Case Study

Is Performance Management System

actually managing performance?

Balaji Institute of Management and Human Resource Development

(BIMHRD), Pune

Prepared by:

Rishabh Waghwani

PGDM(PM&HRD)

HRD1613435

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 Declaration:-

This case study paper has been entirely prepared by me and does not involve

plagiarism. It is my own work and has not already been published or submitted

elsewhere.

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 Table of Contents
Particulars Page No.
Executive Summary 4
Keywords 5
Introduction 6
Main Content 7
Solution 15
Questions 16
References 17

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 Executive Summary

The case talks about Performance Management System as a part of Human Resource Department
function. This function helps the organisation to identify the Underperformers and high
performers. But the problem is whether the method to do so is appropriate?
The linkage of this to employees makes the situation complex as any problem with the system
would lead to problem for the organization directly and may also effect the ecosystem of the
organization.
Taking into consideration the thoughts of modern corporates we have to understand the loopholes
and figure out best way out of the vicious circle of Forced Ranking-Comparison-Dissatisfaction-
Loss to the Organization.

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 Keywords

1. Performance Management System

2. Performance Appraisal
3. Forced Distribution –A problem
4. Dissatisfaction
5. Productivity, Attrition, Wastage
6. High Costs
7. Loss of Talent
8. New Perspective
9. Unfreeze-Change-Freeze
10. Employee Satisfaction

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 Introduction

Human Resource Department in the backbone of the organization and has the above shown
functions to support the smooth functioning of the organization.

The functions of HR Department are intra linked to all other functions and also inter linked to all
other departments of the organization.

Similarly the Perfomance Management function of HR is also linked to other functions and thus
consequently effects and gets effected by other functions.

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 Main Content

Performance Management System (PMS) is one of the essential tools of HR department. Its
function is to manage the performance of the human resources of an organization. The process of
PMS works out as follows

Setting PMS is a dedicated approach to find out the

performance quality of the performance of the employees.
objectives and
standards Thus, to do so, firstly the objectives and
standards of desired performance are finalized.
Development Based on this, the performance of employees is
Performance
Plans and evaluated during the Performance Appraisal
Learning and Performance Appraisal
Process Process. This evaluation leads us to further step
Development
Management which could either be to manage under-
performance or to reward the exceptionally
System good performance. Now it moves forward to the
Development of the employees based on the the
Managing assessment of their performance.
Reward & Under
Recognition Performance
and Discipline

So to move forward let us understand the process of Performance Appraisal, which is again
important because based on this process the fate of any employee is decided. So the Performance
Appraisal follows the below process:

Set
Performance
Objectives

Annual Monitor &

Performance Evaluate
Review Progress

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 The Performance Appraisal Cycle consists the following stages:

1.) Setting Performance Objectives:

At the initial stage the organization sets the goals and objectives for the employees in
accordance to the goals and objectives of the organization. These goals are set after a
discussion between the employee for whom the goals are being set and the immediate
superior.
2.) Monitor & Evaluate Performance:
Once the goals and objectives are set we move to monitoring of the performance of the
employees where the Actual Performance is compared to the Desired Performance.
3.) Annual Performance Review:
Based on the comparison an annual review is done to rate the employees’ performance in
which the employee and the superior discuss the performance of the employee and find out
the Strengths and the Improvement areas.
The annual performance review leads us to segregation of the employees based on the attainment
of the goals finalized at the beginning of the assessment year. This segregation is done with the
help of a Bell Curve. Now what is a bell curve and how it works is a very essential for going
deeper.

Bell curve is one of the tools used for

performance management. Under this tool
the organization segregates the performers
from BEST to WORST. This segregation is
based on relative comparison of those doing
the same work, this makes the picture clearer
for the organization as to whom to nurture
and whom to discard.
The Bell curve portrays a picture where the
management can award and retain the high
performers & train the average performers
for bringing them to the next level & discard
and remove the worst performers so as to
make the organization highly profitable.

Bell Curve as an important tool brings with it a disadvantage of Forced Distribution.

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 Forced distribution is the distribution of employees in the ratings based two factors which
has to simultaneously taken care of. These factors are:
1. Employee Performance
2. Percentage fixed by the company for each point under the bell curve.

The distribution under the bell curve is done so as to formulate a normal curve (Normalization).

In Industry the HR Department and the Appraiser of the employee decide the position of the person
based on the two points mentioned above. These rankings are altered as per the number so as to
normalize the curve.

This method of appraisal creates a rippling effect in the organization in terms of thought of
partiality and comparison amongst employees. This would lead to feeling of inferiority and
superiority because of biasness of the process. The comparison would become the base for
dissatisfied employees.

Dissatisfaction being a cause for reduction in sense of belongingness would also create problems,
namely:

1. Low Productivity
2. High Attrition
3. High Wastage

Does this matter the organization?

Yes, it does …. But how?

It would lead to the following consequences:

1. High Costs
2. Loss of Talent

And, how dangerous is it for the organization?

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It would have ripples all through the ecosystem. It would create problems for the organization in
terms of:

1. Loss of Human Capital leading to the variations in the competitive advantage because of
competitors grabbing the opportunity of the organization in its vulnerable stage.
2. High costs leading to increase in price of products might result in customer shifting to
substitute or product of the competitor.
3. Effect on reputation in eyes of Shareholders and other stakeholders.

The inception of the forced ranking

method made the industry to follow it.
But no one figured out the consequences
of the method.
Forced ranking, the performance appraisal system
championed by Jack Welch in the 1980s, has long
sparked controversy. Even as many large companies
began adopting the practice of using a bell curve to rank
employees against each other, critics maintained forced
ranking crushed morale, stifled innovation, and led to
unscrupulous competition among workers.

Despite the criticism and the fact that several high-

profile companies including GE and Microsoft
abandoned the practice over the years, many still
employ some form of forced ranking. But at what cost?

What the modern day corporates feel about the same…..

Lisa Barry, the global Talent, Performance, and Rewards leader for Deloitte Touche Tohmatsu
Ltd. (DTTL), believes forced ranking no longer suits today’s increasingly knowledge-driven
workforce. She notes that “forced curve” evaluations were originally conceived at the turn of
the 20th century to measure the performance of factory workers and manual laborers. Today,
more than 70 percent of employees work in service or knowledge-intensive jobs, and their

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performance is largely driven by their skills, attitude, and ability to relate to others¹—qualities
that are difficult to objectively compare and evaluate along a bell curve, she adds.
Forced ranking can be particularly damaging inside corporate organizations and at talent-
intensive companies—whether tech startups or tech stalwarts—that thrive on specialized skills
and innovation. “Regardless of whether they work for banks or software companies, technology
professionals are expected to innovate, work effectively in teams, and adapt to an ever-
accelerating rate of change,” says Barry. “They need incentives to collaborate and be creative,
yet forced ranking typically produces the opposite behavior.”

Moreover, by requiring managers to divide staff year after year into fixed percentages of
underperformers, average performers, and high performers, forced ranking may eventually
move high performers into lower rankings and push many solid performers into the bottom,
according to
Stacia Sherman Garr, vice president of Talent Management Research for Bersin by Deloitte,
Deloitte Consulting LLP. In the process, forced ranking ends up inadequately rewarding high
performers while neglecting to motivate average workers, which can lead both groups to look
elsewhere for work, she adds.
“Forced ranking may help companies weed out underperformers during a restructuring but, if
implemented each year, organizations risk demotivating essential staff and cutting too deep,”
says Garr. “The practice seems particularly shortsighted during a global talent shortage, when
companies are fighting to recruit and retain professionals with specialized technical skills.”

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What to do now?

In light of competition for scarce talent, practitioners from some Deloitte member firms
suggest companies implement performance management practices that help them build
required capabilities internally. That means replacing annual performance appraisal
processes that revolve around competitive forced ranking with regular feedback and
continuous coaching and development.

The goal of the feedback-and-development approach is to reward high performers accordingly

while encouraging the large swathe of average employees to improve. “With resources like
feedback, training, and on-the-job aids targeted at improving performance, average workers
can increase their level of achievement,” says Garr. “Organizations should strive to shift the
performance of as many people as possible, so that what was once considered above average
becomes the new norm.”

Performance management practices that focus on routine feedback and development can be
particularly beneficial to IT organizations, where professionals frequently need to learn new
skills and expand their capabilities, according to Andy Liakopoulos, Deloitte Consulting
LLP’s Talent Strategies leader. “Given that technology workers cultivate technical and soft
skills over time, performance management systems for them should focus on continuously
developing those capabilities, rather than stacking IT professionals against each other or
relegating performance discussions to an annual event,” he says.

Replacing yearly “rank and yank” performance evaluations with continuous feedback and
development requires some significant changes. For one, some managers may need to shift
from a command-and-control, ratings and ranking mindset to a coaching mentality. “They’ll
have to find ways to make average workers see themselves as valued contributors to
organizational success, and they’ll need to learn to conduct more informal conversations
about performance that lead to improvement rather than drive employees away,” says
Liakopoulos.

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 Companies may also need to separate conversations about compensation from performance
feedback, according to Garr. Neuroscience research shows that conversations about
compensation provoke a “fight or flight” reaction among employees, making them much less
receptive and responsive to coaching. “Rather than linking salary increases and bonuses only
to ratings, companies may opt to include other factors in compensation decisions, such as the
critical nature of an employee’s skills, the cost of replacing the employee, the employee’s
value to customers, and the external labor market,” says Garr.

Are we working on it?

Many employers realize they need to reassess their performance appraisal processes. In fact,
58 percent of business and HR leaders surveyed by Deloitte Consulting LLP say their current
performance appraisal process does little to drive high performance or engagement among
employees and is an ineffective use of company time. Even more respondents (70 percent) are
either in the process of evaluating their performance appraisal systems or have recently
reviewed and updated them.²

“Organizations that have dropped annual performance ratings in favor of regular feedback
and development have seen improvements in employee engagement and performance,” says
Barry. “Given that business is in a constant state of flux—with goals shifting, strategies
evolving, and employees moving among different projects with different leaders—regular
performance feedback seems to make much more sense.”

After identifying the problem and understanding what corporate leaders have to tell us, we shall
brainstorm how to work on it and go ahead.
Keeping in mind the current structure and future demands we can proceed by taking into
consideration the model of Kurt Lewin which states the strategy of Unfreeze, Change, Refreeze.

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 Solution

So, What needs to unfreeze? What needs to change? What needs to freeze?

Unfreeze Change Freeze

Thought Process Thought of comparison Move towards Thought of Self
Individuality DDevelopment
Culture Culture of competition Move towards Culture of
contribution to the cooperation and
organization teamwork
Techniques Yearly feedback and Move towards Continuous feedback
forced ranking learning

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 Questions

1. How can we improve the appraisal system so as to increase employee satisfaction?

2. What methods could be used in place of Forced ranking?
3. If you were the HR Head of any organization how would you freeze, change & unfreeze
the current processes?

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 References
https://www.citehr.com
https://www.ibef.org
https://www.yourarticlelibrary.com
https://www.businessdictionary.com
http://deloitte.wsj.com

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