Why companies are scrapping traditional appraisal methods?

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EBS BUSINESS SCHOOL
EBS Universität für Wirtschaft und Recht
Research Proposal
Why companies are scrapping traditional appraisal
methods?
Submitted by
Rahul Singhal
Research Proposal: Why companies are scrapping traditional appraisal methods?
2
1 Introduction
One of the key success factors of an organisation is efficient management of human
resources. This includes objective assessment of potential and capabilities of the
workforce and reward the deserving employees to maintain them at right motivation
levels. Employee Performance Appraisal is associated with assessment of the human
capital using ‘rating’ and ‘ranking’ systems and is also responsible for maintaining the
hierarchical structure through promotions. However, in recent times, organisations are
moving away from the traditional approaches of performance management to more
innovative and independent ones.
2 Background
Performance appraisal is defined as planned formal events in organizations wherein
performance of the workforce is evaluated and measured against pre-defined criteria and
feedback is provided to employees accordingly. (Shrivastava & Rajesh, 2017)
Some of the appraisal methods include rating, ranking, 360-degree feedback and forced
distribution system. Most commonly used Forced Distribution System (also known as
the Bell Curve Distribution System), introduced by Jack Welch during his tenure at GE,
“ranks” or “stacks” employees into 3 categories based on their performance of previous
year in the form of appraisal ratings. Employees under the bell curve are separated into
3 categories by marking 10 per cent of the entire workforce as superior performers and
10 per cent as low performers. The remaining 80 percent of workforce are touted as
average performers. These proportions may vary among organizations. This demarcation
into 3 distinct groups is done so that employees:
 In high performance category continue to get rewarded for their hard work with higher
rewards and these rewards encourage them to continue doing so.
 In average performance category are motivated to perform harder and better by
rewarding them modestly. However, extracting better performance is not always the
goal since these are the ones who keep the organisational workflow intact.
 In low performance are either reprimanded using least rewards or terminated or made
to go through improvement programs to make them perform better the next time.
For both companies and employees, appraisal paves way for several important decisions
such as promotions, role changes, rewards and benefits. According to research, the
Research Proposal: Why companies are scrapping traditional appraisal methods?
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perception of the appraisal system and peer comparison can impact employees’
behaviour and attitudes towards work, such as job satisfaction and commitment, future
work performance, company loyalty etc. (Pearce & Porter, 1986; Poon, 2004).
3 Importance of the study
An appraisal system designed to reward and encourage performance can have quite a
contrary effect. Distribution curves can hurt morale and teamwork, because they foster
competitiveness rather than cooperation (Jackson, Schuler, & Werner, 2009). For highpotential low-ranked employees, a forced distribution may lead to job dissatisfaction
because they may be asked to resign or they may leave the organization voluntarily
(Gray, 2002; Madan, 2006). Sometimes, a low performing individual in a high
performing team can often be better than the best performer in a low performing team
(Chattopadhayay & Ghosh, 2012). Faulty appraisal systems and processes is one of the
reasons as to why employees quit, as revealed during many exit interviews.
From a behavioural perspective, shortcomings arise also due to biases, rating errors and
incompleteness of performance information (Arvey & Murphy, 1998). Rating bias (or
Rater bias), which indicates the appraiser’s tendency to provide either stringent or lenient
ratings (Bertz, Milkovich, & Read, 1992; Rynes, Brown, & Colbert, 2002), applies, if
rating scales are either too subjective or vague, allowing the appraiser and his pre-formed
biases to influence the evaluation. Some evaluators also believe that employee
performances cannot be conformed to fixed percentages. Managers may also use their
biases to reward preferential candidates, which makes these candidates wonder whether
it was their political skills or true credentials that helped them to move ahead of others.
In recent times, companies are scrapping their appraisal systems and replacing them with
systems involving continuous feedback and improvement cycles, which are then
connected to promotion or incentive determination (Sarkar, 2016). The newer generation
of workforce is more focused on matching their interests with their jobs rather than just
monetary rewards and therefore, organisations are proactively taking up campaigns to
imbibe ownership and empowerment. Companies are also encouraging employees to
share their accomplishments with their colleagues and subordinates and use the feedback
for self-betterment. Instead of manager-employees wasting millions of their productive
hours in discussing about ratings, which essentially is to justify past performance, they
Research Proposal: Why companies are scrapping traditional appraisal methods?
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can now be spent in brain-storming on future growth and development.1 Among the
major companies doing away with traditional appraisal systems, Adobe2 (March 2012)
and Microsoft3 (November 2013) were early starters. 2015 was also a big year when
major giants including Deloitte (April), Accenture (July) and GE (August) got rid of
annual performance reviews. Deloitte even accepted the fact that their performance
review system drives neither employee engagement nor high performance. 4 Infosys, an
Indian IT services company, introduced iCount5 to move to a system of open ranking
rather from the previous one of closed ranking and assess employees on individual
performance rather than relative performance.
4 Research Objectives
 To understand organisations' objectives and rationale behind introduction of the new
performance management system.
 To describe the effectiveness of the new performance management processes.
 To examine the parameters on which success of the new performance schemes
depends.
 To find out the extent to which these changes have affected the different stakeholders
in the appraisal and feedback system.
 To determine any disadvantages/shortcomings of switching to the new approach.
5 Method
5.1
Research Design
Research, in general, will be concentrated at organisations which have scrapped annual
performance reviews. Besides, the population of research will be limited to:
Rock, D. & Jones, B. (2015, September 08) “Why More and More Companies Are Ditching
Performance Ratings”, Harvard Business Review. Retrieved from https://hbr.org/2015/09/why-moreand-more-companies-are-ditching-performance-ratings
2
Sengupta, D. (2012, March 27) “Adobe Systems set to scrap annual appraisals, to rely on regular
feedback to reward staff”, Economic Times. Retrieved from https://economictimes.indiatimes.com
/articleshow/12420033.cms
3
Wingfield, N. (2012, November 13) “Microsoft Abolishes Employee Evaluation System”, The New
York Times. Retrieved from https://bits.blogs.nytimes.com/2013/11/13/microsoft-abolishes-employeeevaluation-system
4
Buckingham, M. & Goodall, A. (2015) “Reinventing Performance Management”, Harvard Business
Review. Retrieved from https://hbr.org/2015/04/reinventing-performance-management
5
Sen, A. (2016, February 08) “Infosys ahead of bell curve, to evaluate staff with new performance
appraisal system 'iCount'”, Economic Times. Retrieved from
https://economictimes.indiatimes.com/articleshow/50893988.cms
1
Research Proposal: Why companies are scrapping traditional appraisal methods?

5
Regular employees (most affected by this change) – To see whether they are satisfied
with the new process and whether they feel a positive impact of the new process.

Managers (responsible for conducting appraisal discussions) – To find whether they
notice any change in attitude of the appraisees towards the organisation and whether
their burden has been eased or increased.

HR managers (responsible for recruitment) – To find out whether they still face
criticisms during exit interviews and whether they see a boosted employee morale
and lesser attrition after the changes.
Samples population must have experience in the organisation before and after the new
system was introduced. Other business indicators such as financial performance, share
price, HR statistics and so on will act as secondary data sources.
Primary research data will be based mostly on interviews and survey questionnaire
because the opinions expressed through these channels are essential for validating the
research assumptions. This data will be combined with other secondary data such as
recruitment and attrition statistics, reports from trustable media, secondary research
conducted on specific organisation and so on.
5.2
Data Collection
Both qualitative and quantitative data will be collected using interviews and surveys,
respectively. As the primary source of quantitative data, interviews will require at least
2 samples from population (HR managers, appraisers and appraisees) from each
organisation. Target is 30-45 minutes in duration and permission will be sought for audio
recording. On the other hand, surveys (primary source of qualitative data) will be
distributed among different samples of the population. Surveys can also be further
extended into satisfaction and recommendation surveys to know how satisfied the
employees are with the changes in appraisal policies and how they think policies can be
further improved, respectively. Feedback on certain hypothetical changes can also be
asked to know their expectations. For example, HR managers can be asked whether they
see any improvement in enthusiasm, performance and morale of the employees and to
appraisees whether they find that their seniors can notice their potential.
As means of secondary data, interviews of HR managers and appraisers published in
HR/Business Journals as well as attrition rates of companies and similar surveys from
independent research organisations after the new appraisal policy can be referred.
Research Proposal: Why companies are scrapping traditional appraisal methods?
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6 Conclusion
The recent changes in the attitudes of organisations towards better and more efficient
appraisal approaches comes as a move to attract and retain the new-age workforce. Since
the past few years and still, several companies have introduced innovative and futureoriented appraisal systems. Quality research is this area will decide whether these
changes have actually made an impact towards attaining the intended objectives.
7 References
Arvey, R. D., & Murphy, K. R. (1998). Performance evaluation in work settings.
Annual Review of Psychology, Vol. 49, 141-68.
Bertz, R. D., Milkovich, G. T., & Read, W. (1992). The current state of performance
appraisal research and practice: concerns, directions, and implications. Journal
of Management, Vol. 18 No. 3, 321-352.
Chattopadhayay, R., & Ghosh, A. K. (2012). Performance appraisal based on a forced
distribution system: its drawbacks and remedies. International Journal of
Productivity and Performance Management, Vol. 61 Issue: 8, pp.881-896.
doi:10.1108
Gray, G. (2002). Performance appraisal don’t work. Industrial Management, Vol. 44
No. 2, 15-8.
Jackson, S. E., Schuler, R. S., & Werner, S. (2009). Managing Human Resources.
South-Western.
Madan, A. (2006). Appraising the performance appraisal – the Indian scenario. Indian
Journal of Training and Development, Vol. 37 No. 1, 43-54.
Pearce, J. L., & Porter, L. W. (1986). Employee responses to formal performance
appraisal. Journal of Applied Psychology, Vol. 71, No.2, 211-218.
Poon, J. M. (2004). Effects of performance appraisal politics on job satisfaction and
turnover intention. Personnel Review, Vol. 33, No. 3, 322-334.
Rynes, S. L., Brown, K. G., & Colbert, A. E. (2002). Seven common misconception
about human resource practices: research findings versus practitioners beliefs.
Academy of Management Executive, Vol. 16 No. 3, 92-103.
Sarkar, A. (2016). Is it time to do away with Annual Performance Appraisal System?
Benefits and challenges ahead. Human Resource Management International
Digest, Vol. 24 Issue: 3, pp.7-10. doi:10.1108
Shrivastava, S., & Rajesh, A. (2017). Managing performance better: advent of a new
appraisal system at Infosys Limited. Human Resource Management
International Digest, Vol. 25 Issue: 3, pp.26-29. Retrieved from
https://doi.org/10.1108/HRMID-05-2016-0077
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