Performance appraisal is a process of measuring employees’ performance over a given period (Performance Management, 2008). In most cases, performance appraisal is done on annual basis where the performance of employees in the prior year is recorded on their report cards. Organizations conduct performance appraisal for different reasons. One such reason is to fulfill the obligation to perform the task where the organization’s policy stipulates so. Other organizations undertake performance appraisal just to have huge bunches of papers in the files indicating how employees perform their jobs. Contrary to this, successful organizations strategically undertake performance appraisal as part of broader performance management process. Performance appraisal is strategically advantageous because it contributes to achievement of strategic objectives set by an organization.
One of the strategic advantages of performance appraisal is that it allows a manager to meet with his/her employees and discuss performance. This provides an opportunity for creation of good work relationship between managers or other senior members of an organization and the employees. Enhanced work relations among all organizational members result into creation of good working environment, hence positively influencing the performance of all organizational members (Performance Management, 2008).
Performance appraisal is a way of allowing employees to think about the upcoming year and set their performance goals. This is a strategic advantage of performance appraisal because it allows employees to direct their efforts towards achievement of specific goals in a voluntary manner. This is very beneficial, especially when an organization has specific strategic objective or goals to be achieved within a given time. During the performance appraisal process, a manager or a supervisor can discuss with an employee the planned activities or projects of the organization in the upcoming year. During the discussion, the manager informs the employee about the strategic objectives that the organization hopes to achieve from the activity/project. When employees are aware of the future undertakings/projects of an organization and the expected outcome, they are able to prepare themselves in advance. Besides, this contributes to creation of a sense of belonging in an organization. Employees are aware of what the organization wants to achieve and they are able to deduce ways of making that to happen. Moreover, as employees strive to achieve their personal goals, which they have set for the upcoming year, they directly contribute to achievement of organizational strategic goals as well.
When implementing certain strategic decision or projects, performance appraisal plays a very important role in providing a record of performance during the implementation period. The performance record acts a tool of measuring the actual outcome of the strategic project/decision against the standard outcome (Performance Management, 2008). Based on the results, the management is able to identify areas where improvement is required in order to ensure better results during the implementation of the next strategic project/decision. In this way, an organization is able to improve its overall performance continuously. This results into improved organizational performance, which ultimately contributes to achievement of the long-term strategic objectives of an organization.
Despite its numerous strategic advantages and contribution to achievement of strategic objectives, performance appraisal is highly affected by biasness, thus resulting into inaccurate measurements. One of the potential biases that are likely to arise during performance appraisal is halo effect (Performance Management, 2008). This arises when the rater evaluates the performance of an employee based on a single positive perceived trait. For instance, if an employee has low absenteeism, he/she is rated high in all other areas of work. Horn effect is another form of biasness, which is likely to occur during performance appraisal. It occurs when an individual is evaluated on the basis of a single negative trait. For example, if an employee has a high absenteeism, then he/she is rated low in all other areas of work (Performance Management, 2008).
Spillover effect is yet another form of biasness, which entails evaluating an individual’s performance based on past performance. For example, an employee who recorded good performance during the previous appraisal is assumed okay even in the present appraisal. Personal biasness also affects performance appraisal system. This occurs when a supervisor rates his/her employees depending on what he/she feels towards them (Performance Management, 2008).
Performance appraisal is strategically advantageous and beneficial because it contributes to achievement of strategic objectives set by an organization. During appraisal, managers or supervisors are able to discuss with their employees the strategic objectives of an organization. This allows employees to deduce ways of achieving these objectives and direct their efforts towards achievement of these objectives in the upcoming year(s).