Internal & External Appraisal Of An Organization
INTERNAL APPRAISAL – STRENGHTS AND WEAKNESS
The purpose of the internal appraisal is to undertake the analysis of the strengths and weakness as of the organization. This is usually the result of a project undertaken by a team of mixed marketing, production, research and planning).
The purpose of the analysis is to express quantitatively and qualitatively which areas of the business have strengths to exploit and which areas have weakness which must be improved. Although every area of the business should be investigated only the areas of significant strength or weakness should warrant further attention.
A useful starting point for the analysis is the financial statement making use of Accounting Ratios. The accounting ratios can depict liquidity position of the organization (e.g. working capital and acid ratio), managerial effectiveness (Turnover Ratios), profitability of the organization and gearing or leverage. The financial statement indicate the financial study of finance and Accounting areas touches much about management and provides insight to management way of running its business. The management function of planning, controlling and communication vitally involves financial information e.g. what reports are prepared and which managers receive them? Are the reports timely and appropriate and utilized by managers to plan and control operation?
Financial result indicates whether revenue has been increasing in a profitable manner or whether the opposite is true. Financial status of the firm reveals much about its relative strengths or weakness, together the past financial results and present financial status (including financial planning and control system) tell much about the company management.
Interrelating, what is seen in other areas with what has been learned in the financial and accounting analysis will bring into light new information and allow new conclusions to be drawn. This is a major advantage of thorough analysis.
Typically other information, the appraisal would consider would be in the following areas.
The fate of new product launches
Success or failure of advertising campaign
Market shares and market size
Companies stand in growth markets
Skills of the sales force and selling techniques
Analysis of sales by market area product group outlets
Profit margin and overtake contribution
Age and future life of products
Price elasticity of demand of products
Delivery service standards
Warehouse and delivery fleet facilities
Geographical availability of product
RESEARCH AND DEVELOPMENT
Are R and D relevant to future marketing plans
The cost of R and D
Benefits of R and D in new products/new variation or existing products.
R and D workload and schedules. We will beat our competitor to the new launch.
Availability of short-term and long-term fund cashflows
Contribution of cash product
Level and apportionment of overheads
Returns on investment
PLANT AND EQUIPMENT AND OTHER FACILITIES
Value, age, production capacity and suitability of plant and equipment.
Valuation of assets
Location of land and buildings, their values area, use length of lease current book value.
MANAGEMENT AND STAFF
Age spread, succession plan
Skills and attitudes
State of industrial relations morale and laobur turnover
Training and recruitment facilities
BUSINESS MANAGEMENT ORGANIZATION
Management style and philosophy
RAW MATERIALS AND FINISHED GOODS STOCK
The source of supply
Number and description of items
Obsolescence and deterioration
In summary, a through internal appraisal will involve the following: (1) Analysis of the function area (2) Management (3) Industrial relation and interrelation of 1, 2, & 3.
EXTERNAL APPRAISAL: OPPORTUNITIES AND THREATS
The internal appraisal highlights areas within the company which are strong and which might therefore be exploited more fully, and weakness where some “defensive” planning might be required to protect the company from poor results. Strength and weaknesses show up inherent potential.
An external appraisal is required to identity profit making opportunities which can be exploited by the company’s strengths and also to anticipate environmental threats (a declining economy, competitors, actions, government legislation, industrial unrest etc) against which the company must protect itself.
For opportunities, it is necessary to decide:
What opportunities exist in the business environment?
What is their inherent profit – making potential
What are the internal strengths/weaknesses of the company and is capable of exploiting the worthwhile opportunities and still achieve its social and ethnological objectives?
What is the comparative capability profit of competitors? Are competitors better placed to exploit these opportunities
What is the company’s comparative performance potential in this field of opportunity?
The opportunities might involve product development, market development, market penetration or diversification. No realistic opportunity should be ignored.
For threats, it is necessary to decide:
What threat may arise to the company and its business environment?
How will competitors be affected?
How will company be affected? Does it have strengths to deal with the threat or do weaknesses need to be corrected so as to survive the threat, are contingency strategies required.
The external factors which need to be investigated at a local, national and international level are represented by the diagram below.
ECONOMIC AND DEMOGROPHIC FACTOR
Demand for products at a particular time will be partly determined by the number of people with a need for the product, their income, the existing price levels, and their expectation about future income and future prices. Influencing these factors will be some of the following variables:
The population of the various segments of the total (age group, sex, races, religion, nationality and so on) as relevant to the particular organization.
In an effective and efficient training programme, managers determine enterprise objectives and integrate them with developmental needs of employees. An enterprise with a need for long range planning for example, should match these demands with talents and aspirations of managers in the company.
(b) Emphasis on programme instead of results. Some executives take pride in the large number of employees enrolled in management development courses unfortunately; benefits derived from attending these meetings are negligible unless they satisfy a clearly defined training activity with little concern about training results.
(c) Selection and number of participant in management developing programmes.
There is a mistaken notion that management development requires placing a few people with high potential in a training programme while the rest of the employees are neglected. It is even more risky if the trainee are selected on the basis of friendship or kinship with executives without regard for capability. Management development programmes should be available for all qualified employees who aspire to career in management.
ESSENTIALS OF MANAGEMENT DEVELOPMENT
Top management active support: The support of top executive is essential for training and development. But it is particularly important for programmes that involve people from different levels of the enterprise.
Training and development must involve managers at all levels: Training is not just for a selected few “crown princes and princesses’, nor is training only for those at lower levels. Top management may recognize the training needs of first line supervisors, but not of themselves yet managers should be trained first to provide an example of their commitment to the continuity development of all people in the enterprise.
Learning is voluntary: Clarity and brilliance in teaching will not make a person learn, you can lead a person to class but you cannot make an individual thinks. An individual does well in what he is interested.
Training and development needs vary: Needs vary not only position at different level in the organization hierarchy but also for individuals since their background, requirement, as aspiration and potential are peculiar to each of them. Consequently training and development activities should be tailored to those specific and individual needs.
Training and development needs must determine method; programme and methods should be selected on the basis of how effectively and efficiently they satisfy persona needs and accomplish the development objectives of managers and the enterprise.
Theory and practice must go hand in hand: Nothing is as practical as theory. There is little doubt that theory provides an excellent framework for learning, but theory and practice must be integrated. Training is one side of the coin which is the teaching of the theory and the demonstration of techniques, the other is actual practice of management. The need for situational management experience is obvious when applying training to practice.
In theory career planning is an aspect of manpower planning in which a career structure is mapped out for all mangers in the organization. In practice, most especially in tall organizations with many levels in the hierarchy of management career planning is both a lottery and a rat race. To get to the top individual have to scramble for quick promotion, because there are so many levels to go through to reach a senior position. In this dog- eat-dog or survival of the fittest battle for success, many mangers with good potential fall by the wayside, or leave organization in frustration.
Success is earned by luck and perseverance as much as by ability.
Career planning should give more thought to management or organization development.
The purpose of formal appraisal schemes is to:
Gather information about the skills and potentials of existing employees.
Assess the performance of employees, so as to reward them (e.g. with the promise of promotion).
Let the employee know how well he or she has performed, and the assessment of his/her strength and weaknesses.
Allow the person being appraised and his/her supervisor to discuss how they should plan to achieve the objectives of both the person and his/her job.
Appraisal schemes are therefore means of rewarding, criticizing encouraging and counseling. The superior of the person appraised is meant to be both judge and counselor, but in practice, these twin roles tend to be incompatible.
The “traditional” method of individual’s appraised in bureaucracies is trait appraisal. The individual’s superior (and perhaps the superior’s boss) will be asked to complete an appraisal report on the individual, grading him/her with regard to certain characteristics or traits such as intelligence, initiative, enthusiasm, skillful, punctuality, appearance, etc.
In theory, such appraisal schemes may seem very “fair” to the individual, but in practice, the system often goes wrong because:
Appraisal interviews are often defensive on the part of the subordinative, who believe that any criticism will lessen the rewards for his performances (e.g. promotion will be missed). It kills motivation.
Interview is also other defensive on the part of the superior, who cannot reconcile the role of judge and criticism with the “human relations” aspect of the interview. The superior may therefore misrepresent the extent of the criticism of the subordinate which is contained in the report.
IDEAS ON HOW TO MAKE APPRAISAL MORE EFFECTIVE
Its purpose should be constructive, which means that the superior and subordinate in a counseling interview should agree on goals for the subordinate to achieve. The interview should preferably take place at the investigation of the subordinate, who is ready to be given more goal–direction by the superior. The threat of withholding rewards should not dominate the counseling.
Instead of trait appraisal, the individual might be judged on his/her success in achieving stated objectives. The drawback to this idea however is that the individual may expect to be in a job for only 2 of 3 years; so that he/she will not be concerned with longer term objectives. There will also be a tendency to suppress any trouble until promotion is secured i.e. keep the lid on any problem and leave it to blow up in the face of the individuals successor on the job.
The linking between past performance and future reward should be broken unless the organization clearly intends a connection to exist in many organizations.
Promotion tends to depend on seniority, not performance, and
There is a pay structure. Employees and their trade unions believe in equity of pay so that there is a clearly defined pay structure for managers in different grades. The pay of an individual is not related to his performance. Unless the connection between performance and reward is a very real one, it is damaging to the system of appraisal for employees to believe that connection.
When a manager is promoted, he/she will move into a job which calls for a different mixture of skills. Its widely agreed that as managers move up on organization’s hierarchy, they do less technical work and more human relations work. Senior managers spend most of their time on strategic planning i.e. design work. The argument can be made that if an individual is assessed on the basis of past performance, the assessment will not properly show whether the individual will be capable of handling a more senior job with a demand on different abilities. (Indeed, by using much performance as a guide to promotion prospects, the organization is likely to promote managers to their level of incompetence, i.e. Peter Principle).
Appraisal for promotion might therefore be based on an assessment, not of an individual’s traits or past performance, but in terms of his/her potential skills as a manager, i.e. the individual can be graded on his known ability to plan, be a controller and make decisions, skills in human relations, and leadership, ability to organize, gather, analyze and communicate information, innovate etc.
An alternative approach to individual appraisal (which also removes the link between past performance and reward is peer rating in which an individual is judged and counseled, not by his/her superior, but by people at the same level in the organization hierarchy, i.e. by work rates or colleagues. It has been argued that peer rating will be devoid of mistrust and fear of missing promotion and will therefore be more honest and constructive, thus aiding the individual to develop his job.