Strategic Management and Performance Appraisal System: Chapter 2 Draft

Dissertation Manuscript

Submitted to Northcentral University

School of Business

in Partial Fulfillment of the

Requirements for the Degree of

DOCTOR OF BUSINESS ADMINISTRATION

by

Amenia Payne

La Jolla, California

January 2021

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Table of Contents

Chapter 1: Introduction 1
Statement of the Problem 2
Purpose of the Study 3
Introduction to Theoretical or Conceptual Framework 4
Introduction to Research Methodology and Design 5
Research Questions 6
Significance of the Study 7
Definitions of Key Terms 9
Summary 12
Chapter 2: Literature Review 17
Theoretical or Conceptual Framework
Subtopic
Summary
Chapter 3: Research Method
Research Methodology and Design
Population and Sample
Materials or Instrumentation
Operational Definitions of Variables
Study Procedures
Data Analysis
Assumptions
Limitations
Delimitations
Ethical Assurances
Summary
Chapter 4: Findings
XXX of the Data
Results
Evaluation of the Findings
Summary
Chapter 5: Implications, Recommendations, and Conclusions
Implications
Recommendations for Practice
Recommendations for Future Research
Conclusions
References 30
Appendix A XXX
Appendix B XXX

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The definition of the appraisal system and strategic management incorporates objectives and goals. Consequently, strategic management and performance appraisal aims to deliver the existing objectives and stay ahead of competitors. The performance appraisal system denotes the type of assessment used by an organization to measure performance. There are different assessment methods. One of the evaluation techniques is the straight ranking appraisal, where employees are ranked from the best to the poor. Another assessment criterion is grading, where employees are assigned specific grades for their performance in different areas. There is also the management-by-objective method of review. The employees and managers set goals under the approach and measure them at the end of the agreed time. Organizations may also assess their employees based on their behaviors and conduct at the workplace. Lastly, organizations can adopt a 360-degree assessment method to evaluate employees and managers. Organizations use one or a combination of the frameworks for assessing employees and improving performance.

The purpose of this study is to examine the relationship between strategic management and performance appraisal systems. The study will determine whether managers consider their strategies when selecting the appraisal system or consider other factors. Also, the study will assess the implications of choosing an appraisal system based on the existing strategic method in different organizations and the impacts of ignoring organizational strategies when deciding on the performance of the appraisal system. The findings will be crucial in the administrative and human resource management field, further research.

Statement of Problem

Consequently, it would not match its competitors or expand its business. The same challenge faces modern organizations. A lack of an appraisal system reflecting strategic approaches risks the success of an organization, business expansion, and employee empowerment.

I will approach the research using the system management theory. The theory acknowledges that all organizations are made of sub-units that strive to achieve set goals, obtain new skills and improve their competencies (Garavaglia-McGann, 2019). The theory is vital in explaining employers’ approaches to appraisal systems. The goal orientation theory will provide employees with a clear focus on the company. They will dedicate their efforts towards enabling their organizations to achieve their strategies.

The study aims to determine the relationship between organizational strategies and appraisal systems. Each organization uses different strategic approaches to remain relevant and competitive (Subekti, 2021). The focus is on identifying whether the performance appraisal system should align with strategic management and how the stakeholders can achieve the objective (Zondo, 2018). The researcher’s goal is to aid managers in developing an appraisal system that would assist them in attaining organizational objectives while enhancing employee performance, attracting investors, and motivating labor capital.

I will use a qualitative exploratory study design method to advance the study. The aim is to understand the relationship between strategic management and performance appraisal that researchers could use in future studies. The variables in the research are strategic management and performance appraisal systems. The research will target managers and employees in American companies. The participants will give their views on the performance appraisal system and how they contribute to achieving organizational aims. In particular, the managers will state how they craft employee assessments within their organizations. The research will be conducted in California in the manufacturing industry. One hundred participants from five different companies will participate in the study. They will be selected randomly to participate in the study. Random sampling is preferable in the study because it creates an equal chance of selecting participants with different attributes (Reeger, 2019). I will collect data using questionnaires. Each participant will respond to thirty questions sent via their emails. Employees’ questions will be different from managers’. Data will be analyzed using the thematic data analysis approach. The study’s findings will help organizations create evaluation techniques that suit their organizational culture.

Introduction to Theoretical

The study aims at establishing the relationship between strategic management and performance appraisal systems. Organizations use performance systems to promote accountability, responsibility, and performance among the employees and the leaders (Subekti, 2021). Nevertheless, very little research shows the connection between strategic management and performance appraisal.

Organizations use strategies to gain a competitive advantage over others. The competitive advantage makes them unique and profitable in the markets. A competitive advantage is obtained through process and behavior, improving employee performance, proper human resource management that reduces turnover and dissatisfaction, and conforming to the legal provisions in the business environment. The research will be premised on the system management theory of management. The system theory of management is based on coordination between multiple components within an organization that works harmoniously to function appropriately (Management theories, 2019).

Based on the theory, employees are crucial components of any organization. Therefore, they must work together with other organizational entities to ensure that the organization succeeds. Employees work best when their work environment is motivating (Brefo-Manuh et al., 2016; Dangol, 2021). One employee motivating factor that this research paper tackles is fair performance appraisal. However, many organizations fail to develop just employee evaluation mechanisms, and that demotivate the employees, creating system imbalances within the organization. Another core component in business organizations is management. The management’s actions can lead to the success or failure of organizations. One of their roles includes developing performance appraisals within organizations. Some assessments cause disagreements within organizations and could lead to high employee turnovers. Consequently, the managers must develop justifiable performance appraisals, which most have failed.

Other components within the organizational system include departments and business units. Each of these units has varying roles that the management must continuously evaluate. The appraisal system should capture the respective business objectives and that explains why strategic management and performance appraisal need to be integrated into business organizations.

Theoretical Model Diagram

System/Organization

Managers

Business Units/Departments

Employees:

Makes or breaks organization

Performance Appraisals:

Can motivate or demotivate employees

The diagram shows that the entire organization is a system that depends on managers, employees, and departments. The managers create appraisals for all employees or individual departments. These appraisals can motivate or demotivate the employees, affecting the entire system. Therefore, the study will propose the integration of strategic management and performance appraisals to ensure that the organization remains intact since assessments based on business strategies will be perceived as fair by employees.

A case study research design shall be used in the research process. The case study involves a detailed study of a particular phenomenon or organization. I will use the case study design because my focus is to undertake a thorough analysis of the selected organization. I will assess the specific strategies and appraisal system in detail to understand the connection between organizational strategy and performance criteria. The rationale for favoring a case study method is the depth of collected data. Also, case study analysis requires less money and, thus, will be a convenient way to conduct the study. Lastly, the case study design will make comparing different information easily accessible (Yin, 2003).

The study aims to help managers understand the correlation between strategic management variables and the performance evaluation system. The qualitative case study design method will help managers gain in-depth information on the topic (Roth, 2006). Also, the research will capture the detailed findings from the study that will assist in decision-making for managers with an interest in aligning organizational management and performance appraisal systems. Also, case study analysis will allow for analysis of existing company documents to get the correct, accurate information for the research.

The study will involve 100 participants from five American companies. The participants will include managers and employees working in the selected company. The participants in the research will be identified through a random sampling technique. The rationale for using the random sampling technique is to provide an equal chance for participants to partake in the study (Zondo, 2018). Participation shall be voluntary, and information privacy will be upheld. Data will be collected through questionnaires and interviews. The questions will be sent via emails to each selected employee participant. To gain in-depth information, I will visit the selected companies’ sites to interview the managers and their opinions on the relationship between strategic management and appraisal performance (Zondo, 2018). Therefore, the organizational management in the selected companies will provide information through interviews. The data on five companies will provide reliable and valid data on the state of the performance evaluation system and strategic management.

RQ1

How does strategic management affect the nature of performance systems in organizations?

RQ2

How do organizations align strategic management with performance appraisal systems?

RQ3

How does lack of alignment between strategic management approaches and performance appraisal systems affect organizational performance?

How can performance appraisal systems be aligned to strategic management to enhance organizational productivity?

Strategic management and performance appraisals emerged and spread during the last half of the 20th century. Strategic management is primarily based on economic theory, international theory, and industrial organization (The historical development of the Strategic Management Discipline, 2015). Currently, strategic management helps organizations work in a dynamic, complex, and uncertain business environment (The historical development of the Strategic Management Discipline, 2015). On the other hand, performance appraisal analyzes whether employees meet organizational expectations. The employers reward or punish employees based on the results of the performance appraisals. Understanding and establishing the relationship between strategic management and performance appraisal systems will solve the problem of poor goal setting, which frequently occurs in organizations that adopt strategic management (Bouvier, 2019). Also, aligning strategies to performance appraisal will enable the employees to connect to the overall organizational system. Additionally, linking strategic management and performance appraisal will assist managers in tracking progress, adopting robust strategies, and dropping those that do not contribute to organizational success (Bouvier, 2019).

Strategic management and appraisal systems are of concern to many stakeholders because; there is yet an approach that can enable them to integrate strategic management and appraisal systems. The solution to the challenge will redefine the strategic management landscape. First, appraisal systems and strategic management are at the heart of all business organizations. Therefore, integrating the two tools will help managers enhance organizational and employee performance through an appraisal system (Al Khajeh, 2018). Secondly, there are no articles to explain the relationship between strategic management and appraisal systems in organizations. The study will address the existing gaps in the literature. Lastly, the study will help stakeholders to implement a strategy-oriented appraisal system.

The research paper focuses on integrating performance appraisal and strategic management in organizations. This section reviews various studies to understand the state of assessments, their role on employee and manager perception, and their impacts on employee motivation, satisfaction, and performance. Further, the section evaluates strategic management articles to bolster understanding of strategic planning and sustainable development concepts. The main gaps in the review are identified and discussed. All reviewed articles are recent to ensure that the current state of appraisals in organizations is captured.

Performance Appraisal

The human resource department or top managers can conduct performance appraisals in organizations depending on the size of individual organizations. Evaluation data is collected and stored in the form of HR analytics. HR analytics is then applied in improving employee performance in the respective organizations (Sharma & Sharma, 2017). HR analytics largely influences employees’ willingness to improve by encouraging or discouraging improvement. (Sharma & Sharma, 2017) found that subjective biasness in the existing HR analytics prevents employee improvement. Their study adopted a conceptual framework that integrated academic and practitioner knowledge in HR analytics. The study’s main strength is that it highlights the importance of performance appraisal in improving employee performance. However, it lacks a statistical basis as it relies on concepts that may be hard to prove.

Organizations achieve their goals by constant and efficient evaluation of the employees. Consequently, many organizations have executed performance appraisals at their workplaces to improve employee performance (Brefo-Manuh et al., 2016). Nevertheless, few organizational managers comprehend the role of appraisal results in their organizations except as a basis for reward and punishment. (Brefo-Manuh et al., 2016) postulate that performance appraisal outcomes can improve internal communication in organizations. The results assist managers in understanding whether organizational goals are adequately communicated to the subordinates (Brefo-Manuh et al., 2016). Also, they state that performance appraisal is critical in motivating employees in organizations through reward and punishment (Brefo-Manuh et al., 2016; Dangol, 2021). The management rewards best-performing employees with monetary incentives or promotion while punishing poor performers through dismissal or demotion.

Besides motivation and improving communication, organizations may use performance appraisal to design training and career development programs. The appraisal outcomes highlight employees’ weaknesses, which the management can address through training (Brefo-Manuh et al., 2016). Additionally, performance appraisals are crucial in improving overall organizational success. Involving every employee in the evaluation process creates room for creativity and trust among employees (Brefo-Manuh et al., 2016). The research study succeeds in highlighting the uses of performance appraisal systems in organizations. However, the authors fail to consider the impacts of biasness on the effectiveness of performance appraisal. Partiality in performance appraisals demotivates employees and creates mistrust between the staff and managers (Sharma & Sharma, 2017). Also, the study does not discuss how organizations can integrate performance appraisal with strategic management.

Performance appraisals and appraisers can impact employee performance positively or negatively. Also, the existing challenges in the appraising method can culminate into mistrust within an organization (Dangol, 2021). Descriptive research by Dangol (2021) showed that the performance appraisal system has a significant role in the organization’s survival. The study’s setting was in a Service Industry in Nepal and comprised 120 participants who served as employees. The research design method was cross-sectional, and data was collected through questionnaires. He discovered that the factors that affect the influence of appraisals include rating accuracy, clarity in the purpose of the assessment, and the prospect of skill development (Dangol, 2021). The appraisers should be respectful, competent, and impartial for the outcomes of appraisals to motivate employees. One challenge that faces performance appraisal is providing accurate feedback to the employees and setting performance expectations. Each employee has unique expectations, which, when unmet, may create mistrust.

The researcher’s findings resonate with the study by (Brefo-Manuh et al., 2016). They both recognize the motivating role of performance appraisal in organizations. Further, both studies acknowledge that performance appraisal is crucial in training employees. However, while Dangol (2021) recognizes the challenges that emanate from the reviews, Brefo-Manuh et al., (2016) do not. Both studies fail to provide statistical evidence and do not discuss strategic management’s role in the success of performance appraisal.

The quality of performance appraisals is measured in terms of trust, clarity, communication, and fairness. The quality of assessments determines the employees’ perceptions of it. Evaluations that seek to empower employees are associated with increased employee trustworthiness of the performance appraisals (Baird et al., 2020). Communication is also a crucial asset in assessments. The appraisers should discuss the progress made by employees towards attaining organizational goals (Baird et al., 2020). Moreover, the managers should help employees improve their weak areas through different approaches such as initiating development programs. In fairness, employees are fulfilled with appraisals that accurately assess them reasonably and justifiably. Assessments may encourage employees when done fairly (Krishnan et al., 2018, Sharma & Sharma, 2017).

Furthermore, the managers should focus on clarity before undertaking performance appraisals. According to (Baird et al., 2020), the employees must understand the appraisals’ purpose and functioning. Also, the employees ought to understand performance expectations within their organizations (Baird et al., 2020). These requirements show that performance appraisal quality determines its usefulness among the employees. However, the study by (Baird et al., 2020) emphasizes quality appraisals for employee empowerment instead of improvement. Also, the researchers compare the quality of estimates based on fairness, communication, trust, and clarity instead of how it contributes to achieving business goals.

The effectiveness of appraisal varies from sector and organization. (Homauni et al., 2021) investigated the effectiveness of performance appraisals on the employees working in the health sector. The researchers examined the Tehran University of Medical Sciences (TUMS). The number of participants in the study was 504 employees at TUMS. Data was collected using questionnaires and analyzed using ANOVA, t-test, Post hoc, and Tukey statistical tests. The analysis results showed that the performance appraisal at the organization was not practical from the employees’ standpoint (Homauni et al., 2021). The leading cause of ineffectiveness in performance appraisal is the lack of inclusivity of employees. The study reinforces other research on the use of performance appraisal systems. All researchers agree that performance appraisals are only effective when they are inclusive, fair, and well-communicated to the employees (Sharma & Sharma, 2017; Baird et al., 2020; Homauni et al., 2021). However, all these studies do not consider the role of strategic management on the quality and success of performance appraisals.

Performance Appraisal Perception

Performance appraisals are used to evaluate employee performance in many organizations. However, most managers have negative attitudes towards performance appraisal (Du Plessis & Van Niekerk, 2017). Consequently, most of them do not align their strategies with performance appraisal because of their perceptions. Also, the managers’ attitudes toward appraisals affect employees who view them as political and unnecessary (Du Plessis & Van Niekerk, 2017). Research by (Du Plessis & Van Niekerk, 2017) found that performance appraisal is an emotive issue for managers and causes discomfort making most of them distance themselves from the process. The researchers adopted a qualitative research approach that involved eight participants from the private sector in medium-size financial organizations. They selected the participants through purposeful sampling and collected data using in-depth interviews and naïve sketches. Their main finding was that managers felt uncomfortable with the appraisal system because it is politicized and distractive (Du Plessis & Van Niekerk, 2017). The study’s main weakness was using small sample size, potentially invalidating its findings. Future studies should use a large sample size for more accurate and reliable results.

Other studies have found differing attitudes towards performance appraisals between managers and employees. On the one hand, the managers may be optimistic about the appraisal system, while the employees may be unconvinced. (Mehraban et al., 2017) compared the perceptions of managers and the nursing staff towards performance appraisal. The study’s setting was Isfahan University of Medical Sciences, Isfahan, Iran. The researchers adopted a descriptive-analytical and cross-sectional study in their research. The participants were selected through a two-stage quota-random sampling. Seventy-five managers and 313 nursing staff participated in the survey, and data were collected through a researcher questionnaire.

They analyzed data using descriptive and statistical tests. The analysis showed that the managers’ perception of performance appraisal was 56.8%, while the nursing staff stood at 51.4%. Also, they found a significant difference between the managers’ and nurses’ perceptions of the performance appraisals. The variables used to measure the employee perception included the performance appraisal method, the consequences of the assessment, and the appraisal’s necessity. The results showed that the managers were more optimistic about the performance appraisal than the nursing staff. However, these findings differ from those by (Du Plessis & Van Niekerk, 2017), who found that managers had negative attitudes towards the performance appraisal. The study’s strength was using a relatively large sample size that makes the findings valid. However, the researchers failed to measure the perception towards performance appraisal based on organizational strategies.

Some organizations may reap from performance appraisal, while others may break. (Mehraban et al., 2017) found that managers may be more optimistic about performance appraisal than employees, creating mistrust. In other instances, the managers may also harbor an undesirable attitude towards the performance appraisal, diminishing its importance (Du Plessis & Van Niekerk, 2017). In other settings, both the managers and employees may support or reject performance appraisal (Kim & Holzer, 2014). The other issue that emerges with performance appraisals is that they are not used for performance improvement but as a means to reward or punish employees (Kim & Holzer, 2014). The motivation behind the implementation of performance appraisal impacts the employees’ reactions. The managers/supervisors have the mandate of developing and implementing performance appraisals. In that sense, they have to gain employee trust to succeed in the assessment. However fair the rating could be, employees may still feel betrayed by the managers or supervisors (Kim & Holzer, 2014). The result is the breaking of the organizations.

The way employees perceive performance appraisal impacts their organizational commitment in the respective organizations. (Krishnan et al., 2018) researched the impacts of employee perceived fairness of the reviews on employee commitment. They used a descriptive study design and investigated selected employees’ group traits. The study included 108 non-executive staff selected through probability sampling. All the staff worked in the Malaysian oil industry. Data was collected using questionnaires and analyzed by coding in the IBM Statistical Package for Social Science (SPSS) software. Their findings showed that organizational commitment was directly proportional to perceived fairness. Organizations with higher perceived fairness prompted employees to commit more to the respective organizations, unlike organizations with low appraisal perceived fairness. The researchers conjecture with Mehraban et al., (2017), Du Plessis & Van Niekerk, (2017), and Kim & Holzer, (2014) that performance appraisal may elicit emotions among the employees and managers.

The studies on employee/manager perception towards the performance appraisal system manifest weaknesses. First, it is evident that the appraisal system is created for reward and punishment and does not advance organizational strategies. Such an approach contributes to managers’ and employees’ mistrust and negative attitudes. Secondly, most employees rate the performance appraisal based on its consequences and the appraisal method and not how well it aligns with organizational strategies. Such a mindset is misinformed because the performance appraisal method should conform to the plan regardless of the consequences of the managers’ tactics.

Performance Appraisal, Employee Motivation, Job Satisfaction and Performance

Appraisal hugely impacts employee performance, motivation, and job satisfaction. The level of impact depends on communication, clarity, trust, and fairness (Baird et al., 2020). Fair and transparent appraisals encourage the staff and culminate into job satisfaction. A study on the association between appraisal satisfaction, work-family conflict, and job stress revealed that justifiable assessment reduced work-family conflict and job stress (Ismail & Gali, 2016). Employees react emotionally to appraisals, which affect their mental wellness and interpersonal relationships. Organizations that utilize satisfactory assessments motivate their employees, unlike organizations using biased evaluations.

The level of employee motivation and job satisfaction affects employee performance. Subekti (2021) found that performance appraisal impacts employee motivation and satisfaction. Using an explanatory research process and a sample size of 140 employees, Subekti (2021), discovered that the nature of the appraisal system had impacted job satisfaction and motivation. However, the appraisal system had no impact on employee performance. On the other hand, job satisfaction and motivation impacted employee performance. Therefore, organizations’ type of appraisal method affects job fulfillment and enthusiasm.

Studies using large sample sizes also show a relationship between employee performance appraisal and job satisfaction. (Bakotić, 2016) researched the relationship between performance appraisal and job satisfaction among 5806 employees drawn from 40 large and medium-sized organizations in Croatia. His findings revealed that performance on either side affected job satisfaction. High-performing organizations led to increased job satisfaction while poor performances decreased job satisfaction. (Dangol, 2021) also found a relationship between appraisal and employee motivation. (Brefo-Manuh et al., 2016), in their article on the uses of performance appraisals, they mention employee motivation.

Strategic Management

Most organizations currently use strategic management to gain a competitive advantage over rivals. Strategic management refers to the processes of strategizing adopted by different businesses and which integrates strategy formulation and implementation (Bryson & George, 2020). It mixes processes, procedures, tools, and techniques carefully selected and executed after thorough evaluations. Organizations use the approach to create and achieve goals (Bryson & George, 2020). Strategies connect an organization’s abilities and aspirations and incorporate individuals, teams, and groups. Further, managers use strategic management to identify and solve challenges that occur within organizations.

Strategic management is also a crucial tool in corporate sustainability. Organizations must develop long-term strategies that will maintain their uniqueness in the markets (Engert et al., 2016). Internal and external drives influence the plan. Organizations achieve sustainability when they make determined efforts to maintain their superiority or gain an advantage over their competitors (Barbosa et al., 2020). Strategic management is a challenge in small organizations due to the energy required to develop and execute various strategies (Barbosa et al., 2020).

Strategic planning is a crucial part of strategic management and is influenced by organizational structures. The development of strategies is taken through various stages influenced by organizational goals, culture, and leadership, among other factors (Neis et al., 2017). Some elements may support the development and execution of respective strategies, while others may turn out to be a hindrance (Neis et al., 2017). Communication of various methods determines the failure or success of strategic planning and management. Strategic management enhances the understanding of public and private organizations (Ongaro & Ferlie, 2020). Strategic management constitutes strategic planning and performance measurement. Strategies are improved continuously by learning the successes and failures after implementation (Kools & George, 2020). Also, changes in the immediate environment prompt alterations to existing strategies to harmonize them with the new needs (Kools & George, 2020). Management of strategies involves its implementation, while planning outlines actions required for the success of the strategies.

Summary of Literature Review and Gaps

The first use of performance appraisal in organizations is for motivation through reward and punishment. Top performers receive monetary or promotion rewards while poor performers are demoted or dismissed from work. Secondly, organizations use appraisals for employee training and career development. Through evaluation, managers identify the staff’s weaknesses and address them through training programs. Also, from the review, some managers and employees have negative attitudes towards performance appraisals. Some managers oppose appraisals because the appraising system is highly politicized, creating battles with the staff. On the other hand, the employees have negative feelings towards assessments because of perceived fairness, lack of moral purpose for evaluation, lack of training and development programs, and poor communication. Stakeholders measure the quality of performance appraisals based on clarity, trust, communication, and fairness.

The significant gap in the literature is that while different researchers acknowledge that performance appraisal faces organizational challenges, none of the studies seem to provide a solution. Most authors opine that perceived fairness, clarity, trust, and proper communication are vital ingredients for implementing acceptable appraisals. None of the studies highlight how strategic management can address the challenges associated with performance appraisals. Also, none of the organizations evaluated shows how to integrate strategic management with performance appraisal. Since fairness and clarity may be achieved by integrating assessment and strategic management tools, this study will focus on the relationship between the two instruments (strategic management and appraisal).

Organizations use strategies to gain a competitive advantage over others. The competitive advantage makes them unique and profitable in the markets. A competitive advantage is obtained through strategy and behavior, improving employee performance, proper human resource management that reduces turnover and dissatisfaction, and conforming to the legal provisions in the business environment. The research will be premised on the system management theory of management. The system theory of management is premised on the concepts of coordination between multiple components within an organization that works harmoniously to function correctly (Management theories, 2019).

Based on the theory, employees are crucial components of any organization. Therefore, they must work together with other organizational entities to ensure that the organization succeeds. Employees work best when their work environment is motivating (Brefo-Manuh et al., 2016; Dangol, 2021). One employee motivating factor that this research paper tackles is fair performance appraisal. However, many organizations fail to develop just employee evaluation mechanisms, and that demotivate the employees, creating system imbalances within the organization. Another core component in business organizations is management.

The management’s actions can lead to the success or failure of organizations. One of their roles includes developing performance appraisals within organizations. Some assessments cause disagreements within organizations and could lead to high employee turnovers. Consequently, the managers must develop justifiable performance appraisals, which most have failed.

Other components within the organizational system include departments and business units. Each of these units has varying roles that the management must continuously evaluate. The appraisal system should capture the respective business objectives and that explains why strategic management and performance appraisal need to be integrated into business organizations.

Theoretical Model Diagram

System/Organization

Managers

Business Units/Departments

Employees:

Makes or breaks organization

Performance Appraisals:

Can motivate or demotivate employees

Summary of the Literature Review

The existing literature provides vast knowledge on performance appraisals and strategic management. Various authors have published information on the different uses of performance appraisals, how they are perceived by managers and employees, and their influence on employee motivation, performance, and job satisfaction. Also, scholars have elaborated on how strategic management is applied in meeting organizational goals. Organizations use strategic management and performance appraisal to enhance their overall performance. This section of the chapter covers the main points from the literature review with further support from other publications.

Uses of Performance Appraisals

Based on the evaluated literature, appraisals can encourage or discourage employees from improving (Sharma & Sharma, 2017). Scholars have examined how managers use HR analytics and its impact on the employees. Cleveland et al., (1989) found that performance appraisals could be used for multiple purposes. Their study showed that the appraisal outcome impacted salary administration, performance feedback, and the identification of employee weaknesses and strengths (Cleveland et al., 2019). The management may improve salaries for top performers to retain them for the long term. Regarding feedback, the administration responds to evaluation outcomes by introducing different training programs, dismissals, or encouraging employees to take individual steps to improve. Different parts of appraisals may have different roles. The appraisal success in organizations is dependent on how fair they are perceived by employees (Sharma & Sharma, 2017). There is always an unwillingness to improve if the appraisals are discriminatory.

More scholars have provided different perspectives on using performance appraisals in improving organizational performance. (De Andrés et al., 2010) define appraisal as “a process used by some firms to evaluate their employees’ efficiency and productivity in order to plan their promotion policy, salary policy, and layoffs policy.” Their definition of appraisal incorporates some actual uses of appraisals, such as setting salary policies and provisions. Consequently, there is a consensus between (De Andrés et al., 2010) and (Cleveland et al., 1989) that performance appraisals are crucial in determining employee salaries in various organizations. A 360-degree evaluation framework that also evaluates supervisors, reviewers, and collaborators is used in most organizations to wholly enhance fairness and address organizational issues (De Andrés et al., 2010).

Besides appraisals being used to develop salary policies, they highlight the company’s progress towards its goal achievement. (Brefo-Manuh et al., 2016) note that many organizations have applied performance appraisals towards improving employee performance. The authors elaborate that comprehensive, practical, and fair assessments prompt increased employee productivity. In terms of overall organizational progress, the performance of each employee or department can predict whether organizations are improving. Based on the system of management theory adopted in the research, an organization is composed of various subunits that make a whole. Subsequently, the performance of multiple subunits indicates how the entire organization is performing.

Still on the uses of performance appraisals, Brefo-Manuh et al., (2016) assert that they are crucial tools in improving internal communication. Most organizations have adopted a top-down communication strategy. The role of executives in organizations is to communicate the goals and the visions of an organization. The appraisals can also bolster goal clarification and setting of expectations. The supervisors should have open dialogues with employees on the need for reviews and what they need to achieve. Many organizations also use appraisals to motivate employees through reward and punishment. Brefo-Manuh et al., (2016) allude that managers reward top performers with promotions or increased salaries while poor performers are demoted, dismissed, or paid less. However, appraisals motivate employees only when they are fair and related to organizational or departmental goals (Sharma & Sharma, 2017). Therefore, the motivation impact of performance appraisal is dependent on their effectiveness.

The other vital use of performance appraisal as derived from the literature review is for career development and employee training. Training refers to the systematic development of attitudes, knowledge, skills, and behavior patterns required by an individual to perform adequately a given job or task (Brefo-Manuh et al., 2016). All organizations expect the employees to remain committed to delivering on organizational goals and must help the employees improve their performance by training them. Training helps employees advance their skills, be ready for higher positions, have increased feeling of job security, and improve their performance (Brefo-Manuh et al., 2016). The performance appraisals are used to establish performance standards and core competencies and communicate them to employees. Based on the appraisals’ outcomes, employers organize training programs to assist their employees in acquiring the requisite competencies that facilitate top performance. Thus, workplace evaluations are pivotal in designing training programs for employees (Brefo-Manuh et al., 2016). The fairer the employees perceive the appraisals, the more they are likely to embrace the employers’ training and career development programs.

Employee appraisals can also enhance employee performance, depending on their purpose, administration, and feedback communication. Improved performance and career development and training are directly linked. Employees identify their strengths and weaknesses and some develop improvement plans. Others seek help from their managers or colleagues on how they can improve. Moreover, since appraisals can have a motivating effect, inspired employees feel encouraged to perform better at their workplace. The evaluation feedback also facilitates the development of training and career development programs. Therefore, through informing the training programs and motivating employees, appraisals improve employee performance.

Factors Influencing Appraisals Usefulness

Appraisals are undeniably relevant to all organizations. The literature review summarizes that assessments influence employee performance, communication, and training programs. However, some businesses have not benefited from appraisals based on the current analyzed literature. This section of the summary looks at dynamics that influence the relevance of performance appraisals and how they impact the employees and manager.

As established within the system theory of management that applies to the research, organizations are made up of subunits that combine to form a whole. In that context, and regarding performance appraisals, the critical subunits are employees and managers. The way employees and managers perceive performance appraisal affects how important they become in organizations. Consequently, researchers have published different articles on employee and/or manager perceptions towards performance appraisals and how they affect the appraising process. Perceptions refer to attitudes favoring or against the appraising process influenced by intrinsic or extrinsic factors. These perceptions influence whether employees and managers support or oppose evaluations at the workplace.

(Getnet et al., 2014) studied the effect of employees’ fairness perception on their satisfaction towards the performance appraisal practices of the University of Gondar. Though the study was limited to one institution, it can offer some insights into some of the aspects that influence the relevance of appraisals. Fairness is also interpreted as organizational justice and refers to a personal evaluation of ethical and moral standing (Getnet et al., 2014). Organizational justice creates a culture of trust and teamwork between employees and managers. Studies show that organizations benefit from appraisals if they are fair in all aspects. Higher perceived fairness in appraising employees motivates them to perform their functions diligently and with less supervision (Getnet et al., 2014). While appraisals have numerous advantages, the authors showed that highly unfair reviews could result in a strike, increase grievance, and lead to physical or psychological withdrawal ranging from absenteeism and turnover to increased visits to the dispensary and poor mental health. Performance appraisal unrelated to the organization’s goals also increases the chances of employees’ assessments being perceived as unfair.

Besides perceived fairness, the other factor influencing the robustness of appraisals is politics. Politics in organizations emerge from the pursuit of personal interests. Some organizational scholars have found that politics influence performance appraisal. Intense political activities in organizations lower employee job satisfaction and performance (Du Plessis & Van Niekerk, 2017). It also increased turnover rates in businesses. A review of existing studies shows that employees who are highly engaged in politics perform poorer than their contemporaries. Furthermore, increased organizational politics deter managers from implementing a performance appraisal system (Du Plessis & Van Niekerk, 2017). Some managers develop negative attitudes towards the appraisals as they break the unity of organizations and create division. As part of diminishing the impact of politics in organizations, suggestions have been made to make reviews a long-term process and enhance coordination between the employees and the management. Moreover, politics are avoidable if appraisals have increased perceived fairness and are in conjunction with the organizational goals.

The literature review also shows that the difference in attitudes between managers and employees on performance appraisals in organizations also affects their usefulness (Mehraban et al., 2017). In some instances, managers are opposed to checks while employees back them. The reason why managers could have negative attitudes towards appraisals is because they are highly politicized. On the other hand, employees may support assessment to receive the rewards associated with top performance. Another source of conflict may involve managers supporting appraisals as employees oppose them. Managers may backup checks to evaluate individual employee performance and use the feedback as a basis for reward and punishment. Employees become opposed to appraisals due to reduced perceived fairness (Mehraban et al., 2017). Also, employees may reject assessments if they deviate from organizational or departmental goals. In rare circumstances, the managers and employees may oppose appraisals because of the divisive impact they can have on the organizations. Therefore, the conflicting interests among the managers and employees weaken the importance of reviews in organizations.

The perceived importance of appraisals by managers impacts them. Scholars acknowledge that while some managers are optimistic about assessments, others harbor negative attitudes. Optimistic leaders strive to implement evaluation systems within their organizations. They also utilize the evaluation outcome to improve various organizational processes such as career training and development programs and improving employee performance. On the other hand, managers with negative attitudes towards appraisals are unwilling to introduce them in their organizations. Moreover, they hesitate in sharing feedback obtained from employee evaluations. Thus, management’s attitudes are influential in determining the importance of appraisals.

Performance Appraisal and Employee Wellness

Employee wellness is crucial to the success of organizations. Organizations should safeguard employees’ physical, emotional and mental fitness to ensure sustained productivity and performance. The analyzed articles using correlational studies show a positive association between employee wellness and fair performance appraisals. Increased perceived fairness of the appraisal yields increased employee motivation. High employee motivation at work reduces exposure to emotional and mental disorders (Ismail & Gali, 2016). On the other hand, the demotivated staff is vulnerable to stress and other mood disorders and depression, among other diseases. Therefore, organizations should continuously improve their evaluation approaches to protect employees from illnesses.

Job satisfaction is also associated with employee wellness. Numerous studies show that job satisfaction is correlated to mental health. On the other hand, appraisals are associated with job satisfaction (Subekti, 2021). Fair assessments and those that match with organizational goals enhance employee job satisfaction. In turn, job satisfaction increases employees’ mental health by reducing their exposure to workplace stress (Ismail & Gali, 2016). The improved employee health affects retention and turnover rates, affecting the company’s productivity. Therefore, organizations should maintain a healthy workforce by creating fair appraisals.

Linking Strategic management to Performance Appraisals

The paper focuses on whether organizations link their appraisal to strategies or each organizational process is independent of another. The review section has provided immense knowledge on assessments and strategic management in organizations. Before linking the two critical components in organizations, this summary section first looks at strategic management.

Strategic management involves two major components aimed at assisting organizations in achieving competitive advantage: setting goals and creating initiatives to achieve the goals (Bryson & George, 2020). Leaders use appraisals to plan for the future existence of their organizations in the market and ensure they remain highly profitable. Strategies set organizations apart and create a competitive advantage over rivals (Bryson & George, 2020). The literature review reveals that strategic management involves planning, monitoring, and assessment. Planning is where organizations consider their present positions, where they need to be in the future based on the current environment, and what needs to be done to achieve their goals (Engert et al., 2016). Monitoring involves constantly checking the established plan to determine its effectiveness in achieving the set goals, while analysis determines the difference between the actual goals and what is achieved.

Besides ensuring organizations a competitive advantage over rivals, strategic management has other roles. It creates sustainable growth by improving employee performance in organizations. Part of the critical components of strategic management is a satisfied workforce for maximum production. Human resource managers implement best employee practices such as increased compensation to retain their workers. It also enhances communication between employees and the management because the success of every strategy depends on the efficient flow of information.

On the other hand, performance appraisals are used to complement the established strategies. Based on the same literature review, organizations use performance appraisals to determine whether the employees achieve organizational goals. These goals are set during strategy formulation. The success of performance appraisal depends on the organization’s current state (politicized or not politicized), perceived fairness, and how they are connected to organizational goals (Getnet et al., 2014). Appropriate appraisals can improve employee performance, motivation, cohesion, communication, and sustainable growth like in strategic management. Moreover, organizations that properly utilize appraisal results could gain a competitive advantage over their rivals. Therefore, strategic management and performance appraisals are linked.

State of Current Literature on strategic management and appraisals

Several inferences arise from the review. First, the perceived fairness of performance appraisals is correlated to organizational goals. Scholars have found that employees perceive assessments as fair if they incorporate what the specific organizations aim to achieve. Therefore, the appraisers need to integrate goals with performance appraisals to ensure employees perceive them as reasonable. The other finding from the literature is that performance appraisals could be more acceptable if they are continuous and long-term. Short-term assessments increase appraisal politicization and reduce the perceived fairness of the reviews. Consequently, organizations do not benefit from them.

However, a close analysis of the same literature review shows no attempt of stakeholders to address the existing gaps in appraisals and make them more appealing to employees. In other words, there are no suggestions that can help organizations incorporate organizational goals into performance appraisals and make them continuous, fairer, and long-term. These are the gaps the study wishes to address. Linking strategic management to organizational goals will help address the identified gaps and make performance appraisal a long-term process, just as is strategic planning. The first step towards connecting the two concepts will focus on strategic management and performance appraisal in selected organizations. The study will propose how organizations can integrate strategic management and performance assessment based on the findings.

Performance Appraisals, Strategic Management and the System theory of Management

Like performance appraisals, strategic management demands the collaboration of employees, departments, and leaders. The leaders develop strategies; break them down into departments which further communicate to employees who finally execute. Moreover, various organizational components depend on each other. For instance, managers prepare performance appraisals based on the company’s objectives. The objectives are set during strategy formulation. Therefore, there is a relationship between strategic management and performance appraisal though most organizations have not formalized the association. Again, the correlation of various aspects in organizations that combine to influence performance renders the study’s system theory of management a practical approach.

Definitions of Key Terms

Term 1

Appraisal System- helps employers with the decision-making process involved in employees’ promotion and compensation. Or perhaps, in an unfortunate situation, termination (Reinbolt, 2021).

Term 2

Term 3

Clustered Sampling- is a method of probability sampling that is often used to study large

Term 4

Competitive Advantage
– a condition or circumstance that puts a company in a favorable or superior business position. It refers to factors that allow a company to produce goods or services better or more cheaply than its rivals (Twin & Anderson, 2021).

Term 5

Economic Theory
– ideas and principles aiming to describe how economies work ( if wages are too high, economic growth will suffer). (Cambridge University Press, 2021)

Term 6

Evaluation
– the process of determining the worth of a program (Carpenter, 2019).

Term 7

Evaluation Techniques (Carpenter, 2019):

Formative- occurs during the process.

Summative- occurs at the end of a program.

Process- focuses on how a program was implemented and how it operates.

Impact- measures the program’s effects and the overall effectiveness of realizing the program’s goals.

Outcome- measures the short-term impact of implementing a program, giving information on how well it reaches its target audience.

Strategic Performance- is the methodology used to improve measurement, monitoring, and overall organizational objectives (Basumallick, 2021).

Term 8

Industrial Organization is concerned with the workings of markets and industries, mainly how firms compete (Chen & Walters, 2020).

Term 9

International Theory- seeks both to explain past state behavior and to predict future state behavior (Cristo, 2019).

Term 10

Management-by-objective method- is a strategic approach to enhance the performance of an organization (CFI, 2015).

Term 11

Organizational Strategies- a plan that specifies how your business will allocate resources at: The corporate, business, and functional level (Sling, 2014).

Term 12

Performance Appraisal System- will evaluate an employee’s performance against a list of set objectives and will identify the strengths and weaknesses of employees (Reinbolt, 2021).

Term 13

Random Sampling- is a part of the sampling technique in which each sample has an equal probability of being chosen (Bennett, 2021).

Term 14

Smart Partial Least Square (Smart PLS)- a second-generation structural equation modeling software that analyzes data (Surienty et al., 2013).

Term 15

Straight Ranking Appraisal Method- compares employees to each other, ranking them from best to worst (Griffin, 2019).

Term 16

Reference