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Is Performance Appraisal Really Necessary? Can’t the Benefits that the System Provides to Organizations and the People in them be Obtained any Other Way?

Yes, performance appraisal is really necessary. And, no, there is no better way to obtain the benefits.

There are several books that argue in favor of abolishing performance appraisals altogether. But the procedures they recommend are merely workarounds; the steps they recommend to create an alternative to performance appraisal are the same ones that any effective organization will use to develop a world-class performance appraisal system.

Too many companies remain in denial about the benefits that a well-executed performance management system generates. They may articulate the importance of transforming their stale, best-effort culture into a tough-minded, results-driven one, but fail to understand that performance appraisal is the best tool available for muscle-building an organization.

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Some companies do appreciate just what a well-designed, forcefully managed performance management system can do to ensure the execution of organizational strategy. In 1999 I agreed to serve as the subject matter expert for a national benchmarking study of best practices in performance management that the American Productivity & Quality Center (APQC) and Linkage, Inc. were undertaking. My first task was to identify those companies that were in fact doing stellar work in performance appraisal, and then convince them to share their processes and techniques with the seventeen sponsor organizations that were ponying up $16,000 each to learn their secrets.

Identifying the companies that are performance management masters wasn’t that difficult. But convincing them to reveal what they were doing? A different story. Several flatly refused. Many of America’s most-admired companies just said no when offered the chance to be recognized as best-practice models in performance management.

Each one gave the same reason for declining to share their forms and procedures. They saw their performance management processes as a genuine source of competitive advantage and were unwilling to let any outsider peek. One human resources vice president put it bluntly when he turned me down: ‘‘We would no more show our performance appraisal form to a bunch of outsiders than The Coca-Cola Company would let you come in and look over the secret formula for Coke.’’

Organizations with world-class performance management systems do things that the also-rans don’t. They insist that all managers maintain consistent, demanding standards for everyone—and they keep raising those standards. They work relentlessly to identify their highest potential managers and professionals and develop them quickly. They move marginal performers aside so they don’t block the path of talent; they eliminate noncontributors swiftly. They treat their human resources departments as partners, staff them with the highest caliber talent available, and insist that they be active agents for change.

The best organizations create performance management systems that are (as Einstein said the solution to any problem should be) as simple as possible—but no simpler. They decide exactly what performance they want to encourage and what performance they want to purge. They identify the competencies that are core to the organization’s overall success and demand that everybody be held accountable for performing like a master. They willingly tolerate complex, multipage forms and a process that demands frequent meetings.

Finally, they closely link their performance appraisal system with their corporate strategy, mission statement, and vision and values, since they recognize that the performance appraisal system is the primary driver for making sure that mission and vision and strategy are achieved.

No other organizational system can provide all of the benefits that a professionally designed, well-executed performance-appraisal system can.