Indian Institute of Management

Performance through Motivation In Organizations And Learnings in Indian Context

by Anuroop Vinayak Gaonkar 2005011 Arijit Chatterji 2005012 Arindam Ray 2005013 Divyesh Dixit 2005022 Krishnamurthy Hegade - 2005030 Srinivas Makala 2005031 Sai Anil Kumar Veedururu 20050 Vishwanath Belur 20050 of

PGSEM, Batch of 2005, Sec A, Group 3

Towards Managing People and Performance in Organizations Taught by

R. Ravi Kumar Ph. D. Professor, IIM - Bangalore

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Performance & Motivation An Introduction........................................................................4 What is Performance............................................................................................................5 What is Motivation...............................................................................................................6 Key Theories On Motivation...............................................................................................6 Hierarchy of Needs Theory (Maslow).............................................................................6 Theory X and Theory Y (Douglas McGregor)................................................................7 Two-Factor Theory (Frederick Herzberg).......................................................................7 ERG Theory (Clayton Alderfer)......................................................................................8 David McClellands Theory of Needs.............................................................................8 Cognitive Evaluation Theory.........................................................................................10 Goal-Setting Theory (Edwin Locke).............................................................................10 Reinforcement Theory...................................................................................................10 Job Design Theory.........................................................................................................11 Social Information Processing (SIP) Model..................................................................11 Equity Theory.................................................................................................................12 Expectancy Theory (Victor Vroom)..............................................................................13 Applying Theories in Organizations..................................................................................13 The Indian Context.................................................................................................................15 Meaning & Application of performance and Motivation Theories...................................15 Learning from Application.................................................................................................17 Future Direction and some Suggestions............................................................................18 References..............................................................................................................................20

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Performance & Motivation An Introduction

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The success of any firm is dependent on its ability to perform the desired functions to achieve its goals most efficiently. Peak Performance hence becomes a goal of highest importance. In todays world as the visionary thinker of management science Peter Druker says, The most valuable asset of 21st century institution will be its knowledge workers and their productivity - by which we can infer that that the performance in current day organizations will be mostly based on the people it has. Even if a manager in todays predominantly knowledge based society is unaware of the above maxim, he/she is acutely aware of the fact that the performance of individual knowledge worker is determining the success or failure of the organization. Therefore the search for the silver bullets, which can help one to enhance performance of knowledge workers, has been relentless in the recent years. One of the ingredients that impacts performance that can be controlled is motivation. So, in the succeeding pages we shall see the theories that try to decipher impact of various entities on motivation and hence its resultant impact on performance.

What is Performance
Performance of an organization is the success it attains it achieving its goals. The organization has to strive at achieving these goals with minimum of resources. As there is perennial need to improve performance an organization needs to understand how it can control and improve the performance. The essence of controlling anything lies in understanding what it is and what entities impact its perceived value. In todays organizations whose growth is propelled by innovation and technology; the people have become the key ingredient for creating the growth as they innovate and create the new products and the new technologies using their knowledge. Hence the performance of these individual is of paramount importance to the new age organizations. The performance of people in a particular situation or in a job can expressed as the product of their ability, opportunity and support provided by the organization, and their motivation.

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PERFORMANCE = Ability * Opportunity and Support * MOTIVATION

What is Motivation
Motivation in the work and organizational context is defined as the processes that accounts for an individualss intensity, direction and persistence of effort toward attaining an organizational goal. Intensity is concerned with how hard a person tries. The intensity should be channeled in a direction that benefits the organization. Persistence is a measure of how long a person can maintain their effort. Motivated individuals stay with a task long enough to achieve a goal. Motivation is not an individual trait as majority of the managers think. Level of motivation varies between individuals and within individuals at different timesi. Other way of looking at motivation is as the process of creating organizational conditions that will impel employees to strive to attain company goals ii. One more view of motivation is that it is the process of arousing and sustaining goal directed behavior. The motivation has become the eye grabber in the performance equation because it probably the easiest to manage out of the 3 ingredients that impact the performance. Other than this, in light of todays business condition, motivating people to be at their best has become more crucial than ever due to various factors like thinning profit margin due to ever stiffening competition, Economic uncertainty. Only through motivation can managers help their employees generate the excellent performance that enables companies to boost profitability and survive-even thrive during tough times.

Key Theories On Motivation

The key theories on motivation can broadly be categorized in to

Hierarchy of Needs Theory (Maslow)

There is a hierarchy of five needsphysiological, safety, social, esteem, and selfactualization; as each need is substantially satisfied, the next need becomes dominant. Self-Actualization is the drive to become what one is capable of becoming. The five needs are separated into higher and lower order needs. Physiological, safety and social needs are categorized as lower order whereas esteem and selfCopyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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actualization are described as higher order needs. The differentiation between the two orders is on the premise that higher order needs are satisfied internally within the person whereas lower order needs are predominantly satisfied externally by things such as pay, tenure, contracts etc.

Figure1. Theory X and Theory Y (Douglas McGregor)

Theory X
Assumes that employees dislike work, lack ambition, avoid responsibility, and must be directed and coerced to perform.

Theory Y

Assumes that employees like work, seek responsibility, are capable of making decisions, and exercise self-direction and self-control when committed to a goal.

Two-Factor Theory (Frederick Herzberg)

Intrinsic factors are related to job satisfaction, while extrinsic factors are associated with dissatisfaction.

Hygiene Factors
Factors, such as, company policy and administration, supervision, and salarythat, when adequate in a job, placate workers. When factors are adequate, people will not be dissatisfied.

Content Factors

Factors work condition related to the satisfaction of the need for psychological
growth and job enrichment. These lead to superior performance and enlist greater effort.

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Figure 2. ERG Theory (Clayton Alderfer)

The theory categorizes the needs in to 3 categories viz; Existence, Relatedness and Growth Existence: provision of basic material requirements. Relatedness: desire for relationships. Growth: desire for personal development. According to the theory more than one need can be operative at the same time, if a higher-level need cannot be fulfilled, the desire to satisfy a lower-level need increases.

David McClellands Theory of Needs

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Need for Achievement: The drive to excel, to achieve in relation to a set of standards, to strive to succeed. Need for Affiliation: The desire for friendly and close personal relationships. Need for Power: The need to make others behave in a way that they would not have behaved otherwise.
The theories of Maslow, Alderfer and McClelland can be summarized as below

Figure 3.
In summary one of most prominent works on defining the process and dynamics of motivation has been by Frederick Herzbergiii. The Hygiene Factors are those that are extrinsic to the job and use the 'KITA' (KickIn-The-Ass)
iv

methods to drive people. These factors essentially threaten a KITA if

employees are not compliant and thus use the fear of KITA as a driving force. The management using such hygiene factors only to govern people essentially subscribe to McGregor's 'Theory X' v. On the contrary, the Motivation Factors used to drive people assume that people basically want to be productive and just need to be given the right conditions and tools to focus their efforts fruitfully. This is the derivative of McGregor's 'Theory Y'. Herzberg goes forward to define the two scales of 'Satisfaction' & 'Dissatisfaction' where he argues that satisfaction & dissatisfaction are not the opposite ends of the same scale. This is because; in an organization there may be a many situations, some of which cause satisfaction, while others cause satisfaction, thus creating a combination of such factors. The 'Hygiene' factors usually define the dissatisfaction Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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level of employees while the 'Motivators' define the satisfaction levels. The objective of any organization should be to minimize the dissatisfaction levels and maximize the satisfaction levels by having an optimal number of Hygiene and Motivator factors driving the employees. The various factors within an organization which can be grouped as Hygiene and Motivators are listed in the table below:-

Hygiene Company Policy and Administration Supervision Interpersonal Relations Working Conditions Salary,Status & Security Achievement Recognition

Motivators

Growth / Advancement Responsibility for task Nature of Work

When deciding the factors used to motivate employees one of the primary challenges arises from the fact that different people have different factors, that motivate them. This was articulated by Vroom, Lawler & Porter in the 'Expectancy/Valence' model vi. This model defined that every person would have a set of personal expectations and the thus a certain preference or 'valence' for the set of outcomes promised as an incentive. The Hygiene and Motivators for employees should be decided based on their valence.

Cognitive Evaluation Theory

Providing an extrinsic reward for behavior that had been previously only intrinsically rewarding tends to decrease the overall level of motivation. The theory may only be relevant to jobs that are neither extremely dull nor extremely interesting.

Goal-Setting Theory (Edwin Locke)

The theory conjectures that specific and difficult goals, with feedback, lead to higher performance. Factors influencing the goalsperformance relationship: Goal commitment, adequate self-efficacy, task characteristics, and national culture. Self-Efficacy: The individuals belief that he or she is capable of performing a task.

Reinforcement Theory
This theory assumes that behavior is a function of its consequences. The environment causes the behavior. Behavior can be modified (reinforced) by providing (controlling) feedback. Reinforced behavior tends to be repeated. Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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Job Characteristics Model: This model identifies five job characteristics and their relationship to personal and work outcomes. These are Skill variety, Task identity, Task significance Autonomy and Feedback. Jobs with skill variety, task identity, task significance, autonomy, and for which feedback of results is given, directly affect three psychological states of employees: Knowledge of results Meaningfulness of work Personal feelings of responsibility for results

Increases in these psychological states result in increased motivation, performance, and job satisfaction. Skill Variety: The degree to which a job requires a variety of different activities. Task Identity: The degree to which the job requires completion of a whole and identifiable piece of work. Task Significance: The degree to which the job has a substantial impact on the lives or work of other people. Autonomy: The degree to which the job provides substantial freedom and discretion to the individual in scheduling the work and in determining the procedures to be used in carrying it out. Feedback: The degree to which carrying out the work activities required by a job results in the individual obtaining direct and clear information about the effectiveness of his or her performance. People who work on jobs with high core dimensions are generally more motivated, satisfied, and productive. Job dimensions operate through the psychological states in influencing personal and work outcome variables rather than influencing them directly.

Social Information Processing (SIP) Model

It is the fact that people respond to their jobs, as they perceive them; rather than to the real jobs. Employee attitudes and behaviors are responses to social cues by Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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others. Employees adopt attitudes and behaviors in response to the social cues provided by others (e.g., coworkers) with whom they have contact. Employees perception of the characteristics of their jobs is as important as the actual characteristics of their jobs.

Equity Theory
Individuals compare their job inputs and outcomes with those of others and then respond to eliminate any inequities. Self-inside, Self-outside, Other-inside, Otheroutside are the comparisons individuals make. Choices for dealing with inequity: Change inputs (slack off) Change outcomes (increase output) Distort/change perceptions of self Distort/change perceptions of others Choose a different referent person Leave the field (quit the job)

Propositions relating to inequitable pay: Over rewarded hourly employees produce more than equitably rewarded employees. Over rewarded piecework employees produce less, but do higher quality piecework. Under rewarded hourly employees produce lower quality work. Under rewarded employees produce larger quantities of lower-quality piece work than equitably rewarded employees Distributive Justice: The Perceived fairness of the amount and allocation of rewards among individuals. Procedural Justice: The perceived fairness of the process to determine the distribution of rewards.

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Expectancy Theory (Victor Vroom)

The strength of a tendency to act in a certain way depends on the strength of an expectation that the act will be followed by a given outcome and on the attractiveness of that outcome to the individual.

Expectancy Theory Relationships

effort will lead to performance.

EffortPerformance Relationship: The probability that exerting a given amount of PerformanceReward Relationship: The belief that performing at a particular level will lead to the attainment of a desired outcome. RewardsPersonal Goals Relationship: The degree to which organizational rewards satisfy an individuals goals or needs and the attractiveness of potential rewards for the individual.

Applying Theories in Organizations

According to Sarah Halliforde and Steve Whiddett, the motivation theories can be applied in the organizational context in the following ways: Organizational Level: teams. Individual Level: Objective setting (annual and short term objectives) Maintaining effective performance Managing under-performers. Designing new jobs and designing jobs around individuals How and what an organization communicates Design and delivery of Reward Systems Career development and succession planning Organizational change (preparing for change and managing the change).

Group and Team Level: Managing permanent, temporary and virtual groups and

Traditionally companies have made very nave and simplistic methods to try and motivate their employees, which are essentially based on Greed or Fear. To list a few :Carrot & Stick Approach: This method simply tries to alternate between a 'pull' and 'push' mechanism to drive employees. A threat of dire consequences (a stick) is used to push employees to perform, while incentives are used to pull people (carrot) towards the performance objectives. The fallacy of this approach lies in the fact that Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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the 'carrot' and the 'stick' become the objectives themselves rather than the motivation thus creating an incongruous performance management atmosphere. Pay Based Motivation: Many large corporations all over the world believe salary is the prime motivation for all employees. This is evident in the pay structures where a component of salary is made dependent on the extent to which company objectives are achieved (e.g. bonus programs, variable pay components, etc.). Though pay is important for employees, not all find it to be the primary motivation especially if money is not a basic constraint. Use of monetary rewards could cause some people to demand more and more pay which may not be commensurate with the increase in value they deliver to the company, or, others who do not value money as much would simply become indifferent. This concept draws from the Valence theory proposed by Vroom. Reducing Time at Work: Many companies consider providing off-hour recreational activities as a valid motivation factor for work. Herzberg considers this to be ineffective and superfluous based on his researchvii. Soft Skills Training: Again, Herzberg's research shows that training employees in Sensitivity, Communications, Human Relations, etc work more as a hygiene factor which facilitates tasks within a limited scope but largely does not motivate the employees.

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The Indian Context

The context of application of all the theories is of highest importance as the cultural and societal environments have large impact on how the theories are perceived and implemented. In many of the oriental part of the world saying anything against the boss decision even in the interest of the company may tantamount to blasphemy and the individual doing so may loose all collegial acceptance. Hence such persons performance cant obviously be analyzed with the set of theories that have their moorings in the occidental world. The Indian business is in transition; it is moving from its socialistic structure to more capitalistic structure and adopting the westernized model of business at a fast pace at least in the knowledge industry. Hence even though the words and practices that Indian businesses talk and follow are similar to the Western world their meanings and goals may be different.

Meaning & Application of performance and Motivation Theories

The performance and motivation in Indian context till the entry of American multi national organizations was rooted in socialistic mode of thinking. Even though in the Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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days before the 90s decades individual good was pursued, it was done covertly. The chalta hai attitude as described in the paper on motivation and performance in developing economies by Kanungo et. Al. describes the conditions that prevailed. The circle of control was considered minimal with fatalistic attitude of the industry circles. This slowly started changing with the opening up of the economies in the 90s and the introduction of competition where the performance or perish became the word to run businesses by. Hence the attention shifted on the performance and its driver the motivation. The Indian companies have slowly moved from Theory X and Theory Y to Two Factor Theory to Social Information processing Model and are currently experimenting with Equity theories and Job Design Theory to gain the desired results. Most of these companies used similar mechanisms to motivate employees thus preempting the possibility of employees jumping from one company to another. The mechanisms used to drive performance in such companies are:-

(a) Variable Pay: based on Individual performance and Company Performance (b) Stock Options: This was an attempt to bring about a sense of ownership
towards the company thus eliciting better performance.

(c) High Salaries: The average salaries in the IT industry in India are way above the
salaries in other industries.

(d) Involvement: Knowledge Industry companies make a concerted effort at

information dissemination. Information about how the efforts of a particular team affects the business of the company or of the customer is fed back to the team to make their work seem more meaningful. This was an attempt at Job Enrichment for the Knowledge Workers by feeding back the appreciation and complaints of the customers in order to make the employees' feel the tangible results of their efforts.

(e) Performance Appraisals: Many companies believe in only highlighting the

positives of the employee and downplaying the faults. This type of an appraisal was used due to two reasons the first was to reduce the possibility of the employee getting dissatisfied and leaving an the second was a belief that the positive feedback would motivate the employee such that eventually he would overcome the faults anyway.

(f) Company

Wide

Recognition:

Usually

individuals

are

recognized

for

extraordinary performance in a way, which is visible to the entire organization. Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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Not only does it increase the motivation of the person being recognized but also motivates peers to strive for similar recognition.

(g) Fringe Benefits: IT companies in India usually offer good fringe benefits such as
Medical Insurance, Company Cars, nice offices, foreign travel opportunities etc.

Learning from Application

The mechanisms used by Indian Companies to motivate knowledge workers have had mixed results in achieving their goals. Some have been very effective while others have become a burden for the company. To list some of the learnings:-

Stock Options: The explosion in the number of employees and the modification of certain accounting rules in the US have made stock options inviable for most companies. Many employees who have been granted stock options ostensibly because it increases the commitment of the company towards the employee feel that the psychological contract between the employee and the company has weakened.

High Pay: The relatively high salaries in the Indian IT industry was earlier possible because of a huge difference in pay levels between the developed countries and India. With the IT industry slowing down and a salary growth rate faster than in western countries, the Indian cost advantage is now reduced. The rate and quantum of pay in the Indian IT industry seems to have reached a state where, if it is kept stagnant the employees would get discontented and demotivated, while if it is increased, the competitive advantage of Indian companies is endangered.

Fringe Benefits: Government regulations have identified the Fringe Benefits as a healthy source of taxation. This has reduced the relevance and attractiveness of the fringe benefits.

Involvement: This has been a sustainable & successful motivation factor in the Indian IT industry. Previously employees would work on small bits of a project without seeing where it fit into the 'big picture'. This not only caused the work to seem academic and theoretical but also made the engineers & researchers make wrong assumptions about the customer scenarios thereby reducing the relevance of their work that resulted in a feeling of ambivalence towards the job. With better information flow between engineering teams, research teams and the customers the employees feel that they actually make a difference and also make

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better judgments about customer scenarios. Ultimately it results in employee motivation leading to better solutions for the customers.

Company Wide Recognition: Since most knowledge workers feel a need to be recognized for their cognitive abilities, such recognition programs which improve their prestige among a peer group has an effect of establishing a goal which prompts both the person getting recognized as well as others in the group who strive for the recognition.

Apart from these the companies have also come to realize that high salaries certainly act as a mental barrier against switching the job. During the initial years it acts as a motivator too; however, after a couple of years, it loses its motivating value. The intrinsic motivation works better with people who have good emotional quotient. It does not work with people who are insensitive and disinterested people. The intrinsic motivation instills a healthy level of competition among the employees that leads to superior performance. The employees are somewhat averse to the extrinsic motivation techniques. They feel that it creates a suffocating environment in the organization, since they feel constantly being evaluated. But from the managements perspective extrinsic reward system helps standardize the employee behavior and fosters good performance. Communication is the key: However much the organization tries to create a motivating environment, if the employees do not perceive the same, all is waste. Hence, the organizations must spend effort in aligning the perceptions of the employees with that of the organization.

Future Direction and some Suggestions

The Indian cultural and social context is made up of varied hues. The peoples of Indian subcontinent are followers of different faiths, have varied value system, speak different languages and perceive things differently. The common trait across these peoples may be strong ties to family, large but declining emphasis on the acceptance by society. Hence as it is said different strokes for different folks the key to having successful motivational and performance processes in Indian knowledge worker context is to 1. make concerted efforts towards understanding each employees preference of motivators. This would require higher effort from the Human Resource (HR) departments initially but would result in ensuring that organization provides the Copyright 2006 by Group 3, PGSEM Sec A, Batch of 2005. All Rights Reserved

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right kind opportunity for every employee thus making employee perform better and stay with the company even if he was offered a higher monetary pay elsewhere which at least at present has become the hygiene factor rather than the main motivator for many of the experience hires. 2. stop treating people as tradable capital as in the days of industrial era 3. make organizational processes like performance appraisal and promotion processes transparent to keep pace with changing times 4. Walk the talk rather than talking the talk and to understand that it is imperative for the system to function by rules than by exceptions as we see in most of the day to day life 5. provide long term vision for the sustainable growth and learning for the employee rather than work for the next day so that the employee doesnt feel insecure each and every day The above are not big challenges as long as the company is small in size. The cultivation of strong interpersonal relationship with the employees can help motivate them. But as the organization grows, one cannot count on these good intentions alone. Hence, in addition, the organization must design reliable and comprehensive systems in the workplace to help motivate employees. For example, establish compensation systems, employee performance systems, organizational policies and procedures, etc., to support employee motivation. Also, establishing various systems and structures helps ensure clear understanding and fair treatment of employees. It is important that the people who are in the roles of motivating others are supremely motivated before he can expect his subordinates to be. Because in many cases, the boss is the organization for the employees and hence, they look up to him as a role model. Nothing substitutes spending time with the employees at work. Managers must frequently review the employees work and provide constructive feedback and appreciation. This makes the employee feel that he is doing something worthwhile. The fresh graduates joining the IT companies are practically neglected. The managers do not provide enough attention to them. This is an unfortunate phenomenon, since it might instill a wrong perception in the young minds that will

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stay through the rest of their career, as suggested in the article, Pygmalion in Management by Prof. Ravi Kumar. The job performance is a function of the employees ability and motivation. Our observation is, in the Indian IT industry, the ability of the employees is generally not a problem at all. The job attitude makes all the difference. Hence, the role of motivation in the IT industry is very relevant and pronounced. Also, in the Indian Context, given the high salaries drawn by the IT sector employees compared to that of the other sectors, money is predominantly a hygiene factor and not a motivator. Hence, organizations must spend more time and effort on motivating through work content and culture.

References
Managing in the next society Peter Drucker Managing in the 21st Century Peter Drucker Managing the Organization Peter Drucker http://www.accel-team.com/motivation/index.html Management of personnel in Indian enterprises by Prof N.N. Chattarjee Role of motivation in performance, HBR Press

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i Stephen Robbins, 11th Edition, pp 170 ii Hodgetts, Richard M., Introduction to Business, Addison-Wesley, p. 168 (references i) iii http://en.wikipedia.org/wiki/Frederick_Herzberg iv Manage People, Not Personnel Motivation and Performance Appraisal, HBR, Chap -4, p-49 'One More Time: How Do You Motivate Employees?' , Frederick Herzberg. v The Human Side of Enterprise, Douglas McGregor vi http://www.ifm.eng.cam.ac.uk/dstools/paradigm/vroom.html vii Manage People, Not Personnel Motivation and Performance Appraisal, HBR, Chap -4, p-52 'One More Time: How Do You Motivate Employees?' , Frederick Herzberg.