Performance Appraisal System at Hewlett-Packard
Abstract
The paper presented a case study of a multinational company and its performance appraisal system. The focus of the report is on Management by Objectives, one of the most widely used performance appraisal system by companies around the world. As a performance appraisal system, MBO starts with job description and performance planning. MBO involves cooperation between the supervisor/manager and the employee. The performance plan created by the supervisor and the employee is then used in the performance evaluation process. The planning of performance is initiated from the top. Through the investigation conducted by the researcher, it has been found that MBO is an effective performance appraisal system. HP was able to use MBO to support the culture that it promotes and to encourage the employees to take initiative in performance planning. MBO Is an effective tool in empowering employees and making sure that they perform to their best ability. However, the researcher argued that relying on MBO alone is not a smart move. Like other performance appraisal systems, MBO has strengths and weaknesses. In order to make the performance appraisal process more effective, MBO must be used in conjunction with other performance appraisal tools. Also, the researcher presented methods and strategies in order to prevent problems and difficulties in performance appraisal.
Introduction
Hewlett-Packard is considered as one of the most successful companies in the world. Its operations extend to different countries and locations. Considered as one of the contributors to the company’s success is its unique culture – a culture that values innovation, development, and employee empowerment. The company’s culture, values and objectives can be summarized through its “HP Way” philosophy. One of the basic tenets of the HP Way is Management by Objectives. Management by Objectives has emerged as one of the more popular performance appraisal systems today. More and more companies are adopting this system of performance planning and evaluation. This report is about the performance management system at Hewlett-Packard. More specifically, it tackles and the performance appraisal system in the organization. The purpose of this paper is to identify the strengths and weaknesses of the current performance appraisal system at Hewlett-Packard and provide recommendations in order to prevent possible problems and make the system more effective and efficient.
Methods
This paper presents a case study of Hewlett-Packard, a multinational company. The focus of the paper is the company’s performance appraisal system. The information and data gathered came from secondary resources. The researcher made use of journal articles, books, other published materials and internet in the gathering of the relevant literature presented in this paper. The researcher chose secondary research as a research method because of its convenience and because the existing literature on the topic is wide.
The Case Context
In this section, the reader will be introduced to the case context. A brief information about the case study will be presented.
Hewlett-Packard
Hewlett-Packard (HP) is a technology solutions provider to consumers, businesses and institutions globally. The company’s offerings span from IT infrastructure, personal computing and access devices, global services and imaging and printing for consumers, enterprises and small and medium businesses.
The HP Way
The HP values, written by David Packard in 1989 are the centerpiece of the Hewlett-Packard Way. The HP Way and the company’s values are no different from other large companies. The difference lies in the seriousness with which values are treated as management tool. The central element in all activities in Hewlett Packard is the ‘HP Way’, a set of beliefs, objectives and guiding principles, and described by Bill Hewlett as the policies and actions that flow from the belief that men and women want to do a good job, a creative job, and that if they are provided with the proper environment they will do so. HP treats every employee with respect and everyone’s personal achievements are recognized (Peters and Waterman 1982 cited in Needle 2001). The HP way can be summarized as a combination of different concepts. These concepts are love of the product, love of the customer, innovation, quality, open communication, commitment to people, trust, confidence, informality, teamwork, sharing, openness, autonomy, responsibility (Needle 2001).
The HP Culture
Hewlett Packard has a pay-for-performance plan. In order to make this plan successful, the company embraces an organizational culture that embraces pay for performance. Such a culture emphasizes goal setting, rating and/or ranking of performance, and performance dialogue between supervisors and subordinates.
Hewlett Packard operates in more than 178 countries. The company has a performance-based culture. Employing more than 140,000 people, Hewlett Packard is known as a great place to work. The company values every employee from all levels and they are viewed as important individuals with unique ideas, skills, experiences and perspectives that they bring in their jobs. The employees are encouraged to share and express their ideas and skills. Hewlett Packard is an organization that provides employees with opportunities to learn grow, and develop their skills. Goal setting is an important process in the organization. In this process, the employees coordinates with their supervisors in setting up their individual development paths. Learning within the organization is intended to be flexible, fast and rewarding. The culture that Hewlett Packard has empowers people and allow them, to make the most of their skills, personality and career. Goal setting is also important in performance appraisal (Nelson and Quick 2006).
Current Practices
In order for the reader to have a clearer view of the case, it is helpful that the researcher presents a brief definition of the process of performance management and performance appraisal. These definitions will lay the foundation for the succeeding sections of this paper. In order to provide a foundation in the analysis of the performance appraisal system used by Hewlett-Packard, a brief background of performance management and performance appraisal is necessary. Performance management can be defined as the integration of performance appraisal systems with broader HRM systems as a means of aligning employees’ work behaviors with the organization’s goals. A performance management system consists of the processes used to identify, encourage, measure, evaluate, improve, and reward employee performance at work (Sims 2002a, p. 81). Performance management helps organizations sustain or improve performance, promote greater consistency in performance evaluation, and provide high-quality feedback. Performance management helps organizations link evaluations to employee development and to a merit based compensation plan. It forms a basis for coaching and counseling, permits individual input during the evaluation process, and allows for a blend of qualitative and quantitative evaluations. Performance management provides a process that helps manage employee expectations of job demands and factors that reveal how well the job is done (Kissler, 1991 cited in Gilley & Maycunich 2000). Performance management is an outgrowth of management controls whose purpose is to ensure that work is progressing according to the organization’s plans. Performance management according to Snell (1992) is the principal set of practices by which control is manifested in organizations. Control is defined as any process that is used to align the actions of individuals to the interests of the organization (cited in Gratton, et al, 1999 p. 60). Controlling is the management function concerned with monitoring performance to ensure that it conforms to plans. Control is accomplished by comparing actual performance with predetermined standards or objectives and then taking action to correct any deviations from the standard (Sims, 2002a). The three basic requirements of the control process are:
- Establishing performance standards – Standards are used to set expected performance levels for machines, tasks, individuals, groups of individuals and the organization as a whole.
- Monitoring performance and comparing it with those standards – The primary purpose of monitoring performance is to provide information on what is actually happening in the organization.
- Taking necessary corrective actions – Corrective action can be taken after the actual performance has been assessed and compared with performance standards.
As part of the control process, the purpose of performance management is to make sure that employee goals, employee behaviors used to achieve those goals, and feedback of information about performance are linked to the organizational strategy (Sims, 2002a).
Performance appraisal is the process by which an employee’s contribution to the organization during a specified period of tine is assessed (Sims, 2002b). Performance appraisal is integral to the successful operation of most organizations. During this process, employees are evaluated formally and informally to determine the nature of their contributions to the organization. Appraisal occurs during time periods and in meetings that are scheduled to produce reasoned consideration of contributions, but it also occurs informally as employee contributions are observed, or when an evaluation is brought to the attention of others (Dickinson, 1993).
Performance appraisal is treated as an evaluation and development tool, as well as a formal legal document. Appraisals review past performance – emphasizing positive accomplishments as well as deficiencies and drafting detailed plans for future development. The performance evaluation also serves a vital organizational need by providing the documentation necessary for any personnel action that might be taken against an employee (Sims, 2002b).
Performance Appraisal at HP
Management by Objectives
The activities of HP employees were guided by a comprehensive system of management by objectives (MBO). The performance appraisal system starts with the establishment of long- and short-range objectives derived from company and group objectives. At each company level, overall objectives were communicated and subunit objectives were negotiated. HP lets the employees decide on how they would accomplish the goals that they have set. The goals were made to interconnect horizontally and vertically throughout HP. The management by objective process is part of the company’s strategic planning which defines the objectives and responsibilities that a job entails. Although the top management is the one who initiates the process, every employee is given opportunity to influence the setting of objectives. Employees are encouraged to suggest on how they can contribute to the success of the business unit (www.uob-community.ballarat.edu.au). In an MBO system an employee meets with his or her manager, and they collectively set goals for the employer for a coming period of time. These goals are usually quantifiable, they are objective, and they are usually written. During the specified timeframe, the manager and the employee periodically meet to review the employee’s performance relative to attaining goals. At the end of the specified period, a more formal meeting is scheduled in which the manager and employee assess the actual degree of goal attainment. The degree of goal attainment then becomes the individual’s performance appraisal (Sims, 2002a).
*For a sample of Performance Appraisal Form used in Hewlett-Packard, please refer to Appendix 1*
HP combined MBO with the paired-comparison approach. The paired comparison approach, according to Sims (2002b), measures the relative performance of employees in a group. A manager lists the employees in the group and then ranks them (p. 205). HP managers invested considerable time and energy ensuring that an individual’s pay level within their salary range reflected their performance when compared to others. Performance was judged by the immediate supervisor but adjusted based on a ranking process, conducted by managers in face-to-face meetings, which compared employees in different departments with similar responsibilities.
*For a simple sample of an MBO form, please refer to Appendix 2*
1. Goal Setting
In Hewlett Packard, there has been a long tradition of targets being determined by both boss and employee. This reflects not only the longstanding policy of decentralization within the organization but also the difficulty of imposing performance targets on employees who are facing changing demands and working in fast-changing markets. These conversations are participative. The discussions attempt to cover the diversity of situations the employees would face. In the monthly formal meetings as well as in informal settings, manager and employee have the opportunity to revise these targets in light of new information about the environment of client behavior. The revisable nature of the performance targets, together with the degree of influence employees have over their goal setting, means that perceptions of fairness are high in terms of the targets being realistic and achievable.
2. Performance Evaluation
In HP, the performance appraisal is used primarily as a development tool. Formal meetings between manager and employee are held every quarter, culminating in a full annual appraisal. Employee voice in the evaluation was strong. Self-assessment exercise are strongly encouraged in HP. Managers devote a great deal of time not only to discussing problems and identifying areas for improvement, but also to giving feedback. This occurred not only in formal meetings, but also on an ongoing basis. This informal process helped to cement new organizational values by correcting and reinforcing behaviors and attitudes. In order to achieve a rounded picture of employee performance, the company has introduced socially based measures of evaluation such as 360-degree appraisal.
Findings and Discussions
Performance Appraisal at HP: Evaluation
Based on my investigation and through the information I have gathered thus far, I can say that Hewlett-Packard has an effective and efficient performance appraisal system. The performance appraisal system is effective and efficient because it is aligned with the rewards and the goals and objectives of the organization. The performance appraisal is also an effective tool in measuring the contributions of each employees, including their strengths and weaknesses. It also gives a clear view of the training needs o the employees. However, the fact that there are problem areas or that the performance appraisal system used has weaknesses cannot be discounted. It is of utmost importance that the sources of possible problems and challenges in the performance appraisal are identified in order to avoid mistakes.
Management by Objectives: Evaluation
The Management by Objective performance appraisal that Hewlett Packard employs tends to reward employees who achieve the agreed targets with increased pay or promotion, while those who do not attain objectives are seen as to have failed and penalized accordingly. MBO also tends to focus on the number of objectives to be attained, or the ‘quantity’ of the performance or outcome that is to be attained; in some situations, the level of difficulty or the quality of the results might be more important.
Strengths and Weaknesses of MBO
The strengths of MBO as a performance appraisal system are:
- It increases the employee’s involvement in setting performance objectives and increases the motivation required to reach those objectives
- It offers an objective, factual basis for measuring accomplishments
- It is entirely job centered
- It establishes the appraiser as a facilitator of performance rather than a critic of performance
- It assures the organization that all employees are working toward a common purpose
- It supports psychological concept that people will exercise self-direction and self-control in the accomplishment of organizational aims that they have participated in setting.
Organizations that use MBO frequently report that they are very effective, highly motivating performance appraisal systems. MBO systems communicate to employees exactly what is expected of them, and provide clear behavioral benchmarks for performance. Developmental feedback is inherent in the entire MBO process, because the employees skills and abilities are taken into account at the front end when goals are initially set and along the way as progress toward the goals is measured. In an MBO system, goals are highly personalized and reflect the employee’s experience and training (Kulik 2004).
MBO as a performance appraisal tool has also some weaknesses. These include the following:
- It is an organizational philosophy and can not operate at one organizational level without operating at all levels
- MBO ca not be implemented at all organizational levels simultaneously, nor can it be implemented from the bottom up – it must begin at the very top of the organization and works its way down
- It requires a total and sizable commitment of management support, interest, and time if it is to succeed
- MBO is not applicable to all types of jobs. Individuals performing routine, repetitive, or machine-paced jobs are better appraised by another method
- Employees require extensive training before they normally respond in a positive way to MBO (Caruth and Hadlogten 2001).
Possible Sources of Problems
Although the performance appraisal system used by HP can be considered as effective and efficient, the management must make sure that the possible sources of problems are identified and avoided. The company must take necessary measures in order to prevent problems with the system. The possible sources of problems are the following:
1. Personal Bias
One of the biggest problems in every performance appraisal system is the tendency of the appraiser to be bias. An evaluator’s personal feeling about the person being appraised can affect the result of a performance appraisal.
2. Lack of Appraiser Training
Another source of problems that the organization must be aware of is the lack of appraiser training.
3. Insufficient Information
Insufficient, inadequate and incorrect information can also be a source of problems and difficulties.
4. Lack of Documentation
A major problem with most appraisal system is that they do not require continuous documentation of employee performance. When documentation does exist, it is often inadequate to support an accurate assessment of employee accomplishments. Nonexistent or inadequate documentation leads supervisors to commit many performance appraisal errors (Caruth and Handlogten 2001).
Recommendations
MBO is the primary tool that HP uses in appraising employee performance. The company was able to establish as effective MBO system that is able to measure the performance of the employees against the goals that they have set. However, relying on MBO alone can lead to different problems and difficulties. MBO has both strengths and weaknesses. In order to maximize the strengths of MBO and minimize its weaknesses, the company must make use of other performance appraisal tool.
Recommended Appraisal Tools
Other than MBO, the company can also make use of performance tools to make sure that the performance appraisal system is effective and efficient. The following are the recommended tools for HP:
1. Rating Scales
One of the most widely used performance appraisal method is some form of a rating scale. The use of rating scales is popular among organizations because it is simple and easy to use. With rating scales, employees are evaluated according to a set of predetermined factors, such as quantity of work, quality of work, absenteeism, or the like. Each evaluation factor is ranked from the lowest level of performance to the highest in as many as fifteen categories (Caruth and Handlogten 2001).
*For a sample of a rating scale form, please refer to Appendix 3*
2. Checklists
Performance appraisal checklists provide the evaluator with a series of statements, phrases, or adjectives that describe employee performance. These statements may be subdivided into specific factors such as quantity of work, quality of work, and so forth, with the descriptors listed under each category. Occasionally, the phrases or adjectives are simply listed without categorization. The appraiser marks the statement or adjective considered to be most descriptive of the employee’s performance during the period covered by the appraisal.
*For a sample of a simple checklist, please refer to Appendix 4*
Other Recommendations
1. Flexible Job Descriptions/ Employee Influence in the Process
The manager and the employee should be the ones responsible for job analysis, job design and job description. The organization’s generic or model job descriptions should be used by managers and employees only as a basis for developing and agreeing their own description of the job the employee really does. Job descriptions should not be written and imposed on job holders from above. The responsibility of designing the job description should remain with the manager and the job holders. The contents of the job description should be agreed by both the job holder and the manager. Getting employees’ commitment is a key to setting effective goals. Employees should participate fully in the setting of objectives for their own jobs, and have an opportunity to contribute to planning the objectives of the work group, the department and the organization as a whole. Each individual’s goals must fit in with those of the wider work group or workplace. How much you involve employees in setting their targets will depend on the organization’s approach to performance management and on its style and culture generally. At the very least, managers should ensure that the person responsible for achieving a particular objective understands and accepts it. Employees will not feel committed to targets that are just handed down to them by management (Rudman 2003).
2. Rater Training and Employee Education
One approach to performance appraisal training is to alert managers to common errors of judgment so they can spot them in how they evaluate others and guard against them. Appraisal methods that have clear performance dimensions are likely to reduce rating errors (London 1997). For any appraisal system to be effective, training must focus on helping managers develop specific skills and confidence in their ability to effectively evaluate others. These skills should include goal setting, communicating performance standards, observing subordinate performance, coaching, giving feedback, completing the rating form, and conducting appraisal review. Appraisals without training is a sure route to ineffectiveness, frustration and dissatisfaction. It is also important to make employees understand the appraisal system. Everyone in the organization needs to understand why appraisals are being conducted and how the system operates. The more clearly stated the organization's purpose for appraisals, the less confusion and ambiguity surrounding the process. The goal should be that everyone knows why you are conducting appraisals (Longnecker and Goff 1992).
3. Ensure the Validity and Reliability of the Performance Appraisal
Establishing the validity of performance appraisal begins with job analysis, the process wherein job performance factors are clearly identified. These factors may include such items as quantity of work, quality of work, meeting deadlines, and adhering to prescribed procedures. The factors must be quantifiable and specifically defined so as to reflect expected outcomes (Caruth and Handlogten 2001).
4. Ensure that Communication is Open
All employees have a strong psychological need to know how well they are performing. An effective performance appraisal system ensures that feedback is provided on a continuous basis—not in an annual written evaluation, but in the form of daily, weekly, and monthly comments from a supervisor. The annual evaluation and its accompanying interview or performance discussion must be devoid of surprises. While the interview presents an excellent opportunity for both parties to exchange ideas in depth, it is not a substitute for day-to-day communication about performance (Caruth and Handlogten 2001).
Conclusion
Hewlett Packard has one of the best performance appraisal systems around. The performance appraisal system used by Hewlett-Packard supports the company’s culture, objectives and philosophies. The primary toll used in the performance appraisal process is MBO. MBO as a performance appraisal tool is considered effective and efficient. The performance appraisal system at HPO starts with the establishment of short-term and long-term goals derived from the company and group objectives. The advantages of MBO for HP is that it empowers employee. It lets employees decide on how they would accomplish the goals that they have set. Employees are also encouraged to suggest on how they can contribute to the success of the company. MBO is truly an effective performance appraisal system. The effectivity of every performance appraisal system lies in how it is used and expertise of the ones who uses it. This paper presented some of the possible sources of problems and their possible solutions. This paper also presented some recommendations on how the current performance appraisal system at HP can be further enhanced.
Bibliography
Caruth, D. L. & Handlogten, G. D. (2001). Managing Compensation (And Understanding It Too): A Handbook for the Perplexed. Westport, CT: Quorum Books. p. 206.
Dickinson, T. (1993). Attitudes About Performance Appraisal. In J. Farr, H.
Schuler, & M. Smith (Eds.). Personnel Selection and Assessment: Individual and Organizational Perspectives (pp. 141-161). Hillsdale, NJ: Lawrence Erlbaum Associates.
Gilley, J. and Maycunich, A. (2000). Organizational Learning, Performance, and Change: An Introduction to Strategic Human Resource Development. Cambridge, MA: Perseus Books.
Gratton, L., Hailey, V. H., Stiles, P., and Truss, C. (1999). Strategic Human Resource Management: Corporate Rhetoric and Human Reality. Oxford: Oxford University Press.
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Human Resources at Hewlett Packard. University of Ballarat Staff and Student Community. Retrieved June 11, 2008, from http://uob-community.ballarat.edu.au/~adsg/Cp704/CaseStudies/Wk11%20Human%20Resources%20at%20Hewlett-Packard.pdf
Kissler, G. D. ( 1991). The Change Riders: Managing the Power of Change.
Cambridge, MA: Perseus Books.
Kulik, C. T. (2004). Human Resources for the Non-HR Manager. Mahwah NJ: Lawrence Erlbaum Associates.
Longenecker, C. O. & Goff, S. J. (1992). Performance Appraisal Effectiveness: A Matter of Perspective. SAM Advanced Management Journal, 57(2), 17+.
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Rudman, R. (2003). Performance Planning and Review: Making Employee Appraisals Work. Crows Nest, N.S.W.: Allen and Unwin.
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Appendices
Appendix 1: HP’s MBO Appraisal Form
Name of the Employee:
Designation:
Date of Joining:
Date of Last Appraisal:
Department:
Reporting Officer:
Current Responsibility:
Accomplishments:
Goals for the Next Appraisal Period:
Areas for Improvement:
Employee’s Perceived Training Needs:
Problems Faced:
Solutions Tried:
Please note that this form is not the exact form used in Hewlett-Packard.
Appendix 2: Sample MBO Form
Employee’s Name:
Position:
Supervisor’s Name:
Title:
What are your goals for Successful Performance in Current Position?
What do you need this year to work towards your goals?
Notes:
Employee’s Signature
___________________________
Supervisor’s Signature
___________________________
Appendix 3: Sample Rating Scale Form
Performance Ratings
5 Points – Consistently Exceeds Expectations
-
Employee displays at all time, without exception, a consistently high level of factor related skills, abilities, initiative, and productivity.
-
All assignments/responsibilities are completed beyond the level of expectation.
-
Initiative and self-direction are characteristic.
4 Points – Often Exceeds Expectations
-
Employee displays a high level of factor related skills, abilities, initiative and productivity, exceeding requirements in some areas, but not consistently or not without exception.
3 Points – Meets Expectations
-
Employee displays and maintains an effective and consistent level of performance of the job factor under review. Work output regularly achieves desired or required outcomes or expectations.
-
Problems and errors are reported and corrected quickly.
2 Points – Some Improvement Needed
-
Employee at this level displays inconsistency in the performance of the job factor under review and output frequently falls beyond acceptable levels.
-
Tasks may be significantly late at times or incomplete, with serious or potentially serious consequences.
1 Point – Major Improvement Needed
-
Work output is consistently low, regularly fails to meet required outcomes, and error rate is high requiring repetition of duty or completion by others.
-
The employee may require constant supervision, and show an indifference to job responsibilities.
Performance Factors
Rating
5
4
3
2
1
Quality of Work
Productivity
Knowledge of the Job
Adaptability
Dependability
Initiative and Resourcefulness
Judgment and Policy Compliance
Interpersonal Relations
Attendance
Safety and Security
Appendix 4: Sample of a Simple Checklist
Employee’s Name:
Reviewed By: Date:
Does this Employee
Yes
No
1. Arrive for Work on Time?
2. Exhibit expertise in his/her job?
3. Have good working relationships with his/her co-workers and supervisors?
4. Follow the company’s rules and regulations?
5. Handle his work according to procedure?
6. Finish his/her work on time?
Credit:ivythesis.typepad.com
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