Performance management and innovation : A Human Capital Perspective

Recent debates on the effectiveness of performance management (PM) have prompted questions on whether and how PM affects organizational outcomes. Addressing recent calls in the literature regarding the need to identify additional drivers of innovation, we examine an important, yet underexamined, question: when and how does PM lead to firm innovation and performance? We focus on a specific type of PM (e.g., learning and innovation PM focus) as well as the agility of the PM system. First, we argue that a learning and innovation PM focus and PM agility both have a positive relationship with firm innovation and performance, via the key human capital mediators of knowledge sharing and employee motivation. In addition, testing the congruence hypothesis within systems theory, we hypothesize that the effect of a learning and innovation PM focus is strengthened when the organization espouses a more innovative strategy. Moreover, we argue that both mediators of knowledge sharing and motivation are necessary to maximize innovation and firm performance. We test our model with a sample of 201 Italian firms, where multi-source and longitudinal data were collected, and results show support for our hypotheses. Overall, our investigation advances knowledge about what PM systems should look like to best drive innovation in organizations."