Performance Appraisal Systems in Service and Manufacturing Industries: Evidence from Taiwan

In recent years, the service industry in Taiwan has achieved rapid growth, not only in terms of productivity but also in the percentage of the labor employed as compared with the manufacturing industry and has become Taiwan's largest industry. Based on empirical data derived from 328 questionnaires, 125 from the service industry and 203 from the manufacturing industry, this study is aimed at exploring the differences in performance appraisal systems between these two industries. The results show that the service industry pays more attention to administration, while manufacturing industry emphasizes development more. The service industry is also more concerned about quantitative criteria, while the manufacturing industry emphasizes qualitative ones. These implications of these findings for mangers in these two kinds of industries are discussed. Introduction Following rapid economic development, the service industry in Taiwan is now the largest industry in the country. Labour employed in the service industry has increased from 1.181 million in 1980 to 2.654 million in July 2002. During this same period, labour in the manufacturing industry saw only a slight increase, from 2.036 million to 2.382 million. As part of these changes, many companies in the service industry have 'emerged' from being traditional small-scale businesses operations into large-scale, chain and enterprising organizations. In the face of an ever-increasing number of personnel, a more comprehensive human resource management policy is needed to address issues arising from these changes in business operations and management systems, both of which are becoming increasingly complicated. An accurate and realistic appraisal system is necessary for companies to control employee behavior and to provide high quality services and products. In this respect, with the growth of the service industry, developing an effective performance appraisal system, similar to those in the manufacturing industry, is very important. Performance appraisal systems have always played a very important role in human resource management. The performance appraisal is a critical mechanism for organizational control, through which the employees can view see their past performances and take concrete action for improvement. On the other hand, the performance appraisal also provides substantial information for human resource management to make fair and correct decisions regarding promotions, transfers, compensations, incentives and training programs as well as career management. Specific enterprises typically demand different performance appraisal system tailored to the needs of its functions and processes. Cleveland, Murphy, and Williams (1989) argued that that there is a relationship between organizational characteristics and the uses of a performance appraisal system. Stonich (1984) also argued that performance measurement in an organization should be in tune with its structure and culture. Since the nature of the enterprises in which each industry is engaged varies, its organizational type, business policy, internal and external environment are also usually different. The purpose of this study is to conduct a direct comparative analysis of performance appraisal systems in the service and manufacturing industries. The remainder of this paper is organized as follows. Section 2 briefly reviews the related literature. Section 3 provides background to the service and manufacturing industries in Taiwan, which is the basis for our study. The research methodology and empirical analysis are presented in Section 4 and 5, respectively. The last section presents our conclusions. Literature Review The Essence and Functions of Performance Appraisal Systems Performance appraisal systems aim to evaluate the job performance of employees, so that appropriate corrective action and management decisions can be taken. As performance appraisal is part of organizational control, the components of the control system are indispensable in the appraisal system. …