Impact of Performance Appraisal System on Employee

Research Background

The proposal for this research is regarding investigating the impact of existing performance appraisal on the development of employees system in L&T. Every company follows a method of performance evaluation. Performance appraisal process and evaluation is conducted with an aim to understand the level to which the employees of the company have achieved their targets. Performance appraisal is a periodical process whereby the supervisor observes his subordinate and reports his conclusions regarding the performance level at the end of each period.

The superiors retrospect and make it a point that the employees are evaluated suitably. There are various kinds of performance appraisal method. Companies follow various kinds of appraisal methods like 360 degree feedback system, MBO, BARS, Critical incidence methods etc. Performance appraisal in every sense caters to the company’s competitive advantage. The performance evaluation system helps the company retain its efficient employees; help the company to find out the areas were training needs to be provided; the company can also ensure that a common value system if followed. Thus aiding in complete development of the employees.

Performance evaluation process will help the employees do an evaluation of themselves and work for improvements if any. This will ultimately lead to the development of the organization (Bratton and Gold, 1994).Thus every company tries to investigate the level to which its employees have achieved their targets and if not what are the measures to be taken for their performance improvement. L&T follows the MBO model of performance appraisal in the company. MBO means management by objectives, in this kind of an appraisal process the superior and employee agree upon certain objectives. These objectives will be based on the overall target of the company.

In this kind of an appraisal process the employees know beforehand as to what they need to achieve in the particular period of time. In L&T since they follow this method the employees are aware of what is expected of them. In order bring specificity and quality to the process they performed the evaluation process based on SMART, which expands as “specific, measurable, attainable, realistic and time linked”.

Larsen & Toubro- Company Description

L&T is one of the largest construction companies in India. ECC is the Engineering Construction and Contracts Division which is a reputed construction division of L&T which has to its credit some of the monumental and modern buildings and constructions in India. The company not merely does the construction of buildings but also industrial structures, Flyovers and many more other large-scale construction works in India and abroad.

The company carries out various projects that use high end technology and expertise. The company has various divisions around the country i.e. almost 7 offices regionally and nearly 250 work sites. Apart from Construction L&T has various other businesses also, like the L&T Infotech and insurance. Under ECC division the company has various strategic business units like the transportation infrastructure, Industrial projects and utilities, buildings and factories etc.

The company employs a large number of people at managerial and non managerial level. Thus the company needs to have a well defined performance appraisal system. The company thus follows MBO method to evaluate it employees. The company has a well defined Human Resource Policy and system which enables the employees to work efficiently and effectively.

Rationale for the research topic

The topic “Investigating the impact of existing performance appraisal system on employee development of Larsen & Toubro, ECC division” was chosen with an aim to identify the performance appraisal process followed in one of the largest construction companies in India.

The research would help in analyzing the various performance appraisal problems in company like biasing etc.

The study will also lead to analyzing the effectiveness of the performance appraisal process in identifying and bringing out the core competencies and role clarity in the employee.

The research is meant to finally give recommendations and insights for the betterment of the performance evaluation in the company.

Literature Review

Armstrong in 2006 proposed that performance appraisal can be considered as an instrument to measure and utilize the technical skills and knowledge of employees in a better way as well as to equip them for facing the future challenges and goals. Performance appraisal can also be regarded as a method to obtain feedback about the performance effectiveness of employees in an organization (Szilagyi&Wallace 1990). A survey conducted by the CIPD (Chartered Institute of Personnel and Development) revealed that in the year 2005 almost 65% of organizations conducted annual appraisal for their employees. The companies which conducted appraisal twice a year accounted to 27%. From this it becomes clear that almost all organizations in the world now realize the importance of appraisal system.

Employees are considered as valuable assets by present day organizations since the scarcity of skilled labor is high. Companies try all ways to retain their skilled employees and an effective performance appraisal system helps to keep track on the KSA (Knowledge, Skills and Abilities) of employees (Amstrong and Baron, 2004). The companies now recognize the fact that only high performing employees could help it to achieve it short-term and long-term objectives (Michlitsch ,2000).

Edmonstone in 1996 stated that there exists many purposes for performance appraisal. This may include improving the communication between the superiors and employees with the help of feedback mechanism. This way it helps in building the rapport between the members of organization. Another purpose is that it helps to find out whether the employee lacks any skills and identify areas where he/she needs training. The standards kept for performance by the companies helps to identify those employees who need to be appraised and those who should be demoted.

Public and private sector companies follow different methods of appraisal that suits their organization structure. But Boice & Kleiner (1997) proposed that all successful appraisal methods have similar characteristics. But it’s difficult to measure performance in certain organizations and they face the difficulty of implementing an effective performance appraisal method. Marsden in 1999 explained that any appraisal system that cannot constantly measure job performance of employees cannot be regarded as effective.

There are several methods of appraisal followed by organizations. The most common methods include 360 degree feedback, Behaviorally Anchored Rating Scale (BARS), Management by Objectives (MBO), Balanced Score Card etc (Bohlander & Snell 1998)

The importance of communication in performance appraisal system was explained by O’Reilly and Anderson, (2006). They said that there should be an open communication between the employee and the superior. More they interact better would be the appraisal system. The manager could explain about the actual performance of employee and the expected performance. The method followed by L&T is also based on communication.

Appraisal method in L&T, Chennai

Larsen & Toubro has adopted the method of MBO (Management by Objectives). This method was first introduced by Peter Drucker in 1954. In this method, the superior and subordinate conducts a meeting in which they jointly sets the objectives of the employee for the next appraisal period (Bohlander & Snell 1998). The employee performance is evaluated on the basis on these pre-determined objectives. These objectives will be usually amount of sales, quantity of production etc. The organizational objectives are attained in this method with the help of a cyclical process. In this the management initially sets the objectives of organization followed by departmental objectives and finally individual goals. All these goals will be interconnected in such a way that fulfilling one of them will positively affect the other.

Caroll and Tosi explained that MBO must fit into the philosophical framework of an organization. This is due to the reason that the management attitude and MBO must go hand in hand. Merely giving support to MBO through words is not sufficient. Lussier in 2008 explained about the possible reasons for the failure of MBO. A major reason behind the failure of MBO method is many companies is absence of commitment and follow-up from the management. Another reason is that management fails to convince employees that they are also an integral part of the decision making process. Employees feel that all major decisions and goal-setting have been done by the management without consulting them. When this happens, the employees will be less committed to work for the management and meet the objectives. The autonomous and dynamic involvement of employees can be considered as the most significant contribution of MBO to the communication mechanism within the company (Roodman & Roodman 1973).

Singla (2009) has explained the features of MBO method.

All the activities included in this method are aimed at achieving the goals.

The individual, departmental and organizational objectives are interconnected.

Organization is considered as a dynamic entity in this method.

MBO compares the resources available with objectives and makes the best match.

This method is rather a philosophy or idea than a technique.

MBO emphasizes on performance review and appraisal.

The employees are given more autonomy in this method.

Outcomes are given more weightage than the job.

These features make the method of MBO unique from other methods of performance appraisal.

Research Question

One of the relevant questions that can be put forward in this context would be; what is the impact of performance appraisal system on employee development?

Certain other kinds of questions that can be asked as per the topic are the following:

Does the appraisal system aid in the performance improvement of the employee through proper training methods?

Does the appraisal process bring about a positive relationship between the employees and the superiors?

Is the appraisal process (MBO) followed in the company effective in utilizing the employ’s core competences for the betterment of the organization?

Does the appraisal process clearly define the roles of the employees?

Research Objectives

General objective

To investigate the impact of existing performance appraisal system on

employee development.

Specific objectives

To study the effect of performance appraisal system on employee

potential with respect to core competency.

To evaluate the issues related to the performance appraisal process in the company.

Methodology

7.1 Research design & design adopted

The research design includes the whole process of data analysis and study. This study follows a diagnostic research design where in the researcher identifies a problem related to the topic in the company. After diagnosing the problem the researcher goes on for an evaluation and ultimately finds a solution for the problem. The research design involves data collection through various means, after which the collected data is analyzed. The analysis will lead to giving solutions to the problem. The solutions obtained are recorded in the research as the result of the study.

7.2 Data Collection Methods

(a) Sampling methods

Sample is taken from the population of employees in L&T ECC. The sampling method that can be followed in this research work is simple random sampling. In this kind of probability sampling every person in the population has an equal chance of being chosen for the study. The employees who are involved in the performance evaluation process are taken for the study.

(b) Size of the sample

The sample size chosen for the study will be 100. The data collection is done with the help of these 100 individuals chosen through simple random sampling.

(c) Sampling Technique

Sampling technique is the means by which the researcher chooses his respondents. Every research or study has a planned sampling process wherein the researcher clearly identifies the sample individuals for his study. The samples chosen depend upon the topic of the study because the respondents play a crucial role in formulating a result for the topic as they are asked to respond to the researcher’s questions through questionnaires etc. In this research the respondents will include both the managerial level employees and also the non managerial employees, as both the groups are involved in performance appraisal process.

Questionnaire

Questionnaire is a structured form of data collection used in any research. The researcher includes all the important questions regarding the topic in the questionnaire. The respondents chosen using the sampling method are identified and given the questionnaire for response. The respondents will respond to the questions in the questionnaire which will help the researcher gain an idea about the problems in the company. In this research at L&T the researcher will be including questions related to the performance appraisal process and issues in the company, also the questions regarding employee development. The researcher can use this data for the purpose of drawing results for the problems identified.

Interview

The researcher may at times find it apt to collect data by interviewing the respondent. In such situations interview will be more useful compared to questionnaire. In case of this study the researcher can ask direct questions related to the performance appraisal method followed in the company. Interview method will give more precise answers as the interviewer can ask many questions on performance appraisal and also employee development compared to the questionnaire. The interviewer can ask questions related to the particular core competency of the employee. Interview can also include many suggestion questions as to what changes the employees would like to have in the process followed in the company. Telephonic interview can be done in this research.

Data Analysis

A research cannot be concluded with the help of a rough data. For a researcher to obtain the right kind of result for his study the researcher needs to formulate a method to analyze the data in the most suitable way. Thus data analysis part of the research is essential in the sense that it converts the raw data into a form that can be well understood. Data analysis in this study is done using SPSS which is a tool for data management. Data analysis refers to that stage in research process in which different statistical techniques are applied. One should have a clear understanding of statistical thinking behind a data analysing technique in order to explain it in detail (Ader, Mellenberg & Hand(2008).

Resource Requirements

The resources for the study need to be obtained from the library and also the internet. The relevant information on the topic can be collected using primary and secondary means. Resources of other forms include printed materials like magazines of the company and also other reports and journals, websites are also an important means or source of data collection. The researcher can obtain primary data by means of structured questionnaires and telephonic interviews. These resources will help the researcher in his research as they provide the base for the researcher to work upon.