Summary by Brooke Robinson
Master of Accountancy Program
University of South Florida, Fall 2001
Behavioral Issues Main Page | Deming Main Page
The question as to the effectiveness of performance appraisals has been a controversial issue for many years. Carson, Cardy and Dobbins discuss whether performance appraisals are an effective tool or an inaccurate method of assessing employees. The performance appraisal, in fact, has been considered a “ received doctrine” by much of the human resource management profession. Once considered a received doctrine, it’s highly regarded and frequently unquestioned. However, problems arise if the foundation or assumptions to the received doctrine are incorrect. The three assumptions underlying the performance appraisal are:
“employees must differ significantly in their contribution to the organization, the source-or cause of this differential performance must be at least partially due to individual employees, and must be willing to distinguish these two sources of performance variation and to base ratings only on performance within individual control” (p. 144).
Ability and motivation are the causes mentioned above and most importantly, are controlled by the individual. With this in mind, the objective of the article is to present opposing views on the controversies surrounding performance appraisals and to examine if raters use appropriate elements when measuring performance.
Deming’s Analysis of Performance Appraisals
Much of the debate concerning performance appraisals’ effectiveness has come from Deming, a predominant statistician widely known for his research on quality control and deadly diseases that surround management. Deming said performance appraisals are a deadly disease that “is damaging because it necessarily and inappropriately attributes variation in performance to individual employees rather than to problems which the system created and controlled by managers” (p 145). Deming further says that the variation in performance most often times, is the fault of the system, not the individuals. Incorrect evaluation leads management into making wrong decisions.
Deming also challenged the assumptions that support performance appraisals as a received doctrine. He stated that the variation in employee performance is not significant; therefore it must be a ‘sampling error.’ He further claimed that the dismal variation that does occur in performance is not controlled by the employees. Deming concludes that performance raters are not able to determine the difference between the performance variation that was caused by individuals and variations that are caused by the system.
Study 1
A questionnaire was developed to see whether management and subordinates agree on how the difference in the performance level is a result of the employees or that of the system. The results of the study confirmed Deming’s argument that managers believed that the difference in performance is a result of the employees characteristics, such as their ‘motivation and ability.’ On the other hand, the subordinates believed that it was system variables, such as ‘tools and equipment’ that create a variance in the employee’s performance.
The second part of study 1 tested what managers and subordinates believe to be the cause of poor or inadequate performance. The survey showed that the subordinates felt it was the system factors such as ‘budgetary support, materials, and supplies’ that determine the level of production by the employees. In contrast, the managers think it’s the subordinate’s factors such as motivation and ability that determine their level of performance. In effect, the subordinates believe their performance level was not in their control; whereas managers believe the performance level is up to subordinates themselves.
Actions and Implications of Study 1
Deming thought performance appraisals would be more effective if the managers are made aware of the system variables that are uncontrollable and affect the employee’s ability to be productive. The authors note that supervisor-subordinate partnerships would help combat the problems of using ineffective measurements and increase the goal congruence among the organization. Perhaps most importantly, a partnership would promote useful problem solving opportunities because constraining elements in the workplace would be brought to management’s attention.
Study 2
The second study was used to determine how performance raters assess subordinates, keeping in mind system, personal and productivity variables. It was performed in order to determine the guidelines raters used to evaluate employees. Researchers were interested in the guidelines raters used in terms of weight put on each of the different factors. The results showed that raters significantly understated and overstated key factors. ‘Actual productivity’ was greatly understated, whereas factors such as set-up and difficulty of the job were overstated. In essence, the factors, which the employees did not have control over, were heavily weighted in the performance ratings. The results of study 2 revealed that raters did not use the appropriate factors, those that the employees have control over, to judge performance. The study has shown that raters predominately use the productivity factors as the main assessment of the performance level. It is incorrect and ineffective to use solely the output results as the main factor when rating employees. The reasons for the productivity level, those controllable and uncontrollable to the employees, need to be factored into the ratings in order to get a more accurate picture of performance. It is exactly what Deming believed, performance appraisals are not considerably effective or accurate.
Actions and Implications Study 2
An important step in improving performance rating would be to make raters attentive of system factors that can be constraining production potential. Performance rating would be considerably more accurate and efficient if all the necessary inputs, or variables, are put into the equation. Simply focusing on the output numbers is not providing the whole picture.
Conclusion
Performance appraisals can be an effective measurement tool or they can produce wrong answers. If subordinate attributes are separated from system attributes, performance appraisals are more likely to be accurate. If managers fail to recognize what variables are controlled by subordinates, true and accurate performance reports cannot be made. In order to have effective performance appraisals, the raters must distinguish between system and employee factors of production. Merely focusing on the bottom line, raters will not be able to give effective and accurate readings.
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Question: Can managers separate how the system affects performance from how an individual worker affects performance? How did Deming answer this question?
According to Deming, ranking people is a farce and indicates the abdication of management. If x is the contribution of an individual and yx is the effect of the system on his or her performance, then x + (yx) = performance. Ranking people ignores the predominant (yx) term. Ranking does not help anyone improve or help improve the system. Merit systems, incentive pay and annual appraisal of people are forms of ranking that create competition between people and are demoralizing. They do not help anyone improve or improve the system.
Related summaries:
Blake, R. R. and J. S. Moulton. 1962. The managerial grid. Advanced Management Office Executive 1(9). (The Grid).
Deming, W. E. 1993. The New Economics For Industry, Government & Education. Massachusetts Institute of Technology Center for Advanced Engineering Study. (Summary).
Herzberg, F. 2003. One more time: How do you motivate employees? Harvard Business Review (January): 87-96. (Summary).
Kohn, A. 1993. Why incentive plans cannot work. Harvard Business Review (September-October): 54-63. (Summary).
Joiner, G. L. and M. A. Gaudard. 1990. Variation, management, and W. Edwards Deming. Quality Progress (December): 29-37. (Summary).
Martin, J. R. Not dated. What is the red bead experiment? Management And Accounting Web. DemingsRedbeads.htm
McGregor, D. M. 1957. The human side of enterprise. Management Review (November): 22-28. Reprinted from the Proceedings of the Fifth Anniversary Convocation of the School of Industrial Management, MIT, April 9, 1957. (Summary).
Ouchi, W. G. 1979. A Conceptual Framework for the Design of Organizational Control Mechanisms. Management Science (September): 833-848. (Summary 2).
Ouchi, W. G. and A. M. Jaeger. 1978. Type Z organization: Stability in the midst of mobility. Academy of Management Review. (April): 305- 314. (Summary).
Pfeffer, J. 1998. Six dangerous myths about pay. Harvard Business Review (May-June): 109-119. (Summary).
Stevens, T. 1994. Dr. Deming: Management today does not know what its job is. Industry Week (January 17): 21, 24, 26, 28. (Summary).