A Comparison of the Operations Strategy of Manufacturing and Service Firms

A Comparison of the Operations Strategy of Manufacturing and Service Firms

 

            This paper is about the operations strategy of two types of firms, the manufacturing and the service firms. For the manufacturing type, the writer has chosen Toyota and Dell Inc. While for the service type, Disney World and McDonald’s are the firms chosen by the reader. The discussion is on the individual operations strategy for the said firms. They are presented by type, first is the manufacturing, followed by the companies under the service type. A brief introduction about operations strategy is also included to establish the topic to the reader.

Operations Strategy

            An operations strategy must be devised after the development of the business strategy. This is done to provide a plan for the design and management of the operations function, in ways that support the business strategy. The operations strategy is the one that associates the business strategy to the operations function. The focus lies on the operation’s particular capabilities that give a competitive edge to the company. These capabilities are referred to as competitive priorities. By means of excelling in any one of the said capabilities, there exists the possibility for the company to become the frontrunner in its specific market.       

 

 

Competitive Priorities

            In order to understand the competitive situation in the company’s market, it is important for operations manager to work closely with the marketing. It should be done to be able to determine which among the different set of competitive priorities are important. The four broad categories of competitive priorities are cost, quality, time, and flexibility.         

            All of the said priorities are important but as more resources are dedicated to a specific priority, fewer resources are left for the others. That is why the operations function, must put greater emphasis on the priorities that directly support the business. This is called the need to trade-off. Even though the primary focus of the company lies only to some priorities, it is still relevant for them to at least achieve a basic level for each priority.

            For that reason, it is important to distinguish which among the said priorities are order winners and the order qualifiers. The latter refer to priorities that are required to qualify as a competitor in a particular marketplace. On the other hand, the former are those priorities that aid a company in winning orders in the marketplace. However, to be able to compete successfully, a company needs to change its order winners to differentiate themselves from their competitors. This is also done in cases when companies try to imitate the order winner of a successful company, knowing that they will also gain the same success they achieved.

 

 

Operations Strategy of Manufacturing Firms: Toyota and Dell Inc.

Toyota

            Toyota’s operations strategy focuses on maximum reliability, easy maintenance of its cars in each class, production systems that includes product design, processes, and supply chain management focused on their goal.

            European automakers need to be more prepared as Toyota releases its handful of hot models. While the powerhouse of Japan figures how to build cars which attracts the Europeans, it was also bearing down on costs to yield its needed efficiency to prevail in one of the world’s lowest-margin auto markets. The management of Toyota is asking its engineers to propose a design, which is innovative and cost saving in nature at the same time, for the facility of the Valenciennes. And the result is the compact, star-shaped factory, which is a first for Toyota. The production area has a limited space for the storage of other parts and components. The two and a half hours’ worth of inventory on hand is lower compared to other Toyota factories in the world.

            Fewer man-hours, less inventory, this is how Toyota is. They consistently have the highest quality cars with the fewest defects compared to its competitors in the manufacturing (auto) industry. Their well-known “Toyota Production System” (TPS) or “Lean Production” seems to be their secret weapon in improving the speed of their business processes, quality of their product and service, as well as the reduction of costs.

            The TPS developed as a new paradigm of manufacturing excellence, which transforms businesses across different industries. The company also encourages employee involvement in all levels. In addition, they also discover the difference between the traditional process improvement and Toyota’s Lean improvement.

            In order for the said system to work at your advantage, there is also the need for you to follow the so-called “14 Toyota Way Principles”. This operating philosophy serves as a guide for its management. First principle is to base your management decisions on a long-term philosophy, even at the expense of your short-term financial goals. Second, you must create a continuous flow of processes to bring out any possible problems. Third, to be able to avoid overproduction problems, you must use the pull systems. Fourth, level outing of workload is also important. As they say, work like a tortoise, not like the hare. Fifth is to build a stopping culture to fix problems as soon as possible. It also enables to get quality right the first time. Standardizing of tasks is also important as it serves as the foundation for continuous improvement. To avoid missing any possible hidden problems, the use of visual control can be a great help. You must also make sure that all the technologies you are using are reliable and thoroughly tested to be able to serve your people and the processes of your business. This is to avoid wasting of time, resources, and effort used in an ineffective technology. Next, leaders should serve as the role model of all. He himself should understand the work thoroughly and live its philosophy to be able to teach it to others and make them follow his ways. In turn, the leader can now develop exceptional people and teams in accordance to your company’s philosophy. Respect is another important thing among you and your extended network of partners and suppliers. This can be done by challenging and helping them improve their ways and doings. For you to be able to understand a given situation, you yourself must go and see it. As they say, you will only believe and understand if you yourself have seen and experience the situation. The process of decision-making should also be done slowly to avoid making hasty decisions, which are risky most of the time. It should come from a consensus, with consideration to all available options. While on the other hand, its implementation should be done quickly. Lastly, through relentless reflection and continuous improvement, your company should become a learning organization for all people involved in your company.

            This is the very core reason why Toyota, despite the competitors’ effort of imitation, continues to gain market share and huge profits, continues on building new plants, retains a harmonious relation with its supplier and enthusiastic workforce, with its labor costs retained at a lower amount compared to others. They are also described as “the fastest runner in the race” in auto industry. Production efficiency helps them reach that point. Their record (most productive) of 27.9 hours per-vehicle time surpasses the record of their competitors like Ford and Chrysler. The tools of the TPS seem to work smoothly for them. These tools are lean, agile, TQM, TPM, re-engineering, just in time, cellular/continuous workflow, etc. TPS should not only be a cost-based strategy, it should also be a value-based one. The full potential of the TPS is as an operational solution ready to remake entire organizations – both at the process and management levels.

 

Dell Inc.

            Dell Inc. is a premier provider of products and services required, for the building of information-technology and Internet infrastructures of customers worldwide. Its operations strategy focuses on mass customization marketing strategy, build-to-order production system, as well as on its production and supply chain designed for its agile and fast turnarounds. 

            Operating a plant owned by the company itself is one of the global manufacturing strategies of the Dell Inc. This is to bring their online operation in time, in achieving its goal of meeting the ever-growing customer needs. It also provides good proximity to an available workforce and supports the objectives of its logistics.

            In locating its possible plants, it places preference over strategic locations suitable to advanced manufacturing and distribution companies serving the East Coast markets. Like Dell’s Winston-Salem plant who will produce their PowerEdge servers, PowerVault and the Dell/EMC products, and OptiPlex and Dimension desktop computers primarily for the US market. The said distribution’s advantages made it to be the company’s site choice. This is its easy access to almost all of the major East Coast markets, within a one-day truck haul.

            Dell Inc. also operates one of the highest-volume internet commerce sites in the world. According to a study done by Mainstay Partners, the returns of the company will come through cost avoidance in four principal ways. They are by the breakage of the buying cycle and maintenance of expensive proprietary hardware systems; by substantial reduction on administrative and database management costs; by a boost on system capacity while scaling as the business requires; and by raising its availability, thus, the potential for revenue-draining downtime is greatly reduced.

            The company uses a sales strategy that was a model of the lean efficiency. It involves direct customer sales, without the use of retailers or intermediaries. Through this high-efficiency business model, the company is able to keep low costs in bringing new technology to its market, faster than any companies, using indirect distribution channels. Dell’s marketplace advantage is brought up by its innovation together with its one-to-one direct customer communication. Another innovation is their web presence through the Dell.com, a massive channel for sale.

            In addition, the new system of Dell running Oracle 10g grid on Linux is another success on the company’s part, as it does more work, more quickly compared to their previous one. Among its gains includes doubled session capacity characterized by stronger, more sustainable system performance; higher daily order volume, due to its improved performance and availability for users through the elimination of constraints and slowness; automatic distribution and balancing of the increased workload in case of node/s’ failure; and the elimination of system outrages, that cause gaps in line manufacturing and raises the chances of staff sent home.

            The new system delivers seven times the performance for only one-tenth the cost. Besides, due to its improved performance and reliability, the company will be able to save around $4.6 million for over five years time, as projected by a study. Other area of potential value brought by the grid system is the automated storage management in Dell’s back office operations.

            Moreover, Dell has become a poster child for outsourcing, using its emerging trend of near shoring. “Near shoring” refers to the companies’ practice of going offshore (but in countries with closer proximity to its home bases) in outsourcing its operations. Its success lies on its developed innovative supply chain together with its just-in-time operation. The latter combined more responsibility pushed onto suppliers with the outsourcing of non-essential functions.

Operations Strategy of Service Firms: Disney World and McDonald’s

Disney World

            The operations strategy of Disney World centers on the total amusement experience marketing strategy; an organizational management system based on the keen attention to details and comprehensive system of supply chain management, scheduling, product and process design, and maintenance; structured leadership and organization to preserve and enhance creativity, culture, and best practices; and the establishment of continued leadership in maintaining its momentum and further development of its talents.

            The company has been able to grow over a longer time period, dominating the family entertainment market. Through its past experiences, it is able to successfully meet the specific needs and wants of its target customers. Disney has focused on market diversification for years, covering a wide variety of products and services. It also practices economies of scale in its production. In addition, most of the company’s product mix focuses on the intangible returns on the buyer’s money.

            Large volumes of unique products are also purchased by the company from its unique suppliers. This is to ensure quality service delivered to its customers, while maintaining a strong supplier- relationship. Moreover, due to its highly differentiated products, switching costs is important as expensive advertising campaigns are done in order to obtain market share. The company has also effectively diversified its operations and products, both in the local and global level. The company has also been able to retain its innovative employees, control its costs while producing quality goods and services, and minimized its financial risks.

            To avoid being runned out of fresh new ideas, employee participation is highly encouraged, especially the most creative and talented ones. There is the so-called “Gong Shows” where the participants share their own set of unique ideas. Effective distribution channels and marketing are also used to meet the growing demands of its customers. Despite the increasing costs of production due to recent trends, the company has able to survive. Efficiency, through the enforcement of tighter budgets and higher expected returns, made it possible for the company to produce cheaper but high quality movies compared to its competitors. In its rapid expansion and diversification of its products and services, risks are minimized by covering-up the losses of one product line by another product line.

            On the other hand, a risky but cutting-edge technology strategy is designed to aid in restoring the luster of Disney’s aging brand, increase its efficiency and boost attendance. Among them is the Pal Mickey. This is an experiment in bridging the gap between the static data about a customer and its dynamic behavioral preferences, which depends on its physical location and movements at any given time. It is considered as a new evolution of CRM. Another one is the Destination Disney, a new customer experience strategy. In here, the company intends to leverage technology, with hopes of personalizing a person’s parking experiences. Under the said strategy connects another initiative called the Magical Gatherings. This is a website with the specific intentions of boosting new revenues and group business bookings, through the encouragement of far-flung family members in collaborating online, for planning their next reunion or group event in the Disney World. There are still many other strategies at hand waiting for its final utilization. Together, all of the said strategies will aid Disney in maintaining its competitive edge in the entertainment industry.

McDonald’s

            McDonald’s has developed three strategies for its future scenarios. These are customer convenience, customer value, and optimal operations. Together with the digital strategies, it will help create new and bold ideas for the company. The stores are characterized by the operations team as miniature manufacturing facilities. With its goal in improving the suite of its manufacturing systems (inventory control, production planning, financial control, and point-of-sale order entry) that supports the store, the team has developed ways of improving its overall operations.

            Aside from offering hamburgers and french fries, the current trend in McDonald’s extends in serving as a family retreat, and as a community center for senior citizens. The means for the former one are its extensive indoor playgrounds and promotional toys, while the invitational plays of bingo are for the latter one. As this trend continues, an extension of more service-oriented technologies is needed. They can conduct studies and surveys to better know which among the different alternatives serves the company’s objectives the best. These might include robots taking orders instead of humans, automated processes of food production, and the like.

            To achieve customer convenience, one of their key initiatives is on the improvement in the speed of new stores’ opening. To answer this, the “day in the life” scenario was developed for site developers that described the optimal toolset and the collaborative environment they would have with them as they scouted for locations. Rather than choosing individual tools, they should think about the tools on the horizon-geographical information systems, global positioning satellites, new media such as teleconferencing, and the expanding flow of information through public networks like the Internet.

            For the achievement of customer value, focus should remain on real-time information flow that allows instant corrections of the menu and prices in response to customers’ preferences, competitive environment, and even the ingredients’ global commodities market.

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A Sample Marketing Essay Paper

Goodyear Marketing

Introduction

It has been principally tires - for wheels of all kinds - that carried Goodyear from an unknown to one of the world's best known and largest industrial corporations. With a business philosophy of continually searching for new markets and new product applications, tires continue to be Goodyear's biggest single sales factor.

Over the years, the company became a highly diversified corporate enterprise, the product line has blossomed from its limited initial output of bicycle tires and a few molded rubber products. Today the company makes tires for virtually every vehicle except bicycles.

The diverse product line includes chemicals, automotive components, automotive belts and hose, industrial hose and conveyor belts, polyurethane and composite plastic panels, shoe soles and heels. At times, the line has included polyester for tire cords and bottles, form cushioning, metal wheels and rims, packaging films, aircraft brakes and wheels, aerospace products, computers, and enriched uranium for atomic energy.

In recent years, a subsidiary, Celeron corp., built the fist oil pipeline to carry petroleum 1,200 miles from the West Coast to refineries in Texas and other points east. While diversification helped propel the company's sales and earnings, it was mastery of the tire and rubber business that ranked Goodyear as a world leader.

Marketing Orientation/Strategy

Goodyear is very successful in terms of ensuring that factors in its external (macro) environment and the various market actors with which it relates are accommodated within its marketing strategies.

Take for example the Goodyear plant in Akron, Ohio. Goodyear North American Tire develops, manufactures, and markets tires through its network of independent dealers and retailers. Accounting for nearly half of Goodyear's worldwide total tire sales, Goodyear North American Tire operates 19 manufacturing facilities in the U.S. and Canada and has a network of 5,000 dealers.

Goodyear's marketing strategy used the aid of IBM Net.Commerce and Lotus Domino to create a state-of-the-art order management platform to serve its dealer network. This is called Goodyear's e-business solution and has empowered dealers with more robust and flexible inventory management capabilities while reducing its own costs. The result of this marketing strategy has been process improvements across its entire supply chain.

Numerous factors influenced Goodyear's e-business strategy formulation, ranging from trends prevalent across the industry, to the need to update its own internal processes. At the outset, Goodyear defined its most fundamental goal as the reduction in costs associated with the administration of - and communications with - its dealer network.

The most significant business process changes that are occurring as a result of the broadening adoption of the e-business platform relate to dealer communications and the more efficient processing of dealer transactions. Dealer communications have seen the most important process improvements in areas where the physical mailing of printed documents is being replaced with Web-based publishing.

A good example of this within Goodyear is the monthly mailing to dealers notifying them of special pricing deals. Previously, Goodyear would e-mail these promotions to its regional offices, which would then print and mail them to over 5,000 dealer locations. Not only did this consume time and money, but the inherent lag of physical mail also delayed each dealer's ability to act on the monthly specials until more than a week into each month.

Telephone communications are also being streamlined significantly, as dealers increasingly capitalize on the self-service enabled by this e-business solution of Goodyear. In fact, online inventory management presently represents the largest share of Internet usage for Goodyear's dealers.

Goodyear's pay-back from the e-business solution has the earmarks of an ideal supply chain solution: a strong benefit stream accruing to members all along the value chain. These include improved information quality and faster delivery of information to dealers. This, in turn, translates into a higher-volume of pull-through business. Dealers, on the other hand, have gained more control and flexibility in their inventory and order management processes.

Another strategy of Goodyear is the Impact processing system. Several aspects of Goodyear's vision already are in place and operating, under the umbrella of the company's Impact (Integrated Manufacturing/Precision Assembled/Cellular Technology) processing system. Company executives speak about replacing capital-intensive internal mixers with extruder-based continuous mixing (Davis, 2001).

The tire maker has gained valuable experience with extrusion-based compounding through its work with the hot-former, a series of extruder-fed profiled calendars linked by a conveyor belt that pre-assembles up to 12 truck tire casing components. Considered the heart and soul of the Impact process, the hot-former saves space, reduces assembly time, improves quality and reduces process steps and tire weight, Goodyear claims. Because the hot-former operates at a comparatively pedestrian pace, however, Goodyear execs liken it to the tortoise and hare fable, calling the hot-former a ``steady state'' tortoise (Davis, 2001).

The firm also developed what it calls ``spider'' dies to facilitate uniform feed rates and eliminate scorching during the extrusion process as it is applied to the hot-former. The circular die has a number of triangular outlets around the circumference, giving the extruded rubber a pleated look that allows it to be routed 90o to the calendar (Davis, 2001). In 2001, hot-formers were already in place at three Goodyear plants. In 2004, the company is expanding the network to seven factories.

Continuous mixing offers a number of benefits for Goodyear, including improved cycle times, more uniformity, lower labor cost per pound, and the elimination of one heat cycle in the life of the rubber on its way from compound to vulcanized product. Continuous mixing also offers the chance to eliminate a number of stabilizing materials needed to keep rubber fresh between processing steps. That results in a cost savings (Davis, 2001).

Goodyear has many sub-units or departments all over the world. Even with these numerous sub-units and departments, the organization has been successful in ensuring cross-functional responsibility for marketing operations within/across its own sub-units or departments.

In 2005, Goodyear Tire & Rubber Co. announced that it wants to slash high-cost manufacturing capacity by 8 to 12 percent during the next three years to save $100 million to $150 million annually. Overall, it is looking to save $750 million to $1 billion in three years, while incurring restructuring charges of about $150 million (McNulty, 2005).

To achieve its goals, the company said it will shut down high-cost sub-units, departments or factories around the globe, although it did not disclose how many plants will be closed or where they are. Goodyear also plans to trim its cost structure, increase Asian sourcing for low-end products, upgrade manufacturing, accelerate tire introductions and generate capital to support further investment in its core tire business (McNulty, 2005).

            In 1998, Goodyear Tire and Rubber Co Chief Executive Officer Samir Gibara has outlined a strategic plan for the company to boost sales and prepare the company for the 21st century. The tire manufacturer aimed to expand its businesses by selling more tires and improving its distribution networks in both developed and developing countries. It also planned to collaborate with other companies either through joint ventures, strategic alliances or acquisitions. Still another growth strategy for Goodyear involves the development of product and process technologies (Shaw, 1998). All these are strategies that Goodyear has achieved within the last few years.

            On of the organization's goal was to grow existing businesses at twice the industry rate: 5-6 percent per year, compared with an industry figure of 2.5 or 3 percent per year. This means selling more tyres and winning market share from the competition.

In order to do that, Goodyear followed two parallel paths. First was the introduction of new tyre products faster than the competition. Company executives said that they want to be known as the innovator in the business; the company which introduces more products than any other company in the industry. This allows Goodyear to improve its margins, because it is easier to persuade people to pay a premium for an innovative product. It helps improve Goodyear's margins by positioning the new tyres at the right price levels.

            Another way of selling more tyres, according to Goodyear's strategies, is to improve the distribution systems in both developed and developing markets. Over the last 5 years, Goodyear has increased the number of outlets which carry the Goodyear brand in the US by 40 percent, and it expects to continue increasing the number of outlets by 10 percent per year. In addition to all these, the company also aimed to make each outlet more efficient and more effective as a Goodyear sales point (Shaw, 1998).

            So a second arm to the strategy is to work with other companies either through acquisitions, joint ventures or strategic alliances to take advantage of the new markets now available to Goodyear and the other tyre companies.

            Thus, Goodyear Tire and Rubber Co. company executives are already forming partnerships and joint ventures with some organizations and still planning to form partnerships and joint ventures with other companies in order to keep up with the demand for their products. Goodyear may also opt to include non-tire automotive components or in other areas where it is not actively involved. The company has also realized the need to keep pace with its global customers and is formulating strategies for it.

            Strategic alliances, joint ventures and other types of cooperative ventures will play an increasingly important role in Goodyear Tire & Rubber Co.'s future, according to Samir Gibara, president and chief operating officer, especially in emerging market places (Davis, 1995).

            Goodyear's joint ventures in China and India are prime examples of this thinking, Gibara pointed out, but the strategy could be extended to cover non-tyre automotive components in Europe, for example, where Goodyear does not have a manufacturing presence currently (Davis, 1995).

Goodyear's market-driven strategies are therefore excellent and have provided further advantage for the tire manufacturing company. These strategies should therefore remain and use as future market-driven strategies to be used by the management team of Goodyear Tire and Rubber Co.

References

Davis, B. (1995). Goodyear to Seek Alliances. European Rubber Journal.

Davis, B. (2001). Unbroken Circle: Continuous Production Goal of Impact System.

Rubber and Plastics News.

McNulty, M. (2005). Goodyear Plans to Make Major Cost Cuts: Goal is to Save

Up to $1 Billion in 3 Years. Automotive News.

No Author. Goodyear North American Tire: Driving E-Business Technology. \

Retrieved from: http://www-8.ibm.com/hk/e-business/case_studies/manufacturing/goodyear.html

No Author. How Tires are Built. Retrieved from:

http://www.goodyeartires.com/about/diversity/how_built.html

No Author. (1998). The Goodyear Tire and Rubber Company: A Synopsis.

Caribbean Today.

Shaw, D. (1998). Goodyear Announces Strategies. European Rubber Journal.

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The Impact of Globalization on PETRONAS

The Impact of Globalisation on PETRONAS

 

Introduction

            The world was undergoing tremendous change even before the horrors of 11 September. Both democracy and the market economy have proliferated globally since the collapse of communism, and revolutionary developments in communication and information technology have helped trigger an increasing interdependence between countries at an unprecedented pace. Further, the end of the Cold War signalled the displacement of ideological obstinacy in favour of a heated pursuit towards economic advancement and competition for resources and technology. Economic statecraft, whereby nations use trade, loans, grants and investment to influence the action of other states, is now becoming more important.

             Globalisation around the world – has been one of the most hotly-debated topics in international economics over the past few years. Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of globalisation. But globalisation has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. The most common interpretations of globalisation are saying that the world is becoming more uniform and standardised through a technological, commercial and cultural synchronisation coming from the West. These perspectives equate globalisation with Westernisation.  However, there are other assessments that argue from viewing globalisation as the process of hybridisation, which gives rise to a global melange.

In this regard, this paper attempts to evaluate the impact of globalisation on Petroliam Nasional Berhad (PETRONAS). Basically, the major focus of the international marketing strategy of PETRONAS or Petroliam Nasional Berhad is to adapt to the globalisation scheme. The changes in the environment had been sharply perceived by PETRONAS, as it operates both within and beyond its national boundaries. PETRONAS today is continuously growing; its main objective is to be famous in providing organisations and consumers with oil and gas. PETRONAS is most commonly referred to as the number one oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. The major concern of this analysis is to determine the level of the company to be geographically positioned in accordance with globalisation degree and with the strategic issue at stake locally and globally. It will be analysed through the use of different models and theoretical concepts in the marketing analysis.

 

Globalisation

The different strategies in different markets helped the company have an initial feel of the different markets. The different strategies also helped the company have a better understanding of how the market works. The different markets help in introducing to the company the cultures and characteristics of the markets thus it became educated with how to adjust in the different setting. Lastly the different strategies helped in making sure that the company encounters lesser problems while starting up a new market. By using different strategies the company has not committed anything that will give it more problems. In developed countries it is somewhat easier to enter because they usually have fully developed communications, distribution and transportation systems, to name but a few facilitating factors.

According to  (2006), the most successful global businesses are aggressively building their global strategies around these themes: (1) increased market access because of the opening up of markets in China, Central and Eastern Europe; (2) increased market opportunities because of the deregulation of many markets, such as the financial market and privatisation of state-owed utilities; (3) greater uniformity pf  industry standards, encouraged, for example, by the European Union; (4) sourcing of products and components initially, but more recently services, too, from a wider range of countries, particularly those emerging markets with a high ratio of skills to cost; (5) more globally standardised products and services, particularly in areas of new technology, but increasingly in more culturally sensitive product areas, such as food; (6) common technology used in many more markets, particularly in areas of information technology, when there is a high cost of research and development that must be recovered through sales in many countries; (7) similar customer requirements leading to transnational customer segments, resulting from increased communication and travel; (8) competition from the same organisations in each major market and thus interdependence of markets; (9) global organisation strategies that increasingly treat the world as one market, among several other themes.

Marketing is a universal activity that is widely applicable, regardless of the political, social and economic systems of a country. However does it nor mean that consumers in all parts of the world must or should be satisfied in exactly the same way (). This is largely the effect of globalisation to the formulation of international marketing strategies, the insertion of the adaptation of such strategies to the particular country in which the company or any international business operates. Consumers from various countries are significantly different due to varying culture, income, level of economic development, and so on. Therefore, consumers may use the same product without having the same need or motive, and in turn may use different products to satisfy the same need.

 

Company Profile

Background

PETRONAS, short for Petroliam Nasional Berhad, is a Malaysian owned oil and gas company that was founded on August 17, 1974. Wholly owned by the Government, the corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources. PETRONAS is ranked among Fortune Global 500's largest corporations in the world.

Since its incorporation PETRONAS has grown to be an integrated international oil and gas company with business interests in 31 countries. As of the end of March 2005, the PETRONAS Group comprised 103 wholly owned subsidiaries, 19 partly-owned outfits and 57 associated companies. Together, these companies make the PETRONAS Group, which is involved in various oil and gas based activities.

 

Business Mission and Objectives

"We are a business entity"-- PETRONAS and its Group of Companies are on-going enterprises organised and run in a rational, economic and commercial manner with the purpose of enhancing its shareholders' value or wealth. This means that it must conduct itself in a professional, ethical and business-like manner where sound business principles such as clear business objectives, growth and profitability, and being customer-focused are the way of life in the corporation. To achieve this, PETRONAS must be committed to enhancing the capability of its employees, as a corporation is only as good as the people who work for it.

"Petroleum is our core business"-- PETRONAS focuses its energy and allocates its resources to petroleum business, which is its core business. This includes the integrated chain of activities covering exploration, development and production of oil, gas and condensates; refining, trading and supply; marketing; distribution; petrochemicals and other manufactured petroleum products and derivatives. PETRONAS may also undertake other non-petroleum businesses that reinforce its strategy and performance of its core business. To ensure continued future supply of petroleum for Malaysia as well as continued skill building in its core business, PETRONAS would selectively seek opportunities overseas to explore and secure new reserves and develop and add value to these resources.

"Our primary responsibility is to develop and add value to this national resource"-- Petroleum resources are the national resource of a nation, be it Malaysia or any other country in the world. PETRONAS' mission is to develop and add value to these resources wherever it operates, converting these resources into higher-value products that would satisfy the needs of customers and bring benefits to the people.

"Our objective is to contribute to the well-being of the people and the nation"-- PETRONAS' goal is to contribute to the well-being of the people and nation where it operates. To fulfil this role, all of its business activities must be viable and profitable. PETRONAS' contributions - designed to assist in enhancing the quality of life of the people and help in the development of the nation - include the provision of quality petroleum and related products and services at a fair price; promoting and creating business and job opportunities in the petroleum industry; enlarging the country's industrial base; and ensuring safe and clean environment.

 

Corporate Strategy

The Group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; automotive engineering; and property investment.

 

International Business Strategy

Born out of a need to serve Malaysia and its people, PETRONAS has been genuine in fulfilling national aspirations. The people it deals with on a daily basis acknowledge and commend its strong sense of duty to the nation and its employees loyalty to the organisation.

PETRONAS' passionate spirit is one of its most enduring traits and has been largely responsible for its business success. As a group, it is committed towards excellence and progress. It continually pushes its own limits to discover new strengths and capabilities. As it grew and expanded into other corners of the globe, it retained these valuable traits, exporting its own unique economic model that espouses a philosophy of "Growing With The Nation" wherever it operates.

In contrary to the international business strategy of PETRONAS is the perception that going global does not mean that the company must necessarily have a presence around the world. This simply means that the company must perceive global competition and global markets and has determined the best strategy to prosper in that environment. The word “global” means the entire world, but is made up of smaller, more individual geographic entities, beginning with the market in a particular state or province and extending beyond, thus, does not limit only to the participation of large manufacturers (2002).

 

Effects of Globalisation on PETRONAS

Value Chain

In order to understand clearly the activities leading to a competitive advantage in petroleum business, an organisation can begin with the generic value chain and then identify their relevant activities. Thus, process flows can be mapped, and these flows used to separate the individual value–creating actions.

            Once the prudent actions of an organisation are defined, connections between actions should be identified (Porter, 1986).  A connection is present if the performance or cost of one action affects that of another. As stated, competitive advantage may be acquired by optimising and coordinating linked actions.

Value-chain analysis appears at every step of an organisation goes through, from raw materials to the output. The objective is to deliver greatest value for the least possible total cost.  The value chain also is useful in outsourcing decisions.  Understanding the connections between actions can lead to best decisions that can result in either a cost advantage or a differentiation advantage. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit (2000). In the case of PETRONAS, the entire operation of the business should be examined and evaluated in order to determine the service delivery processes that strengthen as well as weaken the business. This will result to managerial options to eliminate the liabilities that detract the business or the need to developed and intensify some aspects of the operations. 

 

Porter's Diamond

Globalisation plays significant role and effect to different businesses. PETRONAS has company extensive promise to milieu in providing secure and vigorous environment for the employees and for the community. Actually, PETRONAS is devoted to scheming, creating, upholding and operating amenities that guard the people in terms of physical resources. As part of globalisation changes and international approach of the company, PETRONAS is committed in reducing the crashing of business in environment through protection and recycle ways and use of energy programs in promoting dirt free air also water and decrease landfill squander as stated in universal system of conduct as based on subsequent environmental philosophy such as the following:

Ø  The business industry is mannered by fulfilling the appropriate laws and system and provide secure and vigorous milieu

Ø  minimise the collision of PETRONAS business on situation through techniques that are publicly accountable and systematically base and efficiently thud like for example materials recycle ways and maintenance

Ø  mounting program that encourage dirt free air as well as water and power conservation and the decrease of land wastes

Ø  through sustaining programs that inform and educate as well as motivate PETRONAS employees to help preserve good atmosphere

Ø  By assisting together with diverse business organisation in finding answers for diminishing pollution problems and the back-up process applied to ecological policies

PETRONAS is able to offer service required by the customers and the employees are motivated to optimise input and obtain practice in diverse areas of operation like for instance, if PETRONAS decided to surmount the international market so there can be options the company will come across and it is important that the management of PETRONAS should choose marketing strategy that is suitable for their products and services being offered for the PETRONAS to be more competitive as there can be stabilisation of political as well as economic power as there is the providing of needed environment encouraging to marketing activities as well as overseas investments. Likewise, culture is imperative feature in understanding PETRONAS’ market status as the company operates effectively for universal position as to how business culture will pressure PETRONAS’ market efficiency for their success and or failure.

 

Manufacturing and/or Services

In regards to the globalisation practices of PETRONAS, technology tends to affect the business process of the organisation.  In the case of PETRONAS, when production technology is high, production will become more efficient that can lead to increase in supply.  However, technology is not the only factor of production existing in the producer’s plant. There exist more complex interrelationships between these factors to be able to exploit the improved efficiency of one.  The most crucial of all is governing human resources.  Without proper guidance from the leaders of a firm, production efficiency will not hold because of resistance, de-motivation or just a plain technological ignorance.  Technology is not 100% automated and human intervention as well as errors is inevitable.  In addition, technology may also be intended for a specific segment of the industry, say, large corporations. As such, aggregate supply may not necessarily increase because small entrepreneurs who cannot afford to buy the technology cannot contribute in increasing supply.

 

Operation

In business operation of PETRONAS, the general rule is that when the cost of operation in global business will rise, producers will cut back on product leading to decrease in supply.  However, the evidence of the price-sensitive oil and exporting industries continuing their businesses is a primary exemption to the rule.  The existence of learning curve, oligopolistic market structures and risk diversification of large international firms has the ability to absorb price shocks to the cost of inputs, technology, organisational changes and government polices (e.g. taxes).  As observed, there is an eminent presence of rationality exemplified by these producers.  Since they have the financial, structural and strategic depth, they enter an industry which has dynamic and unpredictable cost of production.  In this way, they may have financial loss from time-to-time, but long-term gains will be pervasive due to the opportunity to dominate the market.    

 

Global Marketing Strategy

            To promote the company and its product in global marketing context, the company may use TV/video advertisements, print advertisements and the concept of e-marketing. Business meeting were also imposed by the company to reach their target market. These promotion and communication strategy will tend to meet the consumers from different places everywhere in the globe, especially those target markets or consumers that needs oil and gas supplies. As part of promotion strategy, PETRONAS should made it a regular practice to move its best managers from positions in one business unit to assignments in the other two business segments to promote the transfer of skills, practices, know-how, and innovative ideas from one business to another because it is believed that such shifting of key personnel helped PETRONAS capture strategic fit relationships among its different businesses, build stronger competitive capabilities, and keep managers’ thinking fresh and innovative.

 

Global Competition

One of the impacts of globalisation is the increase in competition among other firms in the same industry. A global firm (e.g. PETRONAS) may be in a better position to compete with its global rival, as it can enhance its resources globally ( 2003). Being able to participate in its foreign target market makes the global firm more advanced and more developed compared to its rivals in the same industry, for it is able to meet the standards and demands of its foreign customers. From this perception, major suppliers and stakeholders would prefer the global firm to other firms.

            To attain success in globalisation, PETRONAS should be also aware to the possible effect of competitions.  Rivalry analysis, price tactics, marketing strategies and business development procedures should be carefully evaluated.

 

Functional and Business Strategies

Marketing

A lot of business organisations and companies engage in and focus on international marketing, with the desire for more profits, sales and recognition from consumers. International marketing also allows business organisations opportunities for further development and improvement, in terms of their products, services, strategies, systems, and operations. This is because international markets offer vast business opportunities for firms with a product or service in high demand, in line with newness, cultural adaptation, attractiveness, and appropriate marketing strategies that can assist them particularly (2007). In addition, when PETRONAS focus on international marketing, they are given the chance to gain more knowledge and information in their industry, thus, having the opportunity to provide more innovative services and products to their consumers. Merging, acquiring and partnering with local companies have been a key component of PETRONAS’ international expansion and response to globalisation.

 

Production/manufacturing

The several macro factors, which affect the global market and the business organisations are important to assess and examine for they can largely determine the success of the business organisation in the market. PETRONAS must be able to have skills in developing new products and innovating new technologies to cope with the changes happening in the society today. Along with developing new products, PETRONAS must also produce effective marketing strategies to provide solutions to the challenges that they face. In addition, it will also be necessary to anticipate problems and plan, in case a specific problem comes their way. This would help the company prepare and come up with alternative solutions for easy implementation of plans.

 

Human Resources

As part of the business advantage of PETRONAS in globalisation, the company should continue recruiting and retaining the best and brightest in a variety of exciting and challenging fields. As their practice, PETRONAS tends to discover these talents from amongst the local and overseas graduates.

In partnership with their continuous business growth, they should continue the talent search exercises to meet their increasing human resource needs. It is also admirable that PETRONAS offers occupational mobility along either the technical or managerial tracks, and ample opportunities for learning and growing.

 

 

Conclusion

Over the last few years, the importance of international marketing has increased as globalisation has increased the range of possible opportunities for proactive organisations with aggressive growth strategies. To develop the capabilities of PETRONAS to make effective strategic marketing decisions, they need to have the ability to understand the changing dimensions of the market in which they operate and the impact this has on their competitive advantage. They need to be able to challenge the traditional thinking and develop an innovative culture through learning and knowledge management in order to re-orientate and reformulate competitive strategies, in order to sustain their advantage in the market. They must have the ability to appraise strategic marketing decisions and assess strategic options with regard to the potential return on any investments made.

 

 

 

 

 

 

Credit:ivythesis.typepad.com

Performance Appraisal System at Hewlett-Packard

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.

 

Hewlett-Packard – Sustainability Integration Case Study. Stratos: Strategies for Sustainability. Retrieved June 11, 2008. from http://www.stratos-sts.com/publications/SI_Report_Case_Study_HP.pdf

 

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+.

 

London, M. (1997). Job Feedback: Giving, Seeking and Using Feedback for Performance Improvement. Mahwah, NJ: Lawrence Erlbaum Associates.

 

Nelson, D. L. and Quick, J. C. (2006). Organizational Behavior: Foundations, Realities, and Challenges. Thomson South-Western.

 

Peters, T. J. and Waterman, R. H. (1982). In Search of Excellence: Lessons from

            America's Best Run Companies. London: Harper and Row. 

 

Rudman, R. (2003). Performance Planning and Review: Making Employee Appraisals Work. Crows Nest, N.S.W.: Allen and Unwin.

 

Sims, R. (2002a), Organizational Success through Effective Human Resources Management. Westport, CT: Quorum Books.

 

Sims, R. (2002b). Managing Organizational Behavior.             Westport CT: Quorum Books.

 

Snell, S. A. (1992). Control Theory in Strategic Human Resource Management: The Mediating Effect of Administrative Information. Academy of Management Journal, 35, 292-327.

 

 

 

 

 

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?

 

 

 

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