Importance Of The Performance Appraisal Business Essay


Q3. Critically assess the importance of the Performance Appraisal as a function of human resource management in either a private or a public sector organization. Use a relevant case study discussed in the seminars to illustrate the importance of the above in relation to the strategic business objective of the organization.


The Human Resources Management (HRM) is rational allocation of human resources in planned way based on the requirements of development strategy of organizations, which ensure the corporate strategic objectives. The HRM is a series of corporate policies in human resources affairs and relevant management activities. A diversity of functions are included in the HRM, and the key is to determine the employment needs of an organization and whether to outsource or hire staffs to fill these vacancies, recruiting, training, evaluating performance, and guaranteeing the personnel and management performs conform to numerous rules.

Performance appraisal is one of the key functions of the HRM, it has a largely effect on the success of the organizations' HRM, thus, it is no need to say that performance appraisal plays an important role in either private or public sector organizations. However, due to the complicated relationship within the organizations and the difficulties in designing appraisal system, performance appraisal cannot always be effective and useful.

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In this paper, some basic concept of performance appraisal will be discussed at the very beginning, the importance of performance appraisal will be discussed after that, issues which leads to ineffective of appraisal will be indicated and a case will also be used to illustrate the importance of performance appraisal.

The Role and Purpose of Performance Appraisal

The performance appraisal is one of the most important parts of HRM system. Performance appraisal is the method of obtaining, analyzing, and recording evidence about the relative value of a staff to the organization. It is an analysis of a staff's recent performance, advantages and disadvantages, and suitability for training or promotion in the future. Besides rewards allocation, organizations also use appraisals to offer growing advice to employees, as well as to know their perspectives about their positions, departments, supervisors and organizations (Walsh and Fisher, 2005).

Generally speaking, the processes of performance appraisal are in six following steps: 1. discussing and establishing standards of performance with employees; 2. setting assessable targets; 3. measuring real performance; 4. comparing real performance with the employee; 5. discussing the evaluation with employee; 6. initiating corrective action when it is necessary.

As a crucial function of HRM, although there is no consensus on the purpose of performance appraisal, the purpose of performance appraisal is generally identified as to improve current performance, provide feedback, increase motivation, identify training needs, identify potential, let individuals know what is expected of them, focus on career development, award salary increases and solve job problems (Torrington, Hall and Taylor, 2002). Performance appraisal plays a verity of roles in the HRM: it encourages supervisor and staff have regular and organized dialogue, makes the provision of feedback to the employee being assessed comprehensively; it enables to evaluate past and current performance, aims to find out the possibility for improvement and how to achieve it; it identifies the needs of training and individual or professional developmental; it gives advice for promotion and secondment; it is used to decide the performance-based payment.

The Importance of Performance Appraisal in Organizations

It is clearly that the HRM makes a great contribution for either private or public sector organizations to achieve organization goals, therefore, as an important function of HRM, the performance appraisal has significant importance in organizations. If there is no performance appraisal system, an organization can hardly have a clear understanding of its current situation, therefore it cannot get the direction and goals for improvement for future, the situation of the organization will be dangerous. If the performance appraisal system is full of deviation or even error, it can possibly lead the organization into a wrong direction of resource inputting, thus the organization will lose its long-term competitiveness. On the contrary, an effective performance appraisal system can ensure resources of the organization invested into the most critical processes, which can improve competitive advantage of organization.

Generally speaking, the importance of performance appraisal to organization is mainly reflected in three aspects:

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1. Affecting the productivity and competitiveness of organization. Performance of employees has a huge effect on productivity and competitiveness of the organization. Performance can be measured from work results, work action and work attitude of employees;

2. Performance appraisal result is an important indicator of personnel decisions. Performance evaluation offers important reference when organization making personnel decisions, such as promotion or demotion, secondment, salary adjustment and so on;

3. Effectively performance appraisal leads to better staff management. It means that an organization can make better evaluation of staff performance, which results in more reasonable remuneration and incentive. It also means that an organization will be able to offer more help to employees' self-development since performance evaluation can explore the potential of employees and help them know clearly about what they should do to meet expectations better. Besides, it will help to achieve better communication between superiors and staffs, which promote greater unity of purpose.

It is no doubt to say that strategic control plays an important role in meeting strategic business objective of the organizations. "Strategy implementation is best accomplished through high-performing people'' (Michlitsch, 2000), that is to say, the HRM functions are important strategic control measurements. The ability of the organization to obtain a benefit from the professional knowledge and employees' vision will be limited if there is an invaluable link between human resources functions and strategic plans of organization (Humphreys, 2005), so the link between the HRM and strategic objective is so important. As one of the core functions of the HRM, performance appraisal has purpose on administration and motivation, it provides important information and feedback for the HRM, so it is necessary for leaders of organizations to understand and create accomplished performance appraisal and feedback systems, which can "link human resource management activities with the strategic needs of the business'' (Schuler, Fulkerson and Dowling, 1991).

On the other hand, according to the research of Walsh and Fisher (2005), "organizations' performance appraisal processes operate in ways that are less than ideal". Performance appraisal may be leaded to useless and inaccurate situation by many factors such as time pressures, complicated forms and psychological defense. What's more, the appraisal process may become unclear and incoherent since employees and organizations try to meet different needs by performance appraisal. That is why most organizations agree that performance appraisal is important and must be executed, but only a few organizations can execute it continuously, usefully and effectively. Besides, "a performance appraisal system should build clarity and reinforce a strategic corporate mission/direction" (Chadwick, 1991), different parts of the organization will make effort to achieve the objectives in their one-sided view if a performance appraisal system didn't build clarity and strengthen strategic organization objective, this may lead to sabotaging to overall organization goal. If things come to this situation, performance appraisal cannot act as an important and useful role in the HRM, let alone in strategic control.

A Case Study of Rother Homes

Effective performance appraisal systems do make important contribution for either private or public sector organizations. One of the evidence is from the experience of Rother Homes, which included in the case studies we had discussed in the seminars. The strategic business objective of Rother Homes was to reorganize its top two management tiers, which needed help in plan of succession and in-house development of managers. Rother Homes wanted "to create an organization capable of grasping the opportunities which independence allowed" (Analoui, 2007). After preliminary restructuring, a brand new performance appraisal system was in great need and conducted gradually. According to well-planned process and customized, well designed feedback questionnaire, Rother Homes benefited from 360-degree feedback not only for their new performance appraisal system but also their program of management development. Ten-month management-development program was conducted on the base of new performance appraisal system, the program made employees expanding and applying knowledge and views better, it also made participants doing better in teamwork. This program got very positive feedback from managers. Finally, under the help of more suitable and supportive performance appraisal system, Rother Homes successfully reorganized its management tiers, what's more, they got a "more cohesive and enthusiastic management group" (Analoui, 2007), well met the strategic business objective. This example well illustrated the importance of performance appraisal in relation to the strategic business objective of the organization.


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As one of the most important functions of the HRM, performance appraisal plays a big role in the success of the organizations' HRM. Performance appraisal affects the productivity and competitiveness of organization, the results of performance appraisal is an important indicator of personnel decisions and effectively performance appraisal leads to better staff management. Performance appraisal has a big importance to either private or public sector organizations and an effectively performance appraisal system does offers great help for either private or public sector organizations to achieve strategic goals. However, since the complicated relationship within the organizations and the complications in establishing well-designed appraisal system, performance appraisal cannot always be effective and useful as we expected it. In one word, establishing an effective appraisal system is not an easy task and it can never be completed overnight (Caruth and Humphreys, 2008). The only way to develop a useful and effective performance appraisal system is to work hard, think carefully, plan seriously and design accurately as what Rother Homes has done, it is not easy but is definitely worth to do.