performance appraisal system at hewlett-packard

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Performance Appraisal System at Hewlett-Packard

Performance Appraisal System at Hewlett-Packard

Abstract

The paper presented a case study of a multinational company and its perfor-mance appraisal system. The focus of the report is on Management by Objectives, oneof the most widely used performance appraisal system by companies around theworld. As a performance appraisal system, MBO starts with job description and per-formance planning. MBO involves cooperation between the supervisor/manager andthe employee. The performance plan created by the supervisor and the employee isthen used in the performance evaluation process. The planning of performance is ini-tiated from the top. Through the investigation conducted by the researcher, it hasbeen found that MBO is an effective performance appraisal system. HP was able touse MBO to support the culture that it promotes and to encourage the employees totake initiative in performance planning. MBO Is an effective tool in empowering em-ployees and making sure that they perform to their best ability. However, the re-searcher argued that relying on MBO alone is not a smart move. Like other perfor-mance appraisal systems, MBO has strengths and weaknesses. In order to make theperformance appraisal process more effective, MBO must be used in conjunction withother performance appraisal tools. Also, the researcher presented methods and strate-gies in order to prevent problems and difficulties in performance appraisal.

Introduction

Hewlett-Packard is considered as one of the most successful companies in theworld. Its operations extend to different countries and locations. Considered as one ofthe contributors to the company’s success is its unique culture – a culture that valuesinnovation, development, and employee empowerment. The company’s culture, val-ues and objectives can be summarized through its “HP Way” philosophy. One of thebasic tenets of the HP Way is Management by Objectives. Management by Objectives



has emerged as one of the more popular performance appraisal systems today. Moreand more companies are adopting this system of performance planning and evalua-tion. This report is about the performance management system at Hewlett-Packard.More specifically, it tackles and the performance appraisal system in the organization.The purpose of this paper is to identify the strengths and weaknesses of the currentperformance appraisal system at Hewlett-Packard and provide recommendations inorder to prevent possible problems and make the system more effective and efficient.

Methods

This paper presents a case study of Hewlett-Packard, a multinational compa-ny. The focus of the paper is the company’s performance appraisal system. The infor-mation and data gathered came from secondary resources. The researcher made useof journal articles, books, other published materials and internet in the gathering ofthe relevant literature presented in this paper. The researcher chose secondary re-search as a research method because of its convenience and because the existing liter-ature on the topic is wide.

The Case Context

In this section, the reader will be introduced to the case context. A brief informa-tion about the case study will be presented.

Hewlett-Packard

Hewlett-Packard (HP) is a technology solutions provider to consumers, busi-nesses and institutions globally. The company’s offerings span from IT infrastructure,personal computing and access devices, global services and imaging and printing forconsumers, enterprises and small and medium businesses.

The HP Way



The HP values, written by David Packard in 1989 are the centerpiece of theHewlett-Packard Way. The HP Way and the company’s values are no different fromother large companies. The difference lies in the seriousness with which values aretreated as management tool. The central element in all activities in Hewlett Packard isthe ‘HP Way’, a set of beliefs, objectives and guiding principles, and described by BillHewlett as the policies and actions that flow from the belief that men and womenwant to do a good job, a creative job, and that if they are provided with the properenvironment they will do so. HP treats every employee with respect and everyone’spersonal achievements are recognized (Peters and Waterman 1982 cited in Needle2001). The HP way can be summarized as a combination of different concepts. Theseconcepts are love of the product, love of the customer, innovation, quality, open com-munication, commitment to people, trust, confidence, informality, teamwork, shar-ing, openness, autonomy, responsibility (Needle 2001).

The HP Culture

Hewlett Packard has a pay-for-performance plan. In order to make this plansuccessful, the company embraces an organizational culture that embraces pay forperformance. Such a culture emphasizes goal setting, rating and/or ranking of per-formance, and performance dialogue between supervisors and subordinates.

Hewlett Packard operates in more than 178 countries. The company has a per-formance-based culture. Employing more than 140,000 people, Hewlett Packard isknown as a great place to work. The company values every employee from all levelsand they are viewed as important individuals with unique ideas, skills, experiencesand perspectives that they bring in their jobs. The employees are encouraged to shareand express their ideas and skills. Hewlett Packard is an organization that providesemployees with opportunities to learn grow, and develop their skills. Goal setting isan important process in the organization. In this process, the employees coordinateswith their supervisors in setting up their individual development paths. Learningwithin the organization is intended to be flexible, fast and rewarding. The culture thatHewlett Packard has empowers people and allow them, to make the most of theirskills, personality and career. Goal setting is also important in performance appraisal



(Nelson and Quick 2006).

Current Practices

In order for the reader to have a clearer view of the case, it is helpful that the re-searcher presents a brief definition of the process of performance management andperformance appraisal. These definitions will lay the foundation for the succeedingsections of this paper. In order to provide a foundation in the analysis of the perfor-mance appraisal system used by Hewlett-Packard, a brief background of performancemanagement and performance appraisal is necessary. Performance management canbe defined as the integration of performance appraisal systems with broader HRMsystems as a means of aligning employees’ work behaviors with the organization’sgoals. A performance management system consists of the processes used to identify,encourage, measure, evaluate, improve, and reward employee performance at work(Sims 2002a, p. 81). Performance management helps organizations sustain or improveperformance, promote greater consistency in performance evaluation, and providehigh-quality feedback. Performance management helps organizations link evalua-tions to employee development and to a merit based compensation plan. It forms abasis for coaching and counseling, permits individual input during the evaluationprocess, and allows for a blend of qualitative and quantitative evaluations. Perfor-mance management provides a process that helps manage employee expectations ofjob demands and factors that reveal how well the job is done (Kissler, 1991 cited inGilley & Maycunich 2000). Performance management is an outgrowth of manage-ment controls whose purpose is to ensure that work is progressing according to theorganization’s plans. Performance management according to Snell (1992) is the princi-pal set of practices by which control is manifested in organizations. Control is definedas any process that is used to align the actions of individuals to the interests of the or-ganization (cited in Gratton, et al, 1999 p. 60). Controlling is the management functionconcerned with monitoring performance to ensure that it conforms to plans. Controlis accomplished by comparing actual performance with predetermined standards orobjectives and then taking action to correct any deviations from the standard (Sims,



2002a). The three basic requirements of the control process are:

Establishing performance standards – Standards are used to set expected perfor-mance levels for machines, tasks, individuals, groups of individuals and the or-ganization as a whole.Monitoring performance and comparing it with those standards – The primarypurpose of monitoring performance is to provide information on what is actuallyhappening in the organization.Taking necessary corrective actions – Corrective action can be taken after the ac-tual performance has been assessed and compared with performance standards.

As part of the control process, the purpose of performance management is to makesure that employee goals, employee behaviors used to achieve those goals, and feed-back of information about performance are linked to the organizational strategy(Sims, 2002a).

Performance appraisal is the process by which an employee’s contribution tothe organization during a specified period of tine is assessed (Sims, 2002b). Perfor-mance appraisal is integral to the successful operation of most organizations. Duringthis process, employees are evaluated formally and informally to determine the na-ture of their contributions to the organization. Appraisal occurs during time periodsand in meetings that are scheduled to produce reasoned consideration of contribu-tions, but it also occurs informally as employee contributions are observed, or whenan evaluation is brought to the attention of others (Dickinson, 1993).

Performance appraisal is treated as an evaluation and development tool, aswell as a formal legal document. Appraisals review past performance – emphasizingpositive accomplishments as well as deficiencies and drafting detailed plans for fu-ture development. The performance evaluation also serves a vital organizational needby providing the documentation necessary for any personnel action that might betaken against an employee (Sims, 2002b).



Performance Appraisal at HP

Management by Objectives

The activities of HP employees were guided by a comprehensive system ofmanagement by objectives (MBO). The performance appraisal system starts with theestablishment of long- and short-range objectives derived from company and groupobjectives. At each company level, overall objectives were communicated and subunitobjectives were negotiated. HP lets the employees decide on how they would accom-plish the goals that they have set. The goals were made to interconnect horizontallyand vertically throughout HP. The management by objective process is part of thecompany’s strategic planning which defines the objectives and responsibilities that ajob entails. Although the top management is the one who initiates the process, everyemployee is given opportunity to influence the setting of objectives. Employees areencouraged to suggest on how they can contribute to the success of the business unit(www.uob-community.ballarat.edu.au). In an MBO system an employee meets withhis or her manager, and they collectively set goals for the employer for a coming peri-od of time. These goals are usually quantifiable, they are objective, and they are usu-ally written. During the specified timeframe, the manager and the employee periodi-cally meet to review the employee’s performance relative to attaining goals. At theend of the specified period, a more formal meeting is scheduled in which the manag-er and employee assess the actual degree of goal attainment. The degree of goal at-tainment then becomes the individual’s performance appraisal (Sims, 2002a).

*For a sample of Performance Appraisal Form used in Hewlett-Packard, please refer to Appen-dix 1*

HP combined MBO with the paired-comparison approach. The paired compar-ison approach, according to Sims (2002b), measures the relative performance of em-ployees in a group. A manager lists the employees in the group and then ranks them



(p. 205). HP managers invested considerable time and energy ensuring that an indi-vidual’s pay level within their salary range reflected their performance when com-pared to others. Performance was judged by the immediate supervisor but adjustedbased on a ranking process, conducted by managers in face-to-face meetings, whichcompared employees in different departments with similar responsibilities.

*For a simple sample of an MBO form, please refer to Appendix 2*

1. Goal Setting

In Hewlett Packard, there has been a long tradition of targets being determined byboth boss and employee. This reflects not only the longstanding policy of decentral-ization within the organization but also the difficulty of imposing performance tar-gets on employees who are facing changing demands and working in fast-changingmarkets. These conversations are participative. The discussions attempt to cover thediversity of situations the employees would face. In the monthly formal meetings aswell as in informal settings, manager and employee have the opportunity to revisethese targets in light of new information about the environment of client behavior.The revisable nature of the performance targets, together with the degree of influenceemployees have over their goal setting, means that perceptions of fairness are high interms of the targets being realistic and achievable.

2. Performance Evaluation

In HP, the performance appraisal is used primarily as a development tool. Formalmeetings between manager and employee are held every quarter, culminating in afull annual appraisal. Employee voice in the evaluation was strong. Self-assessmentexercise are strongly encouraged in HP. Managers devote a great deal of time notonly to discussing problems and identifying areas for improvement, but also to giv-



ing feedback. This occurred not only in formal meetings, but also on an ongoing ba-sis. This informal process helped to cement new organizational values by correctingand reinforcing behaviors and attitudes. In order to achieve a rounded picture of em-ployee performance, the company has introduced socially based measures of evalua-tion such as 360-degree appraisal.

Findings and Discussions

Performance Appraisal at HP: Evaluation

Based on my investigation and through the information I have gathered thusfar, I can say that Hewlett-Packard has an effective and efficient performance ap-praisal system. The performance appraisal system is effective and efficient because itis aligned with the rewards and the goals and objectives of the organization. The per-formance appraisal is also an effective tool in measuring the contributions of each em-ployees, including their strengths and weaknesses. It also gives a clear view of thetraining needs o the employees. However, the fact that there are problem areas or thatthe performance appraisal system used has weaknesses cannot be discounted. It is ofutmost importance that the sources of possible problems and challenges in the perfor-mance appraisal are identified in order to avoid mistakes.

Management by Objectives: Evaluation

The Management by Objective performance appraisal that Hewlett Packardemploys tends to reward employees who achieve the agreed targets with increasedpay or promotion, while those who do not attain objectives are seen as to have failedand penalized accordingly. MBO also tends to focus on the number of objectives to beattained, or the ‘quantity’ of the performance or outcome that is to be attained; insome situations, the level of difficulty or the quality of the results might be more im-portant.



Strengths and Weaknesses of MBO

The strengths of MBO as a performance appraisal system are:

It increases the employee’s involvement in setting performance objectives andincreases the motivation required to reach those objectivesIt offers an objective, factual basis for measuring accomplishmentsIt is entirely job centeredIt establishes the appraiser as a facilitator of performance rather than a critic ofperformanceIt assures the organization that all employees are working toward a commonpurposeIt supports psychological concept that people will exercise self-direction and self-control in the accomplishment of organizational aims that they have participatedin setting.

Organizations that use MBO frequently report that they are very effective,highly motivating performance appraisal systems. MBO systems communicate to em-ployees exactly what is expected of them, and provide clear behavioral benchmarksfor performance. Developmental feedback is inherent in the entire MBO process, be-cause the employees skills and abilities are taken into account at the front end whengoals are initially set and along the way as progress toward the goals is measured. Inan MBO system, goals are highly personalized and reflect the employee’s experienceand training (Kulik 2004).

MBO as a performance appraisal tool has also some weaknesses. These include thefollowing:

It is an organizational philosophy and can not operate at one organizational levelwithout operating at all levelsMBO ca not be implemented at all organizational levels simultaneously, nor can



it be implemented from the bottom up – it must begin at the very top of the orga-nization and works its way downIt requires a total and sizable commitment of management support, interest, andtime if it is to succeedMBO is not applicable to all types of jobs. Individuals performing routine, repeti-tive, or machine-paced jobs are better appraised by another methodEmployees require extensive training before they normally respond in a positiveway to MBO (Caruth and Hadlogten 2001).

Possible Sources of Problems

Although the performance appraisal system used by HP can be considered aseffective and efficient, the management must make sure that the possible sources ofproblems are identified and avoided. The company must take necessary measures inorder to prevent problems with the system. The possible sources of problems are thefollowing:

1. Personal Bias

One of the biggest problems in every performance appraisal system is the ten-dency of the appraiser to be bias. An evaluator’s personal feeling about the person be-ing appraised can affect the result of a performance appraisal.

2. Lack of Appraiser Training

Another source of problems that the organization must be aware of is the lackof appraiser training.

3. Insufficient Information

Insufficient, inadequate and incorrect information can also be a source of prob-lems and difficulties.



4. Lack of Documentation

A major problem with most appraisal system is that they do not require con-tinuous documentation of employee performance. When documentation does exist, itis often inadequate to support an accurate assessment of employee accomplishments.Nonexistent or inadequate documentation leads supervisors to commit many perfor-mance appraisal errors (Caruth and Handlogten 2001).

Recommendations

MBO is the primary tool that HP uses in appraising employee performance.The company was able to establish as effective MBO system that is able to measurethe performance of the employees against the goals that they have set. However, rely-ing on MBO alone can lead to different problems and difficulties. MBO has bothstrengths and weaknesses. In order to maximize the strengths of MBO and minimizeits weaknesses, the company must make use of other performance appraisal tool.

Recommended Appraisal Tools

Other than MBO, the company can also make use of performance tools tomake sure that the performance appraisal system is effective and efficient. The fol-lowing are the recommended tools for HP:

1. Rating Scales

One of the most widely used performance appraisal method is some form of arating scale. The use of rating scales is popular among organizations because it is sim-ple and easy to use. With rating scales, employees are evaluated according to a set ofpredetermined factors, such as quantity of work, quality of work, absenteeism, or thelike. Each evaluation factor is ranked from the lowest level of performance to thehighest in as many as fifteen categories (Caruth and Handlogten 2001).



*For a sample of a rating scale form, please refer to Appendix 3*

2. Checklists

Performance appraisal checklists provide the evaluator with a series of state-ments, phrases, or adjectives that describe employee performance. These statementsmay be subdivided into specific factors such as quantity of work, quality of work, andso forth, with the descriptors listed under each category. Occasionally, the phrases oradjectives are simply listed without categorization. The appraiser marks the state-ment or adjective considered to be most descriptive of the employee’s performanceduring the period covered by the appraisal.

*For a sample of a simple checklist, please refer to Appendix 4*

Other Recommendations

1. Flexible Job Descriptions/ Employee Influence in the Process

The manager and the employee should be the ones responsible for job analysis,job design and job description. The organization’s generic or model job descriptionsshould be used by managers and employees only as a basis for developing and agree-ing their own description of the job the employee really does. Job descriptions shouldnot be written and imposed on job holders from above. The responsibility of design-ing the job description should remain with the manager and the job holders. The con-tents of the job description should be agreed by both the job holder and the manager.Getting employees’ commitment is a key to setting effective goals. Employees shouldparticipate fully in the setting of objectives for their own jobs, and have an opportuni-ty to contribute to planning the objectives of the work group, the department and theorganization as a whole. Each individual’s goals must fit in with those of the widerwork group or workplace. How much you involve employees in setting their targetswill depend on the organization’s approach to performance management and on its



style and culture generally. At the very least, managers should ensure that the personresponsible for achieving a particular objective understands and accepts it. Employ-ees will not feel committed to targets that are just handed down to them by manage-ment (Rudman 2003).

2. Rater Training and Employee Education

One approach to performance appraisal training is to alert managers to com-mon errors of judgment so they can spot them in how they evaluate others and guardagainst them. Appraisal methods that have clear performance dimensions are likelyto reduce rating errors (London 1997). For any appraisal system to be effective, train-ing must focus on helping managers develop specific skills and confidence in theirability to effectively evaluate others. These skills should include goal setting, commu-nicating performance standards, observing subordinate performance, coaching, giv-ing feedback, completing the rating form, and conducting appraisal review. Ap-praisals without training is a sure route to ineffectiveness, frustration and dissatisfac-tion. It is also important to make employees understand the appraisal system. Every-one in the organization needs to understand why appraisals are being conducted andhow the system operates. The more clearly stated the organization's purpose for ap-praisals, the less confusion and ambiguity surrounding the process. The goal shouldbe that everyone knows why you are conducting appraisals (Longnecker and Goff1992).

3. Ensure the Validity and Reliability of the Performance Appraisal

Establishing the validity of performance appraisal begins with job analysis, theprocess wherein job performance factors are clearly identified. These factors may in-clude such items as quantity of work, quality of work, meeting deadlines, and adher-ing to prescribed procedures. The factors must be quantifiable and specifically de-fined so as to reflect expected outcomes (Caruth and Handlogten 2001).



4. Ensure that Communication is Open

All employees have a strong psychological need to know how well they areperforming. An effective performance appraisal system ensures that feedback is pro-vided on a continuous basis—not in an annual written evaluation, but in the form ofdaily, weekly, and monthly comments from a supervisor. The annual evaluation andits accompanying interview or performance discussion must be devoid of surprises.While the interview presents an excellent opportunity for both parties to exchangeideas in depth, it is not a substitute for day-to-day communication about performance(Caruth and Handlogten 2001).

Conclusion

Hewlett Packard has one of the best performance appraisal systems around. Theperformance appraisal system used by Hewlett-Packard supports the company’s cul-ture, objectives and philosophies. The primary toll used in the performance appraisalprocess is MBO. MBO as a performance appraisal tool is considered effective and effi-cient. The performance appraisal system at HPO starts with the establishment ofshort-term and long-term goals derived from the company and group objectives. Theadvantages of MBO for HP is that it empowers employee. It lets employees decide onhow they would accomplish the goals that they have set. Employees are also encour-aged to suggest on how they can contribute to the success of the company. MBO istruly an effective performance appraisal system. The effectivity of every performanceappraisal system lies in how it is used and expertise of the ones who uses it. This pa-per presented some of the possible sources of problems and their possible solutions.This paper also presented some recommendations on how the current performanceappraisal system at HP can be further enhanced.

Bibliography



Caruth, D. L. & Handlogten, G. D. (2001). Managing Compensation (And UnderstandingIt Too): A Handbook for the Perplexed. Westport, CT: Quorum Books. p. 206.

Dickinson, T. (1993). Attitudes About Performance Appraisal. In J. Farr, H.

Schuler, & M. Smith (Eds.). Personnel Selection and Assessment: Individual andOrganizational Perspectives (pp. 141-161). Hillsdale, NJ: Lawrence Erlbaum Associates.

Gilley, J. and Maycunich, A. (2000). Organizational Learning, Performance, and Change:An Introduction to Strategic Human Resource Development. Cambridge, MA: PerseusBooks.

Gratton, L., Hailey, V. H., Stiles, P., and Truss, C. (1999). Strategic Human ResourceManagement: Corporate Rhetoric and Human Reality. Oxford: Oxford University Press.

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

Human Resources at Hewlett Packard. University of Ballarat Staff and Student Com-munity. Retrieved June 11, 2008, from http://uob-community.ballarat.edu.au/~adsg/Cp704/CaseStudies/Wk11%20Human%20Re-sources%20at%20Hewlett-Packard.pdf



Kissler, G. D. ( 1991). The Change Riders: Managing the Power of Change.

Cambridge, MA: Perseus Books.

Kulik, C. T. (2004). Human Resources for the Non-HR Manager. Mahwah NJ: LawrenceErlbaum Associates.

Longenecker, C. O. & Goff, S. J. (1992). Performance Appraisal Effectiveness: A Mat-ter of Perspective. SAM Advanced Management Journal, 57(2), 17+.

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

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

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

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

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



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

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

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

Appendices

Appendix 1: HP’s MBO Appraisal Form

Name of the Employee:

Designation:

Date of Joining:

Date of Last Appraisal:



Department:

Reporting Officer:

Current Responsibility:

Accomplishments:

Goals for the Next Appraisal Period:

Areas for Improvement:

Employee’s Perceived Training Needs:

Problems Faced:

Solutions Tried:

Please note that this form is not the exact form used in Hewlett-Packard.

Appendix 2: Sample MBO Form

Employee’s Name:

Position:

Supervisor’s Name:

Employee’s Signature



Title:

What are your goals for Successful Performance in Current Position?

What do you need this year to work towards your goals?

Notes:

___________________________

Supervisor’s Signature

___________________________

Appendix 3: Sample Rating Scale Form

Performance Ratings

5 Points – Consistently Exceeds Expectations



Employee displays at all time, without exception, a consistently high level of fac-tor related skills, abilities, initiative, and productivity.

All assignments/responsibilities are completed beyond the level of expectation.

Initiative and self-direction are characteristic.

4 Points – Often Exceeds Expectations

Employee displays a high level of factor related skills, abilities, initiative and pro-ductivity, exceeding requirements in some areas, but not consistently or notwithout exception.

3 Points – Meets Expectations

Employee displays and maintains an effective and consistent level of perfor-mance of the job factor under review. Work output regularly achieves desired orrequired outcomes or expectations.

Problems and errors are reported and corrected quickly.

2 Points – Some Improvement Needed

Employee at this level displays inconsistency in the performance of the job factorunder review and output frequently falls beyond acceptable levels.

Tasks may be significantly late at times or incomplete, with serious or potentiallyserious consequences.



1 Point – Major Improvement Needed

Work output is consistently low, regularly fails to meet required outcomes, anderror rate is high requiring repetition of duty or completion by others.

The employee may require constant supervision, and show an indifference to jobresponsibilities.

Performance Factors Rating5 4 3 2 1

Quality of Work

Productivity Knowledge of the Job Adaptability Dependability Initiative and Resourcefulness Judgment and PolicyCompliance

Interpersonal Relations Attendance Safety and Security

Appendix 4: Sample of a Simple Checklist

Employee’s Name:

Reviewed By: Date:



Does this Employee

Yes

No

1. Arrive for Work on Time?

2. Exhibit expertise in his/her job?

3. Have good working relationships with his/her co-workers and supervisors?

4. Follow the company’s rules and regulations?

5. Handle his work according to procedure?

6. Finish his/her work on time?



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