MBO Process: The main steps involved in the MBO technique of performance appraisal are as follows:
Steps
1. Set Organisational Goals:
Goals of the organisation have to be set after a thorough analysis of internal environment (strengths and weaknesses) and external environment (opportunities and threats) of the organisation. The goals set should be defined in clear, precise and measurable terms. Goals should be challenging and attainable.
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2. Defining Performance Targets:
Every subordinate writes down his own performance goals, which are work-related and career-oriented. His manager also writes down the goals he thinks the subordinate should strive for.
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The two then discuss them, reach an agreement and put the agreed goals in writing. Thus, employees at all levels are actively involved in goal setting. Joint goal setting and joint action planning are essential elements of appraisal through MBO.
Clear attainable goals help channel energies in the right direction and let the employee know the basis on which he will be judged. The goals are periodically reviewed and revised to keep them flexible and up-to-date.
3. Performance Reviews:
Frequent performance review meetings between the manager and the subordinate are held. In the review meetings, progress is assessed, weaknesses and constraints are identified and steps to be taken to improve performance are decided. Subordinates actively participate in this process.
4. Feedback:
After every performance review, feedback on performance is communicated to the employee so that he can regulate and improve upon his own performance. On the basis of performance review rewards are decided. New goals and performance targets are determined for the next period.
Benefits of MBO:
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1. MBO provides a way for objectively measuring the performance of subordinates. An employee knows in advance the results expected of him and the basis on which his performance will-be judged.
2. Judgmental role of the superior is avoided and subordinates are provided the opportunity for self-appraisal.
3. Co-ordinates individual performance with company goals. MBO makes goals more explicit and focuses attention on key result areas. This helps to ensure that activity of every person is ultimately contributing towards organisational goals.
4. Clarifies the job to be done and defines expectations of job accomplishment. Every individual understands his area of work and the role he is to play in the organisation. Responsibility for results in clearly defined and there is no misunderstanding as to performance goals.
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5. Improves superior-subordinate relationship through a dialogue that takes place regularly.
6. Active participation of subordinate in goal setting and performance reviews helps to satisfy ego and self-actualisation needs. Job satisfaction and morale of employees tend to be higher.
7. Fosters increased competence, personal growth and opportunity for career development.
8. Continuous feedback and opportunities for self-control help to develop the leadership potential of lower level executives.
9. Stimulates self-motivation, self-discipline and self-control.
10.Harmony between objectives at different levels provides a sense of common direction to all. It becomes easier to initiate and implement organisational change.
11.Serves as a device for integration of many management functions.
12.Supplies a basis for more equitable salary determination, especially incentive bonuses.
Limitations of MBO:
1. It often lacks the support and commitment of top management.
2. Its objectives are often difficult to establish. It is often difficult to set truly verifiable goals for all jobs. Short-term immediate goals may over-ride long term goals.
3. Traditional hierarchical structures and authoritative attitudes do not allow active participation of subordinates in goal setting.
4. MBO programme involves considerable time, energy and expenditure. Its implementation can create excessive paperwork if it is not closely monitored.
5. MBO can be self-defeating if it fails to take into considerations the deeper emotions of people.
6. MBO often fails due to lack of knowledge about the philosophy and process of MBO. Failure to carefully monitor the system is also a problem.
Quite often while using MBO as an appraisal tool, people comment “MBO is okay in theory but not good in practice”. There is an element of truth in this statement. In practice all leadership styles may not be compatible with the participative culture advocated by MBO. All jobs do not fit in with the philosophy advocated by MBO. In traditional appraisal techniques, all personnel are rated on common factors.
In MBO, each person will have different sets of goals of non-comparable complexity and degree of accomplishment.
3. Assessment Centre Method:
This method of appraising was first applied in the German army in 1930. Later business organisations also started using this method.
This is not a technique of performance appraisal by itself. In fact, it is a system, where assessment of several individuals is done by various experts by using various techniques.
In this approach, individuals from various departments are brought together to spend two or three days working on an individual or group assignment similar to the ones they would be handling when promoted.
Evaluators observe and rank the performance of all the participants. Experienced managers with proven ability serve as evaluators.
This group evaluates all employees both individually and collectively by using simulation techniques like role playing, business games and in basket exercises.
An assessment centre generally measures interpersonal skills, communicating ability, ability to plan and organise etc.
Personal interviews and projective tests are used to assess work motivation, career-orientation and dependence on others. Paper and pencil tests are used to measure intellectual capacity.
In order to make this method effective, it is necessary to
1. State the goals clearly
2. Obtain top management support
3. Conduct job analysis
4. Train the assessor and
5. Periodically evaluate and revise the assessment programme.
4. Human Resource Accounting Method:
Human resources are a valuable asset of any organisation. This asset can be valued in terms of money. When competent, and well- trained employees leave an organisation, the human asset is decreased and vice versa.
Human resource accounting deals with cost of and contribution of human resources to the organisation.
Cost of the employee includes cost of manpower planning, recruitment, selection, induction, placement, training, development, wages and benefits etc.
Employee contribution is the money value of employee service which can be measured by labour productivity or value added by human resources. Difference between cost and contribution will reflect the performance of employees.
Human resource accounting method is still in the transition stage.
5. Psychological Appraisals:
Psychological appraisals are conducted to assess the employee potential. It is conducted in the areas of employees’
(a) Intellectual abilities
(b) Emotional stability
(c) Reasoning and analytical abilities
(d) Sociability
(e) Interpretation and judgement skills
(f) Motivational responses
(g) Ability to foresee the future
Psychological appraisal results are useful for decision-making about employee placement, career planning and development, training etc.
6.360 Degree Appraisal:
It is a method of appraisal in which people receive performance feedback from those on all sides of them in the organisation-their boss, their colleagues and peers and their own subordinates.
Thus, the feedback comes from all around them, 360 degrees.
This form of performance evaluation can be very beneficial to managers because it typically gives them a much wider range of performance-related feedback than a traditional evaluation. What is 360 degree feedback?
360-degree feedback is a method and a tool that provides each employee the opportunity to receive performance feedback from his supervisor and four to eight peers, reporting staff members, co-workers and customers. Most 360 degree feedback tools are also responded to by each individual in self-assessment.
360 degree feedback allows each individual to understand how his effectiveness as an employee, co-worker, or staff member is viewed by others.
The most effective processes provide feedback that is based on behaviours that other employees can see.
The feedback provides insight about the skills and behaviours desired in the organisation to accomplish the mission, vision, and goals and values.
The purpose of the 360 degree feedback is to assist each individual to understand his strengths and weaknesses, and to contribute insights into aspects of his work for professional development.