Performance appraisals are forced points on the calender where the employee and employer interact to agree and disagree on achievements and learnings of the individual during a certain service period, say 6 months, to the organisation. While the individual is made to realize his strengths and shortcomings, the organization prepares to increase the stakes on him and take more output from his capabilities, based on his readiness.
If there is no Performance appraisal process in an organization, then the annual appraisals are happening on an ad-hoc basis and based on perceptions and informal feedbacks, the mechanism would be what the manager thinks of the resource as of yesterday. whereas when the performance appraisal process is in place the managers impression would be averaged out on the basis of a longer duration.
The business scalability depends a lot on the Performance appraisal process of an organization. The more effective the PA process, more ready is the organization to handle dynamics related to opportunities and the skill set that the opportunity demands.