Chapter – 4: (of IHRM)

Performance Management Dr. Shyamal Gomes

Introduction: Since organizations exist to achieve goals, the degree of success that individual employees have in reaching their individual goals is important in determining organizational effectiveness. The assessment of how successful employees have been at meeting their individual goals, therefore, becomes a critical part of human resource management. In case of multinationals, several new dimensions, mostly cross culture related, influence the process. The evaluation of performance of expatriate is very much linked with the performance of subsidiaries, which they are sent to manage. Multinationals are groups of subsidiaries that are collaboratively trying to achieve sustainable competitive advantage through mutually supportive goals. The evaluation of performance of individual subsidiary becomes complex, and this has to be taken into account while evaluating the performance of expatriates. What is Performance? The degree or extent with which an employee applies his / her skill knowledge and efforts to a job, assigned to him/ her and the result of that application. Appropriate outcomes and behavior against expectation of specific goal and terms & conditions, is performance. What is PM? The holistic process of identifying, evaluating and developing the work performance of employees in the organization so that the organizational Goals and objectives are more effectively achieved, while at the same time benefiting employees in terms of recognition, receiving feed back, catering for work needs and offering career guidance to face stiff domestic and international competition. In the HR cycle presented by Tichy, Fombrun and Devenna, selection process is the main variable influencing directly the ‘performance’ as also the ‘employee development process’.The four generic processes ; Selection, PA, Reward management and HRD reflects sequential managerial tasks. Performance is act here a function of all the huma

Reward

Appraisal

Development

PerformanceR&S

Since Performance Management is the central process of the HR cycle it influence the following essential processes:

Human resource planning Training and development Rewards and promotions Relationship with strategy

However, it can say that performance management is the most important responsibility of HR executives in Global organizations. A multinational, whether it is global, transnational, multi – domestic or international, has a global strategy and goals. In this strategy, the role of foreign subsidiaries is to help achieve the overall goals of the firm, which may include supporting another subsidiary as its own cost. Therefore, individual subsidiary performance is evaluated according to the expectations and appropriate outcomes and behavior that contribute to organizational goal attainment.

Therefore, Performance management of expatriate is a process that enables a multinational to evaluate and continually improve individual subsidiary performance against clearly defined pre set targets and goals. Story and Sisson (1993) emphasis four sub process:

Setting clear goals for each unit, department and every individual employee. Setting standard and measurement criteria for evaluating each type of goal. Formal monitoring and review of progress towards these objectives. Using the outcomes of the review process to reinforce desire employee behavior through

differential rewards and identifying training and development needs. However, Clarke (1995) stresses one additional performance management activity – that feed back to the employee. Variable that influence Performance of Expatriate: Performance can be viewed as a combination of several variables such as motivation, ability, working conditions, clarity of goals and roles, and expectations, the following factors and their interrelationships affect performance assessment of expatriates: 1. Compensation package 2. Nature of assignment (assignment task variables and role of expatriate) 3. Support from head quarters

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4. Environment in which performance occurs; and 5. Cultural adjustment of the individual and the accompanying family members.

Compensation Package:

Compensation is one of the key factor closely associated with expat’s performance. Well compensated expatriates definitely happier and more productive. Pay, according to Herzberg's two factor theory of motivation, is a hygiene factor which

when adequately provided for removes dissatisfaction but fails to activate motivation and performance.

But money continues to remain as one of the most significant motivators for expats. Tasks :

An expatriate is sent on an overseas assignment either as chief executive, system replicator, trouble shooter or as a simple operator.

Whatever, the nature of assignment, task has considerable impact on an individual’s performance.

A tougher task tends to evolve better performance than a job which is relatively easy to handle.

People tend to show their best when the job is tough and challenging. Head quarter’s support:

Home office support is a crucial in expatriate performance. An assignee has accepted an overseas job for three objectives: making extra money,

career prospectus and loyalty to the organization and commitment to make the firm successful.

It is necessary that the home office extends support and offer moral courage by psychological counseling, particularly in times when the expatriate is passing through a culture shock.

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Host Environment:

Environment wields considerable influence on performance, particularly of the expatriate. If the host environment is hostile, expatriate are under constant pressure and often, there is a threat to their life itself.

The form of ownership of the subsidiary is also important. For instance, it may be relatively easier to perform in a wholly owned subsidiary than in a joint venture with a state owned enterprise in China.

Conflicting goals between parent companies are a common problem within international joint ventures and can make the expatriate’s job more difficult.

Cultural Adjastment:

The ability to live comfortably in an alien culture – is essential for the success of an

expatriate. Multicultural adjustability refers to being sensitive to the host culture, the expat’s multicultural sensitivity, language ability, diplomacy, adaptability, positive attitude, emotional stability and maturity.

It is not enough if the expat. Alone acquires cross cultural adjustability. The trailing spouse to adjust is often a major reason behind expatriate failure

The international HR Manager should decide on 3 key areas while assessing an expatriate’s performance: - Specific performance criteria - Identifying the appraisers - deciding on the frequency of appraisal EExxppaattrriiaattee’’ss ppeerrffoorrmmaannccee aapppprraaiissaall

The criteria for assessing performance should be clear, relevant, practical and reliable if assessments were to be meaningful.

Basically there are three categories of performance indicators:

1. Trait based (soft goal) – leadership style, interpersonal skill etc. 2. Behavior based (contextual goals) – attempts to take into consideration factors that results

from the situation in which performance occurs. 3. Result based (Hard goals) – objectives, quantifiable, and can be directly measured such as

Return On Investment (ROI), market share and so on.

However, a new approach that has been increasingly used to identify performance criteria is - Balance score Card (BSC), propounded by Drs. Robert Kaplan (HBS) and David Norton in the early 1990s.This approach identifies 4 critical perspectives on organizational performance that might act as the basis for effective performance criteria: 1. The financial perspective – LT & ST financial perspective. 2. The internal business perspective – production and operational statistics. 3. The customer perspective – customer retention and satisfaction. 4. The innovation and learning perspective – learn & grow (HR towards company’s

benefits) 5. Typically, employees are appraised by the immediate managers / leaders. In fact, the

reporting manager / leader is the most appropriate person at least for 3 reasons: 6. More familiar 7. No question of undermined. 8. Responsible for coaching and improvement

9. But this can pose problem for subsidiary managers who are not in position to see on a day to day basis how the expatriate performs in a particular situation. Therefore,

Appraisers

Subsidiary’s CEO The immediate host country supervisor The individual’s home country manager Depending on the nature and the level of position concerned.( Tahvanainen 1998)

Imagine, a situation where the subsidiary Head is a French and the expatriate is an Indian. Or the head of a subsidiary is a Japanese and the team member is a Chinese. The performance Evaluation tends to be biased either for or Against the assignee, because of the cultural Predilections of the manager / leader. However, some common practices adopted by the industry are:

Matrix reporting – it is the dual reporting to the functional as well as the unit operational head, whereby appraisal is carried out (usually independently) by the two reporting managers and then weighted out, depending on what percentage each manager deserves. It is usually a 50% weight age for scores by each of the reporting managers.

Use of Multiple appraisers (popularly called the 360 – degree appraisal technique) are increasingly being used to assess performance of expatriate’s .

How often the employees should be assessed is a relevant question?

Once in a three months? Once in a six months? Once in a year?

According to a survey conducted in 1997 by Arthur Anderson, 70% of the organizations conduct performance appraisals once a year and many of the organizations are multinationals.

An important, aspects of an effective performance management system is the provision of timely feed back of the evaluation process.

Regularly feedback is an important aspects in terms of meeting targets and revising goals,

as well as assisting in motivation of work effort.

The difficulty for the expatriate who is being evaluated by a geographically distant manager is that timely, appropriate feedback is only viable against hard criteria.

Balancing HQ and Host Unit Performance – Due to the decline in sales of the headquarters, there is a conscious reduction in the investment at the subsidiary level which could significantly impact the sub unit’s performance evaluation.

Attention to external forces – new tax laws, Government regulations, Import / export tariffs, political instability etc.

In flexible approach – this could result in the subsidiary pursuing strategies which are no longer fit for the new environment. Volatility and fluctuations in the market due to warlike situations/ terrorism, could make goals and deadlines set by the distant HQ’s strategy team unrealistic and impractical.

Significance of Time and Distance – Lack of face to face interactions and high degree of physical distance compounds the challenges of assessing performance across geographies.

Variable level of Maturity – Growth in a foreign country is generally slower and more difficult to achieve than in the home country. There is more time needed to show any results and the effort required is often a lot more and cannot be compared against any other benchmark, internally and externally.

Appraisal of HCN Employees:

1. Japan: It is important to avoid direct confrontation to ‘save face’ and this customs affects the

way in which the performance appraisal is conducted. A Japanese manager can not directly point out a work related problem or error committed

by a sub ordinate. Developmental appraisal is usually conducted every month and evaluation appraisal is

performed after 12 years. Feed back is subtle and given orally, Japanese employees never rebut. Appraisal process praise is given to the group.

2. U.S.A:

Workers performance appraisals featured the us cultural concept of meritocracy, which emphasis fairness and a short term orientation.

Employee expect to be appraised individually and heavily on individual feedback regarding performance.

P.A in the US are usually conducted once a year. Feedback in the US process is direct and probably in writing. US employees tend to present their own rebutted to the feed back Appraisal process praise is given individually

Conclusion:

Performance management comprises such HR activities as assessing performance, providing feedback and using appraisal data for several purposes. What is needed is that PM should be institutionalized – become a system. PMS then involves seven sequential steps: 1. Clear individual performance criteria and standards that are related to the job / role and

that are communicated clearly at the start of the appraisal period. 2. Adequate training and communication for all parties. 3. Continuous measurement and feedback. 4. Developmental activities occurring through the appraisal period in order to remedy poor

performance and to build on good performance. 5. Performance appraisal based on job related result and behaviors, rather than personal

characteristics. 6. Attribution of good or poor performance to correct causes, with clear and direct two way

communication regarding good and poor aspects of performance. 7. Formulation of plans to correct poor performance and to build on good performance in

the future.

Prepared by: Dr. Shyamal Gomes