The Case Of Performance Evaluation
How should a fair and accurate appraisal system be institutionalised at Total Industries-BT's fictional firm? William M. Mercer's Mervyn Raphael, S.P. Jain Institute of Management Studies' A.K. Sengupta, and Lupin Lab's Satish Khanna discuss. A BT Case Study.
By R. Chandrasekhar
Abhinav Kumar couldn't recall the last time he wrote a letter. During the last five years, the young CEO's preferred means of communication was either the phone or e-mail. But today Kumar, who managed the family-owned Total Industries' four divisions of battery, switchgear, consumer durables, and soaps, had to sit down to pen a letter. His father, and chairman of Total, Deepak Kumar, was away at his favourite ashram in Varanasi and was not due to return for another month-and-a-half.
Kumar wanted to bring his father up to scratch on the re-engineering taking place at Total and also seek his advice on a few problem areas. He had a lot to say, which is why he was writing and not calling his father up. Taking a sip from his cup of hot chocolate, Kumar began writing the missive.
It has been two years since we launched our change initiatives. The progress has been slow, but the gains have been steady. A major pay-off has been the sharpening of our business focus. Thanks to our initiatives in quality, cost-reduction, and supply-chain management, all our divisions have become more efficient. It's only a matter of time before our profits show significant improvements. You'd be happy to know that employee morale is at an all-time high.
We had an executive committee meeting on Monday, and a new issue has come up. Vinod Rao, who heads our HRD at the corporate level, said that this was the right time to put in place an appraisal system that is in tune with the organisation's new imperatives. I am inclined to agree. Identifying new performance measures and linking them with a system of rewards could be critical to sustaining our change momentum.
''Switchgears president, Manoj Kohli, felt that our existing appraisal system was not tuned to the changes taking place. There are several loose ends that need to be tied up, he said. A valid point. Others felt that any new appraisal system should be confined to our supervisors and managers (who roughly number 350). The point being that there are already adequate productivity-linked incentives for the 1,600 shopfloor and frontline employees. Similarly, the senior management has its annual goals and bonuses. The grey area appears to be the middle management and administrative staff. How do we quantify their work and establish a reward system?
''Like so many other things, dad, I think our current dilemma is a result of our organisation's non-competitive legacy. For many years, until the mid-80s, Total Industries enjoyed an assured demand for its products. We sold whatever we produced. In fact, almost everything was predictable. Even increments for our seven grades of employees were between 15 and 18 per cent of their basic salary.
''By the early '90s, when the market became more competitive, we realised that the peanut-butter approach would not work. Rewards for high achievers had to be bigger than those for the others. It was then that you had approved a trait-based appraisal system. Every one above the supervisory cadre was evaluated on five traits: commitment, communication, responsibility, integrity, and intelligence. Carried out by the immediate boss, trait-based evaluation became the basis for deciding the quantum of increments and promotions. It was a vast improvement over the peanut-butter system, as it was more performance-centric.
''But at the end of the year, problems surfaced. I am sure you remember the bitter departure of Neeraj Solanki from the Durables Division. He said his appraisal was too subjective, and Srikant Suresh, the division's president, who was then his immediate boss, denied any bias. Although Solanki's was the only departure over appraisal gone bad, there was discontent company-wide.
''In 1996, I managed to convince you to try out a new appraisal system: the Pay-for-Performance Plan. Called Triple P, it was applicable to all categories above the supervisory level. We identified between five and eight key result areas (KRAs) for each of the seven grades. This provided a broad framework of appraisal within which individual goal-setting was done jointly by the appraiser and appraisee. The idea was to get the focus on individual performance.
One of the things I like about Triple P is that the goals are meant to be specific, measurable, achievable, realistic, and time-bound (smart). However, it has not always been possible to articulate the intangible areas of results. I am sure you remember the odd case of Naresh Dutt. When he was in the Durables Division, he got a rating of eight on a scale of 10, meaning outstanding. But when he finished his first year of transfer at the Batteries Division, his immediate boss gave him a score of five for the same attribute of organisational skills.
''When personnel department probed the apparent oddity, it was found that at durables he was rated on his skills in organising projects, whereas at batteries, they rated him on his skill in organising staff roles and responsibilities. That's when we learnt that problems occur when the skills underlying each attribute are not clearly defined. Moreover, it was important to document and communicate all expectations from a particular role in order to avoid ambiguity.
''Despite its limitations, Triple P has led to a dramatic shift in the result -orientation of managers and supervisors. It is evident in our financials, in our market shares, and in our employee-retention rate. But the point is, what next? Does it meet our requirements? Is it in tune with our vision of being among the top three players in each business, and our strategy of securing customer satisfaction through the value-for-money route? Do let me know what you feel.
Meanwhile, our executive committee meeting threw up some interesting ideas. Guneen Roy, who heads the Soaps Division, put the discussion on a different plane by saying that Triple P does not provide for a holistic approach. He said that we should fine-tune it by adding two more components. Besides reviewing the performance on smart goals, we should include self-review and counselling. As he explained, the self-review would be an individual's assessment of the contribution he could make and the role he could play in the company over the next five years. And, as part of the counselling, the immediate superior would be required to conduct a feedback session with the subordinate and advice him, if necessary, on areas of improvement. Based on that, a three-year training calendar would be drawn up.
''The others were equally keen that any changes in the evaluation system should pre-empt bias. Srikant Suresh made a good suggestion. He said that evaluation should not be a one-off affair. Rather, it should be an ongoing process that is seamless. It is only then, he noted, that you take fear and apprehension out of the system.
''But then, how do you institutionalise an evaluation process? Frankly, I don't know. But what I know for sure is that people generally hate assessment, irrespective of whether they are on the receiving or giving end. Some people feel uncomfortable sitting in judgements over others. But most hate being judged by others.
''That's when Roy came up with the idea of a 360-degree appraisal. Such a system would allow every manager at Total Industries to be appraised by his subordinates, peers, and other internal customers. Predictably, there was immediate unease at the suggestion. Manoj Kohli (President of Switchgears) pointed out that Grey Engineering, which is our nearest competitor in switchgears, had introduced 360-degree appraisal last year. However, instead of ensuring fairplay, the system had made managers feel paranoid about assessment by subordinates. Besides, there were reports that many of those who scored high on routine performance review, received low scores under 360-degree appraisals.
''I think the main reason for apprehension, as far as our people are concerned, is that the managers receive the score in numericals without knowing the identity of the scorers. The system does not allow face-to-face encounter with subordinates who provide a negative assessment. However, I don't see why anyone should be wary of 360-degree findings. After all, it is not the sole determinant of managerial capabilities. It is only an indication of capability.
''A few of them seemed to agree with me. Rao spoke for me when he said that performance in terms of meeting smart goals will get a higher rating of 85 to 90 per cent in the final evaluation. As for anonymity in the appraisal system, I am determined to guarantee it myself.
''But tell me, dad, do you think we are on the right course? How should we institutionalise a fair and accurate appraisal system? And how should we enhance objectivity in the system?
Your son, Abhi.''
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