Performance Management and Appraisal: A Case Study of Gap Inc.
Number of words: 2557
The performance management system is a key process in any given organization. Through the process, firms are able to communicate organizational objectives, promote individual accountability, and track and evaluate the performance of employees (Gruman & Saks, 2011; Selden & Sowa, 2011). With the increased changing competitive business environment, organizations require to regularly review the system, with the aim of improving various points to keep up with the market demand and competitors (Moynihan, & Pandey, 2010). Being a competitive firm, Gap Inc. required to review its performance management for a number of reasons. To begin with, both managers and subordinates disliked the cumbersomeness of the existing method. Notably, they did not like the frequent briefing meetings that required them to explain their contributions to the performance of the company. Moreover, management considered the “nice” culture to be a favorite; however, it was not an honest approach to performance appraisal. Resultantly, there was a need to transform the culture from “nice” to “nice and honest.”
“Traditional” Performance Management System
A performance management system is a method used by a corporation to measure the results of the employees. A traditional performance management system is characterizedwith aspects that have attracted many critics, such as its focus on employee weaknesses, reliance on annual reviews, failure to provide timely feedback, setting of goals that do not align with workers’ needs, and its tendency to reward annual performance and the duration of serving the company (Becker, Antuar, & Everett, 2011). Notably, these aspects make the system to rank some employees highly, yet their productivity may not commensurate with the award they receive. For example, a method such as forced ranking inherently requires that only a few employees rank at the top and bottom while concentrating the rest in the middle (Cascio, 2016; DeNisi & Murphy, 2017). Therefore, this method often fails to fairly reward some of the employees, while rewarding others excessively.
Process Adopted in Setting up GPS System
In the creation of a new performance management system, it is crucial to follow certain steps. Ollander-Krane, the employee tasked with the development of the new policy adopted three stages in the development of the new system, including defining performance, facilitating performance, and encouraging performance. In defining performance, he ensured that every employee understands his or her role in the company. To achieve this, he ascertained that there were clear goals, measures, and assessment methods. According to Cascio (2016), goals direct employees to the achievement of the specific performance target. For example, Gap Inc. had goals of increasing the market share. In addition, the company should be able to determine the level of attainment of the set goals. Vague aspects, such as the success of a company are not measurable; hence, they are not useful in the creation of a performance management system. Moreover, once the measurement is determined, it is necessary to assess how progress is made toward accomplishing the set goals. It is essential to have regular performance appraisals to direct the employees toward the achievement goals.
In facilitating performance, the manager ensures that there are no limiting factors towards the achievement of the set goals. For instance, Ollander-Krane established that the current system demotivated the employers. In particular, they focused on their grades after evaluation instead of their actual performance (Margolis, McKinnon, and Norris, 2015). Therefore, setting up a new system would eliminate hindrance. All the steps were facilitatedby researching and reading books. Specifically, the manager read books such as Get Rid of the Performance Review, Coaching with the Brain in Mind, and Mindset. The books had unique lessons which aided Ollander-Kane to set up a new performance management system.
Four Main Components of the New System
The new performance appraisal method Gap Inc. adopted had four components: performance standard, goals, touch base, and rewards. The four approaches form the core-components of Grow, Perform, Succeed (GPS) – the new performance management system.
The performance standard replaces the annual reviews that characterized the traditional system. Instead of the traditional ratings and rankings, employees would adhere to a set performance standard on a daily basis. Notably, the new system set tough objectives that will motivate employees to work hard to achieve the set targets. In such a way, the company will probably increase its market share owing to its hard work, company values. Furthermore, the standard allows the corporation to learn from its failures whenever employees are unable to meet the set targets (Bolden, 2016). In addition, managers can train their employees to equip them with skills that will aid them to effectively achieve the set targets. Feedback will also be provided to employees; hence, providing a basis on which to improve upon their weaknesses and strengths.
To set goals, the new system ensured that employees settled on few goals that are easy to attain. Goals provide a sense of direction for the employees because it dictates what is to be achieved (Pulakos, Hanson, Arad, & Moye, 2015). The goal setting process will be capped at eight, with some goals having a short time spun while the rest lasting for a few years. The company also encourages the employees to evaluate their targets more than once in a year, as opposed to the rigid year-end reviews that characterized the old system.
GPS intended to change the traditional way of discussing performance amongst employees with “touch base” sessions which focused on their performance instead of informal business discussions of reports. Rather than taking notes in these meetings, Ollander-Krane discouraged managers from taking notes during the session, but to concentrate in the meetings. In this way, he hoped to achieve a well-motivated workforce. Interestingly, employees were given an equal responsibility as their managers to ensure they met regularly. In 2014, a survey by the human resource department found out that there were regular touch base meetings (Margolis et al., 2015). Therefore, the regular meetings resulted in better performance of the company.
Employees in Gap Inc. used to receive awards on a yearly basis in the old system. Currently, employees are given rewards on account of how much they contribute to the output levels. When every employee is awarded individually, they are motivated to improve their performance (Arnaboldi, Lapsley, & Steccolini, 2015). Consequently, personal output amount will result in increases in the general performance of the firm. Annual bonuses given to employees will change to a clear structure that identifies company performance as the most critical reward determiner, accounting for 75% of the total bonus. The remaining 25%will be based on individual performance. In this way, the firm’s employees strive to improve the business results of the company since they account for most of the rewards. Moreover, the company increased its delegation of bonus allocation to the managers (Margolis et al., 2015). Since rewards will not be pegged on the annual evaluations, the organization’s reward system offers incentives to employees, eliminating the need for regular update meetings characterizing the traditional system.
Challenges that Faced Gap Inc. in Implementing GPS
Although the management accepted the proposal of Ollander-Krane, its implementation, as is the case with any change in an organization,was not without challenges. The adoption of GPS as a replacement to the traditional appraisal method began in 2014 and was characterized by a few issues. For example, some managers were not aware of the need for a new management system. In fact, some did not understand the rationale of GPS. Even though the managers disliked the “traditional” method that conducted reviews at the end of the year, it is what they understood. However, this challenge was overcome by educating all the managers about the old and new system, aiding their understanding. It turned out that the new system would create freedom for them to manage their employees. The system would promote the acknowledgment of top and low performers.
In addition, even after understanding the new system, some managers considered GPS as a new method by the management to reduce their ability to earn bonuses. They thought the new method would limit their avenues of obtaining more income(Margolis et al., 2015). Regardless of the attitude of the managers, the system proved to be effective in increasing the market share and company performance. It is common for humans to resist any change due to the uncertainties it presents.
Furthermore, managers faced difficulty in adopting and getting accustomed to the new system. In other words, the new system involved a different approach to giving and receiving feedback, which is vital in notifying employees about their performance levels (Sargeant et al., 2015). In fact, discussions about the year performance were easier in the “traditional” system. The previous system allowed managers to give feedback to employees about specific measures that made their performance to be evaluated at a certain level. Nevertheless, this challenge would be overcome with the right amount of training, time, and effort in using the GPS system.
Another challenge is the fact that the regular touch base meetings posed their unique problems, such as disruptions in the course of the year. As a result, the affected employee misses some meetings. When they resume, it becomes difficult for them to be at par with their colleagues because they might have lost a sense of the future strategic direction of the company or department. In such a way, the implementation of the system is hampered directly by even its components.
Performance Management Systems and the Effectiveness of GPS
Most managers mistakenly use the performance appraisal and performance management interchangeably. Unlike the former which is used to identify the strengths and weaknesses of employees in the execution of their job description, the latter is a method applied by the human resource department to give direction to subordinates or seniors. In fact, the adoption of GPS as a new performance management system is a move in the right direction. Ollander-Krane reports that in the first year, the new system had achieved some positive changes in the company. For example, some employees stated that their touch base had increased, while others acknowledged that they had not spoken with their superiors for several months before the adoption of GPS. The increased meetings amongst the employees probably increased the working relationship of the subordinates and their superiors (Selvarajan, Singh, & Solansky, 2018; Duncan, & Malini, 2016; Forrester, 2011). Therefore, the new method was impactful to the organization’s performance.
Moreover, the system is linked to the company’s ticker symbol, reminding employees that their performance is evaluated by the share prices of the company. As a result, they will direct their efforts in the growth of the company’s financial performance. The system also enhances objectivity and honesty in the sharing of feedback between managers and employees. Moreover, it provides employees with a sense of direction. For instance, it gives them their current performance level while providing the expected output from their efforts for the future.
If I were to recommend a new performance management system to a company that is still traditional, I would suggest GPS as a better alternative. The new system is easier to implement than other systems. It requires little participation by the management in deciding the amount of bonus to give to employees. Moreover, the method allows managers to determine how to allocate bonuses amongst their employees. Consequently, some business units were able to invent their own incentive scheme that motivated employees to provide overwhelming performance. The method also increased the efficiency of service delivery within the company and reducing the workload for the human resource personnel tasked with performance appraisal (Tziner & Rabenu, 2018; Tziner & Rabenu, 2018). In this way, the time will be used in other equally important tasks.
The new system is also effective because it has reduced the number of customer complaints. In particular, the complaints reduced to one from between 30-40 calls in previous years. Owing to this, it is possible that the system will blend well in other organizations increasing their customer satisfaction. Since customers are contented, the firm is able to retain customers while growing its market share.
In summary, performance management should not be confused with performance appraisal. The former promotes the strengths of employees by providing an avenue to direct their efforts in meeting the company objectives, while the latter is used to measure performance and offer bases for which promotions and firings in an organization are done. It is important for the management to adopt a good management system since it aids in increasing the productivity of employees and the profitability of the firm.
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