Week 8, Article review and critique
Performance Appraisal and Innovative Behavior in the Digital Era
Introduction
Curzi, Y., Fabbri, T., Scapolan, A. C., & Boscolo, S. (2019) did a study on Performance
Appraisal and Innovative Behavior in the Digital Era. The authors argued that, in digital
competitive environments, organizations’ ability to innovate is more than ever the key to
competitive advantage. One way to cope with this increased pressure for innovation is to
capitalize on employees’ ability to generate new ideas and use these as building blocks for new
and better products, services, and work processes. Individual innovation thus emerges as a key
competence required from workers, in turn crucially affecting the way managers make
employees contribute to organizational goals and assess their performance.
Methodology
This study draws on the process-based approach to HRM (Bowen and Ostroff, 2004) suggesting
that HRM practices may have a signaling effect, to address the following research question:
which specific characteristics of performance appraisal are more likely to be perceived as
promoting individual innovation at work? To address this issue, we carried out a survey on 865
employees working in large, multinational firms operating in digitalized sectors or industries
with the potential to become digitalized. We collected data on the main characteristics of the
performance appraisal systems adopted by the firm where respondents work, as perceived by
employees themselves.
The authors gathered also data on the respondents’ overall perception that performance appraisal
boosts innovative work behavior (IWB). Then, we employed logit analysis to test the
relationship between data on performance appraisal systems and data on the effectiveness of
performance appraisal as a booster of IWB. Our results reveal that, as compared to informal
feedback, formal performance appraisal is more likely to reduce the perception that performance
appraisal promotes individual innovation and creativity at work.
In addition, the authors found that in the employees’ perception performance appraisal focused
on the achievement of pre-set, quantitative outcomes is more likely to affect positively IWB than
appraisal focused on pre-defined skills that employees exhibited performing their work.
However, performance assessment focused on the new competences developed by the employees
has a perceived positive impact even stronger than result-oriented appraisal. Taken together,
these results contribute to advance our understanding of how organizations should evaluate
employees in the digitalization era.
The authors collected data between December 2017 and the end of January 2018 by
administering an on-line survey to a sample of 1250 Italian employees. We used a non-
probabilistic sampling method, namely convenience sampling. We collected 865 usable
questionnaires. Around 83% of respondents were male, nearly 57% were less than 45 years old
and had a master degree or above. Nearly 46% of respondents had a company’s tenure of more
than 10 years; 45% held managerial positions and only 14% worked in the research and
development department.
The percentage distribution of respondents depending on the main characteristics of the
companies where they work, i.e., sector, the sector’s level of digitalization,1 size, geographical
location and nationality of the company. Regarding the size, the most part of respondents (about
70%) work in companies with more than 250 employees. This is remarkable since literature has
identified the large size of the business as a key determinant of the decision to adopt complex
HRM practices, including performance appraisal (Bayo-Moriones et al., 2013) as well as of the
decision to embrace digital transformation (McKinsey Global Institute, 2016).
Results
The Kruskal–Wallis one-way ANOVA test shows statistically significant differences regarding
the perception of performance appraisal as a booster of IWB, the result-oriented performance
appraisal and the employees’ involvement in goal setting between employees in manufacturing
and those in other sectors. More specifically, the mean ranks show that more employees in
manufacturing perceive performance appraisal as a booster of IWB, are subject to a performance
appraisal focused on results and are involved in setting goals than in other sectors.
Similarly, the Kruskal–Wallis test shows statistically significant differences regarding the
perception that performance appraisal boosts IWB and the formality of the appraisal process
between employees in digitalized sectors, those in sectors with the potential to become
digitalized and employees in lagging sectors/
Discussion
The study draws on signaling theory and process-based approach to HRM (Bowen and Ostroff,
2004) to investigate which specific characteristics of performance appraisal are more likely to be
perceived as promoting the generation and implementation of creative ideas at the workplace.
Our findings provide empirical evidence that some specific characteristics of performance
appraisal (namely, the formality of the process and appraisal criteria, i.e., result- or competence-
based criteria) may have a signaling function affecting the employees’ perception that
performance appraisal has a positive impact on IWB.
More specifically, although we had hypothesized that in the employees’ perception the adoption
of a formal performance appraisal system relates positively to IWB, our results show that the
formality of performance appraisal actually reduces such a perception. In contrast with our
expectations, this finding suggests that formality does not necessarily lead to a greater
transparency and understandability, and thus to a better signaling effect, of the performance
appraisal process. A possible explanation is provided by DeNisi and Sonesh (2011) who suggest
that formality may result in an overemphasis on rating scales, appraisal form and other
mechanisms aimed at reducing individual biases and improving rating accuracy, thus making it
difficult to understand what is actually to be evaluated. In a similar vein, in the recent debate on
performance appraisal, critics argue that formal appraisal systems fail to communicate what is
important to the organization because over time they have reduced performance appraisal to a set
of bureaucratic steps, procedures and tools of little value to leaders and employees (Pulakos et
al., 2015; Cappelli and Tavis, 2016). Whereas some have thus suggested eliminating formal
performance appraisal entirely (Culbert, 2010), others have argued for simple formal appraisal
systems, considering that even when companies get rid of performance evaluations, evaluation is
still done, but in a more subjective and non-transparent way (Pulakos and O’Leary, 2011; Goler
et al., 2016). Regarding this, our study provides empirical evidence for those who recommend
keeping formality to a minimum, by showing that the more performance appraisal relies on
formal systems, the less it is likely to be perceived as a booster of IWB.
Moreover, our findings show that appraisal systems based on employees’ results affect positively
the perception that performance appraisal boosts work-related innovation. This provides
preliminary support for the argument that digitally transforming organizations should change
their performance management systems, focusing more on pre-set quantitative results rather than
on traditional criteria such as strictly, pre-defined behavior, time spent at the office and long
working hours, in order to signal the greater emphasis on innovative work performance. On the
other hand, even though in the employees’ perception result-oriented appraisal has a stronger
positive impact on IWB than appraisal systems based on exhibited skills, we also found that such
a perceived positive effect becomes even stronger when appraisal focuses on the new
competences developed by employees. This result contributes to extant literature on employees’
perception of HRM practices to explain creativity and innovation in organizations and to the
current debate about changes in performance appraisal enabled by digitalization of work, by
showing that performance appraisal has a stronger signaling effect when it focuses on
employees’ development rather than on how well they perform relative to a set standard of result
or skill.
In line with previous studies, our findings also show the beneficial effect of employees’
involvement in goal setting (e.g., McConkie, 1982), particularly on employees’ creativity and
innovation at work (de Jong and Den Hartog, 2007). However, in contrast with our expectations,
we found no support for synergistic effects between employees’ involvement in goal setting and
appraisal based on results, exhibited skills or new competences developed by employees. We can
speculate that when employees evaluate a specific HRM practice, particularly performance
appraisal and its effect on IWB, they will focus on the different features of such practice (e.g.,
appraisal criteria, the employee’s involvement) rather than on the whole practice and its set of
features. This might question the complementarity or systemic approach suggested by extant
literature on HRM bundles (for a recent review, see Boon et al., 2019). However, since this is
definitely a preliminary result, further empirical examination is requested.
Finally, our study provides also evidence concerning the relationship between the sector and the
sector’s level of digitalization, on the one hand, and the signaling effect of performance appraisal
as a booster of IWB, on the other hand. Intriguingly, we found that such effect of performance
appraisal is affected neither by the sector nor by the level of digitalization. Extant studies (e.g.,
Sanders and Yang, 2016; Bos-Nehles and Veenendaal, 2017) suggest that IWB are not
encouraged in manufacturing firms since they are focused only on efficiency and the exploitation
of extant knowledge. As a result, it is expected that manufacturing firms are less likely to use
HRM practices to signal their emphasis on IWB. However, our study shows that also in
manufacturing sectors employees may perceive performance appraisal as a booster of IWB and
that such perception is affected by the specific characteristics of the appraisal system. Similarly,
even though extant studies state that digitalization should boost innovative behavior, thus
fostering the adoption of practices aimed at encouraging such behavior (e.g., Colbert et al., 2016;
Schwarzmüller et al., 2018), we found that the signaling effect of performance appraisal as a
booster of IWB is present also in lagging sectors and in sectors with the potential to become
digitalized, depending on the specific characteristics of performance appraisal. We can thus
suggest that also in lagging sectors and those with the potential to become digitalized innovation
and IWB may be encouraged, probably with the aim to accelerate digitalization itself and that
also in the digitalized sectors employees’ innovation at work, and specifically digitalization, may
be further fostered by performance appraisal.
Taken together our findings also have managerial implications for organizations that aim to
boost employees’ IWB so as to improve their ability to innovate in digital business
environments. To begin, our results suggest that organizations should encourage informal
practices of appraisal and feedback in order to consistently signal the above intent to their
employees. In addition, being this study among the first to differentiate between different
appraisal criteria, specific implications can be derived from the finding that competence-oriented
appraisal as well as result-oriented appraisal positively affect the perception of performance
appraisal as a booster of IWB. More specifically, in addition to what has been recommended so
far, this study suggests to organizations to focus more on the employees’ new developed
competences than on their achieved results or exhibited skills.
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