Ineffective performance appraisal method at xyz vietnam

Sometimes, he needs to arrange employee from different team to join with team which is lack of man power in order to help that team to provide service to clients.. Decreasing client in s

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business -

Nguyen Thi Diem Thu

INEFFECTIVE PERFORMANCE

APPRAISAL METHOD

AT XYZ VIETNAM

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2018

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business -

Nguyen Thi Diem Thu

INEFFECTIVE PERFORMANCE

APPRAISAL METHOD

AT XYZ VIETNAM

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Dr THU PHAN

Ho Chi Minh City – Year 2018

CONTENTS

ACKNOWLEDGEMENTS 1

EXECUTIVE SUMMARY 2

CHAPTER 1: INTRODUCTION 3

Overview of auditing and tax service field 3

1.1 Company’s background 5

1.2 CHAPTER 2: PROBLEM IDENTIFICATION 8

2.1 Company’s context and general symptoms: 8

2.2 Initial identification of problems: 10

2.3 Tentative problems 15

2.3.1 Ineffective task assigning method 15

2.3.2 Lack of training 16

2.3.3 Raising of competitor 17

2.3.4 Ineffective performance appraisal method: 17

2.4 Problem justification 21

2.4.1 Definition of ineffective performance appraisal 21

2.4.2 Justify the existence of the problem 22

2.4.3 Justify the importance of the problem 23

CHAPTER 3: ALTERNATIVE SOLUTIONS 24

3.1 Causes validation: 24

3.1.1 Unclear performance criteria and structure: 24

3.1.2 Lack of rating skills in conducting performance appraisal: 24

3.1.3 Unfair rating from rater: 25

3.1.4 Ineffective feedback to employees: 25

3.2 Alternative Solutions 26

3.2.1 Alternative solutions for unclear performance criteria and structures 27

3.2.2 Alternative solutions for lack of rating skills in conducting performance 30 3.3 Action Plan 33

CONCLUSION 38

REFERENCES 39

APPENDIX 1: Transcript of interviews 47

APPENDIX 2 67

Figure 1: Top 10 Auditing firms with the highest total revenue in 2017 4

Figure 2: Operation structure of XYZ Vietnam 6

Figure 3: Top 10 Auditing firms with the highest total revenue from tax services 7

Figure 4: Initial Cause-effect Map 14

Figure 5: Updated causes-effect map 20

Figure 6: Final cause - effect map 23

Figure 7: Solution Map 27

Table 1: Performance of teams in 2018 8

Table 2: Stress condition of employees 2018 10

Table 3: Rate of achieved revenue in 2016, 2017 and 2018 10

Table 4: Number of customers terminating and signing service contract 13

ACKNOWLEDGEMENTS

I would like to express my very appreciation for two years study in ISB Ho Chi Minh City Besides, I would like to offer my special thanks to my research supervisor,

Dr Thu Phan for her patient guidance, valuable and constructive suggestions and her

assistance in keeping my progress on schedule

I would also like to extend my thanks to my family and my classmate in MBUS

7 class for their support and encouragement throughout my study

EXECUTIVE SUMMARY

This thesis is conducted to analyze the problem of XYZ Vietnam The symptom of the Company is large different of achieve ratio between teams The thesis is consisted of three chapters which are company introduction, problem identification, and alternative solutions The thesis also contains supporting information

In Chapter 1, there is an overview of auditing situation in Vietnam and the background of XYZ Vietnam as well as pay attention to the tax team of the Company The chapter also has figures as supporting information

In Chapter 2, the thesis discuss about the identification of problem of the Company Through data of the company as well as interview information, the central problem of the Company which is ineffective performance appraisal has been addressed

The Chapter 3 is about causes and alternative solutions In this scope of thesis, the causes which are lack of rating skills in conducting and unclear performance criteria and structures will be selected as major causes for the central problem Rating scale will be chosen for unclear performance criteria and structures and Coverdale training will be chosen for lack of rating skills An action plan to implement the solutions is made for the Company In order to conduct this plan, it will cost the Company about VND 31,000,000 The result will be observed and analyzed in order to improve the performance appraisal

of the Company so that team performance will be accurately evaluated

A Conclusion will summarize all of our thesis and our purpose in doing this thesis The last part will contain information to support the thesis such as interview questions and answers

CHAPTER 1: INTRODUCTION

Overview of auditing and tax service field

1.1.

History of Auditing firms in Vietnam

The audit history of Vietnam dates back to the 1991 when the first two local firms, namely VACO (Deloitte) and AASC were established in response to the

changes in Vietnam economy from a centrally planned to an open market economy According to statistics of the Vietnam Association of Certified Public Accountants (VACPA) from 1991 to 2005, the market for independent auditing services has nearly

150 qualified auditing firms, with nearly 11,000 employees working at audit firms across the country

In 2016, the process of "purification" takes place so that the independent audit market develops Auditing firms which are small, weak performance, and cannot meet the strict requirements for service provision will be M&A or dissolve The number of audit firms will lower but more quality

The latest statistic of the audit professional organization also shows that in 2014, the total revenue of the independent auditing industry reached 4,583 billion VND, in which the main services of auditing firms which are auditing and financial reporting services have reached 2,329.76 billion VND, accounting for 50% of the total revenue

of the whole sector, the rest are belonged to other services In 2015, revenue of the independent auditing sector reached more than 5,000 billion VND (1)

According to Vietnam Association of Certified Public Accountants (“VACPA”), top 10 auditing firms that have the highest revenue in 2017

Figure 1: Top 10 Auditing firms with the highest total revenue in 2017

In 2018 and following years, there are increasing positive forecasts for growth in foreign investment, healthy financial market, increasing in number of listed and public companies Furthermore, there will be more M&A and equitization activities as well as major changes in auditing and accounting regulations At the same time, the Government will make a decision regarding the application of International Financial Reporting Standards in Vietnam This will be a foundation for the strong development

of auditing and accounting sector in Vietnam for the following years (2)

Therefore, in the coming time, in order for the domestic audit firms in particular and the market of independent audit services in general to be able to develop quickly and sustainably, meet the requirements of innovation, integration, competitiveness, the following solutions should be addressed

Tax services field in Vietnam

Since July 2007, along with the unified and integrated implementation the declaration and self-apply, the establishment of Law on Tax Administration has set up the regulations for tax services Tax payer can sign contract with tax agents to receive tax services

self-However, the tax service market in Vietnam has not really developed The number of enterprises providing tax services to date is too small compared to actual

requirements, only equal to 0.021% of enterprises that conducting declaration activities managed by Tax Authorities In which, the majority of small-scale enterprises, both in terms of business capital and the number of employees who have practice certificates as tax procedure services, have affected the ability to conduct high value consultancy contracts and the chance to provide services to big firms (3)

Vietnam’s General Department of Taxation had issued Official Letter

5339/TCT-TT in November 2017 directing local tax offices to create a tax audit plan for 2018 Taxation is a major component of the state budget revenues and as the country’s budget deficit increases, taxpayers and enterprises will continue to face increased scrutiny from tax authorities trying to meet their revenue targets

Company’s background

1.2.

XYZ Vietnam is one of the leading mid-tier accounting and advisory firms in Vietnam, which was established in July 2001 XYZ Vietnam has become a member of XYZ network since August 2012 Under its core purpose of being the firm of choice for growing businesses looking for high quality and personalized services, XYZ Vietnam assists clients in achieving their goals through audit, tax, advisory and outsourcing services XYZ Vietnam has more than 200 professionals and staff serving mid to large public-listed, multi-national and private companies in various industries XYZ Vietnam serves clients worldwide as an independent and highly integrated member of the XYZ network which is ranked among the top 6 global accounting networks with more than 41,400 people in 120 countries around the world

XYZ Vietnam was founded by the group of the certified public auditors (CPAs) and accredited consultants, who had worked in the field of the auditing and consulting since the very first days of this industry in Vietnam With these advantages, XYZ Vietnam has possessed the valuable manpower resources to confidently provide professional services requiring full understanding of Vietnam business climate and with international quality standards

History Timeline

2001 XYZ Vietnam was established

2010 Total employees close to 150 people

2012 Established Hanoi Branch

2015 Established Da Nang Branch

2016 The Company reached USD 1 million in profit

2017 – Now Provided services to many big international firms

of tax issues in Vietnam, the Company maintains good relationships with the central, city and provincial tax authorities in the interest of clients

XYZ Vietnam helps its clients with effectively planning and dealing with taxes imposed on individual entities and assist clients in attaining their goals and reducing unfavorable tax effects on business transactions

XYZ Vietnam offers high quality and effective tax services Some of them are:

• Tax health check

Admin and HR Department

Deputy Director Deputy Director

General Director

Figure 2: Operation structure of XYZ Company Limited

• Tax risk management

• Tax retainer

• Tax audit assistance

• Tax review and tax filing assistance

• Application for tax incentives

• Tax structuring

• Reviewing client tax returns

• Preparing tax returns for individuals who should file returns directly

• Working with tax authorities on behalf of clients

• Assisting clients in tax planning

According to Vietnam Association of Certified Public Accountants (“VACPA”), XYZ Vietnam is ranked at 6th place out of the top 10 firms that have highest total revenue from tax services:

Figure 3: Top 10 Auditing firms with the highest total revenue from tax services

Tax department is the important department in the Company Tax Department provides many professional services to big firms, brings in so much profit and clients

to the Company The profit which is earned from this Department is about 50% of the total profit of the Company

CHAPTER 2: PROBLEM IDENTIFICATION

2.1 Company’s context and general symptoms:

The tax department of XYZ Vietnam usually brings higher profit than the audit department Although it shows that the tax department is in a good condition, however the tax department also has a difficult matter to solve There is a big difference in achieving target profit between tax teams Some teams will achieve their target profit quickly, but it is also a different story for other teams Beside, in 2018, based on the estimated reached revenue, it seems that the possibility to achieve the estimated target profit in 2018 is not feasible compare with previous years because the rate of achieving target profit of teams is about 50% for this year The above ratio in 2016,

2017 is 71% and 85% respectively

The target profit will be set up at the beginning of fiscal year and based on the growth rate every year of the Company and teams In accordance with the needs of development of the market, the increasing of investment from multinational enterprises into Vietnam, and the demand to develop services of current clients, the board of directors believes that the growth rate will be stable in 2018 The growth rate

is calculated based on average growth rate of nearest 5 year of Department Furthermore, based on the nature of the company, the target profit of a team is expressed by per member of that team The target profits of each team in fiscal year of 2017-2018 are as follows:

Table 1: Performance of teams in 2018

Team 1 263,015 8 21,677 67,659 71,727 40,356 201,419 77% 28,774 Team 5 226,192 7 30,192 23,093 30,164 28,407 111,856 49% 18,643 Team 6 330,018 10 24,963 29,367 65,260 35,788 155,378 47% 19,422 Team 7 305,915 10 34,614 57,608 40,753 62,513 195,488 64% 17,772

The progress of achieving target profit above is recorded up to quarter 3 of fiscal year because the fiscal year of the Company starts from October and ends at 30 September The data of quarter 4 will be estimated basing on the profit of last year quarter 4 times the growth rate of the Company (i.e the growth rate used to calculate estimated revenue of 2018) The total number of employees of each team used to calculating target revenue is recorded at the beginning of the fiscal year However, because of staff turnover, number of member of each team will be calculated based on the average number of employee of every quarter The number of employees is quite constant Hence, we believed that above adjustment does not significant effect to the final analysis

From the data above, there are a few teams that have good progress and others are struggling to achieve their target profit There are two teams that perform very effective and go over their target profit The difference in achieving target profit will greatly affect the Company’s operation and work ethic of employee

Pressure caused by not achieving target profit will lead to stress Because employees will have to go under stress condition when they want to achieve the target profit of their teams However, even after trying their best, teams that have low achieve ratio may be deemed as weak team by teams which have high achieve profit ratio Stress will cause employees to not be able to perform at their best ability, which will leads to low productivity and performance (4) Furthermore, stress will affect the motivation of employees More stress will result in low motivation (5) It is also affect the performance of team and lower motivation Low motivation will lead to poor performance because employees who lack motivation will not care about the quality of their works (6) Employees who have low motivation will create negative effect on company income, productivity, financial competitiveness and organizational objectives (7)

To further explore the causes of stress in tax department, we have conducted an small survey for all employees The table below showing data of the stress condition

of employees from difference teams:

Table 2: Stress condition of employees 2018

Team Stress caused by

workload

Stress caused by target profit

Stress caused by colleague

to low performance of employees as well as the productivity of Company

2.2 Initial identification of problems:

From above results of each team, we divided employees into 2 group based on the percentage of achieving target revenue One group included teams who have

reached above 90% of target (i.e team 2, team 3, team 4) One group included teams who have reached less than 90% of target (i.e team 1, team 5, team 6, team 7)

Based on above divide, we further explore the problem by depth interviewing the employees from above teams and the general leader of tax department Hence, have 3 groups of interviewing as below:

The 1st group is employees from group A: Ms Bui Thi Tuyet – supervisor, Ms

Le Thi Giang Huong – supervisor, Ms Pham Thi Tuyet Nga – staff

The 2nd group is employees from group C: Ms Dau Minh Phuong – supervisor,

Ms Nguyen Thi Bich Thuy – staff, Mr Vu Le Minh – supervisor

The 3rd group is Mr Lam Le, General Manager of Department

By grouping employees we want to record the opinions of employees who have different performance and find out the reason of these differences From the initial we have identified these following problems:

Conducting interview of above groups we have a common opinion that the work nature is not the same between teams Besides the target revenue is based on a same measurement, it is the reason leads to differences performance between teams as Mr Minh and Ms Phuong said Ms Tuyet said that based on the service of each team, the number of employees as well as revenue getting from them will be different For example, in these years, the demand of customer for Transfer pricing report is quickly increase It leads to the number of customer in this service higher and bring more revenue for team 2 However, it still leads to heavy workload in her team This is the same as Ms Nga’s opinion She also said that she had work a lot and her team is lack

of employee Although her team can catch the target, however, heavy workload leads

to dissatisfaction and she is intending to quit the job if there aren’t any changes Mr Lam is also paying a lot of attention for the heavy workload of each team Sometimes,

he needs to arrange employee from different team to join with team which is lack of man power in order to help that team to provide service to clients Mr Minh and Ms Phuong have both agree that the Company needs to recruit more members to their teams because they are now in short of manpower Ms Phuong and Ms Thuy said that the more members her team has, the more clients that her team can handle It will help their team to earn more profit to achieve target that has been assigned to her team Mr

Minh said that his team will need to have more members in order to effectively conduct service to clients The lack of manpower will slow down the service progress because one employee will not have enough time to finish if there are many services placed on him/her However, the lacking of employees is not occurred in Group 6 and Group 1 Ms Nga said that it may be caused by ineffective human assigning between teams

In order to earn more profit to achieve target, it is very difficult with team that has only one type of services Mr Minh said that his team’s service is to provide tax guidance or answer for any tax queries from clients Although it is a monthly service, the fee is not high to help the team achieve target Mr Minh wants the team to provide more services in order to generate more profit, however the team does not have experienced employees for other services since the quality of serving the client using these service is not high Mr Lam states that although the team of Mr Minh has only one service, its role is to support other team in providing effective tax guidance The problem here is that it is very difficult to effectively distribute the profit of the provided service to Mr Minh’s team Ms Thuy and Ms Phuong agreed with Mr Minh’s points on unable to achieve target profit due to having only one type of service Her team is specializing in accounting service The service cost her team a lot of time to conduct while service fee is not quite high due to its nature as a monthly service Furthermore, although Mr Phuong’s team has stable clients, the fact that they are all long-time clients result in unable to increasing the service fee

Performance appraisal will be conducted at the end of fiscal year, which is the end of September Mr Lam said that he usually finds appropriate method to effectively appraise the performance of every teams However, it seems to be a difficult task because interviewees all agree that the performance appraisal method does not measure correctly the teams’ actual performance Mr Minh and Ms Tuyet said that the performance appraisal method is lacking of some elements to measure their works such as there are no element to the time used to meet client to provide guidance/advice before they approving services Ms Huong and Mr Minh stated that their aim is to have

a good performance appraisal for their teams Besides, the managers will base on the performance appraisal to decide the bonus and promotion at the fiscal year For Ms

Phuong, she said that the performance appraisal is the big problem for her If the managers based on the achieve target profit ratio to appraise employees effort, she is afraid that her bonus and promotion will be affected Ms Phuong and Mr Minh have put in a lot of effort to effectively services to clients however, due to the nature of their teams, their effort are somehow not benefit them so much against the appraisal from managers Mr Minh, Ms Phuong And Ms Thuy stated that their motivation is lower because the performance appraisal does not correctly measure their performances She also said that it is caused by ineffective bonus/promotion policy as same as Mr Lam’s

Table 4: Number of customers terminating and signing service contract

As Mr Lam said, the major of clients who terminate the contract belong to team 6 with 16 clients Team 5 and team 7 have 8 and 7 clients terminating contract respectively Other teams have number of clients terminating contract is less than 5 When asking about the reasons for decreasing number of clients, Mr Lam said that the reduction of customers is mainly due to the cease of operation of customers, not because of changing service providers The rate of clients use XYZ services again remains above 70% per year

Base on the aforesaid review, the initial cause - effect map are as follow:

Decreasing client in some teams

Performance appraisal

is not reflecting the actual performance

Different nature of services between teams

Shortage of staff

in some teams

Large difference

of achieved ratio between teams

Different workload between teams

Low achieved ratio of revenue in some teams (most of teams has ratio below 100%)

Ceasing of operation

of customers

Ineffective wage/promotion

Organization Symptoms

Figure 4: Initial Cause-effect Map

2.3 Tentative problems

2.3.1 Ineffective task assigning method

It is sated that a reason of lack of efficiency in business is ineffective task assignment to employees (8) The company will fall into a difficult stage if assigning inaccurate work to individual or team that cannot perform them effectively Each team

in a company will be difference in number of members as well as the operation, hence

in order to ensure that a company can have effective function, the suitable work assignment is the key element (9) Furthermore, by forming a team with people from different groups, it will allow team members to receive experiences and knowledge of one another as well as effectively approach issues to provide quality services to clients (10)

It is very important for the Company to assign right work to right person Mr Lam said that every tax team had its own specialized services Each group developed one key service beside other service Mr Lam believes that it will help a team to make use of its knowledge about specific service to ensure that the clients will receive high quality services However, it does not have very clear assignment for each team based

on their professional The work assignment is still based on Clients One group will take care one client with many services, the service cross-sell to another group has better knowledge is still occurred It helps the Company to provide quality result to client

Ms Tuyet and Mr Minh also said that the distribution of works in accordance with the characteristics of each team bring more efficiency for the working result At the same time, the cross-selling between each team is effectively and ensure to provide any types of service when there are requests from clients

In addition, Ms Huong also confirmed that the shortage of manpower is only temporary, not regular problems And to solve that problem, teams have also carried out the exchange of team members to assist team that is under work overload However, the time spent by a member to help another group is not included in the revenue of allocated team

Mr Lam also stated that when a group appears to be overloaded with regular work and lack of manpower, the company will recruit new staff to solve the problem

Hence, the lack of manpower is not a regular occurrence and not a serious problem the company is experiencing

Regarding the specialization of each team which lead to the difference in nature

of services of each team resulting into different workload of each group, when assessing on the overall performance of the Company, specialization helps ensure the quality of results as well as ensure professionalism in serving customers of the company According to the current statistics on the level of satisfaction of customers, the result of service provided of the company is highly appreciated Therefore, the specialization is not the problem the company is

Lack of ineffective task assigning method is not quite the issue which greatly affects the company at the moment Besides, the current task assigning method is created base on the nature of the company through many years Hence, if it is selected

as central problem, it will require a huge amount of time and effort to deal with Furthermore, Mr Lam has already taken actions to increase the effectiveness of task assigning

2.3.2 Lack of training

The satisfaction of customer is effected by quality of services and its final effect

on customers’ repeated purchases And in fact, those loyal customers who purchase repeatedly are considered as the base of any business (11)

In addition, Crotts believes that the customers satisfice based on both products with good quality and good service Hence, the company should improve service quality to gain more customer satisfaction Then will improve the whole performance

of enterprises (12)

If there is not much training in a company, there will be a lot negative effect It is said that employees who do not receive much training will provide low quality service which will increase the cost of compensation to clients as well as cause clients to choose another service firms On the other hand, frequently training will help employees to develop varieties of skill which will make them work more efficient (13)

Training is very important as XYZ Vietnam Mr Lam said that if a firm is lack of training, employees cannot provide effective services to clients Sooner or later, clients

will see no value in that firm and left it to find another competent firm Ms Tuyet said that clients will find another service firm if we can meet their requirements on quality Hence, interviewees are all worry that without training, they cannot be able to provide quality services to clients and let them keep using the Company’s services As Mr Minh said the training content is tailored for every class of employee Trainer is usually a manager who has many experiences related to the training topic Besides training for knowledge in specific services, employees of tax department usually receive training for soft skills Ms Phuong said that she is able to provide quality assistance to clients because of the knowledge from training

Training is no doubt a major element of XYZ Vietnam The Company has operated many training programs for employees Although it cost employees quite an amount of time to participate, the result from training programs is satisfying Hence, training is not a major problem of XYZ Vietnam In fact, by having many training, employees have been able to satisfy requirements from clients

2.3.3 Raising of competitor

It is started a large survey of six industries and verified the direct linear effect of

SQ perceptions, customer satisfaction, and value, on behavioral intentions A major result in their study was that service quality perceptions generate greater impact than price in determining value Customers value the quality of service rather than the cost

of that service (14)

A company should identify and capitalize on their strengths to compete their competitor, then improve their competitive strategies to increase their market share (15) Beside, it is believed that the amount of competition and the conduct of competitors impact the customer satisfaction, and that rivals’ customer satisfaction impacts a firm’s sales performance (16)

However, as statictis of VACPA, XYZ usually stay at the top 10 best audit firms

in Vietnam and this position is gradually increased by years Hence, Mr Minh said that the reason of competition for clients is not appropriate

2.3.4 Ineffective performance appraisal method:

If the company is having an ineffective performance appraisal method, it will suffer with confusion and ineffective work performance from top management to

bottom of employee level Performance appraisal can decrease the motivation of employee (17) Performance appraisal is a procedure where the manager rates employee base on his/her performance (18) Employee will feel unhappy when they are reducing to a “number” in the performance appraisal result as stated by (19)

When asking interviewees about what is the current problem of the Company, all interviewee agree that the answer is about the performance appraisal Ms Nga and Ms Phuong said that they are worry because the performance appraisal will not be able to evaluate their actual works All of the evaluation criteria in the performance appraisal are not enough for them to show the higher up their performances throughout the fiscal year Mr Minh and Ms Huong also do not like the performance appraisal method because it is related to wage raise but it cannot reflect their actual effort

When asked about the issue of performance assessment, Mr Lam commented that the current assessment process is primarily based on the revenue of each team to assess whether team’s performance in the year is effective or not The current appraisal form does not reflect the works such as finding clients, promotion, advisory for client conducted by some teams, typically group 5 and 6

According to Ms Thuy, for services which bring in little profit such as accounting, the workload is quite heavy However, it is unreasonable to assess that her team performance is low Furthermore, for audit firms, accounting services is not only important but also for maintaining clients and bring in clients for other services

In addition, low assessment and heavy workload cause Ms Phuong and Ms Thuy uncomfortable They think that their works bring in revenue and clients to other team however after the performance appraisal, other teams get higher evaluation which cause them to feel unmotivated Especially, the assessment also affects the promotion and salaries, so Ms Phuong and Ms Thuy found that the assessment is a big problem

To sum up, after analyzing all of the information provided from the interviewees

as well as theories, the central problem of the company is detected Ineffective task assigning is not quite a major problem to the company because there are adequate solutions for it Lack of training is not a central problem The company has developed many types of training to mitigate the worries of its employees of not having enough knowledge to provide quality service Furthermore, as mentioned above, the price is

not factor affecting to competitive strength of company Mr Lam also stated that XYZ Vietnam will spent more on marketing in order to reach many clients to reduce the losing clients situation caused by the harsh competition from many firms Employee is

a valuable asset of a company When having high motivation, employees can improve the quality of their performances An issue that can significantly affect employees in negative ways is performance appraisal Through the aforesaid information, ineffective performance appraisal is a central problem of XYZ Vietnam

Based on above information, the updated cause-effect map is as below:

Low quality of services

Potential Central Problems

Lack of training

Decreasing client in some teams

Performance appraisal

is not reflecting the actual performance

Low satisfaction of customer

Ineffective task assigning method

Ineffective performance appraisal method

Different nature of services/member between teams Poor performance in some teams

Large difference of achieved ratio between teams

Different workload between teams

Low achieved ratio of revenue in some teams

Shortage of staff

in some teams

Low motivation of employees in some teams

Ineffective wage/promotion policy

Raising of competitor

Ceasing of operation

of customers

Organization Symptoms

2.4 Problem justification

2.4.1 Definition of ineffective performance appraisal

Performance appraisal is a method that compares the employee’s actual performance to standards and comment on the result of the evaluation (20) It is stated that performance appraisal is the method where the manager will annually assess the performance of employee (21) The effectiveness of performance is effective in offering a comprehensive analysis of the employees’ performance and reflective of the employee‘s actual performance (22) Hence, an ineffective performance appraisal is method which cannot meet the above qualification Organization will have good business activities if it has effective performance appraisal system, however ineffective performance appraisal system can put an organization in confusion and chaos (17) It is stated that ineffective performance appraisal will negatively affect the morale and relationship of an organization (23)

According to (41), the effectiveness of performance appraisal can be evaluated through two broad perspectives:

• Are we doing things right?

• Are we doing the right things?

From the first question, the management of a Company can determine whether the performance appraisal is in accordance with system, regulatory, and program requirements If the performance appraisal is not operated according to the initial requirements, the chance of accomplishing the reasons for its implementation will be little

In order to determine the effect of the performance appraisal’s result, management can depend on the second question Possible criteria for assessing the results of a performance appraisal can be determined through these following questions:

Are the planned objectives of the

appraisal program being accomplish

Management can receive information related to the goals and report results in accordance with goal achievement by Are employees and managers satisfied

with the performance appraisal

The effectiveness and success of the performance appraisal can be determined

by the opinion of the raters, managers, and employees

Do the benefits of the performance

appraisal outweigh the costs

Costs of the performance appraisal could

be cost of developing and cost of implementing

Are there any improvement in the

performance of employee

The effectiveness of the performance appraisal have a connection with the performance of employee

Has the behavior or the attitude of

employees or managers changed as

desired

The performance appraisal will be determined as success if there is a change

in the attitude and behavior as desired

Are there signs of different treatment in

the results of performance appraisal

If there are any different treatment, managers should determine if appraisal contents are causing the lack of balance in the ratings or if there is a larger problem

in the organization that is surfacing through the appraisal process Has there been an improvement in the

efficiency or the effectiveness of related

human resources programs

Managers can determined the success of the performance appraisal by looking at the connection between the performance appraisal and human resources

2.4.2 Justify the existence of the problem

In order to justify that the existence of ineffective performance appraisal, this part will go through academic theory and interview results

It is stated that employees will tend to leave the company if they think that the performance appraisal is ineffective or bias (24) A Company that has ineffective performance appraisal will show these following problems: low motivation on employees, low productivity, weak relationship between managers and employees, negative attitude (25)

In order for the performance appraisal to be effective, both the rater and rate will have to be willing in doing it, however, managers usually do not like to conduct performance appraisal (26)

Mr Minh is dissatisfied with the bias evaluation from the managers He thinks that managers usually favor employee who have worked for them many times and neglect the performance of other employees Ms Phuong agreed with Mr Minh’s opinion She is afraid that the performance appraisal will be ineffective because managers will be bias in their evaluation Mr Minh and Ms Phuong feel that their

morale will be effected in negative way Ms Nga said that her leader was unfair when

conduct performance appraisal for her last year Although she worked over time a lot

as well as willing to go oversea to provide services to client, her team leader did not

put a good comment on her performance appraisal As the result, Ms Nga did not

receive the double promotion like she expected Ms Nga stated that she will not

volunteer for taking any difficult job or go oversea until she receives what she

deserves

Through the aforementioned information, it is justified that ineffective performance appraisal is currently an issue in the Company

2.4.3 Justify the importance of the problem

Performance appraisal is used to evaluate and assess the work performance as well as commitment of employee (27) The purposes of performance appraisal are to

motivate employees as well as assist manager in evaluating their performances (28) It

is stated the same idea where the fundamental objective of performance appraisal is to

provide information for manager’s decision relating to increase wages or promotion

Performance appraisal can decrease the motivation of employee Performance appraisal is a procedure where the manager rates employee base on his/her

performance (18) Employee will feel unhappy when they are reducing to a “number”

in the performance appraisal result (19)

Hence, the final cause - effect map is as follow:

Figure 6: Final cause - effect map

Organization Symptoms Central Problems

Performance appraisal is not reflecting the actual performance

Ineffective performance

appraisal method

Large difference

of achieved ratio between teams

Low achieved ratio of revenue

in some teams

Low motivation of employees in some teams Ineffective wage/promotion

policy

CHAPTER 3: ALTERNATIVE SOLUTIONS

3.1 Causes validation:

Performance Appraisal is the procedure to evaluate the effectiveness of employees However, performance appraisal often lacks its usefulness because of indirect or direct issues Some of them are as follow:

3.1.1 Unclear performance criteria and structure:

It is stated that in order for the performance appraisal to be effective, objectives and criteria which company wants to have must be determined first (29) The performance appraisal will be ineffective if there are no clear criteria established to judge performance of teams (26) It also help to more focused management action as well as providing a clearly defined basis for rater

As previous interviewed with Ms Phuong and Ms Tuyet, the current appraisal system is not effective because it only focuses on the revenue of each team but does not have a clear assessment on the performance as well as revenue earned by supporting other team to perform services or to find clients Mr Lam also realized that focusing solely on revenue to assess the performance of each team is inadequate and can lead to some teams being underestimation Therefore, it is necessary to restructure and re-evaluate the appraisal form

3.1.2 Lack of rating skills in conducting performance appraisal:

It is stated that the end of the performance appraisal will not be appropriate if raters do not hold rating skill and knowledge In order to evaluate employee, rater will need to have special knowledge, ability, and observation skill to judge the performance

of employee The rating skills in conducting performance appraisal can be distinguished on various elements: use of a rating scale, development, amount and kind of information which is yielded, purpose of the rating (30).Training for performance appraisal should be conducted frequently for managers in order to provide them with fresh ideas or any changes to the process of evaluating

When asking about how well manager level received training on performance appraisal, Mr Lam said that the Company hardly ever hold any meeting regarding this subject Mr Lam thinks that the performance appraisal based on revenue of each team which has been used for many years is enough to evaluate performance of each team

Regarding this issue, Mr Minh said that there are a few things that should have been updated or included in the performance appraisal to reflect their actual work more

3.1.3 Unfair rating from rater:

Bias in performance appraisal is quite a problem since it affected decision making such as promotion (31) It is stated that the process of evaluating employees is one of the most emotionally charged processes in management (32) There is a chance that manager will bring in their personal feelings into the performance appraisal which lead to ineffective appraisal

Managers will be bias when conducting performance appraisal of a certain employee if the managers like or dislike that employee (33) It is stated that employees will get good evaluations when managers have positive view of them and bad evaluations when manager do not think highly of them Bias in evaluating performance appraisal is quite an issue

When asking interviewees about the bias from managers, they agree that the company has this issue Managers are quite favor with teams that have good achieving target profit ratio and neglect the rest Although the workload of teams are not much difference, managers usually judge teams that have high achieving target profit ratio are hardworking in order to bear the heavy workload Beside, as Mr Minh said this cause also comes from unclear performance appraisal format

3.1.4 Ineffective feedback to employees:

Lack of feedback for the performance evaluation will create negative impact to the motivation of employees and teams It is stated that a meeting with employees and teams to provide feedback for their performance appraisal is considered as learning events which can help employees and teams to think about how they want to improve their performance or in what methods they want to develop Feedback is absolutely necessary for organizational effectiveness and that many negative issues such as anxiety as well as inaccurate self-evaluations will appeared because of lacking of performance appraisal feedback (34) Adequate performance appraisal feedback will provide many positive results such as enhance employee engagement, job satisfaction, push teams forward, and motivation (35)

Ms Nga and Ms Thuy said that during the process of performance appraisal, their teams will get a chance to meet directly with Mr Lam to discuss about their performances Mr Lam stated that by doing so, it will ensure that leaders of each team will understand more about each team as well as generate effective improving methods for them However, an effective performance appraisal format has not been created

In summary, all aforesaid factors are essential for the central problem of ineffective performance appraisal method However, in the scope of this thesis, the causes which are unclear performance criteria and objectives in the performance appraisal and unfair rating from rater will be selected as major causes for the central problems

3.2 Alternative Solutions

In order to effectively mitigate or solve the causes which are lack of rating skills

in conducting and unclear performance criteria and structures in the performance appraisal, Mr Lam and HR department is looking for an appropriate method It is a need to find an adequate method to evaluate the performance of team besides rely on revenue for assessment In the scope of this research, rating scale method and cost accounting method will be explored as well as an appropriate plan to implement the most adequate method will be introduced

The solution map is as below:

3.2.1 Alternative solutions for unclear performance criteria and structures

3.2.1.1 Rating scale method

Although rating scales method has been appeared for so long, it is still the most popular method in performance appraisal Rating scales method is a performance appraisal method that assess team according to specific criteria The rater can design appropriate criteria to appraise ratee (36) It means that for issue such as revenue

which comes from supporting action of a team to other teams can have criteria to evaluate The structure of the rating scale method is quite easy to format and design which can help rater to make a clear structure for appraisal the performance of rate Furthermore, raters can record their assessment on a scale Each scale will range from poor to excellent The raters will review the performance level of each criteria and compute the total score of ratee The total score will be used to judge whether the performance of ratee meet expectation of the rater or not

Benefit of this method

 Easy to use and need simple guidance or training

 Low cost or no cost at all

Lack of rating skills in conducting performance appraisal

Unclear performance criteria and structures

 Rater can freely design the criteria to use The Company can create criteria

such as: taking part in providing service with other teams, clients introduce

to other teams, etc to effectively measure the performance of teams

 Can be used in rating every aspect

 Provide quantitative comparison

 Provide simple method to communicate weaknesses and strengths

Restriction of this method

 Rater may be bias when conducting the performance appraisal, however it

can be reduce with simple methods

 Data variation

When being introduce to this method, interviewees have a lot of opinions for it

Mr Minh and Ms Tuyet said that the criteria to evaluate revenue of this method can be easy put in the appraisal form so that team performance can be effectively assess Mr Phuong said that by using this method, revenue comes from actions such as providing clients, providing members to participate in services of others will be evaluated Furthermore, Ms Thuy and Ms Nga realized that the method is easy to conduct, need little training and guidance, simple structure, and less time consuming as well as cost effective Mr Lam agreed with the aforesaid opinions of his employees He shared that raters may cause bias when conducting performance appraisal of team

After hearing from the interviewers, a table for measure the effect of this method

is as follows (the scale will be from 0 to 10):

conduct Structure

Can be conducted in short time

Cheap Bias Total

3.2.1.2 Cost accounting method

Performance will be traced and evaluated from the monetary returns yields to the team or employee (36) It is also stated the same idea where the performance of team

or employee will be assess from the revenue return to the team or the company (37)

this performance appraisal, team performance will be the money value of its services The performance of team will be positive if the revenue they earn is more than the cost and vice-versa Furthermore, this method can help to evaluate the assistance of a department to other department in an organization For example the marketing department will earn revenue for their efforts in finding clients for other department Being able to evaluate that area will help the Company to ensure that it does not neglect or underestimate the performance of teams that have a few services but need to work under heavy workload like other team and still have to provide members or time

to assist or participate in providing services of other teams

Benefit of this method

 Improve the efficiency in management within a company

 Help to see clearly the revenue that a team will earn even when it support

other team

 Help to evaluate the support of a team to other

 Provide simple method to communicate weaknesses and strengths

 Clear structure

Restriction of this method

 Depend heavily on memory of rater however it can be mitigated if

company or rater keeps a record

 Depend heavily upon cost and benefit analysis

 Take time to conduct because it needs to track down the revenue and cost

 Lack of rating skills

When being introduce to this method, interviewees have a lot of opinions for it

Ms Thuy said that this method has a detailed structure Ms Tuyet agreed with Ms Thuy where she though that with its well organized structure, this method will help rater to track down and evaluate the assistance of a department to other department in an organization and to not neglect or underestimate the performance of teams that have a few services but need to work under heavy workload like other team and still have to provide members or time to assist or participate in providing services of other teams

Ms Phuong said that this method seems to be easy to execute without less training needed as well as less expense incurred For Mr Lam, he thought that this method will

take quite a long time to prepare The rater will need to go through many data to track down revenue of teams and sometimes it will depends on the memory of the rater for important event of some teams which may be affected the appraisal result Mr Lam also noticed that this method will be fair because information is in figure and they all have recorded by the Company

After hearing from the interviewers, a table for measure the effect of this method

is as follows (the scale will be from 0 to 10):

conduct Structure

Can be conducted in short time

Cheap Bias Total

Through comparison, the Rating scale method seems to be suitable for the Company The criteria to evaluate revenue can be easy put in the appraisal form so that team performance can be effectively assess Furthermore, the method is easy to conduct, need little training and guidance, simple structure, and less time consuming

as well as cost effective

As the scoring tables have shown, although the criteria Bias is quite high for rating scale method, the method has better score in the other criteria The total score of rating scale method is 43 which is higher than cost accounting method Hence, rating scale method will be chosen as the most suitable method for solve the unclear performance criteria and structures

3.2.2 Alternative solutions for lack of rating skills in conducting performance 3.2.2.1 Coverdale Training

Coverdale training is a method developed upon group training (38) The method

is built upon positive thinking and reason In this method, rather than analyzing the causes of failure, the reason or method for success will be reviewed and improve People will form a group and try to gain experience from reviewing their performance

By not learning directly from trainer, studying from actual performance will help trainees to gain skills in putting their knowledge to use This method is simple to

conduct and by sharing effective practices, raters of the Company can effectively improve their rating skills and reduce errors

Benefit of this method

 Easy for trainee to receive knowledge

 Provide an effective environment where people can share their actual

experiences and learning from them

 Improving rating skills and reducing error by studying from actual

experiences

 Cost effective

Restriction of this method

 Take time to prepare

 If participants are not eager to open up and share their actual performances,

it will not be effective

Mr Minh has a lot of experience in training When talked about this method, he said that it is a great opportunity for raters to share their good practices Ms Phuong thought that this method will not require much expense to conduct and is easy to conduct Mr Lam shared that he has experienced this training, it is good for rater to improving rating skills because not only they can improve their own skills but also receiving skills of others

After hearing from the interviewers, a table for measure the effect of this method

is as follows (the scale will be from 0 to 10):

conduct

Easy to improve rating skills

Can be conducted in short time

Cheap

Learning from other

Total

3.2.2.2 Laboratory Training

This method is based on laboratory approach for skills training (38) The method

is executed by a group of trainees that gather up with skilled trainer for a number of sessions The nature of this method is that it does not have definite structure, agenda,