The Main Factor Which Differentiates Organizations Commerce Essay

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Organizations and its employees operate in a very competitive market, with ever higher customer expectations and face with both economic and social changes.

This is due to increasing global competition, advancing technology, changing government regulations ect. In order to survive in such a dynamic environment, organizations must accept the reality of constant change and learn how to adapt it.

Especially because of the speed of information exchange, the main factor which differs organizations from each other is the employees and their qualifications. It is obvious that more productive, well educated, loyal and motivated employees provide a big advantage to the organizations. For this reason the performance appraisal, which provides a feedback to the functions of Human Resources, such as recruitment, training, career planning and compensation, plays a critical role on organizational success.

After this reality has been recognized, the first serious studies have been started regarding performance appraisal and lots of performance appraisal methods have been invented. With applying the performance appraisal methods and using the outputs of it on the other HR functions, organizations started to see the benefits of it on the productivity, market share and on other success criteria's.

Naturally in parallel with technology, changes on organizations' structure and all other kind of changes, performance appraisal methods have also been changed. In the first years, employee performance was appraised by looking at their characters. In the lenght of time performance appraisal is started to base on more objective criteria's and employee performance has started to be appraised by considering the job results.

The next step of starting to based the performance appraisal on the job results, different performance appraisal methods have been appeared.

Definining the Performance Appraisal

For understanding the performance appraisal, firstly; we must know the meaning of "performance". In this section the definition of "performance" and "performance appraisal" will be given first. Then the importance and purposes of performance appraisal will be explained.

The Concept of Performance

There are many definitions of performance in use. The most general way to define performance is the measurement by the outcomes produced. Thus, performance is defined as the record of outcomes produced on a specified job function or activity during a specified time period.10 When examined on organization basis, performance is the ability to achieve the predetermined targets of the organization by using the resources effectively, as possible.

When examined on organization basis, performance is the ability to achieve the predetermined targets of the organization by using the resources effectively, as possible.11

Although performance is a well-known concept, it is an abstract concept that is difficult to define. The meaning of performance can be defined with a simple example.

The work results of any person working in any company, whose assignment is to enter data in a system by using a definite document, will be very different from another person working in the same company with the same assignment. Moreover it may be observed that one of such employees has entered data equalling to two third of the data entered by the other employee.

Actually, the concept performance is the difference between the work results of such two employees. It is very easy to determine and appraise the performance differences in such a simple example. It is simple because the performance difference between two people carrying out the same assignments was calculated.

In today's information society and the organizations with complex relations, performance appraisal is not so easy. It is very difficult to appraise the contribution of two persons with different duty assignment.12 Therefore, first it is useful to mention why two persons produce different performances.

9 Nükhet Germirli, Performans Yönetimi Sisteminde Uygulama Etkinligi, Kalite kongresi 2001

bildirisi, p.2

10 John Bernardin and Joyce Russel, Human Resource Management, Second Ed.,Singapore:Irwin Max Graw-Hill, 1998, p.239

11 Richard L. Draft, Management, Fourth Edition, Dryden Pres, Orlando, 1997, p.14

12 L.L Cummings, Donald P. Schwap."Performance in Organizations", ed. Alan C. Filley, USA,Foresman and Company, 1993, p.2

Factors Influencing Performance

It is impossible that two persons carrying out the same work show the same efficiency, in fact the main problem is to find the reasons why such two persons produce different work results.

a.Personal Reasons

It can be said that the person, who enters more data, has competence about this work, when personal reasons are considered. Competence can be caused by skills or intellectual knowledge etc. On the other hand, the person, who produces lower performance, may be entering less data because he is inexperienced. 13

Another explanation may be related to motivation. The reason of motivation may an affirmative improvement or another development that the person experienced in the previous months.14

b.Exterior Reasons

Although performance is seen as a personal phenomenon, the exterior variables can interact with the personal reasons and influence the work results or directly the work itself. For example, this may be caused by any blockage in some keys of the keyboard that one of the persons uses or treatment of directors to such two persons differently, higher salary paid by one of such persons, sunlight coming directly on the place where one of such persons sits and inappropriate working conditions, more accurate trainings provided to one of such persons etc. 15 In addition the exterior reasons may be social reasons (family, association, club etc.), economical reasons (economical level, income distribution etc.), political reasons (laws, regulations, political order etc.) and cultural reasons (education, religion etc.). 16

In addition the exterior reasons may be social reasons (family, association, club etc.), economical reasons (economical level, income distribution etc.), political reasons (laws, regulations, political order etc.) and cultural reasons (education, religion etc.). 16

13 L.L Cummings, Donald P. Schwap, p.6

14 L.L Cummings, Donald P. Schwap, p.7

15 A.g.e.

16 Ülkü Dicle, Yönetsel Basarının Degerlendirilmesi ve Türkiye Uygulaması, ODTÜ _dari _limler

Fakültesi, Yayın No:43, Ankara, 1982, p.7

Definition of Performance Appraisal

Performance appraisal, review or evaluation refers to a systematic description and review of an individual's job performance. Performance management refers to the total system of gathering information, the review and feedback to the individual and storing information to improve organizational effectiveness.17

Performance appraisal can also be defined as a structured formal and periodic interaction between a subordinate and supervisor in which the work performance of the subordinate is examined and discussed with a view to identifying weaknesses and strengths as well as opportunities for improvement and skills development.18

Performance appraisal systems must not only accurate measure how well an employee is performing a job, but they must also contain mechanism for reinforcing strengths, identifying deficiency and feeding such information back to employees so they can improve future performance. Thus, performance appraisal has both evaluate and developmental purposes, but it is exactly because it serves a dual purpose that it is so difficult to do.19 Performance appraisal is the process of determining and communicating to an employee how he or she is performing on the job and, ideally, establishing a plan of improvement. When properly conducted, performance appraisals not only let employees know how well they are performing but also influence their future level of effort and task direction.20

Performance appraisal has been one of the most debated management practices for several decades. It has generated a wide variety of view-points. There are those who see performance appraisal as making an important contribution to human resource management, in that organizations require systematic information on how well employees are performing in their jobs as a key element in ensuring that human resources are used as effectively as possible. Employees at all levels experience a need to clearly what they should be doing and what is expected of them in terms of quantity and quality of output.In adition most people want to be in a position where they can perform better next time around.21

1.2.4 The Importance and Purpose of Performance Appraisal

The performance appraisal, when used efficiently, can improve the company's performance at the bottom line. Outcomes of performance appraisal system can be used in many management tools like evaluation and improvement of personnel selection systems and training and development programs. The identification and measurement of critical performance criteria are vital for improving an organization's competitive advantage through better products and services and greater responsiveness to customer requirements.22

Assesing and providing feedback about performance is considered essential to an employee's ability to perform job duties effectively. The basic purpose of evaluation, of course, is to provide information about work performance. Such information can serve a variety of purposes. Some of the major ones are:23

•€ Provide a basis for reward allocation, including raises,promotions,

transfers, layoffs, and so on.

•€ Identify high-potentialemployees.

•€ Validate the effectiveness of employee selection procedures.

•€ Evaluate Previous training programs.

•€ Facilitate future performance improvement.

•€ Develop waysof overcoming obstacles and performance barriers.

•€ Identify training and development opportunities.

•€ Establish supervisor-employee agreement on performance expectations.

These specific purposes can be grouped into two broad categories. The first

four have evaluative purposes, the last four have developmental purposes. (Evaluative

and developmental purposes are shown in Figure 2.2)

19 Lloyd S. Baird, Managing Human Resources Integrating People and Business Strategy, USA:

Richard D. Irwin Inc., 1992, p.144

20 Lloyd L Byars and Leslie Rue, Human Resource Management , 6th Edition, USA. The Mc Graw Hill Companies, 1999, p.275

21 Brian Towers , The Handbook of Human Resource Management, second Edition, Blackwell, 1996,


22 John Bernardin and Joyce Russel, p.239

23 John M. Ivancevich and Michael T. Matteson, Organizational Bahavior and Management, Fourth

Ed., U.S.A,: Irwin McGraw-Hill,1996,p.201.

17 Don Harvey, Robert B. Bowin,HRM An Experiential Approach, New Jersey, Prentice Hall, 1996,


18 "Appraisal Methods" Performance Appraisal,

(21 Feb.2005)

Evaluative Purposes

Evaluative purposes focus on past performance and provide a basis for making judgements regarding which employee should be rewarded, and how effective organizational programs- such as selection and training- have been.24

Performance appraisal normally has a two-part effect on future pay. In the short run, it may determine merit increases for the following year; in the long run, it may determine which employees are promoted into higher-paying jobs.25 Staffing decisions constitute a second evaluative purpose of performance appraisal, bacause the managers and supervisors must make decisions concerning promotions, demotions, transfers and layoffs. Past performance appraisals normally help determine which employee is most deserving of a promotion or other desirable job changes.26

b. Developmental Purposes

The second broad purpose of performance appraisal is to improve performance through self-learning and personal growth. This developmental purpose is accomplished when employees are made aware of their strengths and weaknessess and of ways to improve their skills and abilities.27

Performance feedback is a primary developmental need bacause almost all employees want to how their supervisors feel about their performances. Their motivation to improve their current performance increases when they receive feedback that specifies goals, which in turn, enhances future career moves.28

Developmental performance appraisal is mainly focused on giving employees direction for future performance. Such feedback recognizes strengths and weaknesses in past performances and determines what direction employees should take to improve.

Employees want to know specifically how they can improve. Performance appraisals are designed to cope with the problem of poor employee performance , they should be designed to develop better employees.29

24 John M. Ivancevich and Michael T. Matteson, p.202

25 Michael R.Carrell, Elbert F. Norbert, Robert D. Hatfield, Human Resource Management: Global

Strategies for Managing a Diverse Workforce, 5th ed., U.S.A: Prentice Hall. Inc., p.350

26 Carrell, Elbert and Hatfield, p.350

27 Ivancevich, Donnelly and Gibson, p.482

28 Carrell, Elbert and Hatfield, p.351

29 A.g.e.

Usage of Performance Appraisal

According to many organizations, the main purpose of performance appraisal is to develop the performance. But the information collected by performance appraisal system, can be used in several ways in a company.

Performance system is an information communication system that ensures delivery of targets and objectives in the company and execution of correct works in addition to being a measurement tool, on contrary to the wide view. If this system is established correctly, information can be shared from top to down as well as down to top or horizontally. By this way, everybody can demonstrate efforts together for achieving the same targets and objectives. 39

Performance appraisal can serve a wide range of specific uses for the individual and his manager. The information collected from performance appraisals is most widely used for training and development, compensation, staffing, career planning, motivation, feedback for human resources.

1.4.1 Training and Development

Performance appraisal should lead to the identification of the training and development needs of employees.

Performance appraisal offers an excellent opportunity for a supervisor and subordinate to recognize and agree upon individual training and development needs. During the discussion of an employee's work performance, the presence or absence of work skills can become very obvious.40 Indeed, it can be argued that without an appraisal scheme, it would be only accidental if training and development efforts were aimed in the right direction.

Performance appraisal, by providing feedback to employees on job performance, creates a basis for improvement and development.41

Although we can not say that performance appraisal system develop employees perfect, if a training and development program is supported with a performance appraisal results, obviously it will be more effective.

1.4.2 Compensation

In order to motivate employees to improve their performance and achieve their target goals, supervisors can use incentives such as pay-for performance programs (merit pay, incentives, bonus awards). When employee have the opportunity to be rewarded for good performance in an equitable way, they can be highly motivated and perform better.42

While establishing the wage system, the important issue that should be considered is provide high wages or awards for the persons with high performance not to provide low wages for the persons with low performance. In brief, the system should focus on success not on failure. However, the reality should not be undervalued in the developing countries, such as Turkey, when ensuring this. Therefore, it is observed that providing increase in wages based on performance appraisals in addition to the increase

equaling to the inflation rate lead to affirmative results. 43

It is observed that some companies carrying out performance appraisal do not use the system effectively in the rise of wages. Such companies, which find it more appropriate to use market conditions and comparison reports, such as questionnaires with the equivalent companies, use the performance appraisal data only as information for providing financial and moral awards to the employees other than the wages.44

39 Reha Abi, Performans Yönetimine Geçis: Cennette mi, Cehennemde mi?, Kaynak Dergisi, No:12,

Oct-Jan 2002

40 "Appraisal Methods" , p.10

41 Brian Towers, p.199

42 Bernardin and Russel.op.cit., p.239

43 _lhami Fındıkçı, _nsan Kaynakları Yönetimi, 2nd ed., _stanbul, Alfa Yayınevi, 2000, p.338

44 Ernst & Young, p.132

Internal Staffing and Personnel Planning

Performance appraisal information is used to make staffing decisions. These decisions involve finding employees to fill positions in the organization or reducing the number of employees that exist in certain positions. Many organizations rely on performance appraisal data to decide which employees to promote to fill openings and which employees to retain in a downsizing.45

Performance appraisal information is also used in performance decisions to determine promotion, transfer or in the case of downsizin, to identify possible layoffs. Supply of data about staff capabilities essential to manpower planning.46

1.4.4 Career Planning

In addition to focus on today's results, appraisals will help you to plan for the long term. By considering the potential of each team member, and discussing their career aspirations with team in the future and produce a succession plan. Appraisal is used for identifying when it is time for an individual to move on.47

In this regard, performance appraisal can be used for rotation of an employee, who is unhappy about his duty but believed that he will be successful in another duty. For example, it will be provided by the performance appraisals that any employee, whose problems related to his duty definition are demonstrated in the performance appraisal results and whom the organization want to continue employing, can be subjected to rotation.

Equally, the responsibilities of the employees, who are successful in their duties but find their duty as unsatisfactory, can be increased. In this way, an option is provided to the employee for developing himself and reshaping his career.48

1.4.5 Motivation and Satisfaction

Performance appraisal is centrally linked to the motivation of employees, in that it provides some of the essential components of effective motivational strategies; in particular, feedback that permits an employeeto learn how well he or she is performing; goal or objective-setting that specifis what the person should be doing; team-building that allows the employee to participate with peers and their managers in solving problems that impede their productivity; and monetary incentives that reward good performance.49

45 Bernardin and Russel, p.239

46 Alan G. Cowling and Chloe J.B. Mailer, Managing Human Resources, 2nd ed., London: Arnold,

1990, p.85

47 Ken Langdon and Christina Osborne, Appraising Staff, 1st ed., London: Dorling Kindersley Limited,

2001, p.11.

48 Margaret Palmer, Performans Degerlendirmeleri, Çev. Dogan Sahiner, _stanbul, Rota Yayınları, 1993


49 Brian Towers, p.199


2.1 Steps in Developing a Performance Appraisal System

The specific steps followed in developing a performance Appraisal system will vary somewhat from organization to organization. Nonetheless, the general guidelines discussed here will be followed by most employers when developing an appraisal


2.1.1 Determine Performance Requirements

In the first step of the process, administrators must determine what skills, outputs, and accomplishments will be evaluated during each appraisal. These may be derived from specific job discriptions or they may be a uniform set of employee requirements included in all performance appraisal system. Policymakers must determine exactly what areas of performance are going to be reviewed and how these areas are related to the organization's goals.

2.1.2 Choose an Appropriate Appraisal Method

Several methods may be used to appraise performance; no one method is best for all organizations. The manner in which a supervisor conducts the performance appraisal is strongly determined by the method. Within an organization, different appraisal methods may be used for different groups, such as production, sales, and administrative employees.

1 Michael R.Carrell, Elbert F. Norbert, Robert D. Hatfield, Human Resource Management: Global

Strategies for Managing a Diverse Workforce, 5th ed., U.S.A: Prentice Hall. Inc., p.351

2.1.3 Train Supervisors

A critical step in the performance appraisal is training supervisors (or other

raters) so that they prepare fair and accurate appraisals and effectively communicate the evaluation to the employee.


Unfair ratings may result in charges of discrimination, loss of employee morale and productivity, or inaccurate appraisals, which lead to poor compensation or staffing decisions.

2.1.4 Discuss Methods with Employees

Prior to the appraisal interview, supervisors should discuss with employees the method that will be used. This discussion should specify which areas of performance are evaluated , how often, how the evaluation takes place, and its significance to the employee. The use of appraisals varies greatly; some organizations tie pay and promotion directly to the performance appraisal; others conduct appraisals only in a perfunctory manner to meet some broad goals or policies.

2.1.5 Appraise According to Job Standards

The performance appraisal should evaluate the employee's work according to predetermined work requirements. Comparison with specific requirements indicates what the employee has or has not done well. The supervisor's feelings about the employee should not affect the appraisal. Feelings can not be evaluated; they are only mental constructs and may be biased. By discussing the employee's behavior that has been observed and documented, the supervisor focuses the appraisal on concrete, actual performance by the employee.

Discuss Appraisal with Employees

In some organizations, appraisal discussions are omitted whenever specific evaluative objectives for merit raises or promotions have been met. The general trend , however, is to make sure that supervisors discuss the appraisal with their employees, allowing employees to discuss areas of agreement and disagreement. The supervisor should emphasize positive work performance, those areas in which the employee has met or exceeded expectations, as well as areas that need improvement.

2.1.7 Determine Future Performance Goals

A critical aspect of performance appraisal is the use of goal setting. How specifically or rigidly these goals are to be pursued is determined by the appraisal method used. Even if goals are only broadly discussed, setting goals for the employee's future appraisal period is critical because it gives the employee direction for continued or improved performance. Leaving the appraisal discussion, the employee feels comfortable knowing how past performance has been viewed and what needs to be accomplished to meet future expectations. 3 52

3 Carrell, Elbert and Hatfield, p.353