International human resource management lesson 05

8 8International Human 5 PERFORMANCE APPRAISAL IN A GLOBAL CONTEXT CONTENTS 5.0 Aims and Objectives5.1 Introduction5.2 Performance Management and its Link with other HR Processes5.3 Perf

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International Human

5 PERFORMANCE APPRAISAL IN A GLOBAL CONTEXT

CONTENTS

5.0 Aims and Objectives5.1 Introduction5.2 Performance Management and its Link with other HR Processes5.3 Performance Appraisal in Global Context

5.3.1 Whole versus Part5.3.2 Non-comparable Data5.3.3 Volatility of the International Environment5.3.4 Separation by Time and Distance

5.3.5 Variable Levels of Maturity5.3.6 Headquarter-subsidiary Interdependence5.3.7 Ethical and Legal Issues

5.3.8 Market Maturity5.4 Relocation Performance Management5.4.1 Variables that Influence Relocation Performance5.4.2 Criteria used for Performance Appraisal of International Employees5.4.3 Appraisal of HCN Employees

5.5 Performance Management — Two Examples5.5.1 Exxon

5.5.2 General Motors5.6 Culture and Organisational Performance5.6.1 Link between Culture and Organisational Performance5.7 Competence Approach to HRM

5.7.1 Management Competences Approach5.7.2 European and International Competences5.7.3 Cultural Regard for Managers and their Competences5.7.4 Different Degrees of Internationalisation of Companies5.7.5 Problems Inherent within the Competences Model5.7.6 Job Satisfaction

5.8 Recent Innovative Methods in IHRM5.9 Let us Sum up

5.10 Lesson End Activity5.11 Keywords

5.12 Questions for Discussion5.13 Suggested Readings

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Global Context

5.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to:

 Understand the basics of performance management

 Describe the criteria for performance appraisal of international employees

 Discuss competency approach to performance appraisal

5.1 INTRODUCTION

One of the most challenging aspects for a firm operating internationally is managing the

performance of its various international facilities Since organisations exist to achieve

goals, the degree of success that individual employees have in reaching their individual

goals is important in determining organisational effectiveness The assessment of how

successful employees have been at meeting their individual goals, therefore, becomes a

critical part of human resource management The evaluation of performance of expatriates

is very much linked with the performance of subsidiaries, which they are sent to manage

Figure 5.1 illustrates the basic components of international performance management It

provides a convenient starting point of the link between the multinational’s

internationalization strategies, its goals for individuals international operations in terms of

contribution to global profitability, and individual performance management, whether PCN,

TCN or HCN This is important since an individual’s performance is evaluated according

to expectations of appropriate outcomes and behaviour that contribute to organizational

goal attainment

Source: P J Dowling et al International HRM (2001), p 119

Figure 5.1: Basic Components of International Performance Management

Multinational’s Internationalization Strategies and Goals

Subsidiary Goals

Individual (PCN, TCN, HCN)

Job

Analysis

Performance Appraisal Job Goals

and Standards

Performance management is the central process of the human resource cycle because

it influences the following essential processes:

1 Rewards management

2 Human resource planning

3 Training and development process

4 Relationship with strategy

An effective performance system at the strategic level depends upon the commitment

of quality management time of senior executives, including the CEO It can be said thatperformance management is the most important responsibility of HR executives in globaltransnational organisations

5.3 PERFORMANCE APPRAISAL IN GLOBAL CONTEXT

The multinational has specific expectations for each of its foreign affiliates in terms ofmarket performance and contribution to total profits and competitiveness When evaluatingsubsidiary performance against these expectations, it is important to recognize variousconstraints that may affect goal attainment We identify five major constraints

5.3.1 Whole versus Part

A multinational is a single entity that faces an international environment Integration andcontrol imperatives often place the multinational in the position where it decides that thegood of the whole is more important than one subsidiary’s short-term profitability In anexample provided by Puick (1985) a multinational establishes an operation in a particularmarket where its main global competitor has a dominant position The objective of enteringthe market is to challenge the competitor’s cash flow with aggressive pricing policies.Puick (1985) explains that the balance sheet of this particular subsidiary might becontinually in the red, but this strategy, by tying up the competitor’s resources, may allowsubstantially higher returns in another market In another situation the multinationalestablishes a joint venture in a particular market in order to have a presence there, eventhough it has low expectations in the short-term, and may provide minimum resources tothe venture Undoubtedly, the consequences of such global decisions for subsidiarymanagement must be taken into consideration for performance evaluation

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Garland et al (1990) further explain that physical measures of performance may be

easier to interpret than in the above examples, but difficulties may still arise For instance,

notions of what constitutes adequate quality control checks can vary widely from one

country to another, import tariffs can distort pricing schedules, a dock strike in one country

can unexpectedly delay supply of necessary components to a manufacturing plant in

another country, and local labour laws may require full employment at plants that are

producing at below capacity These factors can make an objective appraisal of subsidiary

performance problematic, and may complicate the evaluation of individual subsidiary

managers

5.3.3 Volatility of the International Environment

The turbulence of the international environment requires that long-term goals be flexible

in order to respond to potential market contingencies According to Puick (1985), an

approach may mean that subsidiaries could be pursuing strategies that no longer fit the

new environment Consider, for example, the impact on international business of major

events in the last decade such as the collapse of communist rule beginning in 1989

throughout Eastern Europe and the former Soviet Union, the Persian Gulf War in 1991,

the formation of the Single European Market in 1992, recent market reforms in China,

the handover in 1997 of the British colony of Hong Kong to the control of the People’s

Republic of China (PRC), and the current economic downturn in the so-called ‘tiger’

economies of South-East Asia Each of these events has profound implications for the

global and local strategies of multinationals operating in these countries Because

subsidiaries operate under such volatility and fluctuation, they must tailor long-term goals

to the specific situation in a given market

5.3.4 Separation by Time and Distance

Judgments concerning the congruence between the multinational and local subsidiary

activities are further complicated by the physical distances involved, time-zone differences,

the infrequency of contact between the corporate head-office staff and subsidiary

management, and the cost of the reporting system Developments in sophisticated

worldwide communication systems, (Puick, 1985) such as video telephone, teleconference,

and e-mail do not fully substitute for face-to-face contacts between subsidiary managers

and corporate staff Meeting personally is often necessary to fully understand each

person’s situation For this reason many multinational corporate managers spend a

considerable amount of time travelling in order meet expatriate and local managers in

foreign locations It is then possible for HR corporate staff, when designing performance

management systems, to take account of country-specific factors

5.3.5 Variable Levels of Maturity

According to Puick (1985) without the supporting infrastructure of the parent, market

development in foreign subsidiaries is generally slower and more difficult to achieve than

at home where established brands can support new products, and new business areas

can be cross-subsidized by other divisions For example, one does not fire a Mexican

manager because worker productivity is half the American average In Mexico, that

would mean that this manager is working at a level three or four times as high as the

average Mexican industrial plant The harassed Mexican manager has to live with

Mexican constraints, not European or American ones, and these can be very different

The way we measure worker productivity is exactly the same, but the numbers come

out differently because of that environmental difference (Garland et al., 1990).

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5.3.6 Headquarter-subsidiary Interdependence

How a subsidiary performs depends, to a large extent, on how well the multinational as

a whole supports it, how much autonomy is granted in making its own strategy andimplementation

5.3.7 Ethical and Legal Issues

Many multinationals assess performance using result-oriented measures It may beimportant, however, to assess how the subsidiary management is achieving its results

5.3.8 Market Maturity

Some markets are simply less developed than others Subsidiaries in these markets wherethe supporting infrastructure is not available, may perform much less well in interns ofsales volume than subsidiaries in more established markets This makes any purely bottom-line assessment of performance inappropriate

The productivity levels of people are very different in different parts of the world Incountries like India, infrastructural and government delays are so frustrating that amultinational unit may not succeed in obtaining timely clearances, resulting in long projectoverruns in time and cost

In short, there are a number of significant constraints that must be considered whenevaluating the performance of a foreign subsidiary and expatriates working there

Check Your Progress 1

What are the constraints that may affect goal attainment of performance appraisal?

5.4 RELOCATION PERFORMANCE MANAGEMENT

Performance management is a process that enables a multinational to evaluate andcontinually improve individual subsidiary performance against clearly defined pre-settargets and goals Story and Sisson (1993) emphasis four sub-processes:

1 Setting clear goals for each unit, department and every individual employee

2 Setting standard and measurement criteria for evaluating each type of goal

3 Formal monitoring and review of progress towards these objectives

4 Using the outcomes of the review process to reinforce desire employee behaviourthrough differential rewards and identifying training and development needs.Clarke (1995) stresses one additional performance management activity—that of feedingback to the employee

5.4.1 Variables that Influence Relocation Performance

Performance can be viewed as a combination of several variables such as motivation,ability, working conditions, clarity of goals and roles, and expectations The followingfactors and their interrelationships affect performance assessment of expatriates:(a) Compensation package;

(b) Nature of assignment (assignment task variables and role of expatriate);

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(c) Support from headquarters;

(d) Environment in which performance occurs; and

(e) Cultural adjustment of the individual and the accompanying family members

Figure 5.2 depicts these variables and form the basis on which will be explored both the

nature of the expatriate assignment, how performance is managed, the criteria for

assessment, and other elements that comprise an effective performance management

system Generally, we use the term expatriate to cover both PCNs and TCNs, since

much of the following is applicable to both Dowling (2001)

Figure 5.2: Variables Affecting Expatriate Performance

Compensation Package

It is essential to first recognize the importance of remuneration and reward in the

performance equation Perceived financial benefits, along with the career progression

potential associated with an international assignment, are often important motives for

assignment The level of motivation and commitment is likely to decrease, thus affecting

performance The issues surrounding compensation will be examined in greater detail in

the chapter on compensation

Task

Expatriates are assigned to foreign operations to fulfil specific tasks Hays (1974) identifies

four expatriate task roles:

 The chief executive officer, or subsidiary manager, oversees and directs the entire

foreign operations

 The structure reproducer carriers the assignment of building or reproducing in a

foreign subsidiary a structure similar to that which he or she knows from another

part of the company

 The troubleshooter is the individual sent to a foreign subsidiary to analyze and

solve a particular operational problem

 The operative performance functional job tasks in an existing operational structure,

in generally lower-level, supervisory positions

Expatriate

Performance

Cultural Adjustment—Self

—Family Host Environment

Headquarter’s Support

Task

Compensation Package

Although an individual may affect how a role is interpreted and performed, the role itself

is predetermined (Mintzberg, 1973) For the expatriate (role receipt) the parent company(role sender) predetermines his role in the foreign assignment, and role expectationsmay be clearly communicated to the expatriate before departure Black and Porter(1991) found that American expatriates working in Hong Kong exhibited similarmanagerial behaviour to those employees remaining in the United States In the absence

of incentives to modify their role behaviour when abroad, it is not surprising that theexpatriates concerned performed as they did

Communication of role conception from the multinational to the expatriate is indicated bythe straight arrows in Figures 5.3 and 5.4 Role conception is also communicated to therole recipient by host-country stakeholders (e.g., subsidiary employees, host governmentofficials, customers, suppliers, etc.) as shown by the dashed arrows This, however,crosses a cultural boundary Role behaviour provides the feedback loop, again at twolevels: the parent and host-country stakeholders Trying to perform to differingexpectations may cause role conflict If the PCN manager adapts his role behaviouraccording to the role conception communicated in the host environment, it may conflictwith that predetermined at headquarters

Source: International Studies of Management & Organization (1985) vol 15 (1) p 60

Figure 5.3: PCN Role Conception

If the PCN is to identify too closely with host subsidiary concerns, he may be recalled.Some multinationals will restrict the length of stay to no more than three years to containthe possibility of PCN identification with local concerns Because of the importancegiven to the parent as role sender in performance evaluation, a PCN may elect to ignorerole communication sent from the host-country stakeholders if he considers thatperformance evaluation is determined by how role behaviour conforms to headquartersexpectation

Multinational (role sender) (role recipient)PCN manager

Communicates role conception

Host-country stakeholders (role senders)

PCN manager’s role behaviour Cultural Boundary

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Source: International Studies of Management & Organization (1985) vol 15 (1) p 60

Figure 5.4: TCN Role Conception

Role expectations are likely to be more complex for the TCN than the PCN, because the

role is defined by and performed in two countries other than the TCN’s own For example,

a U.S manager working for a Dutch multinational posted as a TCN in Indonesia may

face added difficulties The American’s role behaviour may be deemed in appropriate by

both the parent (Dutch multinational) and the host nationals (Indonesians) An American

manager working in Indonesia whether as a PCN or TCN may encounter lack of job

discretion, with same effect in terms of performance developing upon strength of other

intervening variables For examples, differing role sender may exacerbate the situation

through conflicting role expectations

Headquarters’ Support

The expatriate assignment differs from a domestic relocation because it involves the

transfer of the individual and accompanying family members into a foreign environment,

which is outside their normal, cultural comfort zones The individual’s primary motivation

for accepting the assignment may be career or financially oriented The level of

headquarters’ support provided to the individual and the family is an important performance

variable that involves more than the tangible, monetary support contained in the

compensation package

Source: P J Dowling, International HRM, 2001 (p 131)

Figure 5.5: The Employment Contract

As depicted in Figure 5.5, the employment contract comprises two components—the

transactional and the relational—contained within a broader social contract The latter

Transactional Relational Specific, short-term,

monetizable obligations limited involvement of parties

Broad, open-ended, long-term obligations monetizable and socio-emotional elements

Parent company

(role sender)

TCN manager (role recipient)

Communicates role conception

Host-country

stakeholders

(role senders)

TCN manager’s role behaviour Cultural Boundary

Cultural Boundary

The relational element of the employment contract is connected to the concept of the

psychological contract: The “beliefs that individuals hold regarding promises made,

accepted, and relied upon between themselves and another” (Roussean, etc 1994).Violation of the psychological contract occurs when an individual feels that the organizationhas not fulfilled its obligations in return for the efforts and contributions made by theindividual: Perceived violation has a negative effect on commitment and loyalty to theorganisation The way in which the expatriate and family are received and supported bysubsidiary staff in also important Therefore, it may be concluded that headquarterssupport in the foreign location is a more powerful explanatory variable in expatriateperformance than is generally recognised

Host Environment

According to Gregerson etc (1996) the international context—with its differing societal,legal, economic, technical, and physical demands—can be a major determinant ofexpatriate performance Consequently, expatriate performance should be placed withinits international as well as its organizational context Therefore, the five major constraintsidentified earlier, in terms of multinational strategy goal setting for the subsidiary, areimportant considerations strategy performance management

The type of operation to which the expatriate is assigned is important For instance, inChina it may be relatively easier to perform in a wholly-owned subsidiary than in a jointventure with a state-owned enterprise An expatriate IJV manager may have difficultytrying to serve two masters and experience a high level of uncertainty regarding theeffect of differing goal expectations for the new IJV upon his performance evaluation.Similarly, the stage of the international business will influence the success of the expatriate

An expatriate overseeing the establishment of a new facility in a foreign country, especially

in a developing or emerging market, will face different challenges and constraints thanone who is posted in a mature operation

Cultural Adjustment

The process of cultural adjustment may be a critical determinant of expatriate jobperformance It is likely that expatriates and their families will have some difficultyadjusting to a new environment, and this will impact on the manager’s work performance.The concept of an adjustment cycle, or curve, depicted in Figure 5.6, is helpful indemonstrating the typical phases The U-curve is based, on psychological reactions tothe assignment and comprises certain phases (Black and Mendenhall, 1991) Phase 1begins with reactions prior to the assignment—the expatriate may experience a range ofpositive and negative emotions such as excitement, anxiety, fear of the unknown, sense

of adventure, and so on There can be an upswing of mood upon arrival in the assignmentcountry that produces what has been referred to as the ‘honeymoon’ or ‘tourist’ phase.Then, as the novelty wears off, realities of everyday life in the foreign location begin tointrude, homesickness sets in, and a downswing may commence a feeling that the party

is over (De Cieri, etc 1991) which can create negative appraisals of the situation andthe location leading to a period of crisis (Phase 2) This can be a critical time, and howthe individual copes with the psychological adjustment at this phase has an importantoutcome in terms of success or failure Once past his crisis point, as the expatriatecomes to terms with the demands of the new environment, there is a pulling up (Phase 3)

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as the person begins to adjust to the new environment This levels off over time to what

has described as healthy recovery (Phase 4)

Source: International Journal of Human Resource Management, 1991 (2-3) p 380

Figure 5.6: Phase of Cultural Adjustment

How accompanying family members handle cultural adjustment is important It is likely

that the expatriate and his family members undergo these cycles individually, but not all

members of the family face the same mood at the same time Certain personality factors

along with support from headquarters and spouse, and pre-departure training can shorten

the period of depression and thus help in improving the performance For example, in

their study of American managers in Japan, Korea, Taiwan, and Hong Kong, Black and

Stephens (1989) found a high correlation between spouse and expatriate adjustment

Recognizing that cultural adjustment is a major problem when bringing HCNs (including

Americans) into its home operations, the Norwegian multinational, Norsk Hydro, has

developed a family monitoring programme Supervised by Corporate Expatriate Services

staff, Norsk Hydro employees volunteer to ‘adopt’ a visiting family The volunteers are

generally employees who have worked abroad as expatriates and thus have an

understanding of what it is like to move a family unit into another country

5.4.2 Criteria Used for Performance Appraisal of International Employees

Individual performance management involves job analysis, job goals and standards, and

performance appraisal Traditionally, it comprises a formal process of goal setting,

performance appraisal, and feedback Data from this process is often used to determine

pay and promotion, and training and development requirements There are differences in

the way this process is handed within companies For example, in Germany and Sweden,

it is common for employees to have input into job goals setting, whereas in other countries

such as the United States, job goals tend to be assigned (Tahvanainen, 1998)

Performance Criteria

We need to recognize that hard, soft, and contextual goals are often used as the basis for

performance criteria Hard goals are objective, quantifiable, and can be directly measured

such as return-on-investment (ROI), market share, and so on Soft goals tend to be

relationship or trait-based, such as leadership style or interpersonal skills Contextual

goals attempt to take into consideration factors that result from the situation in which

performance occurs

Janssens (1994) suggests that performance evaluation of subsidiary managers against

hard criteria is often supplemented by frequent visits by headquarter staff and meetings

with executives from the parent company Soft criteria can be used to complement hard

goals, and take into account areas that are difficult to quantify, such as leadership skills,

Who Conducts the Performance Appraisal?

Typically, employees are appraised by their immediate superiors, and this can poseproblems for subsidiary managers They work in countries geographically distant, yetare evaluated by superiors back at headquarters who are not in the position to see on aday-to-day basis how the expatriate performs in a particular situation

Appraisal of other expatriate employees is likely to be conducted by the subsidiary’schief executive officer, the immediate host-country supervisor, or the individual’s home-country manager, depending on the nature and level of the position concerned(Tahvanainen, 1998) Host-country managers may have a clearer picture of expatriateperformance and can take into consideration contextual criteria, but they may haveculturally bound biases (e.g., about role behaviour) and lack an appreciation of the impact

of the expatriate’s performance in the broader organizational context

Multiple rates are sometimes used in the domestic context—such as the technique referred

to as “360-degree feedback” (HRM, 1993) Gregerson et al (1996) found that most

firms (81%) in their survey of HR directors in 58 U.S multinationals used more than onerater when assessing expatriate performance Likewise, a survey of 99 Finnishinternationally operating companies reports that 79% of respondents indicated thatexpatriate performance evaluation was conducted by the superior located in Finland(Tahvanainen, 1998) This was simply because there was no suitable person in the hostcountry to conduct such evaluations

Standardized or Customized Performance Appraisal Form

Domestic companies commonly design performance appraisal forms for each job category,particularly those using a traditional performance appraisal approach rather thanperformance management Such standardization assists in the collection of accurateperformance data on which personnel decision can be made and allows for cross-employeecomparisons

Frequency of Evaluation

In practice, evaluation is commonly performed on a yearly basis, and this appears toextend to international performance systems For example, the majority of U.S firms in

the Gregerson et al (1996) study reported annual appraisal practices It is interesting to

note that the U.S firms using annual appraisal systems were more likely to use standardappraisal forms and hard criteria

Performance Feedback

An important aspect of an effective performance management system is the provision

of timely feedback of the evaluation process Regular feedback is an important aspect interms of meeting targets and revising goals, as well as assisting in motivation of workeffort The difficulty for the expatriate who is being evaluated by a geographically distantmanager is that timely, appropriate feedback is only viable against hard criteria

A Contextual Model of Expatriate Performance Management

Tahvanainen (1998) developed a comprehensive model that illustrates how performanceevaluation is both an outcome of the company’s strategies and goals (through goal setting),