CASE STUDY 1

PERFORMANCE APPRAISAL IN L&T

COMPANY PROFILE
Larsen & Toubro Limited, commonly known as L&T Limited is an Indian Multinational
company headquartered in Mumbai, Maharashtra, India. It was founded by two Danish engineers
taking refuge in India. The company has business interests in basic and heavy engineering,
construction, realty, manufacturing of capital goods, information technology, and financial
services. As at March 31, 2018, L&T Group comprises 93 subsidiaries, 8 associates, 34 joint-
venture and 33 joint operations companies.

HISTORY
Larsen & Toubro originated from a company founded in 1938 in Mumbai by two Danish
engineers, Henning Holck-Larsen and Søren Kristian Toubro. The company began as a
representative of Danish manufacturers of dairy equipment. However, with the start of
the Second World War in 1939 and the resulting restriction on imports, the partners started a
small workshop to undertake jobs and provide service facilities.Germany'sinvasion of
Denmark in 1940 stopped supplies of Danish products. The war-time need to repair and refit
ships offered L&T an opportunity, and led to the formation of a new company, Hilda Ltd, to
handle these operations. L&T also started to repair and fabricate ships signaling the expansion of
the company. The sudden internment of German engineers in British India (due to suspicions
caused by the Second World War), who were to put up a soda ash plant for the Tata's, gave L&T
a chance to enter the field of installation.
In 1944, ECC (Engineering Construction & Contracts) was incorporated by the partners; the
company at this time was focused on construction projects (Presently, ECC is the construction
division of L&T). L&T began several foreign collaborations. By 1945, the company represented
British manufacturers of equipment used to manufacture products such as hydrogenated
oils, biscuits, soaps and glass. In 1945, the company signed an agreement with Caterpillar
Tractor Company, USA, for marketing earth moving equipment. At the end of the war, large
numbers of war-surplus Caterpillar equipments were available at attractive prices, but the
finances required were beyond the capacity of the partners. This prompted them to raise
additional equity capital, and on 7 February 1946, Larsen & Toubro Private Limited was
incorporated.
After India's independence in 1947, L&T set up offices in Calcutta (now Kolkata), Madras
(now Chennai) and New Delhi. In 1948, 55 acres of undeveloped marsh and jungle was acquired
in Powai, Mumbai. A previously uninhabitable 0swamp subsequently became the site of its main
manufacturing hub. In December 1950, L&T became a public company with a paid-up capital
of 20 lakh (US$28,000). The sales turnover in that year was 1.09 crore (US$150,000). In 1956, a
major part of the company's Mumbai office moved to ICI House in Ballard Estate, which would
later be purchased by the company and renamed as L&T House, its present headquarters.
During the 1960s, ventures included UTMAL (set up in 1960), Audco India Limited (1961),
Eutectic Welding Alloys (1962) and TENGL (1963).Largest Indian Engineering Service
company.
OPERATING DECISSIONS

L&T formed a joint venture with SapuraCrest Petroleum Berhad, Malaysia for providing
services to the offshore construction industry.[7] The joint venture owns and operates the LTS
3000, a crane vessel for heavy lifting and pipe-laying.
L&T Power has set up an organisation focused on coal-based, gas-based and nuclear power
projects.[8] L&T has formed two joint ventures with Mitsubishi Heavy Industries, Japan to
manufacture super critical boilers and steam turbine generators.[9]
L&T is among the largest five fabrication companies in the world.[10] L&T has a shipyard
capable of constructing vessels of up to 150 metre long and displacement of 20,000 tons[11] at its
heavy engineering complex at Hazira, Gujarat. The shipyard constructs specialised heavy-lift
ships, CNG carriers, chemical tankers, defence & para-military vessels, submarines and other
role-specific vessels.
The design wing of L&T ECC is EDRC (Engineering Design and Research Centre), which
provides consultancy, design, and services. It carries out the basic and detailed design for both
residential and commercial projects.

L&T Realty
L&T Realty is the real estate development arm of Larsen & Toubro.The company operates in
Western and Southern India, constructing residential, corporate office, retail, leisure and
entertainment properties with 35 million sq ft under various stages of development.

L&T Technology Services

L&T Technology Services a subsidiary of Larsen & Toubro, is an engineering services company
that operates in the global Engineering, Research and Development (“ER&D”) space. L&T
Technology Services offers design, development and testing services for the industrial products,
medical devices, transportation, aerospace, telecom and process industries. The company serves
customers across the product engineering life cycle from product conceptualization to
implementation. Services include consulting, design, development, testing, maintenance, and to-
market integration services. L&T Technology hits the Indian Capital Markets with its IPO
offering 10.4 million shares at a price band of Rs.850 to Rs.860

L&T Solar
L&T Solar, a subsidiary of Larsen & Toubro, undertakes solar energy projects. In April 2012,
L&T commissioned India's largest solar photovoltaic power plant (40 MWp) owned by Reliance
Power at Jaisalmer, Rajasthan from concept to commissioning in 129 days.[16] In 2011, L&T
entered into a partnership with Sharp for EPC (engineering, procurement and construction) in
megawatt solar project and plan to construct about 100 MW in the next 12 months in most of the
metros.[17] L&T Infra Finance, promoted by the parent L&T Ltd, is also active in the funding of
solar projects in India.[18][19] It is governed by Rebel Enterprises
Electrical and automation
L&T is an international manufacturer of electrical and electronic products and systems. The
company also manufactures custom-engineered switchboards for industrial sectors like power,
refineries, petrochemicals and cement.In the electronic segment, L&T offers a range
of metres and provides control and automation systems for industries.

Medical equipment and systems

L&T used to operate multiple facilities in Mysore as part of its medical equipment and systems
business unit. In November 2012, L&T sold it to Skanray Technologies Pvt Ltd. Currently, L&T
Mysore division manufactures Single-phase and Three-phase static solid-state Electricity Meters
to various utilities pan India. The range of meters varies from Residential, Industrial, Prepayment
and Smart Meters. There are both Whole current and CT operated meters. It also houses a relay
servicing unit.

Larsen & Toubro Infotech (LTI)

Larsen & Toubro Infotech Limited, a wholly owned subsidiary of L&T, offers information
technology, software and services with a focus on manufacturing, BFSI and communications
and embedded systems. It also provides services for embedded intelligence and engineering.

Machinery and industrial products

L&T manufactures, markets and provides service support for construction and mining
machinery, including surface miners, hydraulic excavators, aggregate crushers, loader
backhoes and vibratory compactors; supplies rubber processing machinery and manufactures and
markets industrial valves and allied products along with application-engineered welding alloys.

EWAC Alloys Limited

EWAC Alloys Limited is a wholly owned subsidiary of Larsen & Toubro, India. The company is
engaged in design & development, manufacture and supply of special welding electrodes,
gas brazing rods and fluxes, welding torches and accessories, atomised metal powder alloys, flux
cored continuous wires & wire feeders, polymer compounds & wear-resistant plates.
Prof Wasserman, founder of Eutectic Castolin, and Henning Hock Larsen, founder of Larsen &
Toubro, founded the Eutectic Division in India in the year 1962. Eutectic Castolin was later
merged into the Messer Group of companies, Germany and referred as Messer Eutectic Castolin
(MEC). In 2010, Larsen & Toubro Limited, bought the entire stake from Messer to become the
wholly owned subsidiary of it. The current headquarters is in Ankleshwar, Gujarat (India), and
the products are sold under the name EWAC.
In line with its strategy to divest non-core businesses, L&T is planning on selling its entire stake
in unlisted subsidiary EWAC Alloys to UK-registered ESAB Holdings for a total consideration
of Rs 522 crore. The share purchase agreement has been executed on October 11, 2017. The
acquirer ESAB offers products for welding and cutting process. In 2012, ESAB was acquired by
Colfax Corp., a diversified industrial manufacturing company based in the US.

About L&T Metro Rail Hyderabad

Larsen and Toubro Limited was awarded the Hyderabad Metro Rail Project by Government of
Andhra Pradesh. L&T incorporated a Special Purpose Vehicle - L&T Metro Rail (Hyderabad)
Limited ("The Company") to implement the Project on Design, Built, Finance Operate and
Transfer (DBFOT) basis.
The company has signed the Concession Agreement with Government of Andhra Pradesh on 4
September 2010 and completed the financial closure for the Project on 1 March 2011 in record
six months. A consortium of 10 banks led by the State Bank of India has sanctioned the entire
debt requirement of the project. This is the largest fund tie-up in India for a non-power
infrastructure Public Private Partnership (PPP) project.
The company is a subsidiary of L&T Infrastructure Development Projects Ltd., an infrastructure
development arm of Larsen of Toubro Ltd.
The company will develop 18.6 million s.ft. of Transit-Oriented Development (TOD) and is
expected to trigger robust economic activity in and around the city of Hyderabad and will
generate substantial employment.
Larsen and Toubro Limited was awarded, and has commenced work on the Rs. 5,273
Crore Mumbai Metro Line 3 project. The project consists of two packages: Package 1(Cuffe
Parade-VidhanBhavan-Churchgate-Hutatma Chowk) and Package 7 (Marol Naka-MIDC-
SEEPZ).
The company is also in the process of building major metro rail projects in the Middle-East.

Major Subsidiaries & Joint Ventures

 L&T Infrastructure Engineering Ltd. is one of India's engineering consulting firms
offering technical services in transport infrastructure. The company has experience both
in India and Globally, delivering single point ‘Concept to Commissioning’ consulting
services for infrastructure projects like airports, roads, bridges, ports and maritime
structure including environment, transport planning and other related services.
Established in 1990 as L&T-Rambøll Consulting Engineers Limited, the company
became the wholly owned subsidiary of L&T in September 2014. Today, L&T Infra
Engineering is an independent corporate entity managed by a Board of Directors. The
company enjoys complete freedom to set and pursue its goals, drawing, as and when
required, on the technical and managerial resources of L&T Infrastructure Engineering
Limited.
 L&T Kobelco Machinery Private Limited: this is a joint venture of L&T and Kobe Steel
of Japan, to manufacture internal mixers and twin screw roller-head extruder's for the tyre
industry. The company has a factory at Karai Village, Kanchipuram, that manufactures
internal mixers and twin-screw roller head extruder's for the tyre industry, which
commenced commercial operations on 1 December 2012.
  L&T – Construction Equipment Limited: having its registered office at Mumbai, India
and focusing on construction equipment and mining equipment, L&T-Komatsu Limited
was a joint-venture of Larsen and Toubro, and Komatsu Asia Pacific Pte Limited,
Singapore, a wholly owned subsidiary of Komatsu Limited, Japan. Komatsu is the
world's second largest manufacturer of hydraulic excavators and has manufacturing and
marketing facilities.The plant was started in 1975 by L&T to manufacture hydraulic
excavators for the first time in India. In 1998, it became a joint-venture. The Bengaluru
works comprise machinery and hydraulics works, with a manufacturing facility for
design, manufacture, and servicing of earth moving equipment. The hydraulics works
have a precision machine shop, manufacturing high-pressure hydraulic components and
systems, and designing, developing, manufacturing and servicing hydraulic pumps,
motors, cylinders, turning joints, hose assemblies, valve blocks, hydraulic systems, and
power drives as well as allied gearboxes. In April 2013, L&T bought the 50% stake held
by Komatsu Asia & Pacific. The company's name was changed to L&T Construction
Equipment Limited.
 L&T-John Deere: In 1992, L&T established a 50-50 joint venture with John Deere to
manufacture tractors in India, called L&T - John Deere. L&T sold their interest to John
Deere in 2005.
 L&T Case: In 1992, L&T established L&T-Case Construction with CNH Global as a 50-
50 joint venture to build backhoes. In 2011, L&T decided to exit this joint venture and
sold its share to CNH, and the company was renamed Case New Holland Construction
Equipment India.
They also have a joint venture with Qatari company albalagh group which they jointly are
the main contractors for alrayyan stadium, the 2022 FIFA World Cup stadium which will host
matches up to the quarter-final.

 L&T Finance: Larsen & Toubro Financial Services is a subsidiary which was incorporated as
a non-banking financial company in November 1994. The subsidiary has financial products
and services for corporate, construction equipments etc. This became a division in 2011 after
the company declared its restructuring[31] A partnership between L&T Finance and Sonalika
Group farm equipment maker International Tractors Ltd in April 2014 provided credit and
financing to customers of Sonalika Group in India.
 L&T Mutual Fund is the mutual fund company of the L&T Group. Its average assets under
management (AuM) as of May 2019 is ₹ 73,936.68 crore.
 Larsen & Toubro Infrastructure Finance: this wholly owned subsidiary commenced business
in January 2007 upon obtaining Non-Banking Financial Company (NBFC) license from
the Reserve Bank of India (RBI). As of 31 March 2008, L&T Infrastructure Finance had
approved financing of more than US$1 billion to select projects in the infrastructure
sector.[citation needed] It received the status of "Infrastructure Finance Company" from the RBI
within the overall classification of "Non-Banking Financial Company".
 L&T Technology Services, a subsidiary of Larsen & Toubro, is a global engineering services
company headquartered out of Vadodara, Gujarat, India. It offers design, development, and
testing solutions across the product and plant engineering value chain, for various domains
including Industrial Products, Transportation, Aerospace, Telecom & Hi-tech, and the
Process Industries. As of 2016, L&T Technology Services employs over 10,000 workers and
 has operations in 35 locations around the world. Its clientele includes a large number of
Fortune 500 companies globally.
 L&T Valves business group markets valves manufactured by L&T's Valve Manufacturing
Unit and L&T's joint-ventures, Audco India Limited, India and Larsen & Toubro Valves
Manufacturing Unit, Coimbatore as well as allied products other manufacturers. The group's
manufacturing unit in Coimbatore manufactures industrial valves for the power industry,
along with flow control valves for the oil and gas, refining, petrochemical, chemical and
power industries, industrial valves and customised products for refinery, LNG,
GTL, petrochemical and power projects. L&T Valves Business Group has offices in the US,
South Africa, Dubai, Abu Dhabi, India and China, and alliances with valve distributors and
agents in these countries.
 L&T-MHPS Boilers is a joint venture between L&T and Mitsubishi Hitachi Power Systems.
The group specialises in engineering, manufacturing, erecting and commissioning
of supercritical steam generators used in power plants. It is mainly headquartered
in Faridabad with a manufacturing facility in Hazira and an engineering centre in Chennai
and Faridabad. Currently, the group is engaged in projects for JVPL, MAHAGENCO, Nabha
Power & RRVUNL.
 L&T MHPS Turbine Generators Pvt Ltd: in 2007, Larsen & Toubro and Mitsubishi Heavy
Industries set up a joint-venture manufacturing agreement to supply a supercritical steam
turbine and generator facility in Hazira. This followed a technology licensing and technical
assistance agreement for the manufacture of supercritical turbines and generators between
L&T, MHI, and Mitsubishi Electric Corporation (MELCO), headquartered in Tokyo, Japan.
In February 2014, MHI and Hitachi Ltd integrated the business centred on thermal power
generation systems (gas turbines, steam turbines, coal gasification generating equipment,
boilers, thermal power control systems, generators, fuel cells, environmental equipment and
so on) and started a new company as Mitsubishi Hitachi Power Systems (MHPS) Ltd,
headquartered in Yokohama, Japan.
 L&T Howden Pvt Ltd is a joint venture between L&T and Howden to manufacture axial
fans and air pre-heaters in the range of 120-1200 MW to thermal power stations. L&T
Howden is an ISO 9001 and ISO 5001 certified organisation, with a plant located in Surat
Hazira and a marketing office in Faridabad.
 L&T Special Steels and Heavy Forgings Pvt Ltd. is a joint venture between L&T
and NPCIL, headquartered at Hazira. It is the largest integrated steel plant and heavy forging
unit in India, capable of producing forgings weighing 120 MT each. LTSSHF currently is
engaged in projects from the nuclear, hydrocarbon, power and oil and gas sectors.
 L&T-Sargent & Lundy Limited (L&T-S&L), established in 1995, is a premier Engineering
& Consultancy firm in the Power Sector, born out of shared vision of two renowned
organizations - Larsen & Toubro Limited (L&T), India's largest engineering and construction
company and Sargent & Lundy L.L.C. - USA, a global Consulting firm in Power industry
since 1891
 L&T General Insurance
 In 2015, the company began developing commercial, retail and office space around
the Hyderabad Metro Rail project.[38][39][40][41][42][43]
 In June 2019, the company acquired a controlling stake in IT services company Mindtree Ltd
Corporate Re-constructing
In January 2011, Chairman announced that the company would be restructured into nine
independent virtual companies with a CEO, CFO and HR head, its own profit and loss account,
and board with at least three independent directors. Each board does not have any legal or
statutory standing, but merely advises management.
The original nine virtual companies which operated in different segments, were subsequently
increased to 12, and they are:

1. Building and Factories,

2. Transportation & Infrastructure,
3. Metallurgical & Material Handling,
4. Heavy Civil Engineering
5. Engineering Services,
6. Power Transmission and Distribution,
7. Power,
8. Water,
9. Geo-Structure,
10. Smart World & Communication,
11. Infotech,
12. Finance,
13. Hydrocarbon and Chemicals. This later became a real company, with independent
standings and stocks.

Employees

As on 31 March 2018, the company had 42,464 permanent employees, out of which 2,248 were
women (5.29%) and 43 were employees with disabilities (0.1012%). At the same period
company had 264,589 employees on contract basis which makes it a total of 307,053. During the
FY 2012-13, the company incurred ₹ 4,436 crore for employee benefit, including salaries.[49] As
per the news article in November 2016, it had around 109,000 employees after mass firing of
14,000 across all sectors.

Awards and Recognition

 In 1997, the Bengaluru Works division was awarded the "Best of all" Rajiv Gandhi
National Quality Award
 In 2014 Larsen & Toubro ranked 500 on Forbes list of 2000 world's largest and most
powerful public companies based on revenues, profits, assets and market value. 54 Indian
companies made it to the prestigious list, and L&T is the highest-ranked company in the
engineering and construction section and 10th among all Indian public and private
sectors.
 According to the Brand Trust Report 2012 published by Trust Research Advisory, a
brand analytic's company, L&T was positioned 47th among India's most trusted
brands.[55] Subsequently, in Brand Trust Report 2013, L&T was ranked 127th among the
 most trusted brands in India while according to the Brand Trust Report 2014, L&T was
elevated to the 38th position among India's most trusted brands.
 In 2013, L&T Power received 'Golden Peacock National Quality Award – 2012' at the
23rd World Congress on 'Leadership & Quality of Governance'.
 In 2012, Forbes ranked L&T as 9th most innovative company in the world. L&T was also
featured in the Forbes Asia's annual 'Fabulous 50' list in 2010, for the fifth time in a row.
 In 2012, L&T was ranked 4th by Newsweek in the global list of green companies in the
industrial sector.
 In 2013 the Harvard Business Review named L&T's Executive Chairman, A M Naik, as
the 32nd Best Performing CEO in the world.

ABSTRACT
The case is about performance appraisal process at Larsen & Toubro Construction. L&T was
India’s largest construction organization and also ranked among the world’s top 30 contractors.
The case describes the appraisal process and recounts the predicament,who was given
anassignment to propose improvements in the new performance appraisal system. Armed with
the information, collected about the ongoing and the previous performance appraisal process,
was required to identify areas for improvement and also propose changes to the performance
appraisal process that would overcome concerns, if any, with the current system.

INTRODUCTION

The proposal for this research is regarding investigating the impact of existing performance
appraisal on the development of employees system in L&T. Every company follows a method of
performance evaluation. Performance appraisal process and evaluation is conducted with an aim
to understand the level to which the employees of the company have achieved their targets.
Performance appraisal is a periodical process whereby the supervisor observes his subordinate
and reports his conclusions regarding the performance level at the end of each period.

The superiors retrospect and make it a point that the employees are evaluated suitably. There are
various kinds of performance appraisal method. Companies follow various kinds of appraisal
methods like 360 degree feedback system, MBO, BARS, Critical incidence methods etc.
Performance appraisal in every sense caters to the company’s competitive advantage. The
performance evaluation system helps the company retain its efficient employees; help the
company to find out the areas were training needs to be provided; the company can also ensure
that a common value system if followed. Thus aiding in complete development of the employees.

Performance evaluation process will help the employees do an evaluation of themselves and
work for improvements if any. This will ultimately lead to the development of the organization
(Bratton and Gold, 1994).Thus every company tries to investigate the level to which its
employees have achieved their targets and if not what are the measures to be taken for their
performance improvement. L&T follows the MBO model of performance appraisal in the
company. MBO means management by objectives, in this kind of an appraisal process the
superior and employee agree upon certain objectives. These objectives will be based on the
overall target of the company.

In this kind of an appraisal process the employees know beforehand as to what they need to
achieve in the particular period of time. In L&T since they follow this method the employees are
aware of what is expected of them. In order bring specificity and quality to the process they
performed the evaluation process based on SMART, which expands as “specific, measurable,
attainable, realistic and time linked”.

Larsen & Toubro- Company Description

L&T is one of the largest construction companies in India. ECC is the Engineering Construction
and Contracts Division which is a reputed construction division of L&T which has to its credit
some of the monumental and modern buildings and constructions in India. The company not
merely does the construction of buildings but also industrial structures, Flyovers and many more
other large-scale construction works in India and abroad.

The company carries out various projects that use high end technology and expertise. The
company has various divisions around the country i.e. almost 7 offices regionally and nearly 250
work sites. Apart from Construction L&T has various other businesses also, like the L&T
Infotech and insurance. Under ECC division the company has various strategic business units
like the transportation infrastructure, Industrial projects and utilities, buildings and factories etc.

The company employs a large number of people at managerial and non managerial level. Thus
the company needs to have a well defined performance appraisal system. The company thus
follows MBO method to evaluate it employees. The company has a well defined Human
Resource Policy and system which enables the employees to work efficiently and effectively.

Performance Appraisal
The employee performance appraisal process is crucial for organizations to boost employee
productivity and improve their outcomes. But although performance management is super
important, it’s rarely put to good use. Many companies don’t put in their best effort to pick the
best perfect performance appraisal method, which is why only 55 percent of employees believe
theirs is effective.

A growing number of HR professionals report that existing performance appraisal methods fail
to internalize employee performance results. In fact, performance appraisals are nothing more
than an empty buzzword in some industries–just a formal way for companies to show that they
have a standard procedure in place to measure individual competitiveness.

Performance appraisals are an annual process that involves evaluating employee’s performance
and productivity against the pre-determined set of objectives for that year. It also helps to
evaluate employee’s skills, strength and shortcomings. The results of this performance appraisal
process determines the employees wage raise and promotion.
The objectives of performance appraisal varies from company to company and depending on the
industry/company size, the appraisal method varies.

The need for modern performance appraisal methods;Traditional methods of performance

appraisals such as annual performance reviews suffer from major limitations since they focus
more on measuring past performance rather than improving future work. But on the contrary
modern performance appraisal methods helps:

 Define goals clearly

 Provide real-time feedback
 Enhance employee performance
 Spot training and development needs
 Offer insights on counter-productive tasks
 Improve employee engagement and retention
 Align individual performance with business goals
 Transform the workforce into a strategic advantage

Traditional and Modern performance Appraisal Methods

 Although there is no such thing as universally accepted performance appraisal method,

most organizations accept the Strauss and Sayles classification. George Strauss and
Leonard R. Sayles classify performance appraisal methods into two categories: traditional
and modern.

 Listed below are the various methods that belong in those two categories.

Traditional methods of Performance Appraisal

 Ranking method
 Paired comparison
 Grading scale
 Forced distribution method
 Forced Choice Method
 Checklist Method
 Critical incidents method
 Graphic scale method
 Essay Evaluation Method
 Field Review Method
 Confidential Method

Traditional methods of Performance Appraisal

 Management by Objectives (MBO)

 360 degree Feedback
 Assessment Centre Method
  Behaviorally Anchored Rating Scales (BARS)
 Psychological Appraisals

Traditional performance appraisal methods like appraisal templates, ranking, checklists,

critical incidents, and more take a goal-oriented approach and evaluate work results. Modern
methods focus on individual’s personality traits (creativity, integrity, goal-oriented approach,
leadership qualities) and tend to be more objective.

Six modern performance appraisal methods

With the right performance appraisal method, organizations can enhance employee
performance within the organization. A good employee performance review method can make
the whole experience effective and rewarding. Now that the drawbacks of traditional methods are
clear.

Here’s a close look at the six most-used modern performance methods:

1. Management by Objectives (MBO)

 Management by objectives (MBO) is the appraisal method where managers and

employees together identify, plan, organize, and communicate goals. Aftersetting
cleargoals, managers and subordinates periodically discuss the progress made to control
and debate on the feasibility.
 This process usually lays more stress on tangible work or career-oriented goals. So,
intangible aspects like interpersonal skills, job commitment, etc. are often brushed under
the rug. This method is slightly expensive and time-intensive.

2. 360-Degree Feedback

 Once-in-a-year performance appraisals are lackadaisical and don’t work. Workers need
ongoing communication with team leaders and managers. A continuous process, like
360-degree feedback, can help employees stay motivated. This is one of the most widely
used appraisal methods.
 In 360-degree feedback, every employee in an organization appraises his/her managers,
peers, customers, suppliers, and also does a self-evaluation. This method ensures
effective performance analysis and Total Employee Involved (TEI). If not handled
properly, this method can also suffer from the subjectivity of the appraiser.

3. Assessment Centre Method

 The assessment centre method tests employees in a social-related situation. This concept
was introduced way back in 1930 by the German Army but it has been polished and
tailored to fit today’s environment. Employees are asked to take part in situation
exercises like in-basket exercises, work groups, simulations, and role-playing exercises
that ensure success in a role.
  While it gives an insight of the employee’s personality (ethics, tolerance, problem-
solving skill, introversion/extroversion, adaptability, etc.), it can also breed unhealthy
competition among the workers and bears adverse effects on low performers.

4. Behaviorally Anchored Rating Scale (BARS)

 Behaviorally anchored rating scales (BARS) bring out both the qualitative and
quantitative benefits in a performance appraisal process. BARS compares employee
performance with specific behavioral examples that are anchored to numerical ratings.
 This performance appraisal method is said to be better than the traditional methods.
BARS provides clear standards, improved feedback, accurate performance analysis, and
consistent evaluation. However, when done manually it suffers from the usual distortions
that are inherent in most review methodologies.

5. Psychological Appraisals
 Psychological appraisals come in handy to determine the hidden potential of employees.
This method focuses on analyzing an employee’s future performance rather than their
past work.
 Qualified psychologists conduct a variety of tests (in-depth interviews, psychological
tests, discussions, and more) to identify an employee’s emotional, intellectual, and other
related traits. However, it is a rather slow and complex process and the quality of results
is highly dependent on the psychologist who administers the procedure.

6. Human-Resource (Cost) Accounting Method

 Human resource (cost) accounting method analyses an employee’s performance through
the monetary benefits he/she yields to the company. It is obtained by comparing the cost
of retaining an employee (cost to company) and the monetary benefits (contributions) an
organization has ascertained from that specific employee.
 When an employee’s performance is evaluated based on cost accounting methods, factors
like unit-wise average service value, quality, overhead cost, interpersonal relationships,
and more are taken into account. Its high-dependency on the cost and benefit analysis and
the memory power of the reviewer is the drawback of human resources accounting
method.

How to improve your performance appraisal method

 Whether you’re going to give workers a score, detailed feedback, or specific tips on how
to succeed at their jobs, you need to narrow down on one approach that can help you
achieve all these goals.
 To make the most of your current performance appraisal methods, consider the following
points:

1. Zero in on goals
 You should design your performance management method based on what organizational
goals you want to achieve. Even the best performance appraisal methods fail when they
aren’t geared towards the core needs of a business. Similarly, the company goals and the
rationale behind conducting performance appraisal shouldn’t be a secret to employees.
  This way, they can clearly understand how their professional goals and contributions can
be aligned well with the company objectives. They will also have a better sense of
assessment that they go through and its impact on their long-term success.

2. Structure the information

 Formalize the topics that you plan to discuss during the performance assessment. A
standard structure makes it easier to ensure fairness and give employees valuable
information.
 A well-sketched performance assessment should include an overview of
accomplishments, ways in which the employee could improve in the future, what type of
skills they need to gain to better their performance, how progress is being made on
specific goals, and what professional development opportunities may become available in
the future.

3. Collect information in advance

 Getting feedback from team members and supervisors will make your performance
appraisal method much more valuable. Use digital forms to document employee feedback
and automate the process so that you don’t have to revisit the step time and again.
Instead, you can set the data to flow smoothly and route it through relevant stakeholders
who are supposed to review the information.

L&T PERFORMANCE APPRAISAL

In the current scenario organizations all over the world are under tremendous pressure for
the improving their performance for survival and growth due to increasing competition. One
such source of improving is “technology” and the other is “human system” existing in the
organization. Today the world is shrinking and hence, more and more organization has an easy
access to sophisticated technology due to relatively easy availability and transfer availability of
technology.

Thus the source of improvement i.e. the ‘human system’ that will differentiate a
successful organization from unsuccessful one. Human resource management (HRM) is
concerned with the personnel policies and managerial practices and systems that influence the
workforce. In broader terms, all decisions that affect the workforce of the organization concern
the HRM function.

The activities involved in HRM function are pervasive throughout the organization. Line
managers, typically spend more than 50 percent of their time for human resource activities such
hiring, evaluating, disciplining, and scheduling employees. Human resource management
specialists in the HRM department help organizations with all activities related to staffing and
maintaining an effective workforce. Major HRM responsibilities include work design and job
analysis, training and development, recruiting, compensation, team-building, performance
management and appraisal, worker health and safety issues, as well as identifying or developing
valid methods for selecting staff.
 HRM department provides the tools, data and processes that are used by line managers in
their human resource management component of their job. Traditionally most of the
organizations are turned to computerized performance appraisal system and acquired good
results. Staff appraisal gained increased importance as a contributor to success of many
organizations. It helps in categorizing the performing and non-performing candidates.

It properly describes a process of judging past performance and not measuring the
performance against clear and agreed objectives.Hence performance management system came
into existence and shifts the focus away from just an annual event to an on-going process.

In contrasting Performance Appraisal with Performance Management, it suggests that

performance appraisals are indeed an evaluation of an employees work. However, Performance
Management reflects the continuous nature of performance improvement and employee
development, recognizing the importance of effective management, work systems and team
contributions.

Consequently, many organizations are revising their existing appraisal schemes and introducing
performance management system for all the employees. Performance Management System
enables a business to sustain profitability and performance by linking the employees' pay to
competency and contribution. It provides opportunities for concerted personal development and
career growth and now the system tending towards openness, dialogue and performance, rather
than personality.

The topic “Performance appraisal in Larsen &Toubros” was chosen with an aim to identify the
performance appraisal process followed in one of the largest construction companies in India.

The research would help in analyzing the various performance appraisal problems in company
like biasing etc.

The study will also lead to analyzing the effectiveness of the performance appraisal process in
identifying and bringing out the core competencies and role clarity in the employee.

The research is meant to finally give recommendations and insights for the betterment of the
performance evaluation in the company.

Literature Review

Armstrong in 2006 proposed that performance appraisal can be considered as an instrument to

measure and utilize the technical skills and knowledge of employees in a better way as well as to
equip them for facing the future challenges and goals. Performance appraisal can also be
regarded as a method to obtain feedback about the performance effectiveness of employees in an
organization (Szilagyi&Wallace 1990). A survey conducted by the CIPD (Chartered Institute of
Personnel and Development) revealed that in the year 2005 almost 65% of organizations
conducted annual appraisal for their employees. The companies which conducted appraisal twice
a year accounted to 27%. From this it becomes clear that almost all organizations in the world
now realize the importance of appraisal system.
Employees are considered as valuable assets by present day organizations since the scarcity of
skilled labor is high. Companies try all ways to retain their skilled employees and an effective
performance appraisal system helps to keep track on the KSA (Knowledge, Skills and Abilities)
of employees (Amstrong and Baron, 2004). The companies now recognize the fact that only high
performing employees could help it to achieve it short-term and long-term objectives (Michlitsch
,2000).

Edmonstone in 1996 stated that there exists many purposes for performance appraisal. This may
include improving the communication between the superiors and employees with the help of
feedback mechanism. This way it helps in building the rapport between the members of
organization. Another purpose is that it helps to find out whether the employee lacks any skills
and identify areas where he/she needs training. The standards kept for performance by the
companies helps to identify those employees who need to be appraised and those who should be
demoted.

Public and private sector companies follow different methods of appraisal that suits their
organization structure. But Boice& Kleiner (1997) proposed that all successful appraisal methods
have similar characteristics. But it’s difficult to measure performance in certain organizations
and they face the difficulty of implementing an effective performance appraisal method.
Marsden in 1999 explained that any appraisal system that cannot constantly measure job
performance of employees cannot be regarded as effective.

There are several methods of appraisal followed by organizations. The most common methods
include 360 degree feedback, Behaviorally Anchored Rating Scale (BARS), Management by
Objectives (MBO), Balanced Score Card etc (Bohlander& Snell 1998)

The importance of communication in performance appraisal system was explained by O’Reilly

and Anderson, (2006). They said that there should be an open communication between the
employee and the superior. More they interact better would be the appraisal system. The
manager could explain about the actual performance of employee and the expected performance.
The method followed by L&T is also based on communication.

Appraisal method in L&T, Chennai

Larsen & Toubro has adopted the method of MBO (Management by Objectives). This method
was first introduced by Peter Drucker in 1954. In this method, the superior and subordinate
conducts a meeting in which they jointly sets the objectives of the employee for the next
appraisal period (Bohlander& Snell 1998). The employee performance is evaluated on the basis
on these pre-determined objectives. These objectives will be usually amount of sales, quantity of
production etc. The organizational objectives are attained in this method with the help of a
cyclical process. In this the management initially sets the objectives of organization followed by
departmental objectives and finally individual goals. All these goals will be interconnected in
such a way that fulfilling one of them will positively affect the other.

Caroll and Tosi explained that MBO must fit into the philosophical framework of an
organization. This is due to the reason that the management attitude and MBO must go hand in
hand. Merely giving support to MBO through words is not sufficient. Lussier in 2008 explained
about the possible reasons for the failure of MBO. A major reason behind the failure of MBO
method is many companies is absence of commitment and follow-up from the management.
Another reason is that management fails to convince employees that they are also an integral part
of the decision making process. Employees feel that all major decisions and goal-setting have
been done by the management without consulting them. When this happens, the employees will
be less committed to work for the management and meet the objectives. The autonomous and
dynamic involvement of employees can be considered as the most significant contribution of
MBO to the communication mechanism within the company (Roodman&Roodman 1973).

Singla (2009) has explained the features of MBO method.

All the activities included in this method are aimed at achieving the goals.

The individual, departmental and organizational objectives are interconnected.

Organization is considered as a dynamic entity in this method.

MBO compares the resources available with objectives and makes the best match.

This method is rather a philosophy or idea than a technique.

MBO emphasizes on performance review and appraisal.

The employees are given more autonomy in this method.

Outcomes are given more weightage than the job.

These features make the method of MBO unique from other methods of performance appraisal.

Research Question
One of the relevant questions that can be put forward in this context would be; what is the impact
of performance appraisal system on employee development?

Certain other kinds of questions that can be asked as per the topic are the following:

Does the appraisal system aid in the performance improvement of the employee through proper
training methods?

Does the appraisal process bring about a positive relationship between the employees and the
superiors?

Is the appraisal process (MBO) followed in the company effective in utilizing the employ’s core
competences for the betterment of the organization?
Does the appraisal process clearly define the roles of the employees?

Research Objectives

General objective

To investigate the impact of existing performance appraisal system on

employee development.

Specific objectives

To study the effect of performance appraisal system on employee

potential with respect to core competency.

To evaluate the issues related to the performance appraisal process in the company.

Methodology

Research design & design adopted

The research design includes the whole process of data analysis and study. This study follows a
diagnostic research design where in the researcher identifies a problem related to the topic in the
company. After diagnosing the problem the researcher goes on for an evaluation and ultimately
finds a solution for the problem. The research design involves data collection through various
means, after which the collected data is analyzed. The analysis will lead to giving solutions to the
problem. The solutions obtained are recorded in the research as the result of the study.

Data Collection Methods

Sampling methods

Sample is taken from the population of employees in L&T ECC. The sampling method that can
be followed in this research work is simple random sampling. In this kind of probability
sampling every person in the population has an equal chance of being chosen for the study. The
employees who are involved in the performance evaluation process are taken for the study.

Size of the sample

The sample size chosen for the study will be 100. The data collection is done with the help of
these 100 individuals chosen through simple random sampling.
Sampling Technique

Sampling technique is the means by which the researcher chooses his respondents. Every
research or study has a planned sampling process wherein the researcher clearly identifies the
sample individuals for his study. The samples chosen depend upon the topic of the study because
the respondents play a crucial role in formulating a result for the topic as they are asked to
respond to the researcher’s questions through questionnaires etc. In this research the respondents
will include both the managerial level employees and also the non managerial employees, as
both the groups are involved in performance appraisal process.

Questionnaire

Questionnaire is a structured form of data collection used in any research. The researcher
includes all the important questions regarding the topic in the questionnaire. The respondents
chosen using the sampling method are identified and given the questionnaire for response. The
respondents will respond to the questions in the questionnaire which will help the researcher gain
an idea about the problems in the company. In this research at L&T the researcher will be
including questions related to the performance appraisal process and issues in the company, also
the questions regarding employee development. The researcher can use this data for the purpose
of drawing results for the problems identified.

Interview
The researcher may at times find it apt to collect data by interviewing the respondent. In such
situations interview will be more useful compared to questionnaire. In case of this study the
researcher can ask direct questions related to the performance appraisal method followed in the
company. Interview method will give more precise answers as the interviewer can ask many
questions on performance appraisal and also employee development compared to the
questionnaire. The interviewer can ask questions related to the particular core competency of the
employee. Interview can also include many suggestion questions as to what changes the
employees would like to have in the process followed in the company. Telephonic interview can
be done in this research.

Data Analysis

A research cannot be concluded with the help of a rough data. For a researcher to obtain the right
kind of result for his study the researcher needs to formulate a method to analyze the data in the
most suitable way. Thus data analysis part of the research is essential in the sense that it converts
the raw data into a form that can be well understood. Data analysis in this study is done using
SPSS which is a tool for data management. Data analysis refers to that stage in research process
in which different statistical techniques are applied. One should have a clear understanding of
statistical thinking behind a data analyzing technique in order to explain it in detail
(AderMellenberg& Hand(2008).
Resource Requirements

The resources for the study need to be obtained from the library and also the internet. The
relevant information on the topic can be collected using primary and secondary means.
Resources of other forms include printed materials like magazines of the company and also other
reports and journals, websites are also an important means or source of data collection. The
researcher can obtain primary data by means of structured questionnaires and telephonic
interviews. These resources will help the researcher in his research as they provide the base for
the researcher to work upon.

SWOT ANALYSIS

SWOT analysis of Larsen & Toubro analyses the brand/company with its strengths,
weaknesses, opportunities & threats. In Larsen & Toubro SWOT Analysis, the strengths and
weaknesses are the internal factors whereas opportunities and threats are the external factors.

SWOT Analysis is a proven management framework which enables a brand like Larsen &
Toubro to benchmark its business & performance as compared to the competitors and industry.
Larsen & Toubro is one of the leading brands in the conglomerates sector. The table below also
lists the top Larsen & Toubro competitors and elaborates Larsen & Toubro market segmentation,
target group, positioning & Unique Selling Proposition (USP).
Below is the Strengths, Weaknesses, Opportunities & Threats (SWOT) Analysis of Larsen &
Toubro.

STRENGTHS

 Market leadership providing competitive edge - The company can leverage its strong
brand name and market leadership position to gain competitive advantage and also
expand into internationally.
 Strong technical expertise reinforce leadership position - L&T has set up an engineering
and project management centre in Abu Dhabi to undertake oil and gas related projects as
well as engineering.
 Diversified revenues providing resilience - In FY2011, the company’s revenues were
distributed among business divisions as follows: engineering and construction, electrical
and electronics, machinery and industrial products, financial services, developmental
projects and others. This enables L&T to alleviate its business risk as fluctuations in a
single offering have lesser impact on diversified offerings and provide resilience to its
revenues.
 Over 45,000 employees form a part of its workforce.
 It has offerings like Construction, Heavy equipment, Electrical equipment, Power,
Shipbuilding, Financial services and IT Services.

WEAKNESSES

 Dependence on domestic operations for revenue generations –in FY 2011, the companies
Domestic (India) operations contributed more than 80% of the total revenues.
 Increasing debt impacting financial flexibility – L&T’s interest and brokerage
expenditure over the period increased.

OPPORTUNITIES

 Strategic joint ventures strengthening business - L&T has formed a strategic partnership
with Cyan Holdings plc, a UK-based integrated system design company. L&T and
Cassidian entered into a partnership in February 2011, to become an electronics house for
defense and security.
 Strong project pipeline ensures revenue growth.
 Growing Indian construction & engineering industry - In 2015, the Indian construction &
engineering industry is forecast to grow.
THREATS

 Rise in cost of construction may affect margins –the rise in crude prices, will increase the
cost of transportation.

 Challenges in land acquisitions likely to affect the business – in2011, Indian government
introduced ‘The Land Acquisition, Rehabilitation and Resettlement Bill, 2011’. As per
the bill, compensation for the owners of the acquired land shall be four times the market
value in rural areas and urban areas.

 Intense competition may reduce profitability – few competitors have sustainability

greater resources and superior capabilities than L&T.

OBJECTIVES OF THE STUDY

Performance Appraisal is the systematic evaluation of the performance of employees and to

understand the abilities of a person for further growth and development. Performance appraisal is
generally done in systematic ways which are as follows:

1. The supervisors measure the pay of employees and compare it with targets and plans.
2. The supervisor analyses the factors behind work performances of employees.
3. The employers are in position to guide the employees for a better performance.

Objectives of Performance Appraisal

Performance Appraisal can be done with following objectives in mind:

1. To maintain records in order to determine compensation packages, wage structure,

salaries raises, etc.
2. To identify the strengths and weaknesses of employees to place right men on right job.
3. To maintain and assess the potential present in a person for further growth and
development.
4. To provide a feedback to employees regarding their performance and related status.
5. To provide a feedback to employees regarding their performance and related status.
6. It serves as a basis for influencing working habits of the employees.
7. To review and retain the promotional and other training programs.

Advantages of Performance Appraisal In L&T

It is said that performance appraisal is an investment for the company which can be justified by
following advantages:

1. Promotion: Performance Appraisal helps the supervisors to chalk out the promotion
programs for efficient employees. In this regards, inefficient workers can be dismissed or
demoted in case.
2. Compensation: Performance Appraisal helps in chalking out compensation packages for
employees. Merit rating is possible through performance appraisal. Performance
Appraisal tries to give worth to a performance. Compensation packages which includes
bonus, high salary rates, extra benefits, allowances and pre-requisites are dependent on
performance appraisal. The criteria should be merit rather than seniority.
3. Employees Development: The systematic procedure of performance appraisal helps the
supervisors to frame training policies and programs. It helps to analyze strengths and
weaknesses of employees so that new jobs can be designed for efficient employees. It
also helps in framing future development programs.
4. Selection Validation: Performance Appraisal helps the supervisors to understand the
validity and importance of the selection procedure. The supervisors come to know the
validity and thereby the strengths and weaknesses of selection procedure. Future changes
in selection methods can be made in this regard.
5. Communication: For an organization, effective communication between employees and
employers is very important. Through performance appraisal, communication can be
sought for in the following ways:
a) Through performance appraisal, the employers can understand and accept skills of
subordinates.
b) The subordinates can also understand and create a trust and confidence in
superiors.
c) It also helps in maintaining cordial and congenial labor management relationship.
It develops the spirit of work and boosts the morale of employees. All the above
factors ensure effective communication.
6. Motivation: Performance appraisal serves as a motivation tool. Through evaluating
performance of employees, a person’s efficiency can be determined if the targets are
achieved. This very well motivates a person for better job and helps him to improve his
performance in the future.
CONCLUSION
Larsen & Toubro Limited (L&T) expects its employees to keep up a higher standard of conduct and work
performance to be sure the business maintains its good reputation with customers and clients. Good
personal conduct contributes to a good work place for many.

This HR policy and procedure of Larsen & Toubro Limited (L&T) supplies the policies and
procedures for managing and developing staff. In addition, it provides guidelines Larsen &
Toubro Limited (L&T) will use to administer these policies, with the right procedure to check
out. In fact the aforementioned few mentioned facts are one among the HR policies, time to time
it'll be essential to modify and amend some sections of the policies and procedures, or to add
new procedures.

The main benefits are :

 Assists the company to meet its legal obligations.
 Successful way to help managers and supervisors make steady and reliable decisions.
 Helps give each employee an obvious understanding in regards to what is expected and
allowed.