Drawbacks of Performance Appraisal

A number of criticisms have been raised against the performance appraisal system. This paper will categorize these criticisms in the following categories: Biased appraisal; Focuses on the past; Inconsistency; Individualistic oriented; subjective; Limited definition of a human being; master-servant relationship and inconsistency.

Biased Appraisal

Managers and employees dislike and distrust performance appraisal system. They believe that the system is unfair (Mulins, etal (1994). Their beliefs might actually be not far from the truth, especially since the performance appraisal is susceptible to the following biases: halo effect, primacy –recency effect; central tendency and nepotism and other form of discrimination.
An appraisal is dubbed biased if its results are influenced not by the performance measured, but by other external factors. Such external factors in this regard, include:

Halo effect

The Halo effect can be defined as the decision that is influenced by one factor that either interests or frustrates the appraiser the most. It can also be caused by the appraiser’s stereotypes, attitudes and beliefs. For example, appraisers who beliefs that employees who leave the office late everyday are hard workers tend to rate an employees they see everyday leaving work four hours later as high fliers in performance. Those appraiser that believe that employees whose heads are dreadlocked are stubborn tend to rate all dreadlocked employees low on obedience and responsive to instructions.

Halo effect can also be caused by the rater basing his total rating of an employee on one job behavior that annoyed him and fascinated him the most. For example an electrician who blew up the Koepe Hoist fuse one day is rated very low on job performance simply because the appraiser was summoned to the General Manager for an explanation on that day.

Primacy –Regency effect

This is the tendency by human mind to remember the events that took place first and last in a series of different activities. This tendency affects performance appraisal system when managers tend to remember job related events that took place either at the beginning of the appraisal period or at the end (or both) but forget events that took place in the middle of the period. The appraiser goes on to make a conclusion based on those events he can remember and not taking into account other important events. It is particularly unfair for an employee who excelled through out the year but failed terribly on a task he was assigned by the appraiser towards the end of the appraisal period. Under the influence of recency effect, this employee is marked very low.

Performance Appraisal Data

Uses of Performance Appraisal Data

Data obtained from performance appraisal can be used for many purposes including the following:

Remuneration; Training and Development and Promotions

Performance related pay system fosters hard work. The more output one produces, the more money he gets. Employees tend to work extra hard to beat targets and even goes beyond so that they can afford a decent living from a relatively high income.

However, a performance related pay works well in an environment where the output can be traced systematically and easily to one person. Where a number of people work on one output, it becomes difficult to measure each member’s input. Thus the rewarding system becomes subjective, if not unfair, to other employees. This system also encourages individualistic behavior at work. Each member tend to want to maximize his time doing a task related to his appraisal and has no time for assisting and advising other fellow employees.

Training

Performance appraisal forms in many organizations have provision for the appraiser to sight training needs of the employee so that he can close the performance gap. When the appraisal form has been completed, it is taken to Human Resources/ Training and Development department who will in turn compile a list of the training needs for all employees and organize training as required.

Promotion

Promotion that results from a performance appraisal is a sign of appreciating one’s work by giving him a higher position of authority than the one he / she currently holds. For example, if performance appraisal reveals that a Miner who always achieves his targets, the Miner is then promoted into Mine Manager’s position. This style of promoting employees seeks to motivate employee to work hard so that they can also earn promotions.

However, promotions that stem solely from the results of performance appraisal tend to raise more questions than answers. Is the employee ready for the new appointment, in terms of skills and aptitude? Was the employee’s target results a direct results of his own performance or many others were involved? What is the relationship between the appraiser and the appraisee? In an African culture appraisers tend to appraise their kith and kins more favorably so that they can attain higher positions. Lastly, how do the other employees feel about the promotion?

360-Degree Evaluation

360-Degree Evaluation

In a 360 degree performance appraisal system, an employee’s performance is evaluated by all the people he/she interacts with at the organization. This includes peers, supervisors, subordinates, customers, clients and the secretary (where one interacts directly with a secretary). This style is expected to bring a pool of results that can work to produce an objective average assessment.

However, 360-degree method is time consuming and difficult to implement. It is difficult to get all the parties around each employee to do an appraisal of an employee. The system has also a potential to create enmity within employees than foster the much wanted team spirit. Employees who are scored low tend to feel short changed and would seek revenge. Once there s discord at the workplace, production will be affected, morale goes low and the whole industrial relations are frustrated.

Management By Objectives

Management By Objectives

This is the most popular method of performance appraisal. This style entails the setting up of performance objectives agreed upon by both the appraisee and the appraiser. The appraisee’s performance will be managed against those objectives and hence his appraisal score will depend on the achievement of the objectives.

This method gives an employee a clear picture of what he or she is expected to achieve in his organizations. However, in many cases the performance appraisal system focuses more on the set objectives and little on how the employee will achieve them, that is, the tools and potential drawbacks. It also assumes like any other performance appraisal system, that an employee works like a machine that when given the specific dimensions and fed with inputs, the specific out put should come out. An employee has other factors that may cause him not to produce as per agreement

Performance Appraisal-Introduction

Performance Appraisal

Performance appraisal can be defined as a system of measuring employee’s performance relative to the assigned or agreed objectives. The process starts with the supervisor and or with the subordinate agreeing on specific objectives that need to be met on an agreed time period. The objectives that are used in the Performance appraisal stem from the main organizational objectives that are reduced to Departmental goals and now to individual goals. At the end of the agreed period such as six months or 24 months (differs with organizations), an employee’s performance is measured juxtaposed the agreed goals.

The appraiser who is the supervisor will be using a stipulated scale on which to score the appraisee’s (employee) performance attributes. See Figure 1.0 below for an example of part of an performance appraisal form.

Performance Development Plan Format

Performance Development Plan Format

Employee Name:
Position:
Department:
Reason for Evaluation: Quarterly / Other? __________________________
Job Description:
Performance Goals:

List the employee's most important work performance goals for the quarter.
Specific Duty / Goal / Tools Needed for Goal / Completion Date
A

dditional Tools or Training Needed:
Discussion and Measurement:
Personal and Professional Developmental Goals:

List the employee's most important personal and professional developmental goals for the quarter.

Specific Goal / How will we know it is being achieved? / Tools Needed for Goal / Completion Date
Additional Tools or Training Needed:
Discussion and Measurement:
Employee Comments:
Employee Suggestions for Supervisor or Departmental Development:
Date for Next Development Meeting: (Schedule quarterly.)
Employee’s Signature:
Date:
Supervisor’s Signature:
Date:

Preparation for the Performance Development Meeting

Preparation for the Performance Development Meeting

· Schedule the Performance Development Planning (PDP) meeting and define pre-work with the staff member to develop the performance development plan (PDP).
· The staff member reviews personal performance, documents “self-assessment” comments and gathers needed documentation, including 360 degree feedback results, when available.
· The supervisor prepares for the PDP meeting by collecting data including work records, reports, and input from others familiar with the staff person’s work.
· Both examine how the employee is performing against all criteria, and think about areas for potential development.
· Develop a plan for the PDP meeting which includes answers to all questions on the performance development tool with examples, documentation and so on.

Performance Development Process (PDP) Meeting

Performance Development Process (PDP) Meeting

1.Establish a comfortable, private setting and rapport with the staff person.
2.Discuss and agree upon the objective of the meeting, to create a performance development plan.
3.The staff member discusses the achievements and progress he has accomplished during the quarter.
4.The staff member identifies ways in which he would like to further develop his professional performance, including training, assignments, new challenges and so on.
5.The supervisor discusses performance for the quarter and suggests ways in which the staff member might further develop his performance.
6.Add the supervisor's thoughts to the employee's selected areas of development and improvement.
8.Examine job responsibilities for the coming quarter and in general.
9.Agree upon standards for performance for the key job responsibilities.
10.Set goals for the quarter.
11.Discuss how the goals support the accomplishment of the organization's business plan, the department's objectives and so on.
12.Agree upon a measurement for each goal.
13.Assuming performance is satisfactory, establish a development plan with the staff person, that helps him grow professionally in ways important to him.
14.If performance is less than satisfactory, develop a written performance improvement plan, and schedule more frequent feedback meetings. Remind the employee of the consequences connected with continued poor performance.
15.The supervisor and employee discuss employee feedback and constructive suggestions for the supervisor and the department.
16.Discuss anything else the supervisor or employee would like to discuss, hopefully, maintaining the positive and constructive environment established thus far, during the meeting.
17.End the meeting in a positive and supportive manner. The supervisor expresses confidence that the employee can accomplish the plan and that the supervisor is available for support and assistance.
18.Set a time-frame for formal follow up, generally quarterly.

Performance Management and Development in the General Work System.

Performance Management and Development in the General Work System.

· Define the purpose of the job, job duties, and responsibilities.
· Define performance goals with measurable outcomes.
· Define the priority of each job responsibility and goal.
· Define performance standards for key components of the job.
·Develop and administer a coaching and improvement plan if the employee is not meeting expectations.

Performance Management System

Performance Management System

How many supervisors feel their time is well-spent professionally to document and provide proof to support their feedback - all year long? Plus, the most important outputs for the performance appraisal, from each person's job, may not be defined or measurable in your current work system. Make the appraisal system one step harder to manage and tie the employee's salary increase to their numeric rating.

If the true goal of the performance appraisal is employee development and organizational improvement, consider moving to a performance management system. Place the focus on what you really want to create in your organization - performance management and development. As part of that system, you will want to use this checklist to guide your participation in the Performance Management and Development Process. You can also use this checklist to help you in a more traditional performance appraisal process.

In a recent Human Resources Forum poll, 16 percent of the people responding have no performance appraisal system at all. Supervisory opinions, provided once a year, are the only appraisal process for 56 percent of respondents. Another 16 percent described their appraisals as based solely on supervisor opinions, but administered more than once a year.

If you follow this checklist, I am convinced you will offer a performance management and development system that will significantly improve the appraisal process you currently manage. Staff will feel better about participating and the performance management system may even positively affect - performance.

Preparation and Planning for Performance Management

Preparation and Planning for Performance Management

Much work is invested, on the front end, to improve a traditional employee appraisal process. In fact, managers can feel as if the new process is too time consuming. Once the foundation of developmental goals is in place, however, time to administer the system decreases. Each of these steps is taken with the participation and cooperation of the employee, for best results.

The Performance Management Cycle

The Performance Management Cycle

The Performance Management is a process and cyclical in nature, consisting of four critical phases, namely monitoring, coaching, supporting and recognizing employee performance.

1. Monitoring - the performance management policy will be reviewed every two years to assess its effectiveness. Equity and parity of treatment shall be demonstrated by regular reports, detailing rewards, where relevant information is made available. Transparency and fairness shall be monitored and action taken where issues emerge.

2. Coaching - work is interesting and challenging when employees are informed about organizational goals. Recognition shall be given for good performance as well as opportunities for professional development. By employing effective coaching skills, managers shall apply skills like informing, listening, observing and giving constructive feedback.

3. Supporting - the company shall focus on developing employees to meet their full potential. It shall record the development needs of each employee. The aims and objectives of the company shall be aligned to the development needs of each employee, thereby achieving both employee and organizational goals.

4. Recognition - the company shall acknowledge and reward an employee for good performance. This shall be done in the form of appreciation, institution of an award system, promotion as well as opportunities for professional development.

Key Performance Indicator (KPI)

Key Performance Indicators
KPIs (Key performance indicators)

Definition: KPI are quantifiable measurements, agreed to beforehand, that reflect the critical success factors (of the company, department, project.)

Also Known As: Key Performance Indicators, Key Success Factors, KSIExamples: One of the Sales Department's KPIs is number of new customers and the goal for the second quarter is 5 per salesperson.

A KPI defines itself, to a large extent, by its name; it is a performance indicator, i.e. the performance of the process it is measuring should be clearly indicated by the KPI.In fact, among all the tools available to executives to change the organization and move it in a new direction, KPIs are perhaps the most powerful.

KPIs focus employees' attention on the tasks and processes that executives deem most critical to the success of the business. KPIs are like levers that executives can pull to move the organization in new and different directions. Without KPI an organization will not perform to its maximum.

There are two major types of KPIs: leading and lagging indicators. Leading indicators measure activities that have a significant effect on future performance, whereas lagging indicators, such as most financial KPIs, measure the output of past activity.To do this, leading indicators either measure activity in its current state (i.e., number of sales meetings today) or in a future state (i.e., number of sales meetings scheduled for the next two weeks), the latter being more powerful because it gives individuals and their managers more time to influence the outcome.

Characterstics of a good KPI

KPI is always connected with the corporate goals
A KPI is decided by the management
It belongs to an individual who is accountable for its outcome
They are leading indicators of performance desired by the organization
Easy to understand
A KPI leads to action
Few in number
It should be balanced not undermine each other
Users can gauge their progress overtime
KPI’s loses its value overtime so they must be periodically reviewed and refreshed

A KPI is associated with a specific process and is generally represented by a numeric value.

A KPI may have a target and allowable margins, or lower and upper limits, forming a range of performance that the process should achieve. A KPI can be thought of as a metric with a target. An example of a simple KPI is: Average time for response to a customer inquiry is less than two days.

As more detailed example, say that an organization sets the following business objectives:

*Orders must be processed within three days compared to the current average of five days

*Average amount of an order must increase by 10%

*Average order amount KPI: For the Customer Order process, track the average amount of each order

KPIs can be made up of one or more metrics. The calculated results of the metrics during process monitoring are used to determine whether the target of the KPI has been met. For example, tracking the average time to shipment might include the following metrics:

*Elapsed time for order completion
*Elapsed time for order approval
*Number of orders received
*Working duration of each task in the process
*Percentage of orders automatically approved

What is Job Analysis

Job Analys is breaking down the complexity of a person's job into logical parts such as duties and tasks. It identifies and organizes the knowledge, skills, and attitudes required to perform the job correctly. This is accomplished by gathering task activities and requirements by observation, interviews, or other recording systems.

Job analysis produces the following information about a job:

* Overall purpose ‑ why the job exists and, in essence, what the job holder is expected to contribute.

* Content ‑ the nature and scope of the job in terms of the tasks and operations to be performed and the activities to be carried out ‑ ie the processes of converting inputs (knowledge, skills and abilities) into outputs (results).

*Key result areas ‑ the results or outcomes for which the job holder is accountable.

*Performance criteria ‑ the criteria, measures or indicators that enable an assessment to be carried out to ascertain the degree to which the job is being performed satisfactorily.

Responsibilities ‑ the level of responsibility the job holder has to exerciseby reference to the scope and input of the job; the amount of discretion allowed to makedecisions; the difficulty, scale, variety and complexity of the problems to be solved; the quantity and value of the resources controlled; and the type and importance of interpersonal relations.

* Organizational factors ‑ the reporting relationships of the job holder, ie to whom heor she reports either directly (the line manager) or functionally (on'matters concerning specialist areas, such as finance or personnel management); the people reporting directly or indirectly to the job holder;and the extent to which the job holder is involved in teamwork.

Environmental factors ‑ working conditions, physical, mental and emotional demands, health and safety considerations, unsocial hours,mobility, and ergonomic factors relating to the design and use of equipment or work stations.

Methods of Job Analysis

Several methods exist that may be used individually or in combination. These include:

• review of job classification systems

• incumbent interviews

• supervisor interviews

• expert panels

• structured questionnaires

• task inventories

• check lists

• open‑ended questionnaires

• observation

• incumbent work logs

A typical method of Job Analysis would be to give the incumbent a simple questionnaire to identify job duties, responsibilities, equipment used, work relationships, and work environment. The completed questionnaire would then be used to assist the Job Analyst who would then conduct an interview of the incumbent(s). A draft of the identified job duties, responsibilities, equipment, relationships, and work environment would be reviewed with the supervisor for accuracy. The Job Analyst would then prepare a job description and/or job specifications.The method that you may use in Job Analysis will depend on practical concerns such as type of job, number of jobs, number of incumbents, and location of jobs.

Job Analysis should collect information on the following areas*

• Duties and Tasks The basic unit of a job is the performance of specific tasks and duties. Information to be collected about these items may include‑ frequency, duration, effort, skill, complexity, equipment, standards, etc.

• Environment This may have a significant impact on the physical requirements to be able to perform a job. The work environment may include unpleasant conditions such as offensive odors and temperature extremes. There may also be definite risks to the incumbent such as noxious fumes, radioactive substances, hostile and aggressive people, and dangerous explosives.

• Tools and Equipment Some duties and tasks are performed using specific equipment and tools. Equipment may include protective clothing. These items need to be specified in a Job Analysis.

• Relationships Supervision given and received. Relationships with internal or external people.

• Requirements The knowledges, skills, and abilities (KSA's) required to perform the job. While an incumbent may have higher KSA's than those required for the job, a Job Analysis typically only states the minimum requirements to perform the job.

Key Result Area (KRA)

KRA (Key Result Area) is the set of activities on which our performances are rated.actives which have impact on the bottom line of business.

Key Result Area in simple Terms may be defined as Primary responsibilities of an Individual. The core area which each person is accountable. KRA's varies from Individual to Individual. Employees are predominantly appraised on their mutually agreed KRA's.

KRA' are always developed after the definition of "Job Purpose". Job purpose is understanding the requirement for the job.

To elucidate some eg. of KRA's for some Generic roles- KRA's of a HR manager may be - Staffing.Training and Development.Compensation Planning and Administration.Statutory Compliance. etc...

KRAs ===Key Result Areas “Key Result Areas” or KRAs refer to general areas of outcomes or outputs for which a role is responsible. A typical role targets three to five KRAs.

Value

Identifying KRAs helps individuals: · Clarify their roles · Align their roles to the organisation’s business or strategic plan · Focus on results rather than activities · Communicate their role’s purposes to others · Set goals and objectives · Prioritize their activities, and therefore improve their time/work management · Make value-added decisions

Description

Key result areas (KRAs) capture about 80% of a work role. The remainder of the role is usually devoted to areas of shared responsibility (e.g., helping team members, participating in activities for the good of the organisation).

KRA provides the management with a tool and a process to measure the performance of people practices and the HR function from multiple perspectives:

1. Strategic Perspective — the results of strategic initiatives managed by the HR group. The strategic perspective focuses on the measurement of the effectiveness of major strategy-linked people goals. For instance, the business strategy called for major organizational change programs as the business faced major restructuring and multiple mergers and acquisitions. In this context, the organization’s change management capability will be a key factor in the success or failure of its execution. Therefore, measuring the ability of the business to manage change effectively is the core measure of the effectiveness of HR and will be a key strategic contribution to the future success of the business.

2.Operational Perspective — the operational tasks at which HR must excel. This piece of the Balanced Scorecard provides answers to queries about the effectiveness and efficiency in running HR processes that are vital to the organization. Examples include measuring HR processes in terms of cost, quality and cycle time such as time to fill vacancies.

3.Financial Perspective — this perspective tries to answer questions relating to the financial measures that demonstrate how people and the HR function add value to the organization. This might include arriving at the value of the human assets and total people expenses for the company. HR

4.Customer Perspective — this focuses on the effectiveness of HR from the internal customer viewpoint. Are the customers of HR satisfied with their service; are service level agreements met; do the customers think they can get better service elsewhere? Conducting an HR customer survey might typically arrive at this.

MBO Disadvantages

MBO methods of performance appraisal can give employees a satisfying sense of autonomy and achievement. But on the downside, they can lead to unrealistic expectations about what can and cannot be reasonably accomplished.

The disadvantage is that MBO is very time consuming. The organization and the department have to be on the same page with respect to the goals that both are trying to achieve. It is also a very time-consuming process to come up with goals for each individual employee. MBO also doesn’t work well for employees who have little discretion over how their jobs are performed.

Supervisors and subordinates must have very good "reality checking" skills to use MBO appraisal methods. They will need these skills during the initial stage of objective setting, and for the purposes of self-auditing and self-monitoring.

Unfortunately, research studies have shown repeatedly that human beings tend to lack the skills needed to do their own "reality checking". Nor are these skills easily conveyed by training. Reality itself is an intensely personal experience, prone to all forms of perceptual bias.

One of the strengths of the MBO method is the clarity of purpose that flows from a set of well-articulated objectives. But this can be a source of weakness also. It has become very apparent that the modern organization must be flexible to survive. Objectives, by their very nature, tend to impose a certain rigidity.

Of course, the obvious answer is to make the objectives more fluid and yielding. But the penalty for fluidity is loss of clarity. Variable objectives may cause employee confusion. It is also possible that fluid objectives may be distorted to disguise or justify failures in performance.

Critics of the method say that it makes managers penalize a good, but not great employee who’s part of a superstar team, but a mediocre employee on a struggling team can come out looking great. “In many cases, the lowest performer might not be that much lower than the highest,” says Paul Spector, a professor of industrial psychology at the University of South Florida.2 “Intel has been targeting the weakest performers for so long now that there are no weak performers left—only good solid workers who are now being given unattainable goals and therefore being terminated,” says Ken Hamidi, spokesman for FaceIntel, a pressure group made up of current and former Intel employees.

Another criticism is that the method is a way for companies rationalize firings. “Good managers should have the capability to make these difficult decisions without a system forcing it on them,” says Chris Michalak, who designs appraisal systems at Towers Perrin. Jack Welch, CEO of GE, in his latest message to stockholders said that “Not removing that bottom 10%…is not only a management failure but false kindness as well.” This year Sun Microsystems will use a forced—ranking system to identify its worst performing 10%, who will be given 90 days to shape up, find another job inside Sun, or be fired.

MBO and IT Projects

Management by Objectives and IT projects

So what does MBO and IT projects have to do with each other?
Recently, I was fortunate enough to participate in a round table discussion with a group of CIOs whose focus is to identify novel approaches to improve the success of IT projects. The premise of the group is that despite capable people, strong project management methodologies and good technologies, IT still does not have a good track record in delivering projects that work, on time and on budget.

One of the key themes of the discussion was the importance of establishing objectives for the IT project in business terms. The IT project's objectives can include productivity and efficiency, reduced wastage or faster time to respond to changing market conditions.
The premise is that by establishing business objectives for your IT project, it will be more successful because the project can be measured against the objectives. It seems sensible enough, but does it work?

What about the business objectives? What can we measure during the IT project that will determine of the project is going to meet the business objectives set out earlier?
If your project is about infrastructure (such as new server, faster network connections), then the business objectives can be readily measured because you're generally replacing slower infrastructure with faster infrastructure. All things being equal, this should result in faster system performance meaning people don't have to wait for the system to 'catch up' while they’re doing their job.

But what if your project is a business productivity application? How can you measure the productivity, efficiency and reduced wastage during application design and development? You cannot.

There is nothing we can measure related to business objectives during the traditional design and development process. Why is that? The only way to measure the business objectives is by having people use the new application to see if it works as intended. Unfortunately you need to wait until it's nearly finished — that is, when you put the user interface on it and people can begin to use it.

Unfortunately, traditional development practices only get to the user interface at the half-way mark, or later, in the software development lifecycle. Therefore, you must spend at least half of your budget before you can tell if you're going to meet your business objectives.

I think you can see the advantage of being able to measure, early on, whether your $100 million IT project will deliver on its business objectives well before the half way mark.

Successfully managing your IT projects with MBO

In order to use MBO in your IT project, you must rethink how you approach development. If you want to measure how well your project meets business objectives, then you must design and develop your IT project in a way that creates the right deliverables at the right time. Without the right deliverables, you cannot measure its performance.

In order to measure how well your IT project is meeting business objectives, as you go, you need something to measure. Generally, you need to measure people's performance using the application to see if the transaction time has been reduced and the training time reduced.

You therefore need to design and prototype the user interface first, before you do anything else. Why? The user interface is the only thing people will ever see of your new application. With it, you can precisely determine:

How long it takes people to perform a transaction
How long it takes people to learn the new user interface
Whether you have reduced wastage in people's activities
Whether double handling has stopped in people's activities

Organisational performance is clearly related to how well people are able to perform their jobs. Their performance, in the aggregate contributes to team and department performance indicators, and ultimately corporate objectives.

You need to measure the performance of people using the application as early as possible in order to ensure that you can take corrective action on the IT project to meet its business objectives.

You can have the best, fastest technology in the world, but if people cannot use it to do their jobs effectively, then it is, in fact, not the best technology in the world.

Advantage of MBO

Management by Objective is an important performance tool. It has certain Advantage.

1.MBO helps and increases employee motivation because it relates overall goals to the individual goals and helps to increase an employee's understanding of where the organisation is and where it is heading.

2.Manager are more likely to complete with themselves than with others managers.This kind evaluation can reduce internal conflict that often arise when manager compete with each other to obtain scarce resources.

3.MBO results in a "Means Ends" Chain.

4.MBO reduce the conflicting and ambiguity.

5.MBO provides more objective appraisal criteria.

6.MBO forces and aids in planning.By forcing top management to establish a strategy and goals for entire organisation.

7.MBO identifies problem better and early.

8.MBO helps the individual manager to develop personal leadership,especially the skills of listning,planning,counselling,motivation and evaluation.

9.MBO pragramme takes a great deal of time,energy and form.

10.Clarity of goals –With MBO, came the concept of SMART goals i.e. goals that are:

Specific Measurable Achievable Realistic, and Time bound.

11.The focus is on future rather than on past. Goals and standards are set for the performance for the future with periodic reviews and feedback.

12.Motivation – Involving employees in the whole process of goal setting and increasing employee empowerment increases employee job satisfaction and commitment.

13.Better communication and Coordination – Frequent reviews and interactions between superiors and subordinates helps to maintain harmonious relationships within the enterprise and also solve many problems faced during the period.

Objective of MBO

In Management by Objectives (MBO) systems, objectives are written down for each level of the organization, and individuals are given specific aims and targets. "The principle behind this is to ensure that people know what the organization is trying to achieve, what their part of the organization must do to meet those aims, and how, as individuals, they are expected to help. This presupposes that organization's programs and methods have been fully considered. If they have not, start by constructing team objectives and ask team members to share in the process."

"The one thing an MBO system should provide is focus", says Andy Grove who ardently practiced MBO at Intel. So, have your objectives precise and keep their number small. Most people disobey this rule, try to focus on everything, and end up with no focus at all.

Management by objectives can improve the performance of an organization by transforming an organization’s goals into personal goals.

For Management by Objectives (MBO) to be effective, individual managers must understand the specific objectives of their job and how those objectives fit in with the overall company objectives set by the board of directors. "A manager's job should be based on a task to be performed in order to attain the company's objectives... the manager should be directed and controlled by the objectives of performance rather than by his boss."

Personal goals are determined by their contribution to the objectives of the whole organization. And each person knows how his contribution is combined with the contributions of others to reach the objectives of the organization.

Consider the story of the three stonecutters who were asked what they were doing. The first replied, “I am making a living.” The second kept on hammering while he said, “I am doing the best job of stonecutting in the entire county.” The third one looked up with a visionary gleam in his eyes and said, “I am building a cathedral.”

The third stonecutter is a “manager”: he relates his contribution to the goals of his organization. The first stonecutter knows what he wants to get out of the work and manages to do so. He is likely to give a “fair day’s work for a fair day’s pay.”

It is the second stonecutter who could be a problem. He may believe that he is accomplishing something when in effect he is just polishing stones. Workmanship must always be related to the needs of the whole organization — the craft is not an end in itself. The craftsman must see the organization as a whole and understand what it requires of him.

Management by objectives (MBO) can improve performance by converting an organization’s needs into personal goals.

How do you implement MBO? (Short Version)

In Jim Pitkow’s words:

“I’ve just done them based upon having the employee do a bottom’s up (they typically require some structuring to get started) and then rationalizing them against the corporate goals, which the CEO tends to set in cooperation with the Board… probably makes sense to have management try it first to figure out what works for the team and then use that as a model for the rest of the company.”

How do you implement MBO? (Long Version)

What should an individual’s objectives state? Objectives can state
The objectives of the individual’s group.
The contributions the individual is expected to those objectives.
The contributions the individual is expected to make to help others obtain their objectives.
The contributions the individual can expect to receive from others towards the attainment of his own objectives.
Individual development objectives.

It may also be helpful for the individual to list obstacles in himself and others that may prevent him from reaching his goals.

Who should set the objectives? Each individual should set his objectives himself in relation to his group’s objectives. Each individual should also participate in the development of his group’s objectives and assent to them.

How should achievement be measured? An individual should measure his own performance against his objectives. He should receive and prepare measurements soon enough to make any changes necessary for the desired results. Measurements should go to the individual first, not his superior. Management by objectives is a tool for self-control, not a tool for control from above.
How should goals be achieved? Individuals should decide how to reach their personal goals. It should be clearly understood what the organizations bars as unsound. But within these limits, every individual should be free to decide what he has to do.

MBO Process

MBO is a system of systematic planning of what needs to be executed in the short term to implement the most effective action to take advantage of opportunities and to achieve the goals of the sales department and of the organization. After Peter Drucker introduced the phrase management by objectives (MBO) in 1954 his book, The Practice of Management, American businesses began embracing the notion with what often amounted to evangelical dedication, and during the 1960s and 1970s MBO was the most fashionable of all management practices.

Many companies adopted some form of MBO, which, as Drucker originally proposed, asks managers to focus on results, or outputs. However, MBO has fallen into disuse and many original MBO systems have been altered past recognition and usefulness. What has happened to such a strong concept? Has MBO proven not to be as effective as first hoped? Has MBO failed? Management experts in consulting firms, in business, and in the academic community are in general agreement that the problems with MBO stem from the users, not from the system, which is still regarded as one of the best, most effective, theoretical management practices ever conceived. The two biggest problems with MBO are lack of clear understanding of MBO procedures and hasty, inadequate implementation.

Management by objectives can work in any size organization if the procedures are understood and managers are patient in letting the system be accepted. First, MBO is an effective strategic planning and execution system; it is not an effective performance evaluation or reward system. Second, MBO is a bottom-up, process-oriented and team-oriented planning system, not a top-down command-and-control system.

Goals are defined as being relatively few and long-term in their focus. Objectives are defined as being relatively more numerous and short-term in their focus. The most important thing to remember about objectives is that the critical few are the ones to concentrate on. The critical few are the 20% of the objectives that will produce 80% of the results. One of the biggest problems many organizations have with MBO is that they set too many objectives, especially too many trivial ones. Set only those objectives that a unit or team can get their arms around—five to seven maximum—five is best. Also, remember that objectives are working tools, not public-relations statements designed to impress people. You cannot set effective objectives if you don’t have a “systematic way of exposing reality and acting on it.”

The first phase of the MBO process is planning in order to identify the critical few key result areas that will produce the vast majority of results. Some examples of key result areas for a sales department are:

High prices relative to the competition.
Share of advertising revenue
Revenue growth
Staff development and training

Steps in the MBO Process

Describe roles and missions: “who does what?”

Define key result areas.

Identify indicators of effectiveness: “what is good performance?”

Set objectives with a bottom-up process described above: “To (action verb) (single key result) by (target date) at (cost, if appropriate).” EXAMPLE: “To increase average spot prices 15% by the end of the second quarter at current expense levels.”

Decide on task-oriented and process-oriented action plans.

The team monitors progress: information, reports, conversations, communication (constant, open, and informal).

Communication is the grease for the MBO wheel, it keeps everyone running smoothly. Teams must continually communicate to everyone (management included) progress toward achieving its objectives, and management must communicate with everyone how the organization is doing in meeting its objectives by using newsletters, wall charts, memos, and departmental meetings, for example.

Everyone evaluates results (management and teams), make necessary adjustments, and set new objectives. MBO must be a continuous process; it must be part of an on-going system. Leave out a step and the system breaks down. Team and individual performance coaching is an integral part of the system. MBO cannot work on just a macro level, it must be managed on a micro level and involve everyone in the process. Everyone must know what the overall objectives of the organization are and what the organization's department and teams' goals are.

Finally, the objectives in an MBO system must be inextricably linked to an organization’s mission statement. Every objective must help accomplish the overall mission and then managers must “manage to the mission.”