1.

Management by objectives (MBO)

Management by objectives (MBO) is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to by both
management and employees. It is designed to align objectives throughout an organization and boost
employee participation and commitment. The once who practice claims that the major benefits of
MBO are that it improves employee motivation and commitment and allows for better
communication between management and employees. However, a cited weakness of MBO is that it
extremely emphasizes the setting of goals to attain objectives, rather than working on a systematic
plan to do so.

MBO outlines five steps that organizations should use to put the management technique into
practice.

1. The first step is to either determine or revise organizational objectives for the entire
company. This broad overview should be derived from the firm’s mission and vision.
2. The second step is to translate the organizational objectives to employees. In 1981, George
T. Doran used the phrase SMART (specific, measurable, acceptable, realistic, time-bound) to
express the concept.
3. Step three is stimulating the participation of employees in setting individual objectives. After
the organization’s objectives are shared with employees, from the top to the bottom,
employees should be encouraged to help set their own objectives to achieve these larger
organizational objectives. This gives employees greater motivation since they have greater
empowerment.
4. Step four involves monitoring the progress of employees. In step two, a key component of
the objectives was that they are measurable for employees and managers to determine how
well they are met.
5. The fifth step is to evaluate and reward employee progress. This step includes honest
feedback on what was achieved and not achieved for each employee.

Eg: ICICI BANK performance appraisal environment

The bank is using the Management by Objectives (MBO) method. In this method the subordinate in
consultation with the supervisor chalks out short term objectives followed by specific actions that he
has to carry out. The goals are finally set and are action oriented. The goals set are specific,
measurable, achievable, review able and time bound and most importantly they use to be aligned
with the goal of the organization. At the end of a specified time period, the activities are jointly
reviewed by both the subordinate and his supervisor. Depending on the performance of the
subordinate, the goals are modified or redesigned for the next period of time. The MBO is thus a
performance oriented system.

2. 360-degree feedback

360-degree feedback is a multidimensional performance appraisal method that evaluates an

employee using feedback collected from the employee’s circle of influence namely managers, peers,
customers, and direct reports. This method will not only eliminate bias in performance reviews but
also offer a clear understanding of an individual’s competence.

This appraisal method has five integral components like:

1. Self-appraisals

Self-appraisals offer employees a chance to look back at their performance and understand their
strengths and weaknesses. However, if self-appraisals are performed without structured forms or
formal procedures, it can become lenient, fickle, and biased.

2. Managerial reviews

Performance reviews done by managers are a part of the traditional and basic form of appraisals.
These reviews must include individual employee ratings awarded by supervisors as well as the
evaluation of a team or program done by senior managers.

3. Peer reviews

As hierarchies move out of the organizational picture, coworkers get a unique perspective on the
employee’s performance making them the most relevant evaluator. These reviews help determine
an employee’s ability to work well with the team, take up initiatives, and be a reliable contributor.
However, friendship or animosity between peers may end up distorting the final evaluation results.

4. Subordinates Appraising manager (SAM)

This upward appraisal component of the 360-degree feedback is a delicate and significant step.
Reportees tend to have the most unique perspective from a managerial point of view. However,
reluctance or fear of retribution can skew appraisal results.

5. Customer or client reviews

The client component of this phase can include either internal customers such as users of product
within the organization or external customers who are not a part of the company but interact with
this specific employee on a regular basis.

Customer reviews can evaluate the output of an employee better, however, these external users
often do not see the impact of processes or policies on an employee’s output.

Advantages of using 360-degree feedback:

Increase the individual’s awareness of how they perform and the impact it has on other stakeholders

Serve as a key to initiate coaching, counselling, and career development activities

Encourage employees to invest in self-development and embrace change management

Integrate performance feedback with work culture and promote engagement

Ideal for:
Private sector organizations than public sector organisations as peer reviews at public sector
organizations are more lenient.

Common reason for failure:

Leniency in review, cultural differences, competitiveness, ineffective planning, and misguided

feedback

Example:

The annual “Performance Appraisal” is usually done in two steps. First, the employees and their
manager complete the “Performance Appraisal” form – doing a self-assessment. Often the bank also
uses a 360 degree feedback process, asking for input from peers. Secondly, the bank employees and
manager participate in a formal “Performance Appraisal” interview. The appraisal form, used in the
first step, consists of performance standards and criteria that are used to judge evaluate your
performance. The items comprising your job description are usually the performance standards that
are used in employees annual appraisal .The performance standards are derived from a job analysis,
which is a detailed list of all of the skills involved in performing a task. For example, what are the
skills necessary to perform a complete blood count? The criteria are used to determine the level of
performance, which can be excellent, average, or poor (or alternatively meets, exceeds or does not
meet standards). Once appraisal is complete, score is averaged and merit raise.

3. Forced distribution method

Forced distribution is a method of employee performance appraisal that many companies use. We
also call it the forced distribution method, stacked ranking, or bell-curve rating. It is a rating system
that employers use to evaluate their workers. Managers must evaluate each employee, usually into
one of three categories, i.e., poor, good, or excellent. There may be more categories.

Although forced distribution is extremely popular among companies, it is somewhat controversial

among HR experts

Opponents say it can create undesirable competition or unhealthy rivalry among employees. It can
also trigger resentment and low morale.

Additionally, critics say that it is not possible to categorize some employees within one of the three
categories. They say that the category of some workers do not reflect their true performance.

Pros

It can boost productivity. If all workers fear slipping to a ‘poor’ ranking, they will work harder to
remain as ‘good’ and ‘excellent’ performers.

Forced distribution often causes worker morale problems. Many employees who find themselves
with a middle ranking, feel that they should be higher up.
Hard working employees especially resent not being in the top categories.

example

Force distribution method is a very old method that is widely used by large organization in India
such as Infosys, ICICI Bank, Aditya Birla Group (Saumya Bhattacharya & Shreya Roy, 2014).

4. Rating Scale

The usage of rating scales is a widespread and well-established conventional method of evaluating
an employee's performance in the workplace. Airtel and Maruti Suzuki are two Indian businesses
that use this approach to analyse their staff members and then make decisions on those who may be
in question.

Graphic rating scale;

A graphic rating scale, often known as a Likert scale, is a performance evaluation technique that
specifies the attributes and behaviours that are ideal for each function before assigning a numerical
grade to each one. Punctuality, work quality, job knowledge, teamwork, accountability,
responsibility, etc. may be among the qualities.

This aids a company in assessing employee performance levels, boosting effectiveness and
productivity, and determining whether to promote or change salaries. HR managers can also collect
quantitative information about numerous employee characteristics in relation to a particular job
description using the visual rating scale method.

Graphic rating scales are used in many surveys, they normally consist of four or five rating criteria
listed, such as – unsatisfactory, below expectation, satisfactory, above average, outstanding.

Advantages:

Structured and standardised, equal treatment, and easy to use and understand.

Disadvantages: not suitable for planning, limited reliability, difficult to evaluate other aspects.

This method is popular because it is simple to use and does not require expertise or comprehensive
writing ability, it is easy to understand.
Types of rating scales:

5. Cost accounting method

Cost accounting method of performance appraisal is the process of evaluating monetary benefits
yield to the organization from the job performance of an employee. In other words, this method is
used to analyze the cost of keeping the employee and the benefits the company derives from
his/her presence and / or absence.

There are some major points which are considered while evaluating employee under this approach.
They are:

• Average value of unit cost of production of goods and services

• Quality of the goods and services produced
• Overhead cost incurred (lighting, electricity, equipment, etc.)
• Extra-expenses (accident, error, damage, wear and tear of tools and equipment)
• Relationship with customers and clients
• Cost of the time spent by the supervisor in appraising the employee

Implementation of accounting policy and lower costs helped Tata Motors post a 58% jump in net
profit in the June quarter.

The company recorded its highest operating margins, Ravi Kant, vice-chairman, said, while conceding
that it would be a challenge to maintain this in the coming quarters.

Operating margins improved to 11.4% from 7.1% the previous year, perhaps boosted by the
reduction in raw material cost, which the company said will continue to benefit it in the coming
quarters, and other expenditure.