PERFORMANCE MANAGEMENT SYSTEM
Performance management includes activities to ensure that goals are consistently being met in an effective and efficient manner. Performance management can focus on performance of the organization, a department, processes to build a product or service, employees, etc. Information in this topic will give you some sense of the overall activities involved in performance management. Then you might enhance your understanding by reviewing closely related library topics referenced from the sidebar.
IMPORTANCE OF PERFORMANCE MANGEMENT SYSTEM
Setting up a good performance management system doesn't happen overnight or by accident. You need to consider its design and carefully plan how it will work before managers begin using it to evaluate employees.
Managing employee or system performance facilitates the effective delivery of strategic and operational goals. There is a clear and immediate correlation between using performance management programs or software and improved business and organizational results.
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A performance management system should provide employees with these four basic benefits:
- A clear understanding of job expectations
- Regular feedback about performance
- Advice and steps for improving performance
- Rewards for good performance
4 Key Benefits of Performance Management system
1.PM focuses on results, rather than behaviors and activities
A common misconception among supervisors is that behaviors and activities are the same as results. Thus, an employee may appear extremely busy, but not be contributing at all toward the goals of the organization. An example is the employee who manually reviews completion of every form and procedure, rather than supporting automation of the review. The supervisor may conclude the employee is very committed to the organization and works very hard, thus, deserving a very high performance rating.
2.Aligns organizational activities and processes to the goals of the organization
PM identifies organizational goals, results needed to achieve those goals, measures of effectiveness or efficiency (outcomes) toward the goals, and means (drivers) to achieve the goals. This chain of measurements is examined to ensure alignment with overall results of the organization.
3.Cultivates a system-wide, long-term view of the organization.
Richard A. Swanson, inPerformance Improvement Theory and Practice(Advances in Developing Human Resources, 1, 1999), explains an effective performance improvement process must follow a systems-based approach while looking at outcomes and drivers. Otherwise, the effort produces a flawed picture. For example, laying off people will likely produce short-term profits. However, the organization may eventually experience reduced productivity, resulting in long-term profit loss.
4.Produces meaningful measurements
These measurements have a wide variety of useful applications. They are useful in benchmarking, or setting standards for comparison with best practices in other organizations. They provide consistent basis for comparison during internal change efforts. They indicate results during improvement efforts, such as employee training, management development, quality programs, etc. They help ensure equitable and fair treatment to employees based on performance
PERFORMANCE MANAGEMENT SYSTEM
A Performance Management System enables a business to sustain profitability and performance by linking the employees' pay to competency and contribution. It provides opportunities for concerted personal development and career growth. It brings all the employees under a single strategic umbrella. Most importantly, it gives supervisors and subordinates an equal opportunity to express themselves under structured conditions. Managing this process effectively isn't easy. It calls for a high level of co-ordination, channeled information flow, and timely review. Whether employees are at a single place, or spread across multiple locations, the use of technology can help simplify the complete process for more effective information management.
Customize Performance Management to Fit Global Cultures
Experts say companies often impose an American style of performance management on employees based in other countries, even when such a system conflicts with local cultural norms. A better approach, they say, is to adapt the system to fit the culture. U.S. firms pick up their existing performance management program ... philosophy, intent, forms, everything ... and try to force-fit them into non-U.S. cultures, forgetting that the nature of the employer/employee relationship varies widely from place to place, But this is a mistake. What works in Dallas might not work so well in Dalian or Dubrovnik. In some cultures you simply cannot transpose culturally offensive management styles.
Always on Time
Marked to Standard
The 360-degree approach is a good example of this. It requires a fundamentally egalitarian mindset and value system in order to be effective.
It's a rather Western concept to evaluate performance management scientifically and with a process that is valid and reliable and rational company. The management and assessment of performance has always been done [around the world], but it's been done more intuitively and organically, and not in a rational, organized process. In the West that people will say things clearly, that are problems, and that's not the case in many other cultures around the world.
However, because the American business model is accepted and admired, many companies outside the United States will simply accept the American way of doing business rather than expecting to have practices adapted to fit their culture, said
A good performance appraisal process is an integral part of the performance management system and it works seamlessly with the other components. This article takes a holistic approach to performance management and gives an overview of the components. A performance management system has the following components and interfaces: goal-setting, regular reviews, annual appraisal, development process and linkages to other systems.
This process is the foundation for a good performance management system. It brings in the clarity required to deliver the required results. The organization's expectations are set in the form of “key result areas” (KRAs), along with strong indicators of the required standards (also termed “measures of performance”). The benefits of giving clear directions are many. It helps increase productivity by enabling people to focus on the requirement; it minimizes frustration and enables employee satisfaction.
Reviews are a critical component of the system. Reviews give timely feedback to the individual. It is important to schedule formal reviews during the course of the year. These can be half-yearly or quarterly depending on the need. Structured mid-term reviews enable the organisation to take stock of the performance during the given period. It gives the individual an opportunity to discuss his/her achievements during the given period and to look at areas of improvement. In a dynamic environment, it is important to keep abreast of market situations. Reviews can be utilised to make midcourse correction in the KRAs.
It is possible that the macro environment has changed and that some of the objectives have to be reviewed. For example, certain sectors in the economy may be doing extremely well and the organisation may see a need to review sales numbers based on these indicators. Reviews need to be structured on a regular basis to ensure that there are no surprises in the annual appraisal. Regular and structured reviews are a critical component of the performance management system and this is essential to ensure that the performance management system is not the same as the annual performance appraisal. As a part of this sub-system, we have processes such as coaching, mentoring, performance improvement plans, etc.
A typical appraisal system could be designed on one of the following
- Confidential report: The report is written by the supervisor and is, typically, not shown to the individual. Decisions, such as promotions and changes in compensation are made, based on this report.
- Report by supervisor that is shown/given to the individual and discussed.
- Self-appraisal by the individual, value-added comments by the supervisor and a discussion: In this system, the individual writes a self-appraisal vis-à-vis KRAs set at the start of the year. The manager adds his or her comments. Organisations follow one of the following methods of ratings-(a) rating given by the manager or (b) the individual and the manager give ratings and the organisation has a mechanism to deal with differences between the two. There is an opportunity for the individual and the manager to discuss the contents of the appraisal.
People working in the software industry or in a project environment may raise a question about the relevance of the annual appraisal. Then there are also professionals who work with different project teams during the course of the year. In this case we could have reviews signed-off at the end of each project. These could be collated at the end of the year to look at overall performance and linkages to other systems.
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This pertains to the training and development sub-system. A part of the development plan stems out of the annual appraisal. This is the result of the areas of improvement that emerge from the appraisal and competencies required for new roles, if relevant. A good training and development process will also take the necessary inputs from the organisation's business plan. This is required if the organisation is investing into new business or entering new markets.
Linkage to rewards system
Linkages to processes such as compensation, rewards, progression and successionplanning-the performance appraisal system, in many organisations, has a link to the rewards system. Individuals judge the performance management system and the culture of the organisation based on the message sent by the rewards system. If the rewards system recognises individual contribution and ignores contributions made to team objectives, the people in the organisation start focusing on individual tasks.
Therefore, linkage to many of these systems need to be contemplated upon, articulated to the people and implemented with consistency.
MEANING OF PERFORMANCE APPARISAL
Performance appraisal system has been defined in many ways. The simplest way to Understand the meaning of performance appraisal is as follows:
“A regular and continuous evaluation of the quality, quantity and style of the Performance along with the assessment of the factors influencing the Performance and behavior of an individual is called as performance Appraisal.”
Performance appraisal also means an appraisal of the growth potential of an Employee, with a view to providing information to the organization leading to positive Action and enabling feed-back to the individual aimed at his performance Improvement, personal growth and job-satisfaction. In short, we can say that Performance appraisal is expected to result in an assessment of:
- Growth potential of the employees;
- Corresponding training needs for the employees;
- Capabilities for their placement in higher posts,
- Conduct and discipline of the employees; and
- The need of the organization to evolve a control mechanism
OBJECTIVES OF PERFORMANCE APPRAISAL
The main objective of the system of performance appraisal is to reward those who are Working efficiently and honestly in the organization. At the same time, it also aims at eliminating those who are inefficient and unfit to carry out their responsibilities. It has to be done almost continuously, so that no injustice is done to a deserving individual. It is, therefore, necessary to clearly define the organizational objectives, targets and priorities. It is further necessary to define clearly the rote and responsibilities of the persons involved in the functioning of the organisation.
Performance appraisal also aims at helping the management in carrying out their tasks more effectively. A sound system of performance appraisal results in framing:
- A sound selection ?policy.
- An effective promotion and placement policy;
- An improved system of career and manpower planning;
- A realistic training programme;
- A good reward and punishment system; and
- An effective system of control and discipline in the organization.
These elements are essential for any modern management system. No country can neglect them for long.
We can thus say that the main objectives of performance appraisal are as follows:
- To carry out a fair and impartial assessment of the quality, quantity and stvle 01 the work performance of the individuals working in the organisation.
- To assess the extent of the various factors which influence the performance of the individuals.
- To reward the capable and efficient employees.
- To provide opportunity for improvement of their potentialities to those who are less capable and efficient.
- To make optimum utilisation of the available human resources for the fulfilment of the organisational goals.
- To help management in evolving and framing sound policies and programmes relating to selection, placement, promotion, training, discipline, control and man
Global Trends in Performance Appraisal Program
The performance appraisal process has become the heart of thehuman resource management systemin the organizations. Performance appraisal defines and measures the performance of the employees and the organization as a whole. It is a tool for accessing the performance of the organization.
The important issues and points concerning performance appraisal in the present world are:
- The focus of theperformance appraisalsis turning towards career development relying on the dialogues and discussions with the superiors.
- Performance measuring, rating and review systems have become more detailed, structured and person specific than before.
- Performance related pay is being incorporated in the strategies used by the organizations.
- Trend towards a360-degree feedbacksystem
- The problems in the implementation of the performance appraisal processes are being anticipated and efforts are being made to overcome them.
- In India, the performance appraisal processes are faced with a lot of obstacles, the most prominent being the lack of quantifiable indicators of the performance.
The emergence of following concepts and the following trends related toappraisal can be seen in the global scenario:
360 Degree Appraisal
360 degree feedback, also known as ‘multi-rater feedback', is the most comprehensive appraisal where the feedback about the employees' performance comes from all the sources that come in contact with the employee on his job. Organisations are increasingly using feedback from various sources such as peer input, customer feedback, and input from superiors. Different forms with different formats are being used to obtain the information regarding the employee performance.
Team Performance Appraisal
According to a wall street journal headline, “Teams have become commonplace in U.S. Companies”. Most of theperformance appraisal techniquesare formulated with individuals in mind i.e. to measure and rate the performance of the individual employee. Therefore, with the number of teams increasing in the organizations, it becomes difficult to measure and appraise the performance of the team. The question is how to separate the performance of the team from theperformance of the employees. A solution to this problem that is being adopted by the companies is to measure both the individual and the team performance. Sometimes, team based objectives are also included in the individual performance plans.
Rank and Yank Strategy
Also known as the“Up or out policy”, the rank and yank strategy refers to the performance appraisal model in which best-to-worst ranking methods are used to identify and separate the poor performers from the good performers. Then the action plans and the improvement opportunities of the poor performers are discussed and they are given to improve their performance in a given time period, after which the appropriate HR decisions are taken. Some of the organisations following this strategy are Ford, Microsoft and Sun Microsystems.
In the United States it is common for each employee's performance over the previous six months or year to be documented and followed by a one-on-one meeting between the employee and their supervisor, at which time the employee will receive their rating and discuss expectations for the next rating cycle. In some cases employees are expected to complete a self-appraisal, which might be factored into their review, while in other cases feedback from peers and customers might be included as part of a 360-degree assessment of an individual's performance. Though far from perfect, and often dreaded, the American performance appraisal process suits the American culture, which is regarded as highly individualistic and egalitarian. For example, in the Unites States the performance rating is often used to determine pay. The basic belief in the acceptability, the rightness, the virtue of pay for performance.
“Those who contribute the most should get the greatest rewards.”
In the U.S. employees tend to rate themselves and others very highly, such as a 4 or a 5 on a 5-point scale-using an “everyone gets a prize”. In many European cultures the highest rating might be a 3, and in Asian cultures they wouldn't rate themselves.
A pay-for-performance system is inappropriate in cultures that focus on interpersonal relations and collectivism.
In Japan compensation is not based on performance. In fact, it's hard to identify the individual performance, because the focus is the team. “If an individual were identified as performing so well that they got compensation in return for it, it would be anathema to the group's collaborative ethos.”
In some countries, such as Korea and Germany, use performance management processes that closely parallel those used in the United States. The same is true for France, though he noted that there is less of a connection between performance and pay in that nation. However, the Japanese and American processes have “diverged significantly” over the years. The Japanese system is frequently, and even intentionally and openly, used as a means of discriminating against ‘undesirable' employees, a practice that is prohibited under U.S. civil rights laws. And although the performance appraisal process involves filling out the appraisal form and discussing it with the employee, In Japan the appraisal process often involves only the completion of the form without the discussion between boss and subordinate of the results of assessment. Those who work in the U.S. often put a great deal of value on the information that comes from 360- degree feedback, according to. But in a country like India-which tends to be more collective than individualistic and which embraces a high-power distance, or inequality of power, there is less value placed on the opinions of others and it would be seen as inappropriate culturally to ask employees to fill out a questionnaire on their boss. Similarly it would be difficult to implement a system that includes self-appraisal in cultures that are defined as collaborative, consultative and consensus oriented. People simply don't speak in the capital I and are very uncomfortable doing so. “In a culture like China or Japan, asking a person to speak about themselves in a way that is honest and direct and that will be appraised by their superiors is a waste of time.”
And in some cultures, a face-to-face performance meeting never takes place.
In severely hierarchical cultures where the boss is expected to just tell you what they think, there may not be a direct conversation. “They may communicate through a mediator to help save face.”
Filipino managers engage in a practice called “smooth interpersonal relations.” If a boss has a problem with one of his subordinates, he won't talk directly to the subordinate about it, he'll instead tell his wife because he knows his wife's cousin's hairdresser is related to the problem employee. In other cultures, managers and employees go out for a drink periodically and chat informally about problems at work. The end result is that the manager knows and has a good sense of the performance of the individual, but if you ask them to assess the employee on a scale of one to 10 they can't do so. “There is a dependent relationship in Asian cultures. Employees depend on leaders to help them solve work-related problems. “That's at odds with Western cultures where staff members solve things on their own.”
In some cultures the relationship between the manager and subordinate is so close and ongoing that it's sort of like a parent/child relationship. Managers know how employees are performing and give them feedback on a regular basis.
A Look at India
The business culture in India varies depending on whether it is a family-held business, an Indian company or a Western or American multinational organization, and that affects the nature of the performance management process, according to Nirmala Menon of Interweave Consulting Pvt. Ltd., a diversity consulting firm in Bangalore, India. “As most Indians are socialized to be hierarchy oriented, this often tends to spill over into the workplace,” Menon told SHRM Online. “In family-owned or the more traditionally-run organizations, the boss or manager often takes the position of the father in the family.” Organizations rely heavily on informal feedback from the senior person, which might be given indirectly and which is absorbed by the one for whom it is meant and others, Menon added.
Menon says this means that the employee's career growth is the boss's responsibility. “The expectation then is that “Father knows best” and what is conveyed is accepted even if they are in disagreement,” she said. “Evaluations are therefore often influenced in such situations by the deference shown to the boss and the level of loyalty exhibited; compliance more important than performance.”
But Menon said that modern Indian organizations and multinational corporations, particularly IT and telecommunications firms, generally adapt to the global value systems of their companies. As a result, evaluations tend to be more structured and include face-to-face meetings, she said, followed by a written document signed by employee and manager and which typically incorporates input from peers and customers to substantiate the rating.
“While indirect feedback also exists in these organizations, given the heightened awareness of a fair and professional environment, there is more acceptance and expectation of a documented communication, keeping in mind the objectives for the period under review,” Menon added.
Annual Performance Appraisal and Evaluation in Indonesia
Early in the 20th century, the biggest job as a managers is to teach a newly hired employee to fail intelligently ... to experiment over and over again and to keep on trying and failing until learns what will work. As we begin 2004, many companies are struggling with the issue of employee appraisal and evaluation. While generally adopted in most western-based business cultures, such employee review and appraisal in Indonesia can be fraught with misunderstandings as to purpose and methodology, be filled with accusations of impartiality, and be slowed by hesitation to formally criticize a subordinate.
This issue comes up in easily 95 percent of my cross-cultural training programs. American companies normally wish to establish some sort of review procedure but once they begin addressing how to actually institute the process and decide what direct benefits they wish to see, they often become bogged down. The threshold question then is whether a foreign company should even try to implement such a system. There are several cultural barriers to such a system here. Among them is the difficulty with direct communication with employees and also the ‘saving up' of problem areas until a later time.
Direct communication is difficult for most Indonesians. Indonesians generally adopt an indirect approach to problem solving to avoid the possibility of confrontation and the disruption of office harmony. The preservation of such office harmony being a prime Indonesian business value, of course, and one often having priority over work performance. Also in Indonesia an erring employee or other problem situation is addressed as soon as possible, albeit in an indirect and non-blame pointing way, and then forgotten. To bring the subject up again at some review several months later is going to be considered inappropriate.
For these two reasons, individual performance appraisals tend to have the following pattern: An employee comes in to the meeting with some misunderstandings or perhaps anxiety about what will be discussed and how it will affect their career. The supervisor can go over the ‘good' qualities of the employee without difficulty. However, when the supervisor begins discussing areas that ‘may need improvement' there is normally an attitude change on the part of the employee with him or her becoming either defensive or submissive. In other words, the employee may either disagree with the supervisor's assessment or else may ask something like “Why are you doing this to me? I thought that we had a good working relationship. I did not realize that I was letting you down so badly. Do you want me to resign?”
The supervisor then is in the position once again of explaining the purpose and objective of the assessment process. In general, annual performance evaluations and reviews tend to be disruptive to the Indonesian office. In my opinion, companies should focus on immediate feedback and reprimand, if needed, and not use the annual approach.
Another difficulty is the cultural reluctance for some Indonesian managers to formally and in writing criticize their own subordinates. I often hear the example of the expatriate manager who has had one of his direct reports complain often about the performance of his own subordinates. However, when it comes time for the annual review, the direct report submits an outstanding report on that same subordinate.
The decision to have annual performance evaluations and reviews may not be up to the Indonesian subsidiary of a multi-national company. Home office may dictate such a policy and the local company's only choice is how to implement. There seem to be three basic approaches to this situation. First is to just go through the motions, telling your employees that ‘this is a Western thing. It will not affect your salary or career', which basically voids the process. Second, you can use the information to provide training and education of the employees turning the evaluation process into a kind of reward system. Third and most difficult, is the attempt to fully implement and effectively use this Western evaluation tool. It can and has been successfully implemented by a number of American companies operating in Indonesia, but it does need the directed will of the top management along with allocated resources and training to be successful.
At the very least, there must be a significant training period to help your employees understand what the process is and, more importantly, how it will affect them. Year one should involve a formal introduction to the process with written, quantifiable criteria for the evaluation. Year two should include mock appraisals that do not have any effect on the career of the employee. Year three could see the first recorded appraisals. Once the process is institutionalized, new employees will be told by their colleagues about this strange and foreign system and what to expect. It then becomes part of your ‘third corporate culture.' Any attempts to speed up the process are often seen as arbitrary and unfair.
Further, you should definitely expect such accusations of being arbitrary and unfair if you take the next step after the evaluation process and tie the appraisal into bonuses or salary increases. Such performance-based bonuses or salary increases are pretty much in direct opposition to the Indonesian business values of the group working together and maintaining office harmony. Traditionally, the ideal Indonesian employee is one who is loyal to the boss for a long time. In other words, loyalty and seniority are the prime attributes, and by loyalty, I mean personal allegiance to the boss, not to the corporate entity. Pointing out a specific employee and emphasizing the fact that he is superior to and a better employee than those he or she works with on a daily basis is going to be disruptive to the office and embarrassing to the individual.
For instance, if you have an annual office party or awards dinner for your staff and you say something like: “Now here is Budi who outperformed everyone else in our office and we are giving him a new TV.” The polite clapping of his co-workers is going to be overshadowed by thoughts of ‘traitor' and plots for revenge against the award winner. If you bring up another employee and say ‘Now here is Bambang who has worked for our company for 10 years and we are giving him a new TV', Bambang will bask in the limelight and his co-workers will no doubt truly admire his accomplishment. The difference being that Bambang was rewarded for seniority, while Budi was rewarded for violating basic Indonesian business values.
One should not expect the same confidentiality of salary information in Indonesia that one might expect in the home country. We joke that on the day performance bonuses are given, the employees exchange pay stubs in the canteen. Even if the situation is not that extreme, you can be sure that most people in your office know what each other has received, and those employees with more seniority may soon be in your office asking for a bigger bonus or larger salary increase.
You may then once again be explaining the company's policy on performance appraisals and evaluation but this time be met with defensive and even hostile disagreement as to whom was the better worker. Allegations that the company's criteria for awarding bonuses or salary increases is unfair and arbitrary and lacks understanding of the situation in Indonesia may be made. Employees have certainly used the conflict resolution strategy of ‘appeal to authority' to resolve these disagreements going to the country manager complaining that their supervisor is acting improperly. There have also been cases of employees going to Indonesian government departments like Manpower or Immigration complaining about their expatriate supervisor. With the current priorities in these departments, such complains have resulted in the early repatriation of expatriate supervisors.
The process of annual performance appraisal and evaluation of Indonesian employees is not one that foreign companies should enter into lightly. The implementation of this very Western-based management tool should be well thought out and supported by top management. Alternatives exist that may be better suited to your company's long-term success in Indonesia. Encouraging employee performance and addressing areas of weakness remain a good manager's obligations to his subordinates. The question to be asked is what method works best for you.
LET US SUM UP
In the personnel policy of any country, promotion of the servants plays a very significant role. It is, therefore, necessary that right type of persons must get promotions. The system of performance appraisal plays a key role in selecting persons of high quality and integrity to shoulder the responsibilities of higher positions. Performance appraisal has, therefore, become an integral and important aspect of personnel administration in almost all countries. It not only helps in improvement of the efficiency of the individual civil servant but also improves the o~erall'efficiencof~ the organisation. In@ividual also gets feed-back which enables him to develop himself to meet the objectives of the organisation. In the Government, the performance appraisal system is used as a control mechanism and a tool to give incentives to those who are competent and efficient.
Several methods of performance appraisal are in vogue in different countries. In India the p e r f o~ a n c eap praisal is primarily based on Annual Confidential Report written about each and every civil servant. Service-rating grading system and service-record rating system have also been recently introduced. There are several factors which affect performance appraisal system in India. The Administrative Reforms Commission made several important recommendations to improve our system of performance appraisal. Many of those recommendations have been accepted by the government. The unit has discussed all these aspects. Yet we cannot say that performance appraisal has become perfect and objective. Many reforms are still necessary to improve the performance appraisal system in India
Before transplanting a performance management process from one country to another, organizations should go through a cultural adaptability assessment to determine whether their global corporate culture is strong enough to enable the performance management practice in question to work across other cultures as effectively as it does at home. If not, they should work with key HR staff to adapt it as appropriate and then pilot it in each new region before mandating its use on a widespread basis.
The savviest firms look closely at their performance management practices, then at individual business and employment cultures, and look for opportunities to innovate and adapt their global framework to align with local practices.” The focus, should be on what the organization is trying to achieve through its formal feedback process. Once that is known, they should ask whether they can live with using a variety of culturally appropriate ways of achieving that end. This might involve transitioning to a “culture of feedback” in which managers are trained to “feed forward” rather than focusing on documenting how an employee performed in the past. The main objective of performance management is to make sure that employees know what the company expects of them and how well they are meeting expectations. That's independent of culture, though organizations “may have to tailor and adapt processes in order to make them culturally comfortable.”
Matching performance management practices to cultural variations.
Performance management practices represent the way managers do things in their organizations: The way they delegate authority, allocate rewards, make decisions, design jobs, and implement programs, such as quality improvement. Figure 4 portrays the differences between cultures with group versus individual focus, and with high versus low power distance, in the implementation of management practices. The following section elaborates on the implementation of rewards, participation in decision-making, and quality improvement systems in different cultures.
a) Reward Allocation.
One of the key questions is how to allocate rewards in order to enhance motivation. If you are an American manager, you most likely implement the principle of “rewards for performance”. However, in the global world there are three principles for reward allocation: the principle of equity, i.e., according to each individual's contribution; the principle of equality, i.e., equal shares to all individuals; and the principle of need, i.e., according to each individual's needs. In most individualistic cultures, the rule of equity serves as the criterion for reward allocation. Employees receive rewards based on their individual contribution to goal attainment. For this purpose managers use individual performance appraisal to evaluate the individual's contribution.
On the other hand, the rule of equality fits in with group-oriented, collectivistic values. Chinese managers, who have collectivistic values, used the equality rule in allocating rewards to in-group members more than did Americans (Leung & Bond, 1982; Bond, Leung, & Wan, 1982). In fact, Chinese people used the rule of equality more than Americans did for allocation to both in-group and out-group members. However, for outgroup allocation, the rule of equality was used when the allocation was public, but the rule of equity was used when allocation was done privately. Similarly, Koreans perceived more favorably allocators who used the equality rule than those using the equity rule, compared to Americans. In Europe, the Swedish people used the rule of equality more frequently than the Americans did (Tornblom, Johnson's & Foa, 1985). The Swedish education system discourages competition, in favor of cooperation and teamwork. In addition, the Swedish viewed the need rule more positively than did the Americans. The need rule was most highly preferred in India (Berman & Singh, 1985). Allocation on the basis of need predominates in collectivistic cultures, and particularly when needs become visible, as is the case in India (Murphy-Berman, Berman, Singh, Pachauri, & Kumar, 1984). The above findings lead to the conclusion that the application of an inappropriate distribution rule may cause feelings of injustice, and demotivate employees Therefore, knowledge about cross-cultural differences with regard to preferences of allocation rules is vital for implementing motivational techniques.
b) Employee Participation, and Teamwork.
Participation in goal setting and decision-making is not value-free. From a political perspective, it increases workers' control over the means of production, and it conveys the belief that participatory democracy is a social value in and of itself. Ideological differences between the U.S. and Europe led the pro-participation voice in the U.S. to advocate voluntary adoption of participative practices, whereas, in many European countries, government legislation mandates compulsory participation. In general, European countries, including England, Scandinavia, and West Germany, when compared to the US, are known to be more socially-oriented, and to display lower levels of power distance between different organizational levels (Hofstede, 1980).
It is, therefore, reasonable to propose that cultural background can influence the level of employees' participation in decision-making in organizations. Moreover, employees in highly egalitarian and group-oriented cultures, such as that of Israel, reacted negatively to goals that were assigned to them, as compared to employees who were allowed to participate in goal setting. This negative response to assigned goals was not observed among employees in more individualistic and less egalitarian cultures, such as the US (Erez & Earley, 1987). In individualistic cultures, group goals often result in social loafing and free riding because group members do not share responsibility to the same extent as group members in collectivistic cultures. On the other hand, social loafing was not observed in group-oriented cultures, such as China and Israel (Earley, 1989; Erez & Somech, 1996). In individualistic cultures, social loafing disappears when individual group members are held personally accountable and responsible for the group outcomes (Weldon & Gargano, 1988). This means that in individualistic cultures, effective teams should be designed with low levels of interdependence among group members, to allow individual group members to feel personally accountable for group performance, and to be able to identify their individual contributions
c) Quality Improvement in Japan versus the US.
The quality of products and services becomes a major factor in the competitive advantage of companies. Therefore, programs of quality improvement are implemented all over the world. However, these programs take different forms in different cultures. Let's look at the differences between the quality improvement programs in Japan and those in the US. Japan: In Japan, the prevalent method of quality improvement is the Quality Control Circle. These “circles” are small groups in the same work unit that voluntarily and continuously undertake quality control activities in the workplace. In line with their group-focus culture, Japanese Quality Improvement (QI) programs are designed for teams. From the employee's perspective, this system allows everyone to participate and have the opportunity to experience enhancement and efficacy as part of the group. Quality Circles (QCs) encompass all the organizational levels, from top to bottom, and they are both hierarchical and lateral. Through participation in QCs, employees successfully identify significant problems and create solutions to these problems. In accordance with Japan's high power distance, a group leader is appointed to each QC. This person receives extensive training in quality and team management, and runs the meetings. Quality improvement activities on the company level are supported by the nationwide organization of the QC Circle Headquarters at JUSE (Japanese Union of Scientists and Engineers). This organization provides information about how to start quality control circles' activities, how to operate them, and how to maintain and assure their continuation. The organization established the national Deming prize, which is awarded to companies that have attained remarkable results in quality improvement.
Japan versus the US:
First, The most notable characteristic common to Japanese companies that won the Deming Award and American companies that won the Bald ridge Award is the thorough involvement of their top management teams in setting the vision of quality improvement, communicating it to employees throughout the entire organization, and becoming personally involved in the implementation process.
Second, Japanese companies and all Bald ridge Award winners encourage employees to voice their concerns and show involvement. Yet, in the US a greater emphasis has been placed on the individual employee: Attitude surveys monitored employee satisfaction and identified problem areas. The results were fed back to the managerial levels, and managers were asked to address employee concerns. In Japan, the emphasis is mainly at the team level, and most of the activities of quality improvement are processed via the quality control circles.
Third, in both countries quality improvement programs grant employees more authority, and responsibility for quality improvement. However, in Japan employee involvement is exhibited mainly through team participation in identifying quality problems and in generating and implementing solutions to the problems. In contrast, in the US the emphasis on employee involvement is manifested by delegating responsibility to individual employees. For example, customer service is improved by allowing employees to have more discretion in making decisions while serving their customers, thus eliminating the need for time-consuming approvals of a definite set of decisions. Japanese managers show support through group participation, whereas American managers use empowerment to delegate authority to individual employees.
Fourth, in both countries training was found to be crucial for the acquisition of Knowledge and skills and for the internalization of values and behavioral norms of quality improvement. The Quality Award winners in the US invest more in training than other companies do. Training programs help develop skills and abilities necessary to perform well not only as individuals but also as teams. In many work situations, effective performance depends on the coordination among team members and on their collaborative efforts. In such cases, training programs that educate employees to become effective team players facilitate a cultural change from individualistic to group-oriented values.
Fifth, an employee appraisal system is crucial to quality improvement because it Measures the employee's accomplishments. Although Deming himself objected to Individual-level performance appraisal, it is still used by most of the American winners of the Bald ridge Award. This is consistent with the individualistic culture in the US, where workers look for personal evaluations. Westinghouse uses a Management-By-Objectives (MBO) performance review system, with quality improvement as a major criterion for evaluation. Deming objected to MBO as well, because it is outcome- rather than process driven, and it emphasizes quantitative rather than qualitative results. Yet, MBO can be modified to emphasize processes and to set quality rather than quantity goals. For example, Motorola, which has already cut defects from 6,000 per million to only 40 per million in just 5 years, has a goal of further cutting defects by 90% every 2 years throughout the 1990's. Quality criteria are often included in employee performance evaluations. Federal Express, for example, rates employees on both quality of work and customer service. Xerox evaluates employees on an individual basis, but contribution to the team is one important criterion for evaluation. Thus, the American way of managing employees for quality improvement differs from that of the Japanese, as it is geared toward the individual employee rather than toward the team.
Sixth, similar to the appraisal system, the reward system and recognition programs in the US integrate rewards based on individual and team levels. At Xerox, individuals are nominated for the President's Award, or the Xerox Achievement Award. Teams compete for the Excellence Award and the Excellence in Customer Satisfaction Award. Westinghouse has implemented peer review for determining their quality achievement winners. In addition to individually based pay systems, there are also organizationally based pay systems, such as employee stock ownership plans, profit sharing and gain sharing. While it is the individual incentive pay system that is prevalent in the most successful Fortune 1000 companies, over 50% of these companies use, in addition, reward practices that include non-monetary recognition, team incentives, knowledge/skill-based pay, and cafeteria style benefits. Individually based recognition and rewards are inconsistent with Deming's approach, which advocates cooperation rather than competition. Unlike American companies, Japanese companies offer recognition and rewards to their quality improvement teams.
To summarize, programs of quality improvement have common characteristics that are universal, such as: shifting authority and responsibility down to the employees Themselves, training employees to improve their knowledge and give them the skills necessary for quality improvement, evaluating employees' contribution to quality improvement, and rewarding their achievements. However, in the US and Japan these general principles take different forms that are congruent with the different cultural values. Successful QI programs in the US include a strong focus on the individual in terms of delegation, evaluation, and rewards.. Employees are empowered to be personally accountable for quality. While team level components are present, companies work to facilitate their effectiveness through training and measuring individual contribution to team efforts. These strategies fit well with the tenets of US culture. In Japan, on the other hand, quality control circles regulate the quality improvement activities. Employees become part of the quality improvement program by participating in the QC circles. The hierarchical structure of the Japanese culture can be observed in the hierarchical organization of the QI activities. From the national level to the organizational level, and down to the organizational units and quality improvement teams, these differences in the form of implementation of quality improvement programs reflect the cultural differences between the US and Japan. Global managers should be sensitive to such cultural differences and implement managerial practices that are congruent with the cultural values.
The Japanese work culture holds many secrets to success and efficiency
The Japanese are considered to be the most efficient workers in the world - their products combining the stellar qualities of cost efficiency, speed as well as quality, something that few other nations can boast of. Is it that the Japanese are just better than everyone else? Or could it be that the secret of their success lies management policies and work culture?
The Japanese work ethics are founded on three basic principles - teamwork, harmony and consensus building. Elaborating on these key concepts, vice president - human resources & chief people officer atFortis HealthcareLimited says, “The basic principles of the Japanese working and management style are derived from their unique culture and traditions. Japanese companies are staunch believers of employee welfare and ensure that employees are well taken care of. Participative decision making is a regular practice in all Japanese organizations. Japanese employers prefer to provide their own training and show a strong preference for young men who can be trained in the company way. They are perfectionists by nature. Historically, seniority is a highly valued principle in the Japanese management culture - salary, promotions and benefits are mostly a function of the age of the employee and not so much based on performance differentiation. This is however changing now and has already changed a lot in the last 5-7 years withglobalization. Employees prefer to work in MNCs that are transnational and follow a culture of performance differentiation. Their emphasis on quality, employee involvement and process and continuous improvements (kaizen), route cause analysis, just in time (JIT), error proofing (poka-yoke) are concepts that have been adopted world over and is something which is unique to this culture and their strength area.”
Robin Sharma's ‘The Monk who Sold his Ferrari' talked about ‘Kaizen', a Japanese philosophy as being an excellent method to ensure better and more inspired performance, if followed religiously. Mittal agrees that these principles are at the root of many Japanese success stories. Maruti's success after its joint venture with Suzuki bears testimony to the effectiveness of the Japanese experience and systems. The rationale behind the Japanese Management culture is creating conditions which make the employee feel valued, results in a commitment which in turn ensures that the employee contributes meaningfully to the corporation. As a consequence of the synergizing effect of participative decision making and team work, the team performance is higher than the sum of individual performances. Also there are many Japanese management practices/principles such as Kaizen that emphasize a relentless pursuit for improvement. World over these concepts have been adopted especially in the manufacturing environment and now beyond.
The five foundation elements of Kaizen:
- Team work
- Personal discipline
- Improved morale
- Quality circles
- Suggestions for improvement.
The Kaizen 5-S framework for good housekeeping has its origin in Japan. This is only a snapshot and a testimony as to why they are the most formidable workforce in the world
So we have established that the Japanese work culture is so magnificent that it ensures that employees hardly ever change jobs or go on strike, and long working hours are excellently balanced out by copious social interaction. But how can we wave the Japanese wand over Indian corporations as well? Mittal believes it's already been done. “Many Indian corporations like Maruti, TVS group, Hero Group, Pepsi, Mahindra and Mahindra etc. have adopted the Japanese Management principles alluded to above and have experienced a marked improvement in their productivity. Applying these principles does not merely require a one-time input, but a change in the management attitudes to ensure that the momentum is sustained over time. This will require a commitment from top leadership and a shared understanding (culture = shared understanding) amongst the rank and file. Those that have institutionalized all or some of these have demonstrated an edge in terms of outcomes and productivity,” he says.
The gameplan for Indian companies should be to focus on participative decision making and creating a harmonious work environment. “Japanese Management practices like teamwork, participative decision making, and maintaining a sense of harmony among the employees help make the employees feel more connected to the corporation. It fosters a culture of loyalty and commitment to organisational objectives and the employee is motivated to contribute to the success of the institution,” says Mittal. The merits of lifetime employment cannot be discounted either. After all, which Indian private job offers lifetimesecurity? “The system of lifetime employment encourages a strong commitment to the company and the job, promotes favorable labour relations and generally helps build a sense of security and confidence which encourages employees to work their best without being plagued by fear of losing their jobs or being distracted by sifting the environment for other opportunities. It also helps in creation of a learning organisation due to years of accumulated knowledge. But lifetime employment also has its own drawbacks in terms of organisational inflexibility, reduce influx of new ideas and increasing labor costs as wage is a direct consequence of length of service,” says Mittal.
No system is perfect and the same goes for the Japanese corporate system. But if may well be the nearest that humanity can get to perfection!
Planning, Performance and Culture
Culture has been found to moderate strategic decision processes (Hoffman & Hegarty, 1993) and perceptions of strategic strengths and weaknesses (Schneider & De Meyer, 1991). While strategic planning and performance has been examined in non-U.S, locales, only a few of these studies have examined strategic planning in a cross-national setting. German and British firms engaged in long-range planning more than French firms. Certain planning process characteristics (e.g., planning horizon, use of quantitative methods, types of plans, etc.) and planning content (e.g., objectives, forecasts) varied among banks within ten different nations; cultural differences were the reasons behind the observations. Recently, a study among smaller firms found that the relationship between detailed planning and non-financial firm success was moderated by culture These studies suggest that the strategic planning process and the planning performance relationship do differ among cultures.
Insights regarding why or how planning and performance differs across cultures investigated here are provided by a few studies. Since strategy enables the firm to adapt to its environment, how managers perceive and react to environmental uncertainty is relevant to strategy making. Previously, Anglo and Nordic cultures believe the environment can be analyzed and known. As a result, managers from these cultures are attracted to analytical approaches to strategic planning. Case studies of Nordic firms from Denmark and Sweden as well as U.S. (Anglo) firms (Schneider, 1989) have noted the use rational/analytic approaches to strategic planning. Differences in strategic planning processes between Anglo (e.g., U.K. and U.S.) and Germanic (e.g., German) firms have been observed in two other studies. British firms, compared with German firms, used planning that was more strategically versus operationally oriented, used a longer time horizon, and placed more emphasis on performance.as compared to U.S. firms, German firms used a longer planning horizon, planned on a less regular basis, and conducted planning more as a staff versus a line function. The overall planning process among the U.S. firms was rational and analytical; whereas, the Germans employed a more political process.
Taken together the strategic planning processes of Anglo and Nordic firms appear to be similar to each other while the processes within German firms appear to differ from the rational/analytical planning model. The planning process characteristics examined are typical of the rational/analytical approaches to strategic planning. Moreover, most of the studies relating planning to firm performance have described rational/analytic approaches to strategic planning. Thus, the following hypothesis is offered:
REWARD SYSTEMS IN THE GLOBAL MARKETPLACE
It has been found out by the various studies done on reward system that there is a need to have a high degree of congruence between the reward system and the strategy of the organizational unit. In the advent of globalization, it is increasingly recognized that the reward system is a key factor in the implementation of an organization's strategy and the accomplishment of its global strategic objectives. Particularly in the global marketplace, the reward system can be used to elicit or support those behaviors and decisions that are in accordance with the global strategic goals of the multinational enterprise (MNE) as opposed to those that address only local market performance.
An observation of the reward systems in the global marketplace revealed that businesses have recognized the changes in industry conditions and have subsequently made corresponding changes in their corporate and subsidiary level strategies as response to such dramatic changes. European pharmaceutical firms that dramatically reorganized after a series of international mergers have redesigned their reward system for their international executives and have specific measurement formulas unique to the firms in order to determine their international executives' performance and their related incentive bonus. American high-technology multinational manufacturers that have matrix organizational structures have their reward systems designed so that dual responsibility-laden employees receive incentives tied to the performance of the product division as well as the geographic unit. The incentive structure is not applied uniformly across all geographic regions or product lines. For example, in emerging markets, the incentives are tied more closely to geographic performance than in industrialized countries. Strategic roles of different foreign subsidiaries are differentiated based on the unique competencies of select locations, most commonly French, German and Japanese subsidiaries. These examples are typical of what is generally being practiced around the globe by MNEs.
CULTURE VARIATIONS IMPACTING REWARD MANAGEMENT
A large part of the challenge posed by globalization to MNEs is how to manage business operations across cultural boundaries. It has been suggested in existing reward management literature that anumber of culture-oriented psychological factors, such as national value orientations, distributional justice, the concept of socially healthy pay, and the role of pay as a motivator, are considered. As such, there is an ongoing call for reward flexibility dependent on the variations of local culture where MNE's operate. Rewards systems in Germany, Japan and China, in particular, are facing radical change. There are also high levels of reward failure in the US and UK, where a shift from jobs-based to people-based systems is taking place. Management gurus have pointed out that whilst the lifestyles of workers around the world are becoming more homogeneous, the faster the pace at which this happens, the more steadfastly they shall cling to and cherish the traditions that spring from within. Thus the essential need not only for WECo but also for other MNEs to concentrate on understanding how facets of national culture mediate the operation of new reward systems, including initiatives such as broad-banding and competency-based. It must also identify the appropriate ‘engagement points' through which policy objectives can be deemed to be in line with underlying values.
For instance, China has attracted a surge of foreign investments and international trade from a multitude of countries and MNEs located in the country are therefore subject to the challenge of successfully carrying out cross-cultural management in China. The reward system for China-based staff is perceived in known studies to be occupied by a cash-form of reward mechanism: i.e. base salary, merit pay, year-end bonus, individual bonus, cash allowance and overtime allowance. This indicates that cash-form items are found to be most effective in attracting, motivating and retaining the local Chinese employees because of the existence of the ‘cash mentality' syndrome. This syndrome may be contributed to by the Chinese culture that encourages financial independence and the recent economic development that sparked the entrepreneurial spirit innate to Chinese people, inspiring an intention of making good money by having one's own business. Therefore, WECo's plan to penetrate China should take into consideration the general tendency of Chinese workers to value monetary rewards, as long-term benefits, such as pension and life insurance, and short-term benefits like childcare, education and leave are considered to be less valuable and less useful in rewarding employees. It is recommended for WECo to design their reward system to provide employees with take-home cash as the highest proportion of the compensation package and to spend less money on employee protection but more on immediate cash rewards.
The performance management system of the company is believed by the HR field as pivotal in the motivation, attraction, and retention of the human resources that are so vital to the successful attainment of a firm's goals. The company's reward principles should differ accordingly, based on the desired managerial behaviors necessary to implement the strategy of the particular business unit. As regional and corporate performances differ, they must be used as a criterion in the design of a performance system for future international ventures in order to determine the fittest system that would be beneficial to both employees and the organization. The importance of local input in the design of such system must be stressed to HR managers at the corporate level, as it is important to be aware of local norms and competitive practices for a fully effective performance management system to be implemented within the firm. The performance management system in an organisation located in various areas of the world should therefore be different from those at the parent country, designed to adapt to the local environment in which they are located. The design of a performance management system should not be merely convenient to the organization. It should more importantly be designed for adaptability and timeliness.