Performance Management (1~2)

Based on research evidence, critically discuss differences between performance appraisal and performance management in enhancing individual and organisational performance.

A periodic assessment of an employee's work performance is known as performance appraisal (PA), usually carried out using a structured evaluation procedure. It focuses on individual performance metrics, such as achieving specific goals or demonstrating key competencies (DeNisi & Pritchard, 2006). The primary objectives of performance appraisal (PA) include offering feedback, pinpointing areas needing enhancement, and guiding choices related to career advancement, compensation changes, and educational prospects (Aguinis, 2012). However, it has been criticised for its limited scope and focus on past performance, which may not necessarily lead to improved future performance.

In contrast, performance management (PM) is a comprehensive approach that aims to create a continuous improvement culture within an organisation. It involves setting clear expectations, providing regular feedback, and implementing development plans to enhance employee skills and capabilities (Armstrong & Baron, 2004). PM also emphasises aligning individual goals with organisational objectives, promoting collaboration and teamwork, and creating a supportive working environment (Aguinis & Gottfredson, 2011). Unlike PA, PM is more proactive, focusing on ongoing performance improvement rather than just evaluating past performance (Gruman & Saks, 2011).

Research indicates that PM is more effective than PA in improving individual and organisational performance. Studies have demonstrated that PM systems incorporating goal setting, performance feedback, and development plans lead to higher employee engagement, motivation, and job satisfaction (Gruman & Saks, 2011). Such favourable results show improved organisational performance, as engaged and driven employees tend to be more efficient, inventive, and dedicated to their respective organisations (Harter et al., 2002).

Some organisations have recently announced that they are dropping their performance management systems. While these changes are probably too recent to be assessed conclusively, what can be found in the academic literature about the potential reasons for such change? How would you evaluate their proposals based on relevant theories and research?

The shift from traditional performance management systems may be attributed to the growing awareness of their limitations and drawbacks. Academic literature suggests several issues, such as subjectivity and bias in performance appraisals (Levy & Williams, 2004). Evaluations may be influenced by factors unrelated to an employee's actual performance, like personal relationships, leading to inaccuracies (Bouskila-Yam & Kluger, 2011). Moreover, the emphasis on quantifiable metrics and rankings can result in a limited understanding of performance, overlooking the significance of interpersonal skills, creativity, and adaptability (Aguinis et al., 2011).

Another possible cause for this change is the evolving nature of work, which increasingly values teamwork and collaboration. Traditional performance management systems focus on individual achievements, which may not be compatible with modern work environments prioritising cross-functional teams and collective problem-solving (Aguinis et al., 2011). Studies suggest that individual performance appraisals can impede collaboration and knowledge-sharing, as employees may view competition for limited rewards and recognition (de Waal, 2007).

Furthermore, adopting agile methodologies in business has led to re-evaluating traditional performance management systems. Agile principles emphasise flexibility, responsiveness, and continuous improvement, which can conflict with rigid and infrequent performance evaluations (Denning, 2018). Academic literature suggests that organisations using agile methodologies may benefit from alternative performance management strategies, such as ongoing feedback and iterative goal-setting (Moe et al., 2010).