Case Study on "IT Firm and the Performance Appraisal System"

Case Study 9 pages (2614 words) Sources: 10

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IT Firm and Performance Evaluation

The lack of congruity between the strategic plans and direction of the IT services firm on the one hand and the structure of its Management by Objectives (MBO) program on the other is causing a major disconnect in overall company performance. The high scores for Division X are completely unwarranted and are a result of poor training, inaccurate ratings and a series of biases in the managers providing the reviews. The intent of this analysis is to use concepts and frameworks to evaluate and define the current situation and also provide guidance as to how best the IT services firm can overcome this very difficult situation they are in today. This firm must hold into their top performers while enabling the company to stay resilient in the face of a challenging economy.

MBO Programs and Congruity to Strategic Planning

At the most basic levels, the MBO program in place at the IT services firm is completely disconnected from the basic strategic plans and objectives of the firm. When a performance appraisal system lacks the foundation of solid strategic planning and continual feedback loops as to direction, the performance goals and results run the risk of becoming quickly obsolete and irrelevant (Castellano, Roehm, 2001). While the company has been successful in engaging departments to work in conjunction with one another during the timer period the MBOs were created and launched, the chaotic nature of the company today is a result of a series of factors analyzed in this section. MBOs have the potential to galvanize a business and ensure it continues to make steady progress to objectives, even within difficult economic condi

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tions (Ingham, 1995). What the IT services team has not done is define a strategic performance management system that can scale across all functions of the company correctly, and ensure a high level of performance to objectives of relevance. What has happened is that the MBO program focused purely on activity and not on the unified direction towards shared strategic direction, and this has created the lack of trust throughout the company. A best practice of enterprise performance management is the development of strong levels of trust throughout an organization based on incentive and performance programs being aligned to the broader strategic goals and objectives (Farndale, Hope-Hailey, Kelliher, 2011). For Angus to turn the company around, he and his management team will need to create a highly effective framework for ensuring strategic plans and initiatives are reflected in the individualized MBO programs in place. Optimizing the role of performance appraisals within an organization needs to start at the strategic level and emanate down to each department, effectively creating a unified series of strategies and efforts to ensure high performance (Schweiger, Sumners, 1994).

A second major error that occurred is that despite the training on rater bias, it has proven largely to be ineffective. This is evidenced by 60% of Division X having five stars or above clearly showing a Leniency Error in how the managers rated their subordinates (Poister, Streib, 1995). Now with the expectations of the engineers and programmers in Division X so high, the senior management must either follow through and provide the bonuses and pay raises as promises or completely lose credibility and trust, and lose many of the more talented members of the team. This aspect of the case study dramatically illustrates how critical it is for biases to be completely absent from the reviewing process in order for a true measure of performance to be created. Trust is the currency and unifying bond that ensures a performance management system will work (Farndale, Hope-Hailey, Kelliher, 2011). For Angus and his management team, it's time for damage control first, and then the redesign of the company's performance management system.

In conjunction with the development and re-launch of a performance management system, Angus must have all the second- and third-tier managers again go through rater bias training. The effectiveness of the training must be evaluated as well, with each of the following biases specifically tested for. These biases include severity error, single criterion, leniency error (which is pervasive in the evaluation of Division X), Low Differentiation, and forcing information to match non-performance criterion all must be taken into account in the training (Castellano, Roehm, 2001). Several of these biases are evident in the case study's results. After this secondary wave of training is completed, Angus and his senior management team must again have every manager rate every employee. To be fair to the employees the scores will need to be balanced with the first iteration positioned as a baseline of performance (Coate, Hill, 2011). It is during this iteration of the second rating levels that the company must also choose to define how the first series of ratings will be used in the context of evaluating overall performance (Chan, 2006).

Another problem with the first approach of the MBO Program as introduced by the IT Services consultancy is the confusion of just what it is for. The IT Services firm has incorrectly designed the performance appraisal system in the hope of measuring both performance and areas necessary for improvement. As is often the case of performance incentive programs that are designed for dual purposes with no clear integration to strategic goals and direction, the program failed (Castellano, Roehm, 2001) .

Yet the greatest failure of the MBO program implemented by the IT consultancy was not necessarily the conflicting purpose, but its lack of congruity with the core strengths of the company to begin with. Instead of designing the performance management program to concentrate first on the innate strengths of the business and define strategic plans and objectives for growth based on those insights, the entire program is force-fitted into the organizational culture and fails as a result. Creating an effective change management framework which reduces resistance to change through transformational leadership is a key success factor in any program succeeding over the long-term (Farndale, Hope-Hailey, Kelliher, 2011). What needed to occur was that the MBO program needed to be first defined through a series change management programs and plans which gave employees an opportunity to understand the purpose of the incentive and programs while also increasing trust (Raineri, 2011). The glaring disconnect at the strategic planning level would have been averted if this had occurred, as each direction report to Angus would have had to have mapped their departments' objectives to the overarching ones. This would have created greater continuity of program execution as a result and greater insight into the value of the program overall. The many biases evident in the program's execution with the most difficult to recover from being the awarding of very high scores for Division X further underscore the need for drastic action. All of these symptoms of a lack of success in rolling out the program point to re-defining and re-implementing a new performance management system. It is recommended that Angus and the senior managers undertake the development of an entirely new performance management system, the specific of which are defined in the next section.

Recommendations for Creating A New Performance Management System

The innate strengths of the employees and their ability to collaborate effectively in the fulfillment of challenging objectives needs to guide the development of performance plans just as much as the vision and direction of a transformational leader (Wang, Howell, 2010). The most effective leaders take into account the innate strengths of their enterprises while defining a compelling enough vision and series of objectives to further guide their organizations to achievement. The role of performance management systems is to galvanize these efforts towards a common goal or objectives, leading to significant attainment not possible through individual efforts or time invested (Coate, Hill, 2011). The best performance management systems and initiative share the common attributes of infusing authentci8ty and trust into an organization, streamlining the level and quality of communication in the process (Farndale, Hope-Hailey, Kelliher, 2011). Excellent performance management systems then act as a catalyst of continued organizational performance and gains in productivity from a shared or collaborative standpoint. Performance management systems are also designed to take the politics and personal biases out of subordinate reviews and create a consistent standard of performance which applies equally across the entire organization (Schweiger, Sumners, 1994).

Starting with a revised performance management structure that begins with senior management, middle management and supervisor training on how to spot and eradicate rater bias from performance reviews, the IT consultancy needs to next include a change management program to ensure greater levels of trust and buy-in from the employees (Farndale, Hope-Hailey, Kelliher, 2011). Given the very high expectations that the employees will most likely have given the promises given during the last review cycle, Angus needs to come clean with them and tell them the truth, which is that they as a management team did not implement it correctly and it needs to be re-done. This is the sign of a truly transformational leader and one that can gain trust… READ MORE

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Quoted Instructions for "IT Firm and the Performance Appraisal System" Assignment:

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I will send you more supplymentary information later.

Here is the topic and describtion

Objectives

This assessment item relates to the course learning outcomes numbers 1 to 5 as stated on page 1.

Which are:

1. situate strategy and human resource management within a contemporary organisational framework

2. develop insights into implementation strategies and understand the importance of those insights for the human resource management professional

3. incorporate appropriate individual and organisational human resource management strategies within an organisational context by way of analytical essays and reports

4. critically and analytically evaluate the relevance of new theories, design methods and concepts within human resource management

5. communicate your knowledge and analysis skills, in counter argument.

Read the following case study, *****˜The IT firm and the performance appraisal system***** (Boxall and Purcell 2008) which has been given for your class discussion on week 8 on your moodle website of this course as background for your report.

Case study

The company is an innovative IT service business, providing consulting and software applications to insurance companies. It has 700 employees, all of whom are employed on individual employment contracts. If its historical rate of growth continues, it expects to have 1000 staff fairly shortly. The firm has expanded very quickly in its specialist segment of the industry and senior management realises its HR policies have not kept pace. Given the company*****s desire to professionalise all parts of the business, two years ago, Angus, the CEO, appointed an HR Director, Glenys. Since then, she has built a small HR department of 3 staff.

Glenys is a member of the senior management team, which also includes Angus and five other senior managers: three in charge of service divisions, one in charge of the company*****s own information systems and one the financial controller. All have lower level managers reporting to them, with the greatest number of middle managers and team leaders (first-line managers) in the operating divisions.

With Angus*****s full support, one of Glenys*****s first acts, 21 months ago, was to hire a firm of HR consultants to help the company develop a good performance appraisal (PA) system, one which would help managers to set performance objectives, formalise the process for making merit-based pay recommendations, and foster employee development. Senior management, led by Glenys, worked with

the consultants on the design of the system. Angus felt he could leave it to the members of his senior management team to speak up if they thought anything was unwise in the design and, besides, he thought, *****I*****ve now got a highly paid HR Director and an HR department and they*****re the experts on this stuff.***** The new PA system is based on setting individual performance objectives on an annual basis (a

management-by-objectives (*****˜MBO*****) system). It involves staff participation in setting these goals and requires managers to keep an eye on how goals are going every three months in case some goals need to change or employees need coaching. At the end of the financial year, the system requires managers to meet with each of their team members to discuss achievement against planned goals. It uses a five-point rating scale to assess overall achievement against these objectives, anchored as follows:

1 2 3 4 5

Unacceptable Marginal Competent Commendable Outstanding

The performance appraisal system is not simply about performance issues, however. Once the performance rating has been discussed, it then moves into a section on employee development in which the manager is supposed to discuss employee knowledge and skills and agree a development plan, which may include training recommendations

All the company*****s managers were put through 2 days of appraiser training. This was designed to help them deal with such issues as *****˜rater bias***** and how to handle difficult appraisal interviews. After the training was complete, the consultants declared the system *****˜installed***** and departed. The CEO, Angus, then told managers to go ahead and set objectives with each team member. This was done, not without

some difficulty, but it happened. Then, after 12 months, appraisal interviews were carried out, with Glenys and a member of her staff helping to ensure this happened. Managers found the system*****s requirements somewhat laborious but at least the forms were on-line and the recommendations on pay and training could be sent directly to the company*****s HR department that way. Some four months ago,

Glenys informed Angus that all the recommendations had arrived.

Unfortunately, no merit pay increases have emerged yet and disquiet is bubbling up among the staff. A round of post-installation focus groups, comprised of randomly selected team leaders and staff members, has just been conducted by the HR consultants who installed the system. They show that employees are losing confidence that anything positive will come out of the new PA system. The sort of comments people have been making include the following:

The idea of rewarding our stars is good but HR makes it all too complicated!

Look, I*****m prepared to give them the benefit of the doubt but the whole thing has taken too long. Why are they not making any decisions?

Well, in my view, things were better before there were any *****˜high-powered***** HR procedures in the company. My manager had more pull then and could get his boss to act quickly on a pay increase. There was no form filling and people were gung-ho and pretty loyal for this industry.

Several of the best performing staff have resigned in the last month, moving for better pay and conditions elsewhere. There is currently a very healthy labour market for talented programmers.

Part of the delay relates to a problem with the pattern of appraisal ratings across departments. Managers in Division X, the largest service department (where problematic employee turnover is occurring), have rated 60% of their staff as outstanding (five on the scale) while most other managers in the company have

given an average rating of (close to) 4 with around 20% in the outstanding category. Glenys is not at all happy with Division X. Along with the pay recommendations, she has reviewed the training recommendations from Division X: these actually suggest that a lot of fairly expensive training and development activity is needed for most staff there. This is hardly consistent with the view that 60% of the staff are at level 5 in terms of job performance. What are Division X*****s managers up to?

Just to make matters worse, the business environment in the insurance industry has deteriorated dramatically in the last 3 months (due to a string of adverse weather events) and this is expected to make insurance companies less likely to commission new software projects. There is now a board-driven directive to review costs in all departments. Angus, who has enjoyed running a high-growth company, now finds himself in the position of having to manage a different context altogether. He has to ask Glenys to meet with him and the rest of the senior management team to review all recommendations for salary increases. Despite lower level managers having told staff that their performance is commendable or outstanding (and, in Division X, that 60% are outstanding), he makes it clear to her that any pay increases will now have to be very carefully handled and will not proceed without his personal approval.

You should write a report

In your report, include discussion and recommendations for linking HR system to organizational performance that will contribute to the future growth and prosperity of the organisation. Critically an***** the case and evaluate the following aspects:

*****¢ the core issues and HRM concepts directly or indirectly reflected in the case.

*****¢ the *****˜black box***** problem: links between HRM and performance

*****¢ the role of culture in Strategic HRM practices and the concept of *****˜internal fit*****, as critical to a high quality performance in HRM

*****¢ the key HR competencies, practices, policies and/or determinants for success in addressing the *****˜big issues***** identified in the case.

To demonstrate your research ability and understanding of the topic, your report should include:

*****¢ Practical examples, with evaluation of the successes and/or failures evident in those examples.

*****¢ Reference to relevant theories and models.

*****¢ Synthesis of research from multiple, correctly cited sources (at least ten (10) publications

including two (2) critical research articles). You should follow the Harvard Referencing Guide available at http://facultysite.cqu.edu.au/FCWViewer/getFile.do?id=5763

The assignments in this course will be assessed using criterion-based ssessment as set out in the Assessment Criteria & Standards Matrix provided at the end of this course profile.

*****

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