within the organization has, therefore, been identified as one of the
important criteria for QWL. Although common QWL strategists emphasize more on job re-design,
formation of autonomous work groups, and worker participation in management, there exists wide
differences among the pioneers in this area as to what should be construed as QWL factors. The process
of QWL can be explained with the help of the following criteria:
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Adequate and fair compensation.

Safe and healthy working conditions.
Immediate opportunity to use and develop human capacities.
Future opportunity for continued growth and security.
Social integration in the work organization.
Work and total life space.
Social relevance of working life.
Based on studies carried out both in India and abroad, it is evident that the essence of QWL is the oppor-
tunity for employees, at all levels, to have substantial influence over their work environment. This is the
result of their participating in the decision-making process relating to their work, thereby enhancing their
self-esteem and the overall satisfaction from their work. Hence, QWL calls for an open style of manage-
ment, i.e., sharing of information and genuinely encouraging the efforts relating to the improvement of
the organization. This makes it amply clear that QWL, in fact, is an important managerial activity to
develop employees of an organization. The success of TQM programmes largely depend on appropriate
HRD interventions like emphasis on continuous training and development activity, encouraging partici-
pation in management through small group forums, increasing employee motivation, looking after the
career development of employees, employee empowerment, and infusing attitudinal changes at the top
(like accepting a flatter organization structure, following an democratic approach, becoming receptive
to changes on a continuous basis, supporting group performance, etc.).
PERFORMANCE IMPROVEMENT
THROUGH SIX-SIGMA PRACTICES
The literal meaning of six-sigma is six standard deviations from mean. The word ‘sigma’ is a Greek term
indicating standard deviation. Essentially, it helps in process improvement by making use of statistics
as a tool to identify and address performance management issues. It was first started in Motorola and
then gradually became a globally accepted tool to improve organizational performance. The underlying
philosophy of six-sigma is that no process is error free. Hence organizations should continuously focus
on achieving excellence through process improvement by recreating it every time. Using the DMAIC
cycle, i.e., define opportunities, measure performance, analyse opportunities, improve performance, and
control performance, the six-sigma approach constantly reviews a process to recreate it again and again
to achieve error-free performance results. Six-sigma is essentially a customer-centric break-through pro-
cess improvement approach for business results. Improvement in processes lead to error-free production
and so also services, achieve cost effectiveness, earn customer satisfaction, which ultimately cascade to
increased profitability and improved business results. Higher sigma value indicates better business results.
For performance improvement, six-sigma is now widely accepted in organizations globally. To introduce
six-sigma in organizations, certain sequence of activities need to be followed, as enumerated below:
Emphasis on training and learning: Take all cross-sections of employees through this. Make them
understand the importance of achieving quality. The emphasis at this stage should be to embed in the
minds of the people the need and imperativeness of six-sigma with a customer-centric approach and
take employees through the intricacies of the processes. Class room training should be further extended
to hands-on practices in small projects.
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Collection of data and consolidation of information: Help the employees to understand the process
of data collection with detailed checklists for a process. Also employees should understand how to
translate data to information and interpret the same. Such information processing will gradually educate
employees to learn what is important and what is not.
Understanding the customer needs: Employees must also understand what customers want. Six-sigma
is essentially a customer-driven approach. The benchmark of quality in six-sigma language is customers’
satisfaction. Critical to quality (CTQs) are decided by the customers. With the list of CTQs, it is possible
to understand better the deviation areas in a process.
Thorough understanding of the inputs of a process: It is very important for employees to understand
what constitutes the input of a process. If required, employees need to be helped to go through a detailed
work breakdown structure analysis (WBS) to understand the process.
Six-sigma Implementation
Six-sigma implementation process, at the outset, focuses on improvement in areas like process, prod-
ucts and services, investor relationship, design, vendor relationship, recruitment, training and develop-
ment, and performance management systems. A typical six-sigma structure to achieve breakthrough
improvement strategy can be presented as in Figure 17.2.
The inverted pyramidal structure shows at the top the management who extend support to balance the
six-sigma implementation. Champions are the executives who select leaders to make them understand
the key functions and how these can be connected to six-sigma projects. Champions select the master
black belts and make them the catalyst to disseminate information on identified six-sigma projects, train
people selected as black belts and green belts, organize them, conduct cross-functional experiments,
coordinate, collect, and organize information. Master black belts select the black belts and facilitate
them to apply six-sigma to specific selected areas of improvement. Green belts are the employees at the
Customer
Green Belts
Black Belts
Master Black Belts
Champions
Top Management
Figure 17.2 Six-sigma implementation
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ground level who are directly involved in the six-sigma implementation in their jobs and projects. Six-
sigma is implemented by the following eight steps in line with the DMAIC cycle:
Recognize
Define
Measure
Analyse
Improve
Control
Standardize
Integrate
For the sake of our understanding, the six-sigma implementation stages are presented in Table 17.1. The
tabular information is self-explanatory. However, as six-sigma process makes use of statistical informa-
tion, performance managers should be made clear about the calculation process to understand the level
of sigma achieved through the six-sigma initiatives.
To calculate six-sigma, we make use of defects per million opportunities (DPMO) formula. The
DPMO formula helps us to translate customers’ perceived critical to quality (CTQ) factors into sigma
level which can be verified from the six-sigma table. For doing so, we need quantitative data on number
of units, number of defects as perceived by the customers, and the number of opportunity for errors, i.e.,
the chance for the occurrence of defects. With the above discrete information, we then use the following
formula:
Number of Defects
X 1,00,000
Number of Opportunities × Number of Units
Table 17.1 Implementation stages of six-sigma
Stages Strategy Phase Objectives Responsibilities

Identification Recognize and define To understand key busi- Master black belts with support
ness issues and docu- from the champions.
menting the same
Characterization Measure and analyse To understand and docu- Black belts with help and sup-
ment the level of current port from the master black belts
performance
Optimization Improve and control To start the improvement Black belts
exercises
Institutionalization Standardize and integrate To transform day-to-day Black belts
activities in accordance
with the six-sigma practices
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For performance management, employees are the internal customers to the organization. It is the
employees who define the CTQ. Let us assume that employees of an organization perceive four CTQs
in their performance management systems, as follows:
Poor performance feedback.
Stretched performance goals.
Poor support for development.
Poor recognition for achieving performance excellence.
These CTQs then make four opportunities for error in the performance management systems. Let us
now consider the discrete data on number of units as the number of performance evaluations done in
a particular period for their employees. For this purpose, let us assume it as 2,500, i.e., the number of
employees for whom the performance measurements have been done. Now we need to understand
the number of defects. For this purpose let us assume that the employees (customers) have reported
10 defective performance evaluations for stretched goals and 5 for poor performance feedback. This,
therefore, makes the total number of defects as 15. Now, using the DPMO formula, we can understand
the present sigma level of the hypothetical organization’s performance management systems. The cal-
culation in this case would be as follows:
15
X 1,000,000 = 3, 000 DPMO
2 × 2500
3,000 defects per million opportunities represent 4.25 sigma levels in the performance management
systems of the company. At six-sigma level, it should have been only 3.4 defects. Therefore, this sug-
gests enormous flaws in the performance management system of the organization, which they need to
study and correct to achieve higher sigma level.
Most of the organizations now make extensive use of six-sigma practices in their human resource
management practices to develop their employees for gaining sustainable competitive advantages. In
all HR areas, six-sigma can be implemented to align HR benefits for achieving organizational business
goals. With six-sigma compliant performance management systems, the process becomes much more
effective, as performance management itself can address many areas of employee needs like develop-
ment, motivation, matching compensation, and improved work culture. A partial six-sigma value table
is presented as Table 17.2.
Table 17.2 Partial six-sigma

Defects per million Table value of sigma
3000 4.25
2,560 4.30
1,350 4.5
233 5.0
5 5.9
3.4 6
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Therefore, to improve performance management systems and so also the overall business perfor-
mance of the organization, it is necessary to understand the process, then train people to transform
the performance improvement project to a six-sigma project and periodically measure the levels of
achievement.
PERFORMANCE IMPROVEMENT THROUGH

INNOVATION AND CREATIVITY
Innovation is another important tool for achieving business results. Innovation can encompass products/
services, process, managerial styles, and even performance management systems. Innovation in per-
formance management can be either technology push or demand pull. Technology push innovation in
performance management indicates introduction of e-performance management systems for total trans-
parency of information and enforcing control so that organizations can sustain the performance level.
Many vendors now make available computer enabled balanced score cards, performance dash boards,
etc. which can quickly assess the employees’ performance level and guide them to meet the shortfalls
in performance, if any, when they fail to achieve the desired performance. Many organizations institu-
tionalize innovation to survive in competition. Innovation becomes more effective when it is customer
focused and aligned with the organizational needs. It is not a specific documented practice; rather it
means those practices, which require lateral thinking to improve the performance in organizations. For
that matter reengineering, lean management, total quality management, six-sigma, etc. are innovative
practices adopted by organizations to achieve performance excellence. Ford Motor’s innovative bar cod-
ing system to trace missing spares in assembled cars could help them to achieve performance excellence
and extend the same to customers in the form of 3 year 100,000 km free maintenance plan. This signal
of in-built quality could help the company to gain customers’ confidence and increased sales of cars.
Organizations aspiring to achieve innovation in performance management practices need to map cus-
tomer needs (internal customers) and align the same to the desired innovation initiative, which among
others require them to bring positive changes in work environment and promote inter-organizational
cooperation through teamwork.
QUICK RESPONSE MANUFACTURING (QRM)

Quick response manufacturing (QRM) is another lean management practice that originated in the 1980s,
which focuses on lead time optimization to enhance productivity. It is an extension of just-in-time (JIT)
concept that emphasizes on customer satisfaction by quickly responding to customer’s requirements.
QRM reduces lead times in all activities of the organization by analysing various processes using step-
by-step approach. At the outset, it requires understanding of the whole organization, and its parts, and
then focusing on those that particularly affect the lead time.
Lead time always need not be attributable to manufacturing processes. It may be for many
non-manufacturing activities like purchase and materials management function, back office function,
dispatch, finance, planning, and human resource management functions. This is why it plays a very
crucial role for performance improvement.
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SUMMARY
To achieve performance improvement, globally, use of these tools can be achieved only through
organizations are now adopting various con- simultaneous transformation of the organization
temporary performance improvement practices, culture. This chapter discussed all these tools and,
explained in this chapter. In performance improve- drawing lessons from the corporate world, illus-
ment, BPR, lean management, six sigma, TQM, trated how using such tools organizations could
TPS, QRM, QWL, innovation and creativity, achieve performance excellence. The chapter will
etc. play a pivotal role. In this chapter, we have serve as an important guideline for organizations
discussed all these tools as important drivers of to embrace contemporary performance improve-
performance management systems. However, ment tools and its successful implementation for
improved performance management with the better business results.
KEY WORDS
BPR—BPR is fundamental rethinking and redesign these four areas. Keeping a track on employees’
of business processes of an organization, address- performance to understand their performance
ing technological, human, and internal way of func- dynamics scientifically is necessary in lean man-
tioning of the organization, keeping pace with the agement practices or else organizations won’t be
changes, to achieve success in critical performance able to track the incremental changes, after its
areas, like cost, quality, service, and delivery. implementation.
McKinsey’s 7S Framework—McKinsey’s 7S Process Innovation—It requires new thinking.
framework identified seven independent organiza- It requires challenging the existing process, and
tional factors that need to be managed by today’s managing the operations altogether from different
managers. These are strategy, structure, systems, perspectives.
staff, styles, skills, and finally the shared values. DMAIC—It is the structured model of prob-
Any change in any S factor may result in adjust- lem investigation and resolution, which we use
ment of other S factors. in organizational improvement strategy through
TPS—It was based on two primary concepts: six-sigma. DMAIC stand for: Define, Measure,
the manufacturing production system of Henry Analyse, Improve, and Control. This structured
Ford and the Ford Motor, and the supermarket approach helps us identify problems and also to
operations in the United States. TPS incorpo- evolve its solution for successful implementation
rated the Just-In-Time (JIT) production and of lean management practices in organizations.
Jidoka techniques to optimize time and human CTQs—CTQs are customers’ perceived critical to
assets in the manufacturing environment. TPS quality (CTQ) factors, and are considered as oppor-
later became the basis for lean production and tunities for error, while we compute the sigma level
the ‘lean enterprise’ movements beginning in achieved by any organization in quality.
the early 1990s. Kaizen—Kaizen ensures continuous improve-
Balanced Scorecard—It helps in quantifica- ment of entire value stream or an individual pro-
tion of performance results of the employees cess adding more value with less waste. System or
from four major perspectives, i.e., learning flow, Kaizen focuses on the overall value stream,
and growth, internal processes, customer, and and process Kaizen focuses on individual process.
finance. Irrespective of their functional areas, and Both the levels of Kaizen benefit the organization,
hierarchical level, each employee contributes to achieving the efficiency.
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CONCEPT REVIEW QUESTIONS

1. Explain the concepts and definitions of 6. It is often said quality management practices
BPR. How does BPR exert impact on the are culture centric! Do you believe in this
culture of an organization? statement? Justify your answer.
2. Explain briefly BPR experiences of any orga- 7. Explain the concept of six-sigma. How
nization, specifically in the Indian context. does six-sigma relate to the culture of an
3. Why is BPR often criticized? Do you think organization?
such criticisms are always valid? 8. Short notes:
4. Explain the conept of lean management and (a) Quick response manufacturing
its relationship with the culture of any orga-
(b) Streaming
nization.
(c) Four perspectives of balanced scorecard
5. What are the principles of TQM? Does
TQM differ from BPR? (d) JIT

9. You have been retained by an organiza- tual mode, and hardly require any physical
tion who wants to implement six-sigma validation, excepting in cases, where chips,
in their design and development function. etc. are used for sourcing from vendors
The company is engaged in manufactur- other than their validated one. Understand
ing of desktops, where price and non-price the functioning of the R&D division of any
(say, quality and services) competitions desktop manufacturer. Identify at least one
are fierce. The company follows a tradi- functional area. Study its details and draw
tional hierarchical structure. The design your six-sigma implementation plan to
and development function of the company ensure the performance of the function is
undertakes most of the R&D work in vir- totally error free.
REFERENCES
Bhattacharyya, D.K. (2000), ‘Competency Map- Champy, J. (1995), Reengineering Management
ping and Manpower Redundancy—A Macro (New York: Harper Business Books).
Level Study of Indian Organizations’, Man- Davenport, Thomas (1993), Process Innovation:
agement and Accounting Research, (October– Reengineering Work through Information
December) 4(2): 97–105. Technology (Boston, MA: Harvard Business
Bhattacharyya, D.K. (2009), Organizational School Press).
Behaviour—Concepts and Applications (New Davenport, Thomas and J. Short (1990), ‘The
Delhi: Oxford University Press). New Industrial Engineering: Information Tech-
Bhattacharyya, D.K. (2010a), Cross-cultural nology and Business Process Redesign’, Sloan
Management—Text and Cases (New Delhi: Management Review, (Summer) 11–27.
PHI Learning). Drucker, Peter (1972), ‘Work and Tools’, in W. Kran-
Bhattacharyya, D.K. (2010b), Industrial Manage- zberg and W.H. Davenport (eds), Technology
ment (New Delhi: Vikas Publishing). and Culture, (New York, NY: Schocken Books).
M17_9788131754221_C17.indd 346 5/18/2011 10:28:14 AM

George, Eckes (2001), The Six sigma Revolution for Market Dominance (New York, NY: John
(New York, NY: John Wiley and Sons Inc.). Wiley & Sons).
Hammer, Michael (1990), ‘Reengineering Work: Leavitt, H.J. (1965), ‘Applied Organizational
Don’t Automate, Obliterate’, Harvard Busi- Change in Industry: Structural, Technological
ness Review, (July/August) 104–12 and Humanistic Approaches’, in James March
Hammer, Michael and James Champy (1993), (ed.), Handbook of Organizations (Chicago,
Reengineering the Corporation: A Manifesto IL: Rand McNally).
for Business Revolution (New York, NY: Mikel, Harry and Schroeder Richard (2000), Six
Harper Business Books). Sigma (New York, NY: Currency).
Hammer, M. and S. Stanton (1995). The Reengi- Richard, C.H. Chua (2001), ‘Six Sigma: A Pursuit
neering Revolution (London: Harper Collins). of Excellence and Dramatic Results’, Today’s
Johansson, Henry J., et al. (1993), Business Pro- Manager (August–September) 43–45.
cess Reengineering: Break Point Strategies
CASE STUDY
Total Quality Management—Experience of Nissan

Nissan embedded the total quality management (TQM) practices in their work systems. Nissan’s TQM,
apart from improving the internal processes, emphasizes on customer satisfaction on a priority basis. With
such a customer-centric approach, Nissan directs all their activities, focussing on high quality. Perhaps,
Nissan has adopted the most effective way of institutionalizing TQM, as with customer-centric approach,
they could achieve both high quality and at the same time enhanced business, through customer satis-
faction. To excel in TQM through customer-centric approach, Nissan focused on the following aspects:
Basic understanding of customer requirements.
Analysis of process requirements to meet customer perceived quality.
Standardizing processes to meet the customer perceived quality.
Building employees’ capabilities to work in accordance with the standardized process, etc.
With the above focus, Nissan could make TQM an ongoing quality improvement process. Also, in all
performance improvement initiatives, Nissan embraces customers’ expectations, making it their cultural
DNA. The culture of improvement at Nissan is transparent, and every cross-section of employees of
Nissan can understand and measure their contribution towards the improved culture. In the process,
employees of Nissan also feel motivated, as they can understand their worth, and how they could help
the organization to achieve excellence in performance. The performance improvement culture, address-
ing the customer perceived quality requirements, is now so deeprooted in the minds of Nissan employ-
ees that they now volunteer to develop their capabilities and achieve business results. Nissan’s example
now teaches us how, by institutionalizing customer-centric TQM practices, organizations can benefit
from performance improvement and enhanced profitability.
To make TQM work, Nissan embedded the cycle of plan, do, check, action (PDCA) in the thought pro-
cess of every employee, which gradually cascaded to their work processes in conformity with Nissan’s
way of working. Nissan’s success in TQM is the outcome of balanced focus on people and process-
centric approach addressing customer’ requirements. Moreover, Nissan could achieve performance
excellence by building employees’ problem-solving capabilities.
Question: Study the case of Nissan and compare it with Maruti India to understand the degree of com-
patibility in effective use of total quality management practices to effect the performance improvement
of employees.
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M17_9788131754221_C17.indd 348 5/18/2011 10:28:15 AM

Index
A behaviours checklist method, 71–72

Bharat Heavy Electricals Limited (BHEL),
accelerating premium system, 173
311
accounting, 296–297
BOS. See behavioural observation
ad hoc teams, 212
scales (BOS)
advising, 213–214
boundary spanning sub-system, 301
American Heritage Dictionary, 317
BRAS. See behaviourally anchored rating
analytic competence, 195–196
scales (BRAS)
annual stock taking of performance, 121–122
broadbanding, 177
annual stock taking of performance, 264
business process perspective balanced score-
appraisal format, 74
card, 229
components of, 74
business process reengineering, 332–333
Argyris, Chris, 339
assessment center approach, 68–69
audit C
compliance role of HR, 307 career
financial, 292–293 definitions and concepts, 188
financial management role of, 307–308 elements of, 188–189
HR audit, 299–301, 305–306 planning, steps of, 191–192, 199–203
performance, 290–296 career anchor, 195
service role of HR, 307 career development
strategic role of HR, 307 advantages of, 190–191
Auto Mart, 272–273 changing needs and, 199
importance of, 189–190
integration with career stage and family
B issues, 198–199
balanced scorecard, 141 issues in, 194–195
benefits of, 230 meaning and overview of, 189
concept of, 228 purposes and objectives of, 191
defined, 228 significance of, 190–191
need of, 233–234 stages of, 193–194
perspective of, 228–229 types of development programmes, 191
Bank Universal, 226 career paths, 200–201
Bank Universal of Indonesia, 144 cause-effect relationship, 265
Barth system, 172 C-chart, 254
Bedaux system, 172 central tendency error, 76
behavioural observation scales (BOS), 70, 258 checklist method, 65
behaviourally anchored rating scales (BRAS), coaching, 240–241. See also mentoring
69–70, 257 code of conduct, 319
Z01_9788131754221_IND.indd 349 5/18/2011 10:25:28 AM

350 Index
code of ethics, 319–321 CSR. See corporate social responsibility (CSR)

benefits of, 319–320 cultural competencies, 162
implementation in workplace, 321 customer perspective, balanced scorecard, 229
communication performance, 121 customer relationship management (CRM), 10
compensation broadbanding, 177
compensation design, 136 D
compensation
data reliability audit (DRA), 295–296
concept of, 171
demand analysis, 157–158
determination through job evaluation,
de-skilling, 151
171–172
development process, in India, 5–9
international performance management
DRA. See data reliability audit (DRA)
practices and, 281–282
Drucker, Peter, 67
competence
Durgapur Steel Plant, 223
analytic, 195–196
emotional, 196
interpersonal, 195 E
managerial, 195–196 economy audit, 293–294
technical/functional, 196 efficiency audit, 293
competency, 153–164 EFQM model, 262
characteristics of, 155 Emerson empiric system, 173
identification and assessment process, emotional competence, 196
156–158 employee empowerment, 197–198, 339
competency dictionary, 164 E-performance management, 122
competency mapping, 158 E-PMS, 121
competency models, 159–160 error of strictness, 76
competency-based pay, 179 ethical performance management, 21
competency-based performance-management ethics, 21, 316–325
system, 161 concept of, 316–317
competency-based system, 158–159 benefits in organizations, 320–321
conceptual competencies, 154 The Ethics Toolkit for Managers, 321
continuous learning, 8 European Foundation for Quality Manage-
continuous scales, 256 ment (EFQM) model, 262
contrast effect, 77 executive compensation, 180–181
control charts, 254–256 executive incentive programmes, 181–182
control stimulation, 151 executive mentoring, 245
corporate level strategy, 136 expatriate performance management, 277–278
corporate performance management (CPM), 10
corporate social responsibility (CSR), 315 F
cost of appraisal, 337 The Factories Act, 1948, 5
cost of failure, 337 feedback scale, 260
cost of prevention, 338 field review method, 66
counseling interview, 104–107 financial audit, 292–293
CPM. See. corporate performance manage- financial perspective, balanced scorecard, 229
ment (CPM) focus dimension of performance, 116
creativity, 344 forced choice description method, 64
critical incident method, 65 forced distribution method, 64–65
critical performance elements, 32 forecasting, 135
CRM. See. customer relationship free easy method, 65
management (CRM) functional competence, 154, 196
Z01_9788131754221_IND.indd 350 5/18/2011 10:25:29 AM

Index 351
G human resource development (HRD), 5–6

Gantt task system, 172 human resource information system (HRIS),
General Electric Company (GE), 330–331 304–305, 306
generic competencies, 163t–164t human resource management (HRM), 306
generic strategies, 131–132 human resource records, 301
Gilbert, Thomas F., 260 human resource valuation, 296–299
globalization, 280–281 monetary measurement, 298–299
grading method, 62 non-monetary measurement, 298
graphic ratings scale, 62–64, 256–257
group appraisal method, 66 I
group mentoring, 242 IBM, 245
impart training, 202
H incentives, 172–173
halo effect, 76 individual performance domains, 19
halo errors, 259 Infosys, 311–312, 314–315
Halsey premium plan, 173 innovating, 214
Handbook of Structured Experiences for input dimension, 116
Human Relations Training, 5 integrated performance management
HCIL. See Hughes Communications systems, 253
India Ltd. (HCIL) international assignment, performance
Hewlett-Packard (HP), 238 management in, 279
histogram, 256 international performance management,
horizontal linkage, 137 277–284
horn effect, 76 culture, effect of, 278–279
HR audit, 299–301 performance appraisals, 279
benefits of, 309 structure and strategy of, 277
checklist for, 301 interpersonal competence, 195
importance of, 300 inter-rate reliability, 259
methods and techniques of, 301 IT-enabled services (ITeS), 132
purposes of, 306
records used for, 300–301 J
scope of, 305–306 job analysis, 157
HR auditor, 300 job description, 6–7, 219
HR scorecard, 230–234 job evaluation, 171–172
approach of, 231 job position, 219
areas of, 231
benefits of, 233 K
developing of, 231–232
need of, 233–234 key performance indicators (KPIs), 227,
at Tata Engineering, 232 264–266
HR strategy factor, 117 KPIs. See key performance indicators (KPIs)
HRD. See human resource development (HRD) Kurt, Lewin, 5
HRIS. See human resource information sys-
tem (HRIS) L
HRM. See human resource management Larsen & Turbo Infotech Limited (L&T
(HRM) Infotech), 149–150
Hughes Communications India Ltd. (HCIL), 11 lean management, 334–336
human asset accounting method, 69 learning and growth perspective, balanced
human competencies, 154 scorecard, 228
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352 Index
leniency error, 76, 259 non-critical performance elements, 32

linear rating scale, 62–63 non-monetary measurement, 298
linkage, 137 Number Defective Chart (np-chart), 254
linked with goals scale, 260 numeric scales, 256
M O
Malcolm Baldrige Criteria, 262–263 observation, 7
management by objectives (MBO), 66–66, 257 one-to-one mentoring, 242
advantages, 67 ONGC, 238
disadvantages, 67–6 organizational performance, 209. See also
managerial competencies, 154, 195–196 team performance management
managerial skills, 150–152 organizational strategy, 117
manpower planning, 192 organizational teams, 212
man-to-man comparison, 62 overt response, 151
Margersion–McCann types of work model,
214f P
Marico, 111–112
paired comparison techniques, 61–62
Martone, David, 161
Pareek, Udai, 301
MBO. See management by objectives (MBO)
peer-review, 98
McKinsey 7S framework, 333–334
performance appraisal, 7, 56–57, 75–78, 279,
McNamara, Carter, 321
317–319
measurability scale, 259–260
approaches to, 61
measuring, 250
biases, 75–78
mentees, 240, 243
characteristics of, 59
mentoring, 239. See also coaching
ethics and, 317
benefits of, 239, 242
importance of, 58
objectives, 58
culture of, 244
purpose of, 56–57
at IBM, 245
reasons for failure, 58–59
types of, 242–243
types and method, 61–72
mentoring circles, 242
performance appraisal design, 59–61
mentoring programme, 243
performance audit, 290–296
Merrick Differential piece Rate System, 172
checklist of, 293
metrics, 141–142
methods and techniques of, 295
mission performance domains, 19
scope of, 291–292
mixed standard scales, 70–71, 71t, 257–258
steps of, 294–295
Modern Bank of India, 26–29
structure of, 293–294
monetary measurement, 298–299
performance consultants, 119–120
monitoring scale, 260
performance consulting, 118–120
Mono India, 50–51
performance counseling, 102–104
Morris India, 283
performance culture, 138
motivation, 78–79
performance development plan, 7–8, 39–40
multiple-rate, 259
performance domains, 19, 20
multi-skilling, 152
performance guide charts, 180
Murugappa Group, 236
performance management cycle, 6f, 31,
136–137
N performance management strategy, 134
Nickolas, Fred, 239 performance management systems (PMS)
Nissan, 347 building, 115
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Index 353
conceptual framework of, 116–117 performance review, 98–99

dimensions of, 115–116 performance standards, 13–18
ethical dilemma in, 321–322 performance-based compensation, 173–174
features of, 113–115 performance-related pay, 179–180
four pillars of, 120–121 Personality and Organization, 339
importance of, 113 personnel records, 301–305
legal aspects of, 322–325 personal skills inventories, 199–200
organization and social perspective of, Peters, Tom, 333
117–118 PMS. See performance management systems
performance management potential appraisal, 73–74
activities of, 8–9 probationary review, 98
benefits of, 17–18 process capability, 256
career development through, 187–188 process performance domains, 19
definitions and concepts of, 8–9 production count method, 252
factors for development of, 10 productivity metrics, 266–269
history of, 9–10 professionalism audit, 293–294
as HRD function, 6 project teams, 212
as management tool, 10–11 promoting, 214
overview of, 12–13 Proportion Defective Chart (p-chart), 254
philosophy of, 11–12
process of, 18–19 Q
through productivity metrics, 266–269
QRM. See quick response manufacturing
performance matrix, 260–263, 261t
(QRM)
performance measurement, 135, 250,
quality management, 336–340
251–264
quality of work life (QWL), 339–340
criteria of, 252–253
quick response manufacturing (QRM), 344
scales for evaluation of, 259–260
QWL. See quality of work life (QWL)
statistical methods of, 253–256
through ranking and rating, 256–258
performance metrics, 264–269 R
performance models, 260–263 ranking systems, 258–260
performance objectives and standards, 13–15 Rao, T.V., 301
performance planning, 31–33 recency effect, 77
developing employees, 36 rehiring review, 98
development and contents of, 33–36 remote mentoring, 243
eight-step model of elements and standards results-based scale, 259
of, 37–39 role, defined, 219
process, 31–33 role analysis, 219–220
steps, 36 role clarity, 42–43
strategy plans and their alignment, 44–46 Rowan premium plan, 173
transition from individual to group, 40–42
performance prism, 123 S
performance rating, 33 Scanlon plan, 173
performance review, 96–103 self-appraisal, 74
aspects of, 97 self-review, 98
benefits of, 100–101 sensitivity training, 218–219
scope of, 97–98 shareholder return-based measures, 182
steps in, 99–100 Shewhart, Dr. Walter, 250, 253
types of, 98 Shingo Prize Model, 260–262
Z01_9788131754221_IND.indd 353 5/18/2011 10:25:29 AM

354 Index
SHRM. See strategic human resource building, 210, 213, 218–219

management (SHRM) types of, 212
Siemens AG, 288–289 team performance management, 210
similarity effect, 77 concept of, 210
six-sigma, 330, 340–344, 341f, 342t managing of, 216
skill analysis, 157 measuring of, 215–216
skill downgrading, 151 principles of, 211–212
skill inventory, 152 team work, stages of, 216–217
skill sets, 178 teamwork dimensions, 20
skill-based compensation programme, technical competence, 154, 196
177–178 technology changes, 151
skill-based pay, 178–179 temporal linkage, 137
skills, 150–153 T-group, 218–219
SPM. See strategic performance management benefits of, 218–219
(SPM) objectives of, 218
staffing, 202 360-degree feedback, 72–73, 259
standards of performance, 15–18 tight raters, 76
standards of performance, 7 time dimension, 116
Steel Authority of India Limited (SAIL), 311 total shareholder return (TSR), 182
straight ranking method, 61 Toyota Production System (TPS), 334–336
strategic human resource management TPS. See Toyota Production System (TPS)
(SHRM), 119 training groups, 5
strategic performance management (SPM), Tuckman’s stages of teamwork model, 217,
128–142 217f
advantages and disadvantages of, 139–141
benefits of, 137–138, 138f
U
components of, 135–136 U-charts, 255
evolution of, 130–131 Ulrich, David, 306
generic strategies and, 131–132 United Technologies Corporation (UTC),
strategic plans, 44–46 327–328
strategy development process, 135 Universal Bank, 144
strategy linkage, 133–134
strategy realization, 46–48 V
strategy-fit technology, 46
variability source, 41
strategy-performance relationships, 44
verbal response, 151
succession planning, 192, 202–203
verbally anchored scales, 256
Sun Microsystems, 205
Veriphone India, 90
supply analysis, 157
vertical linkage, 137
Swadeshi textile, 167–168
T W
target setting, 135 wages, 170–171
Tata Engineering, 232 Waterman, Robert, 333
Taylorian system, 172 Welch, Jack, 281
team work standard approach, 65–66
approaches to change team behaviours, work teams, 212
212–213 work wheel, 213–215
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PERFORMANCE MANAGEMENT

SYSTEMS AND STRATEGIES

A01_9788131754221__PREL.indd i 5/18/2011 10:26:43 AM

A01_9788131754221__PREL.indd ii 5/18/2011 10:26:44 AM

Dipak Kumar Bhattacharyya

A01_9788131754221__PREL.indd iii 5/18/2011 10:26:44 AM

A01_9788131754221__PREL.indd iv 5/18/2011 10:26:44 AM

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CHAPTER 1 Introduction to Performance Management 1

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CHAPTER 2 Performance Planning 30

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CHAPTER 3 Performance Appraisal 53

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Techniques of Potential Appraisal 74

CHAPTER 4 Performance Management Review 95

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General Review Questions 108

CHAPTER 5 Performance Management Systems 111

CHAPTER 6 Strategic Performance Management 127

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Evolution of Strategic Performance Management 130

CHAPTER 7 Competency-based Performance

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Essential Elements of Performance-based Competency 162

CHAPTER 8 Performance-based Compensation 169

CHAPTER 9 Performance-based Career Planning,

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Important Elements of Career 188

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CHAPTER 10 Team Performance Management 208

CHAPTER 11 Performance Measurements Through

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Different Perspectives of Balanced Scorecard 228

CHAPTER 12 Performance Management and Mentoring 238

CHAPTER 13 Performance Measurement 249

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Integrated Performance Measurement Systems 253

CHAPTER 14 International Performance Management 274

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International Performance Management Practices 283

CHAPTER 15 Performance Audit, Human Resource Valuation,

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CHAPTER 16 Ethical and Legal Issues of

CHAPTER 17 Contemporary Issues in Performance

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Performance Improvement Through Quality Management Practices 336

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Special Pedagogic Features of the Book

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Marico’s Performance Management

Understand the overall picture

Indentify the accomplishments at the work unit level

Identify individual accomplishment and its integration

Convert expected accomplishment into performance

Develop work units’ and individual stantards

Determine how to monitor performance