The contemporary organizations are undergoing a transformation for coping against the changing needs of the environment and excelling in the business by building up their adaptive capabilities for managing change proactively. The traditional performance appraisal system did not suffice the needs of the changing scenario as it was mainly used as a tool for employee evaluation in which the managers were impelled to make subjective judgments about the performance and behavior of the employees against the predetermined job standards.

The main objective of the performance appraisal system was to exercise control over the activities of the employees through disciplinary actions and management of rewards and promotions. The supervisors were expected to rate their employees on certain traits ranging between a scale of unsatisfactory to outstanding performance and these ratings were susceptible to various errors like central tendency, bias, halo effect, etc.

Performance appraisals were mostly carried out annually for measuring the degree of accomplishment of an individual and were implemented on a top down basis in which the supervisors had a major role to play in judging the performance of an employee without soliciting active involvement of the employee.

Performance appraisals were mostly discredited because it was backward looking concentrating largely on the employee’s inabilities and flaws over a period of a year instead of looking forward by identifying the development needs of the employees and improving them.

Traditionally, the performance appraisals were organized in a bureaucratic manner and suffered from unnecessary delays in decisions and corruption. Performance appraisals were mostly narrowly focused and functioned in isolation without bearing any linkage with the overall organizational vision or goals. The side effects of the performance appraisal system was it generated skepticism amongst the managers and the employees on any new initiative of the HR.

In the present scenario, the organizations have shifted their focus from performance appraisals to performance management as a result of internationalization of human resources and globalization of business.

The functions of HRM have become far more complicated as today the major focus of strategic HRM practices is on the management of talent by implementing such development programmes which enhance the competencies of the employees.

The performance management approach focuses more on observed behaviors and concrete results based on the previously established smart objectives.

By adopting techniques like Management by Objectives (MBO), smart objectives are established in terms of either facts and figures and in the entire process the superior plays the role of a coach or a facilitator. The objectives are mutually decided at the beginning of the performance season and serve as a standard of performance for evaluation. In this method, the employees can offer a feedback on their contributions by filling up a self appraisal form.

Performance management is a much broader term in comparison with performance appraisal as it deals with a gamut of activities which performance appraisals never deal with. This system is a strategic and an integrated approach which aims at building successful organizations by developing high performance teams and individuals and improving the performance of people. This process starts when a job is defined.

Performance management emphasizes on front end planning instead of looking backward unlike performance appraisals and the focus is on ongoing dialogue instead of appraisal documents and ratings.

Thus, performance management may be regarded as a continuous process.

A table depicted below shows a comparison between performance appraisal and performance management:

Performance management is concerned with assumptions, mutual obligations, expectations and promises (Guest, D E et al, 1996). The views of some of the leading organizations of performance management approach are given below:

• According to Eli Lilly and Co., performance management focuses on aligning the individual goals with the goals of the organization and ensures that the employees work on the right tasks and do the right things.
• According to Standard Chartered Bank, performance management is concerned with those processes and behaviors by way of which the managers manage the performance of the employees for developing high achieving organizations.