Price Waterhouses Change Integration Team 1985 Commerce Essay

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This literature review will attempt to discuss different performance appraisals systems covering their purposes and definitions. It will detail out different form of performance appraisals for a deeper explanation. It will also discuss the limitations/problems against their remedies for an even deeper analysis. Finally an understanding developed from this literature review is identified in the final section to conclude it.

It is believe that performance appraisal appeared when first humans started to work together although it has for the past few decades gather quite some popularity. According to a research by Patten in 1977 an early Chinese philosopher called Sin Yu criticized a rater used by the Wei Dynasty on the battlefields by saying "the Imperial Rater of Nine Grades seldom rates men according to their merits but always according to his likes or dislikes". This research is traced back to Wei Dynasty in third-century China however the first industrial use of merit rating can be attributed to Robert Owen's textile mills around 1800s (Heilbroner, 1953). It was found that a wooden cube with different colours hanging over employee's workplace was used to show their previous day's performance. A dark colour would represent that the worker had a bad performance and a light colour meant that the performance was good. Since workers could see each other's measures workers worked harder in order to maintain a light colour that others could see and this in return triggered a healthy competition. The performance measure technique used is known as 'silent monitor'.

In 1813 the Army General of United States (U.S.) sent out letters to soldiers in order to evaluate them mentioning performance comments such as "a good-natured man" or "a knave despised by all". It is believed that formal performance appraisals may have originated around this place and time. It was in year 1842 when the merit rating was first introduced in U.S. federal government (Lopez, 1986).

Later at Carnegie-Mellon University performance appraisal system called "man-to-man" rating was developed by psychologists of the industries and had features of psychology. This appraisal system was used for exiting employee contracts or terminating/removing redundant employees. In late1960s many firms used it especially firms who experienced shortages of government contract in order to make layoffs and retention decisions (Patten, 1977). This in return proved to the people that in order to secure their jobs they needed to follow the requirements for the appraisals.

Psychologists can be credited with improving the rating system again in World War II such as forced-choice measures and trait-rating scales, etc. Appraisal of managers also became popular during that time however appraisal of industrial employees already had gainded popularity during World War I (DeVries, et al., 1981).

Performance appraisal was an acknowledged management system in the middle of 20th century and was used in many organizations. But during that period performance appraisals were only attributed to lower level management and employees that usually worked on hourly basis where as in a way the top management was excluded from this practice. It is believed that the only rating system used in that period was the graphic rating (trait) scale (Spriegel, 1962).

Whisler (1962) carried out a study and in that it was found that the relationship between decisions made by management and appraisal results showed no strong relationship. As Whisler said, "case after case in which personnel decisions were independent of or even ran counter to appraisal results; 'highly rated employees were often fired; low-rated employees, maintained or rehired.' Appraisal is often made, recorded, filed, and forgotten" (Whisler, 1962). Whisler also stated that many decision makers and monitoring staff do not understand the importance of performance appraisals hence didn't take them seriously. He went on to emphasis the importance of such systems and suggested that supervisors should regard this seriously and as a tool to effectively manage people.

2.2 Law and Appraisals

"After the passage of the '1964 Civil Rights Act' and the '1966 and 1970 Equal Employment Opportunity Commission' (EEOC) Guidelines for the regulation of employment selection procedures, legal considerations created strong pressure on organizations to formalize and organize their performance practices" (DeVries, et al., 1981).

During the period of 1960s and 1970s, there were several independent federal agencies issued guidelines as a 'selection device' (Odom, 1977) but organizations failed to comply with these guidelines because different agencies had different standards (Robertson, 1978). The United States federal government made great effort towards this field and became more and more determined on federal regulations.

Couple of movements like civil rights and women's movements that happened in 1960s and 1970s carved a pathway for immensely improved organizational performance appraisal practices (DeVries, et al., 1981). As new requirements came in to light, new improved systems became necessary for organizations to follow in order to meet them.

2.3 Early Development

It took a long time in development of performance appraisals and significant changes to occur relating to them. Two major trends have emerged: multiple rater system and management by objective (MBO) (DeVries, et al., 1981). MBO measures pre-set objectives against performance, on the other hand multiple rater system incorporates the characteristics of few performance appraisal approaches.

Talent Inventory, a performance system developed by an organization called RCA (Devries et al. 1981), used an approach of creating a work network for managers to rate a group of employees. Two categories, overall performance and critical incidents, are applied to rate managers in the system. The overall performance category is executed where every employee assesses manager's abilities with the "exceptional performer" through "top performer," "effective" and "satisfactory" to "not currently classified". Critical incidents are executed with a different criteria to assess a manager having rating levels such as A: strongly agree to B: agree through C: not agree and then to D: do not know to judge for example the managers ability to manage people efficiently. Perhaps the most important aspect of this rating system is that employees themselves are involved in rating the managers. Although it was a new and innovative way there were still some important changes to be made to it. Its seen to measure the performance relating to the past by observing the actions while disregarding the future development that might occur and the system itself relies on numbers and scores for measurements (Devries et al., 1981).

Peter Drucker in 1954 after studying General Motors proposed in the Practice Management the answer to the above deficiencies, this marked the emergence of MBO (Devries et al. 1981) which was also supported by McGergor as mentioned in his article in the year 1957. He outlined the following advantages:

Rating direction changed from look at the past performance to focus on future actions (Devries, et al., 1981)

This approach redefined the role of managers that is helping employees to achieve organizational goals instead of judging what they have done.

Employee and the manager are involved in an interactive process; they both contribute to personal and organizational objectives as well as subsequent evaluation.

This approach insists on performance in the practices rather than rates employee's behaviour, so employees felt welcomed and gradually accepted it too.

Given the proper environment including things such as clarity of the functions and effective management MBO has the greatest potential for success (McConkey, 1972). Moreover MBO presents an opportunity, to write a number of measurable performance achievements, to employees itself (Wang, 1993).

2.4 Later Development

Effectively performance appraisal has spread into areas relating to for example secretarial and administrative staff and moved from one sector for example private to public. New systems and/or forms of performance appraisal have also emerged for example the popular 360°appraisals, team based appraisals, upward appraisals, customer appraisals and competency based appraisals.

According to studies carried out by Teel and Locher (1988) it was found that there has been a significant rise in use of performance appraisals from 89 % to 94 % in the U.S. during the 1970s and 1980s. Furthermore it is believed that it's most commonly used in the western part of the world than the eastern (Redman &Wilkinson, 2001) but is gradually catching popularity in countries like Japan, China and Malaysia.

In UK it has become an essential part of management of a business especially in the industrial sector and is getting popular day by day in the public sector as well which includes hospitals, universities and state owned enterprises.

Latham and Latham (2000) assured that "the process of performance appraisal was often implemented in isolation from other inter-related systems, in particular the organization's strategic plan". This goes on to say that even if the last decade introduced many developments in performance appraisals, it did bring some problems with it as well.

2.3 Definition

Performance appraisals are an instrument for social control. They are annual discussions, avoided more often than held, in which one adult identifies for another adult three improvement areas to work on over the next twelve months. You can soften them all you want, call them development discussions, have them on a regular basis, have the subordinate identify the improvement areas instead of the boss, and discuss values. None of this changes the basic transaction... If the intent of the appraisal is learning, it is not going to happen when the context of the dialogue is evaluation and judgment (Peter Bloc - Abolishing Performance Appraisals: Why They Backfire and What to do Instead)

2.4 Purpose

To drive organisation performance every management programme should be linked with

the company's vision and mission. This link makes sure the right track of performance of the whole system within the company. Further, Mann (1999) elaborated on the purpose and advantages of performance appraisal system "Formation of vision/mission statements based on the company's situation and aspirations, and the translation of these into policy statements. This reduces the ambiguity. Consideration of the views not only of shareholders, but also of customers, employees and the community at large when deciding on policy and strategy Seaforth Corn Mills, when reviewing policy and strategy, looks at six main areas: customer satisfaction, workplace improvement, employee satisfaction, competitive advantage, supplier relationship, and financial performance. This thing ensures the policy contribution for stakeholders for performance excellence. The linking of business plans, team and individual plans to the company's vision and critical success factors, and ensuring that resources are allocated within each plan. This practice contributes towards the alignment of individual performance with the overall corporate performance."

However according to Cleveland, et al.'s (1989) research, it implied that performance appraisals were used mainly for employee strengths and weaknesses, salary supervision and their performance recognition. Additionally the most dominant purpose for which appraisals were used was found out to be aiding in decision-making, which also includes analysis of promotions, terminations, and pay rises. Several uses of appraisal may be incompatible and using them for a range of employee and managerial purposes is not always efficient hence using the performance appraisal as an all-purpose tool may fail (Cleveland, et al., 1989). This goes on to show that companies need to know WHY before knowing WHAT and HOW. In short, performance management should be linked with company's mission, which in return guarantees the right direction in which performance should be measured. "In the appropriate setting, process management activities can help companies improve efficiency, but the risk is that you misapply these programmes, in particular in areas where people are supposed to be innovative." - BMW 2005

Types of Performance Appraisal

3.1 Introduction

Performance appraisals can be done by immediate supervisors in any organization but this isn't always the one and only or the best way to implement such a system as they can be done by anyone who knows the inside outs of job under review and the objectives it and abundant knowledge to separate out inefficiency from efficiency (Tyler, 2003). To drive organization performance and to make most of the performance appraisal systems organizations need to consider various aspects to tailor that system according to their needs for example their vision/strategy, their size, their structure, resources etc. Below are the forms and/or approaches to performance appraisal used by organizations.

3.2 360°Performance Appraisal

360-degree appraisals are related to managers, staff members, assistants, co-workers, vendors, customers and members of other departments. It involves them all perhaps to share their views about an employee under review. This approach is adopted to give a detailed and all round look at an employee's performance. It is also referred to as multi perspective or multi rater and full circle feedback but essentially all these have a common purpose and method.

360-degree appraisal approach can be traced back to the US Army in the year 1970 (Dudgill, 1994). According to Bracken (1994) 360-degree is currently becoming increasingly popular among many companies and recent research shows that 360-degree programs are used by majority of Fortune 500 companies.

To get a better understanding of their weaknesses and strengths mostly managers in an organization use 360-degree approach. Romano (1994) shows that employees may be exposing themselves to menace by providing information about an administrator who has power over them hence it is important that employees conduct the appraisal confidentially and anonymously. A good solution for organizations would be to use third parties to analyze the data and prepare the reports. In order to maintain balance and fairness responses should also be combined with those of other people in the same rater category, which would show a clear picture to the employees of their overall weaknesses and strengths. Moreover this approach, if executed properly, essentially represents results in a format that helps the person receiving the feedback in creating a development plan free from bias.

360 Feedback can also be a useful development tool for people who are not in a management role. Strictly speaking, a "n on-manager" 360 assessment is not measuring feedback from 360 degrees since there are no direct reports, but the same principles still apply. 360 Feedback for non-managers is useful to help people be more effective in their current roles, and also to help them understand what areas they should focus on if they want to move into a management role

When done properly, 360 is highly effective as a development tool. The feedback process gives people an opportunity to provide anonymous feedback to a coworker that they might otherwise be uncomfortable giving. Feedback recipients gain insight into how others perceive them and have an opportunity to adjust behaviors and develop skills that will enable them to excel at their jobs.

Using a 360 degree feedback system for Performance Appraisal is a common practice, but not always a good idea. It is difficult to properly structure a 360 feedback process that creates an atmosphere of trust when you use 360 evaluations to measure performance. Moreover, 360 feedback focuses on behaviors and competencies more than on basic skills, job requirements, and performance objectives. These things are most appropriately addressed by an employee and his/her manager as part of an annual review and performance appraisal process. It is certainly possible and can be beneficial to incorporate 360 feedback into a larger performance management process, but only with clear communication on how the 360 feedback will be used.

No matter which purpose the feedback is used for - evaluation or development, the identity of the feedback provider must keep anonymous. The benefits of 360-degree appraisal can be observed from two aspects: the organizational and the individual perspective. From the organizational perspective (Stone, 2005), 360-degree appraisal can encourage employee's participation and involvement. Consequently, two-way communication is enhanced in the organizations. Letting employees to rate their supervisors shows the organization respects employee's point of view. It improves job satisfaction and creates harmonious working relationship within the organization. O'reilly (1994) points out that the feedback improves the ability of people to work in teams. From the individual perspective, this appraisal is invaluable to individual because it comes from numerous sources, providing multiple perspectives and opinions, individual understands himself/herself more comprehensively and make better self-development (Garavan, et al., 1997). For example, Van Veslor and Wall (1992) found that some managers improved their performance after receiving poor evaluations. It increases the reliability, fairness and acceptance of the data (London et al. 1990). It has a motivational dimension in that it can motivate individuals to decrease discrepancies between themselves and their actual behaviors. It can give individuals an opportunity to praise or criticize their coworkers anonymously (Hazucha, et al., 1993).