International human resource management lesson 05

88 International Human Resource Management LESSON PERFORMANCE APPRAISAL IN A GLOBAL CONTEXT CONTENTS 5.0 Aims and Objectives 5.1 Introduction 5.2 Performance Management and its Link with other HR Processes 5.3 Performance Appraisal in Global Context 5.3.1 Whole versus Part 5.3.2 Non-comparable Data 5.3.3 Volatility of the International Environment 5.3.4 5.3.5 Separation by Time and Distance Variable Levels of Maturity 5.3.6 Headquarter-subsidiary Interdependence 5.3.7 Ethical and Legal Issues 5.3.8 Market Maturity 5.4 Relocation Performance Management 5.4.1 Variables that Influence Relocation Performance 5.4.2 Criteria used for Performance Appraisal of International Employees 5.4.3 Appraisal of HCN Employees 5.5 Performance Management — Two Examples 5.5.1 Exxon 5.5.2 General Motors 5.6 Culture and Organisational Performance 5.6.1 Link between Culture and Organisational Performance 5.7 Competence Approach to HRM 5.7.1 Management Competences Approach 5.7.2 European and International Competences 5.7.3 5.7.4 Cultural Regard for Managers and their Competences Different Degrees of Internationalisation of Companies 5.7.5 Problems Inherent within the Competences Model 5.7.6 Job Satisfaction 5.8 Recent Innovative Methods in IHRM 5.9 Let us Sum up 5.10 Lesson End Activity 5.11 Keywords 5.12 Questions for Discussion 5.13 Suggested Readings 89 Performance Appraisal in a Global Context 5.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: Understand the basics of performance management Describe the criteria for performance appraisal of international employees Discuss competency approach to performance appraisal 5.1 INTRODUCTION One of the most challenging aspects for a firm operating internationally is managing the performance of its various international facilities Since organisations exist to achieve goals, the degree of success that individual employees have in reaching their individual goals is important in determining organisational effectiveness The assessment of how successful employees have been at meeting their individual goals, therefore, becomes a critical part of human resource management The evaluation of performance of expatriates is very much linked with the performance of subsidiaries, which they are sent to manage Figure 5.1 illustrates the basic components of international performance management It provides a convenient starting point of the link between the multinational’s internationalization strategies, its goals for individuals international operations in terms of contribution to global profitability, and individual performance management, whether PCN, TCN or HCN This is important since an individual’s performance is evaluated according to expectations of appropriate outcomes and behaviour that contribute to organizational goal attainment Multinational’s Internationalization Strategies and Goals Subsidiary Goals Individual (PCN, TCN, HCN) Job Analysis Job Goals and Standards Performance Appraisal Source: P J Dowling et al International HRM (2001), p 119 Figure 5.1: Basic Components of International Performance Management 90 International Human Resource Management 5.2 PERFORMANCE MANAGEMENT AND ITS LINK WITH OTHER HR PROCESSES Performance management is the central process of the human resource cycle because it influences the following essential processes: Rewards management Human resource planning Training and development process Relationship with strategy An effective performance system at the strategic level depends upon the commitment of quality management time of senior executives, including the CEO It can be said that performance management is the most important responsibility of HR executives in global transnational organisations 5.3 PERFORMANCE APPRAISAL IN GLOBAL CONTEXT The multinational has specific expectations for each of its foreign affiliates in terms of market performance and contribution to total profits and competitiveness When evaluating subsidiary performance against these expectations, it is important to recognize various constraints that may affect goal attainment We identify five major constraints 5.3.1 Whole versus Part A multinational is a single entity that faces an international environment Integration and control imperatives often place the multinational in the position where it decides that the good of the whole is more important than one subsidiary’s short-term profitability In an example provided by Puick (1985) a multinational establishes an operation in a particular market where its main global competitor has a dominant position The objective of entering the market is to challenge the competitor’s cash flow with aggressive pricing policies Puick (1985) explains that the balance sheet of this particular subsidiary might be continually in the red, but this strategy, by tying up the competitor’s resources, may allow substantially higher returns in another market In another situation the multinational establishes a joint venture in a particular market in order to have a presence there, even though it has low expectations in the short-term, and may provide minimum resources to the venture Undoubtedly, the consequences of such global decisions for subsidiary management must be taken into consideration for performance evaluation 5.3.2 Non-comparable Data Frequently, the data obtained from subsidiaries may not be interpretable As Garland et al (1990) illustrates: Sales in Brazil may be skyrocketing, but there are reports that the Brazilian government may impose tough new exchange controls within a year, thus making it impossible for the multinational to repatriate profits Is the subsidiary performing effectively? Sales in Peru may be booming, but headquarters management was unaware that under Peruvian accounting rules, sales on consignment are counted as firm sales How should the headquarters accounting system handle these sales relative to sales from other subsidiaries that not consider sales on consignment as firm sales? Garland et al (1990) further explain that physical measures of performance may be easier to interpret than in the above examples, but difficulties may still arise For instance, notions of what constitutes adequate quality control checks can vary widely from one country to another, import tariffs can distort pricing schedules, a dock strike in one country can unexpectedly delay supply of necessary components to a manufacturing plant in another country, and local labour laws may require full employment at plants that are producing at below capacity These factors can make an objective appraisal of subsidiary performance problematic, and may complicate the evaluation of individual subsidiary managers 5.3.3 Volatility of the International Environment The turbulence of the international environment requires that long-term goals be flexible in order to respond to potential market contingencies According to Puick (1985), an approach may mean that subsidiaries could be pursuing strategies that no longer fit the new environment Consider, for example, the impact on international business of major events in the last decade such as the collapse of communist rule beginning in 1989 throughout Eastern Europe and the former Soviet Union, the Persian Gulf War in 1991, the formation of the Single European Market in 1992, recent market reforms in China, the handover in 1997 of the British colony of Hong Kong to the control of the People’s Republic of China (PRC), and the current economic downturn in the so-called ‘tiger’ economies of South-East Asia Each of these events has profound implications for the global and local strategies of multinationals operating in these countries Because subsidiaries operate under such volatility and fluctuation, they must tailor long-term goals to the specific situation in a given market 5.3.4 Separation by Time and Distance Judgments concerning the congruence between the multinational and local subsidiary activities are further complicated by the physical distances involved, time-zone differences, the infrequency of contact between the corporate head-office staff and subsidiary management, and the cost of the reporting system Developments in sophisticated worldwide communication systems, (Puick, 1985) such as video telephone, teleconference, and e-mail not fully substitute for face-to-face contacts between subsidiary managers and corporate staff Meeting personally is often necessary to fully understand each person’s situation For this reason many multinational corporate managers spend a considerable amount of time travelling in order meet expatriate and local managers in foreign locations It is then possible for HR corporate staff, when designing performance management systems, to take account of country-specific factors 5.3.5 Variable Levels of Maturity According to Puick (1985) without the supporting infrastructure of the parent, market development in foreign subsidiaries is generally slower and more difficult to achieve than at home where established brands can support new products, and new business areas can be cross-subsidized by other divisions For example, one does not fire a Mexican manager because worker productivity is half the American average In Mexico, that would mean that this manager is working at a level three or four times as high as the average Mexican industrial plant The harassed Mexican manager has to live with Mexican constraints, not European or American ones, and these can be very different The way we measure worker productivity is exactly the same, but the numbers come out differently because of that environmental difference (Garland et al., 1990) 91 Performance Appraisal in a Global Context 92 International Human Resource Management 5.3.6 Headquarter-subsidiary Interdependence How a subsidiary performs depends, to a large extent, on how well the multinational as a whole supports it, how much autonomy is granted in making its own strategy and implementation 5.3.7 Ethical and Legal Issues Many multinationals assess performance using result-oriented measures It may be important, however, to assess how the subsidiary management is achieving its results 5.3.8 Market Maturity Some markets are simply less developed than others Subsidiaries in these markets where the supporting infrastructure is not available, may perform much less well in interns of sales volume than subsidiaries in more established markets This makes any purely bottomline assessment of performance inappropriate The productivity levels of people are very different in different parts of the world In countries like India, infrastructural and government delays are so frustrating that a multinational unit may not succeed in obtaining timely clearances, resulting in long project overruns in time and cost In short, there are a number of significant constraints that must be considered when evaluating the performance of a foreign subsidiary and expatriates working there Check Your Progress What are the constraints that may affect goal attainment of performance appraisal? 5.4 RELOCATION PERFORMANCE MANAGEMENT Performance management 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-processes: 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 behaviour through differential rewards and identifying training and development needs Clarke (1995) stresses one additional performance management activity—that of feeding back to the employee 5.4.1 Variables that Influence Relocation Performance 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: (a) Compensation package; (b) Nature of assignment (assignment task variables and role of expatriate); (c) Support from headquarters; (d) Environment in which performance occurs; and (e) Cultural adjustment of the individual and the accompanying family members Figure 5.2 depicts these variables and form the basis on which will be explored both the nature of the expatriate assignment, how performance is managed, the criteria for assessment, and other elements that comprise an effective performance management system Generally, we use the term expatriate to cover both PCNs and TCNs, since much of the following is applicable to both Dowling (2001) Cultural Adjustment—Self —Family Host Environment Headquarter’s Support Task Compensation Package Expatriate Performance Figure 5.2: Variables Affecting Expatriate Performance Compensation Package It is essential to first recognize the importance of remuneration and reward in the performance equation Perceived financial benefits, along with the career progression potential associated with an international assignment, are often important motives for assignment The level of motivation and commitment is likely to decrease, thus affecting performance The issues surrounding compensation will be examined in greater detail in the chapter on compensation Task Expatriates are assigned to foreign operations to fulfil specific tasks Hays (1974) identifies four expatriate task roles: The chief executive officer, or subsidiary manager, oversees and directs the entire foreign operations The structure reproducer carriers the assignment of building or reproducing in a foreign subsidiary a structure similar to that which he or she knows from another part of the company The troubleshooter is the individual sent to a foreign subsidiary to analyze and solve a particular operational problem The operative performance functional job tasks in an existing operational structure, in generally lower-level, supervisory positions 93 Performance Appraisal in a Global Context 94 International Human Resource Management In her study of expatriate performance management Tahvanainen (1998) identifies the Finnish multinational, Nokia Telecommunications, its project employees in five categories of personnel: top managers, middle managers, business establishers, research and development (R&D), project personnel There are clear differences in the way performance management is approached within these groups For example, middle managers play a moderate role in establishing performance goals, whereas business establishers play a strong role in establishing their performance goals Although an individual may affect how a role is interpreted and performed, the role itself is predetermined (Mintzberg, 1973) For the expatriate (role receipt) the parent company (role sender) predetermines his role in the foreign assignment, and role expectations may be clearly communicated to the expatriate before departure Black and Porter (1991) found that American expatriates working in Hong Kong exhibited similar managerial behaviour to those employees remaining in the United States In the absence of incentives to modify their role behaviour when abroad, it is not surprising that the expatriates concerned performed as they did Communication of role conception from the multinational to the expatriate is indicated by the straight arrows in Figures 5.3 and 5.4 Role conception is also communicated to the role recipient by host-country stakeholders (e.g., subsidiary employees, host government officials, customers, suppliers, etc.) as shown by the dashed arrows This, however, crosses a cultural boundary Role behaviour provides the feedback loop, again at two levels: the parent and host-country stakeholders Trying to perform to differing expectations may cause role conflict If the PCN manager adapts his role behaviour according to the role conception communicated in the host environment, it may conflict with that predetermined at headquarters Multinational (role sender) Communicates role conception PCN manager (role recipient) Cultural Boundary Host-country stakeholders (role senders) PCN manager’s role behaviour Source: International Studies of Management & Organization (1985) vol 15 (1) p 60 Figure 5.3: PCN Role Conception If the PCN is to identify too closely with host subsidiary concerns, he may be recalled Some multinationals will restrict the length of stay to no more than three years to contain the possibility of PCN identification with local concerns Because of the importance given to the parent as role sender in performance evaluation, a PCN may elect to ignore role communication sent from the host-country stakeholders if he considers that performance evaluation is determined by how role behaviour conforms to headquarters expectation 95 Performance Appraisal in a Global Context Cultural Boundary Communicates role conception Parent company (role sender) TCN manager (role recipient) Cultural Boundary Host-country stakeholders (role senders) TCN manager’s role behaviour Source: International Studies of Management & Organization (1985) vol 15 (1) p 60 Figure 5.4: TCN Role Conception Role expectations are likely to be more complex for the TCN than the PCN, because the role is defined by and performed in two countries other than the TCN’s own For example, a U.S manager working for a Dutch multinational posted as a TCN in Indonesia may face added difficulties The American’s role behaviour may be deemed in appropriate by both the parent (Dutch multinational) and the host nationals (Indonesians) An American manager working in Indonesia whether as a PCN or TCN may encounter lack of job discretion, with same effect in terms of performance developing upon strength of other intervening variables For examples, differing role sender may exacerbate the situation through conflicting role expectations Headquarters’ Support The expatriate assignment differs from a domestic relocation because it involves the transfer of the individual and accompanying family members into a foreign environment, which is outside their normal, cultural comfort zones The individual’s primary motivation for accepting the assignment may be career or financially oriented The level of headquarters’ support provided to the individual and the family is an important performance variable that involves more than the tangible, monetary support contained in the compensation package Transactional Specific, short-term, monetizable obligations limited involvement of parties Relational Broad, open-ended, long-term obligations monetizable and socio-emotional elements Source: P J Dowling, International HRM, 2001 (p 131) Figure 5.5: The Employment Contract As depicted in Figure 5.5, the employment contract comprises two components—the transactional and the relational—contained within a broader social contract The latter 96 International Human Resource Management represents an implicit contract to execute the employment according to a set of values, beliefs and norms (Roussean, etc 1994) The transactional contract comprises the specific, short-term, monetizable obligations; the relational contract is characterized by broad, open-ended, long-term obligations based on both exchanges around monetizable elements (e.g., pay for service) and socio-emotional elements (e.g., loyalty and support) The relational element of the employment contract is connected to the concept of the psychological contract: The “beliefs that individuals hold regarding promises made, accepted, and relied upon between themselves and another” (Roussean, etc 1994) Violation of the psychological contract occurs when an individual feels that the organization has not fulfilled its obligations in return for the efforts and contributions made by the individual: Perceived violation has a negative effect on commitment and loyalty to the organisation The way in which the expatriate and family are received and supported by subsidiary staff in also important Therefore, it may be concluded that headquarters support in the foreign location is a more powerful explanatory variable in expatriate performance than is generally recognised Host Environment According to Gregerson etc (1996) the international context—with its differing societal, legal, economic, technical, and physical demands—can be a major determinant of expatriate performance Consequently, expatriate performance should be placed within its international as well as its organizational context Therefore, the five major constraints identified earlier, in terms of multinational strategy goal setting for the subsidiary, are important considerations strategy performance management The type of operation to which the expatriate is assigned is important For instance, in China it may be relatively easier to perform in a wholly-owned subsidiary than in a joint venture with a state-owned enterprise An expatriate IJV manager may have difficulty trying to serve two masters and experience a high level of uncertainty regarding the effect of differing goal expectations for the new IJV upon his performance evaluation Similarly, the stage of the international business will influence the success of the expatriate An expatriate overseeing the establishment of a new facility in a foreign country, especially in a developing or emerging market, will face different challenges and constraints than one who is posted in a mature operation Cultural Adjustment The process of cultural adjustment may be a critical determinant of expatriate job performance It is likely that expatriates and their families will have some difficulty adjusting to a new environment, and this will impact on the manager’s work performance The concept of an adjustment cycle, or curve, depicted in Figure 5.6, is helpful in demonstrating the typical phases The U-curve is based, on psychological reactions to the assignment and comprises certain phases (Black and Mendenhall, 1991) Phase begins with reactions prior to the assignment—the expatriate may experience a range of positive and negative emotions such as excitement, anxiety, fear of the unknown, sense of adventure, and so on There can be an upswing of mood upon arrival in the assignment country that produces what has been referred to as the ‘honeymoon’ or ‘tourist’ phase Then, as the novelty wears off, realities of everyday life in the foreign location begin to intrude, homesickness sets in, and a downswing may commence a feeling that the party is over (De Cieri, etc 1991) which can create negative appraisals of the situation and the location leading to a period of crisis (Phase 2) This can be a critical time, and how the individual copes with the psychological adjustment at this phase has an important outcome in terms of success or failure Once past his crisis point, as the expatriate comes to terms with the demands of the new environment, there is a pulling up (Phase 3) as the person begins to adjust to the new environment This levels off over time to what has described as healthy recovery (Phase 4) Adjustment Phase Phase Phase Phase : Crisis / Culture Shock Time Source: International Journal of Human Resource Management, 1991 (2-3) p 380 Figure 5.6: Phase of Cultural Adjustment How accompanying family members handle cultural adjustment is important It is likely that the expatriate and his family members undergo these cycles individually, but not all members of the family face the same mood at the same time Certain personality factors along with support from headquarters and spouse, and pre-departure training can shorten the period of depression and thus help in improving the performance For example, in their study of American managers in Japan, Korea, Taiwan, and Hong Kong, Black and Stephens (1989) found a high correlation between spouse and expatriate adjustment Recognizing that cultural adjustment is a major problem when bringing HCNs (including Americans) into its home operations, the Norwegian multinational, Norsk Hydro, has developed a family monitoring programme Supervised by Corporate Expatriate Services staff, Norsk Hydro employees volunteer to ‘adopt’ a visiting family The volunteers are generally employees who have worked abroad as expatriates and thus have an understanding of what it is like to move a family unit into another country 5.4.2 Criteria Used for Performance Appraisal of International Employees Individual performance management involves job analysis, job goals and standards, and performance appraisal Traditionally, it comprises a formal process of goal setting, performance appraisal, and feedback Data from this process is often used to determine pay and promotion, and training and development requirements There are differences in the way this process is handed within companies For example, in Germany and Sweden, it is common for employees to have input into job goals setting, whereas in other countries such as the United States, job goals tend to be assigned (Tahvanainen, 1998) Performance Criteria We need to recognize that hard, soft, and contextual goals are often used as the basis for performance criteria Hard goals are objective, quantifiable, and can be directly measured such as return-on-investment (ROI), market share, and so on Soft goals tend to be relationship or trait-based, such as leadership style or interpersonal skills Contextual goals attempt to take into consideration factors that result from the situation in which performance occurs Janssens (1994) suggests that performance evaluation of subsidiary managers against hard criteria is often supplemented by frequent visits by headquarter staff and meetings with executives from the parent company Soft criteria can be used to complement hard goals, and take into account areas that are difficult to quantify, such as leadership skills, 97 Performance Appraisal in a Global Context 98 International Human Resource Management but their appraisal is somewhat subjective and, in the expatriate context, more complicated due to cultural exchanges and clashes However, an appraisal system that uses hard, soft, and contextual criteria builds on the strengths of each while minimizing their disadvantages (Tahvanainen, 1998) using multiple criteria wherever possible is recommended Who Conducts the Performance Appraisal? Typically, employees are appraised by their immediate superiors, and this can pose problems for subsidiary managers They work in countries geographically distant, yet are evaluated by superiors back at headquarters who are not in the position to see on a day-to-day basis how the expatriate performs in a particular situation Appraisal of other expatriate employees is likely to be conducted by the subsidiary’s chief executive officer, the immediate host-country supervisor, or the individual’s homecountry manager, depending on the nature and level of the position concerned (Tahvanainen, 1998) Host-country managers may have a clearer picture of expatriate performance and can take into consideration contextual criteria, but they may have culturally bound biases (e.g., about role behaviour) and lack an appreciation of the impact of the expatriate’s performance in the broader organizational context Multiple rates are sometimes used in the domestic context—such as the technique referred to as “360-degree feedback” (HRM, 1993) Gregerson et al (1996) found that most firms (81%) in their survey of HR directors in 58 U.S multinationals used more than one rater when assessing expatriate performance Likewise, a survey of 99 Finnish internationally operating companies reports that 79% of respondents indicated that expatriate performance evaluation was conducted by the superior located in Finland (Tahvanainen, 1998) This was simply because there was no suitable person in the host country to conduct such evaluations Standardized or Customized Performance Appraisal Form Domestic companies commonly design performance appraisal forms for each job category, particularly those using a traditional performance appraisal approach rather than performance management Such standardization assists in the collection of accurate performance data on which personnel decision can be made and allows for cross-employee comparisons Frequency of Evaluation In practice, evaluation is commonly performed on a yearly basis, and this appears to extend to international performance systems For example, the majority of U.S firms in the Gregerson et al (1996) study reported annual appraisal practices It is interesting to note that the U.S firms using annual appraisal systems were more likely to use standard appraisal forms and hard criteria Performance Feedback An important aspect of an effective performance management system is the provision of timely feedback of the evaluation process Regular feedback is an important aspect 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 A Contextual Model of Expatriate Performance Management Tahvanainen (1998) developed a comprehensive model that illustrates how performance evaluation is both an outcome of the company’s strategies and goals (through goal setting), and an important source of information on which other personnel-related activities, such as training and development and performance-related pay, are based The organizational context is comprised of the nature of the job, the organizational structure, a standard performance management system, top-management support, size of the receiving unit (subsidiary), and the style and skills of the manager and subsidiary employees In Nokia, for example, the organizational structure emerged as important Like some of its Nordic counterparts, Nokia has adopted a global matrix form that prevails at the topmanagement level of the multinational as an overarching structure However, in some divisions, and particularly at lower organizational levels, a traditional line-management organization remains Employees within these different organizational configurations were managed differently For example, expatriates in line positions were evaluated by their host-country managers, were evaluated by host- and home-country superiors Another aspect is that clarification of performance expectations is an important element linking company strategies and goals with performance evaluation For example, expatriates working in customer project operations tended to rely more on guidance, performance review, feedback, and coaching on an ongoing, informal basis rather than Nokia’s standardized performance management system 5.4.3 Appraisal of HCN Employees Performance appraisal in different nations can be interpreted as a signal of distrust or even an insult In Japan, for instance, it is important to avoid direct confrontation to “save face,” and this custom affects the way in which the performance appraisal is conducted A Japanese manager cannot directly point out a work-related problem or error committed by a subordinate One way to overcome the dilemma of cultural adaptation is to use host-country nationals to assist in devising a suitable system for appraising the local staff in the subsidiary and to advise on the conduct of the appraisal Parent-company role conception is communicated to the HCN, but it crosses the cultural boundary, as does feedback expressed as the HCN’s role behaviour The HCN receives role expectations and enacts role behaviours in his own cultural environment For subsidiary staff below the top-management level, one would expect the local behavioural norms of work behaviour While some companies are developing information systems to assist in performance appraisal, the widespread use of computer-generated data is hampered by the legal constraints imposed by some host governments or by concerns about personal privacy Despite these problems, it is possible to devise a standardized appraisal system that caters for local concerns, as we shall see from the approach taken by Pepsi-Cola International detailed in as detailed in the case study at the end of the lesson (Schauler et al., 1991) An international survey found that worker performance appraisals featured the U.S cultural concept of meritocracy, which emphasises fairness and a short-term orientation In other cultures, meritocracy is not commonly involved in performance appraisal, which may emphasise other factors such as family ties, social status, and perceived loyalty to the manager or the employing institution On a comparative basis, Asians tend to share intense loyalties to their work groups and employing institutions Performance is directed toward group success, not individual success Individual appraisals often conflict with this grouporientation, causing serious personnel problems In South Korea, performance appraisal features worker development, seniority, attitude, loyalty, and initiative In the People’s Republic of China (PRC), formal performance evaluations are being introduced in more 99 Performance Appraisal in a Global Context 100 International Human Resource Management progressive institutions, but they tend to evaluate employee dependability, loyalty, and contributions to the group, as opposed to actual job performance By contrast, U.S workers fully expect to be appraised individually and rely heavily on individual feedback regarding performance By way of comparison, performance appraisals in the U.S are usually conducted once a year; but, in Japan, developmental appraisal is usually conducted every month and evaluation appraisal is performed after 12 years Feedback in the U.S process is direct and probably in writing, but the Japanese feedback is subtle and given orally U.S employees tend to present their own rebuttal to the feedback, but Japanese employees never rebut In the U.S appraisal process, praise is given individually, but Japanese praise is given to the group Research has also found that U.S workers react more favourably to individual performance feedback than English workers (Earlay, 1986) 5.5 PERFORMANCE MANAGEMENT — TWO EXAMPLES 5.5.1 Exxon The Compensation and Executive Development (COED) system at Exxon is designed to ensure a disciplined approach to the development of managerial talent for the company The system is directed from the top, where the COED committee is headed by the CEO, and is made up of members of Exxon’s board The committee is in-charge of reviewing the development and placement of the top 250 Exxon executives (many of them expatriates) Meeting nearly every Monday, the COED committee needs to ensure that there is a continual flow of managerial talent for the company and that all positions have back-up candidates The committee then compares the performance of executives and makes decisions according to their future development needs There is also a COED system within each of the Exxon subsidiaries, where the president of each subsidiary has his own COED committee, similar to the one at the head office This enables the COED system to reach the top 2,000 managers at Exxon In discussion with senior Exxon managers, it is rather striking to hear the universal acclaim given to the system Most agree that the system accounts for Exxon’s overall success 5.5.2 General Motors General Motors is another company with an equally strong tradition of performance management that dates back to Alfred Sloan At General Motors, the Supreme Court of Executive Review in recent years has included the top six executives in the company During the week-long sessions in the board room of the Detroit headquarters each February and July, the members spend long days and nights listening to the analysis of more than 600 managers from each of GM’s ten vicepresidents and group executives A variety of questions are covered to get an accurate picture of where the individual stands in his career development “We don’t have jobs at GM, we have careers, along with performance, and the probing is centred on just what kind of potential the candidate may have.” Here are some examples Does the executive seem to be developing at the rate expected? What is the job contributing to the person’s ability? Is it rounding out the person as we intended? What should be the next job for this executive? Should it be in another division or involve greater responsibility? If so, who would be put in this executive’s place (Gupta, 2006)? Check Your Progress What are the sub-processes of performance management? Mention the factors that affect performance assessment of expatriates 5.6 CULTURE AND ORGANISATIONAL PERFORMANCE One of the most striking and pervasive claims of Strategic Human Resource Management is that an organisation’s culture is the key to its performance and that these organisational cultures can be manipulated to ensure that the employees are enthusiastic, committed and compliant (Mobey, 1998) Therefore, management of corporate culture is the central responsibility of modern managers (Legge, 1998) 5.6.1 Link between Culture and Organisational Performance The positive correlation between corporate culture and organisational performance is based on the findings that organisational cultures can be assessed, managed, constructed and manipulated in the pursuit of enhanced organisational effectiveness Employee norms, beliefs, and values can (and when necessary should) be changed so that they exhibit the appropriate behaviour, commit themselves to the organisation, support the management and its strategy This view holds that the norms and values shared by numbers of an organisation create consensus, and unity and generate employees’ commitment Strong cultures can be either adaptive or unadaptive A strong culture that does not encourages adaptation can be more damaging to an organisation’s success than a weak culture Strong but unadaptive cultures can be detrimental to a company’s prospects for success But adaptive and strong cultures are considered “the managerial formula for success” (Jaggi, 1985) In fact, shaping and enhancing values can become the most important job a manager can Therefore, it becomes the primary task of managers to develop a shared system of beliefs and paradigms 5.7 COMPETENCE APPROACH TO HRM The competence approach to human resource management is now widely used in the Western world, and is a useful means of integrating policy both vertically and horizontally Vertically, it links an organizations strategic objectives, operational objectives and task and behavioural requirements Once the types of competence needed by people performing tasks (knowledge, skills, attitudes) are identified, the behaviour characteristics associated with these competences can be defined and identified in potential recruits to the organization Horizontal integration can then be achieved by aligning selection, appraisal, reward and development criteria: it is logical to recruit, reward and develop people using the same competences throughout these processes Hence the competences approach can be an effective way to ensure, throughout the organization, that people are recruited, developed and rewarded in line with the operational and strategic objectives of the organization 101 Performance Appraisal in a Global Context 102 International Human Resource Management 5.7.1 Management Competences Approach The idea of management ‘competences’ is drawn from the basic assumptions of the skills approach in social psychology that suggests we can understand social action by looking at its component parts (Argyre, 1976) The identification of generic management competences that are applicable to good managers in any situation has become commonplace, and is used extensively to select and develop managers in American and other Anglo-Saxon organizations A good example of this is the generic list of competences used by the American Management Association (Figure 5.7) Goal and Action Management Cluster Efficiency orientation: concerned/concern regarding with doing something better Proactivity: disposition towards taking action to accomplish something Concern with impact: concerned/concern regarding with the symbols and implements of power in order to have impact on others Diagnostic use of concepts: use of a person’s previously held concepts to explain and interpret situations Directing Subordinates Cluster Use of unilateral power: Use of forms of influence to obtain compliance Developing others: ability to provide performance feedback and other help needed to improve performance Spontaneity: ability to express oneself freely and easily Human Resource Management Cluster Accurate self-assessment: realistic and grounded view of oneself Self-control: ability to inhibit personal needs in service of organizational goals Stamina and adaptability: the energy to sustain long hours of work and the flexibility orientation to adapt to changes in life and the organizational environment Perceptual objectivity: ability to be relatively objective rather than be limited by excessive subjectivity or personal biases Positive regard: ability to express a positive belief in others Managing group process: ability to stimulate others to work effectively in a group setting Use of socializing power: use of influence to build alliances, networks or coalitions Leadership Cluster Self-confidence: ability to consistently to display decisiveness or presence Conceptualisation: use of concepts de novo to identify a pattern in an assortment of information Logical thought: a thought process in which a person orders events in a causal sequence Use of oral presentation: ability to make effective oral presentations to others Figure 5.7: American Management Association Competence Model (adapted from Kubr and Abell, 1998) 5.7.2 European and International Competences Ford operates in 15 different European countries It has, over the last 20 years, developed the policy that managers who have a national responsibility also have a European responsibility, so that the director of engineering in Germany is also the executive responsible for coordinating the engineering of engine and transmission systems in the European R&D locations This principle is established down to the middle management level Thus, managers have learned to work in a European environment, taking account of different legal requirements, customs and practice of assigning managers to work in different foreign locations: it is normal to find a senior British manager working in Cologne or a German working in Valencia Business is conducted in the local language, but English is the language of the company With growing globalism and the need to see its European managers as part of the ‘global village’ these practices within Europe are likely to be extended to the world arena In their international managers the company looks for the following competences: leadership skills: an ability to create business vision, direction and values which motivate others; the intellect, flexibility, courage and imagination to recognize and respond to the rapid pace of change; the cultivation of a broad knowledge of the history, culture, law and languages of Europe, and the ability to set aside nationalism and its prejudices and stereotypes; willingness to be a team member who can work in multinational project groups and be prepared to move to different countries and cultures There are, however, three problems in the straightforward acceptance of the relevance of international competences in selecting, rewarding and developing key employees: (1) differences in the ways managers and other key employees are regarded in different countries; (2) the different degrees of internationalization of international companies; (3) problems inherent within the competences model itself, both methodology and cultural 5.7.3 Cultural Regard for Managers and their Competences Within a global marketplace, international managers must by necessity be in competition, in multinational companies, with their counterparts in Europe, North America and Japan and other areas, for top international jobs However, Adler (1991) remarks that what is a relevant management attribute for reaching the top in one country may not be seen as relevant in another Drawing on the research of Derr and Laurent (1987) national differences can be identified as follows: North Americans: must be seen to have ambition and drive within companies that value entrepreneurs; French: must be labelled as high potential, and be able to manage power relationships and to work within an organizational system which is seen as a hierarchy of levels of power, depending on their place within it; Germans: believe in creativity as essential for success, within an organization that is viewed as a coordinated network comprising individuals who make decisions based on their professional expertise; British: must create the right image and get noticed; see interpersonal skills as important with the organization which is viewed as a network of relationships where things are achieved by influencing others by negotiation and communication So while, German companies may highly value technical expertise and creativity, French and British companies may see managers with these qualities as pure technicals Similarly, French and British companies may view the qualities of entrepreneurship valued by the North Americans, as highly disruptive For a manager pursuing a career internationally, this may have consequences for the way his potential for development is seen by particular companies in specific home bases For the multinational company developing its managers across a number of countries, this may also have implications for the way it selects top management talent and how it develops management potential within and between the various countries within which it operates 103 Performance Appraisal in a Global Context 104 International Human Resource Management 5.7.4 Different Degrees of Internationalisation of Companies Perhaps one of the strengths of the competences approach is that if integrated properly across the human resource functions, it should actually reflect the operating strategy of the organization The reason why particular competences are required of managers should translate into the operating practices and international personnel policies of multinational companies will therefore reflect on the regard for international management competences and the need to select and develop them International management development is therefore seen as a natural process for managers aiming of top management The process of international development described by Liardet (1990) in Shell consists of four stages: First stage within the operating company: Initial training and testing takes place, together with the development of professional expertise There is inter-functional posting within the immediate operating company, and managers are ranked in terms of their performance and potential in the local pool of junior managers Second stage within the region: The higher-ranked staff from the local pool progress to this stage where they are posted within the region to facilitate their broadening Professional development training is provided, and testing for management ability Ranking of performance and potential is then undertaken within this wider, regional pool Third stage across regions and in central office locations: Only the highest-ranked staff from the regional pool go through to this stage, where postings are interregional and in central offices, and professional and general management development is undertaken at group level Ranking of performance and potential is undertaken here at full international level Only then the most outstanding individuals go through to the fourth stage Fourth stage at group level: General group management 5.7.5 Problems Inherent within the Competences Model Davision in an unpublished paper cited in (Jackson, 1993c) argues that the idea of competencies of international managers may not be sufficient to gain an understanding of the requirements for managing across cultures She suggests that what is needed is an ability to deal with frustrations, isolation, failure, and to learn how to network, gain support and anticipate differences Davision adds, interpersonal skills can be learned at the level of managing intercultural teams no matter what personality traits one possesses This, together within understanding of oneself as well as the other person’s culture is something that can be developed To take this further, the following related methodological problems seem to be inherent within the concept of management competences (Jackson, 1993b): Firstly, there is very little reflection on the validity of the whole approach, and in particular this makes it susceptible to problems of cross-cultural transfers Secondly, it is meaningless to say that to be an effective manager you need to be able to communicate, or you need to make decisions This does not really tell us anything about what makes a good manager in a particular organizational setting Thirdly, the ‘component-parts assembly’ approach to management training, for example, is based on the assumption that we can build up an effective manager by assembling the parts There will still be something missing (Pye, 1991) This something may be ‘intuitive judgement’, as expressions such as ‘fairness’, ‘sparkle’, ‘imagination’ and ‘feel’ Although it could conceivably be argued that this ‘intuitive’ feel could be added to our list of competences, it is nonetheless difficult to define conceptually, behaviourally and by outcome Fourth, performance is essentially relative and a matter of ‘policy’ within an organization This is perhaps more complex than simply an organization determining a formal policy of what constitutes management performance The perceptions of what constitutes good performance by a manager may be subject to a number of perceptions which may coincide or not Finally, when the basis of the competences approach is examined, it reveals problems in the cross-cultural transfer of the approach itself The competences approach is firmly rooted in the instrumental paradigm The needs and objectives of the organization are paramount Strategic objectives are translated into operational objectives Operational competences are then identified which relate to the achievement of operational objectives The presence of competences is identified in individuals in terms of requirements for a job which are defined by a detailed job description and specification of what is required of the individual in that job 5.7.6 Job Satisfaction Job satisfaction in organizations in Japan tends to be low (De Boer, 1978) yet productivity is often reported to be high (Chen, 1995) Job satisfaction is a measure of motivation, but it is only one part of it Motivation generally is a key factor in productivity, organizational effectiveness, as well as in the well-being of people The way people are motivated is an aspect of the way organizations, in different parts of the world, manage the disjuncture between life at work, and life outside work Incentive schemes based on pay are often developed in individualistic cultures, where the relationship with employees is seen as instrumental and contractual This may be based on an achievement motive perspective (McCelland, 1987) Although there is some evidence of the introduction of pay incentive schemes in countries that are assumed to have a collectivist culture (Jackson, Back, 1998) in Japan a more inclusive concept of motivation is employed which is based on instilling commitment to the organization, and by the organization This may provide at least one explanation of why work satisfaction is low, while general commitment to the company and productivity are high Case Study Performance Appraisal at Pepsi-Cola International P epsi-Cola International (PCI), with operations in over 150 countries, has devised a common performance appraisal system that focuses on motivating managers to achieve and maintain high standards of performance Administrative consistency is achieved through the use of a performance appraisal system of five feedback mechanisms—instant feedback, coaching, accountability based performance appraisals, development feedback, and a human resource plan The common system provides guidelines for performance appraisal yet allows for modification to suit cultural differences For example, the first step-—instant feedback—is based on the principle that any idea about any aspect of the business or about an individual’s performance is raised appropriately and discussed in a sensitive manner The Instant Feedback message can be delivered in any culture; the important thing is not how it is done but that it is done Contd 105 Performance Appraisal in a Global Context 106 International Human Resource Management In practice of PCI, the successful delivery of Instant Feedback requires some adjustment to local cultures Americans use it because it fits the fast-paced way of doing business In most Asian cultures, feedback may be tough and direct but is never given in public; nor, in some Asian cultures, does head-nodding during instant feedback signify agreement, only that the message has been heard: Some Latinos will argue very strongly if they not agree with the feedback, and some employees, Indian nationals, for example, will insist on a great deal of specificity The purpose of Instant Feedback is always to improve business performance, not to criticize cultural styles Using this system, PCI tries to balance the cultural and administrative imperatives of successfully managing the performance of a diverse workforce QUESTIONS How did Pepsi Cola achieve administering consistency through use of performance appraisal system? How did PCI deliver feedback with adjustment to local cultures? “The purpose of feedback is to improve business performance, not to criticize cultural styles” Comment 5.8 RECENT INNOVATIVE METHODS IN IHRM Various researchers in the IHRM field have been endeavouring to develop a theoretical body of knowledge to provide the necessary robust frameworks and models pertaining to a more mature scientific field of inquiry Reviewing these theoretical contributions, it is possible to identify two streams of inquiry: the micro level, which has concentrated on HRM activities particularly expatriate management, and the macro-level, which has a more strategic focus Surveying HR managers is a logical and useful contribution to research and theory building, but it became somewhat inevitable that IHRM, as a scientific field, would need to consider other IHRM phenomena than expatriation management activities Other researchers have used quantitative methodology to determine linkages between a specific HRM activity and broader organizational strategies In a recent review of IHRM research trends, De Cieri and Dowling (1998) identify a line of research that has come to be termed Strategic International Human Resource Management (SIHRM) It considers the HRM issues and activities that result from and impact on, the strategic activities and international concerns of multinational (Scharler et al., 1993) This line of inquiry parallels that of strategic HRM, which focuses on the link between organizational strategy and performance, and HRM Commenting on the emerging body of research into SIHRM, De Cieri and Dowling (1998) remark that, while SIHRM as a distinct area of research has been a useful step, it may be more balanced view to be taken of the similarities and differences between international and domestic HRM To this end, De Cieri and Dowling (1998) propose a revised framework of SHRM in multinational firms, which is shown in Figure 5.8 107 Performance Appraisal in a Global Context External Factors Industry characteristics Country-regional characteristics Inter-organizational networks International organizational MNC structure structure of international operations intra-organizational networks mechanisms of coordination mode of operation MNC strategy Strategic HRM HR function strategy HR practices MNC Concerns and Goals Competitiveness Efficiency Balance of global integration and local responsiveness Flexibility corporate-level strategy business-level strategy Experience in managing international operations Headquarters international orientation Source: Research in Personnel and Human Resource Management : Strategic Human Resource in the 21st Century Supplement (1999) Figure 5.8: A Model of Strategic HRM in Multinational Enterprises Multinationals operate in the context of worldwide conditions, including the exogenous contexts of industry, nation, region, and inter-organizational networks and alliances The economic reforms in China and India are strong examples of the impact that the exogenous context has on HR practices Likewise, the removal of international trade barriers and integration of national markets in the European Union has brought a new range of interorganizational relationships The introduction of the European Monetary Union from January 1999 has the potential to hold significant implications for inter-organizational relationships In the above exhibit, endogenous factors are shown in order of most ‘tangible’ to most ‘intangible’ Multinational structure is used as an umbrella term to cover structure of international operations, intra-organizational networks, and mechanisms of co-ordination The life-cycle stage of the firm and the industry in which it operates are important influences for SHRM in multinationals as are international operations modes and levels of firm strategy Intangible endogenous factors include the multinational’s experience in international business and its headquarters’ international orientation It is also possible to identify reciprocal relationship between strategic issues and SHRM strategy and practices De Cieri and Dowling refer to several studies that have shown that HR activities such as expatriate management are influenced by both endogenous and exogenous factors Effective SHRM is expected to assist the firm in achieving its goals and objectives While most research is still single-country, these various studies have identified common IHRM concerns facing firms as they internationalize, regardless of their country of origin The real challenge is to develop innovative and effective research approaches including the conduct of multi-team, multi-country research that would support the repeated calls for multi-discipline, multi-level, and multi-method theory development 108 International Human Resource Management 5.9 LET US SUM UP One of the most challenging aspects for a firm operating internationally is managing the performance of its various international facilities The multinational has specific expectations for each of its foreign affiliates in terms of market performance and contribution to total profits and competitiveness When evaluating subsidiary performance against these expectations, it is important to recognize various constraints that may affect goal attainment 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: (a) Compensation package; (b) Nature of assignment (assignment task variables and role of expatriate); (c) Support from headquarters; (d) Environment in which performance occurs; and (e) Cultural adjustment of the individual and the accompanying family members Individual performance management involves job analysis, job goals and standards, and performance appraisal Traditionally, it comprises a formal process of goal setting, performance appraisal, and feedback The positive correlation between corporate culture and organisational performance is based on the findings that organisational cultures can be assessed, managed, constructed and manipulated in the pursuit of enhanced organisational effectiveness The competence approach to human resource management is now widely used in the Western world, and is a useful means of integrating policy both vertically and horizontally 5.10 LESSON END ACTIVITY If learning is an important outcome of an overseas assignment, how can this be worked into a performance appraisal system? How would a manager assess individual and organisational performance? 5.11 KEYWORDS Performance Appraisal: A systematic and objective way of evaluating both work related behaviour and potential of employees Assessment Centre: It is an appraisal technique that relies on multiple types of evaluation and multiple raters Expatriate: A home country or third country national that is assigned to a host country operation location 5.12 QUESTIONS FOR DISCUSSION While evaluating subsidiary performance in terms of market competitiveness, what are the constraints that may affect goal attainment? “Performance Management is the most important responsibility of HR executives” Comment What are the variables that influence performance of expatriates? What criteria are used for performance appraisal of international employees? Is there a link between culture and organisational performance? Justify your answer Check Your Progress: Model Answers CYP Constraints of International Performance Management: (i) Whole vs Part (ii) Non-comparable data (iii) Volatility of the international environment (iv) Headquarter-subsidiary interdependence CYP Sub-processes of Performance Management are: (i) Setting clear goals (ii) Setting standard and measurement criteria (iii) Formal monitoring and review of progress toward these objectives (iv) Using the outcomes of the review process to reinforce desire employee behaviour Factors affecting Performance Assessment of Expatriates: (i) Compensation package (ii) Nature of assignment (iii) Support from headquarters (iv) Environment in which performance occurs (v) Cultural adjustment of the individual and the accompanying family members 5.13 SUGGESTED READINGS P L Rao, International Human Resource Management, Excel Books, New Delhi, 2008 Briscoi, Schuler and Claus, International Human Resource Management, Routledge, 2008 Breuester, Sparrow and Vernon, International Human Resource Management (3rd edition) P J Dowling and D.E Welch, International Human Resource Management, Thomson, London, 2004 109 Performance Appraisal in a Global Context ... Rao, International Human Resource Management, Excel Books, New Delhi, 2008 Briscoi, Schuler and Claus, International Human Resource Management, Routledge, 2008 Breuester, Sparrow and Vernon, International. .. Basic Components of International Performance Management 90 International Human Resource Management 5.2 PERFORMANCE MANAGEMENT AND ITS LINK WITH OTHER HR PROCESSES Performance management is the... strategy Experience in managing international operations Headquarters international orientation Source: Research in Personnel and Human Resource Management : Strategic Human Resource in the 21st Century