Business strategy, performance appraisal and organizational results

Purpose The purpose of this study is to analyze how the design of performance appraisal is influenced by the competitive strategy of the firm. Then, this paper examines if the alignment between appraisal and strategy impacts firm performance. Design/methodology/approach The study sample includes 258 Spanish firms in the manufacturing and services sectors. This information was gathered through questionnaires addressed to the CEO and the senior human resources manager. Several econometric models are estimated, using robust regression analysis and including a set of relevant control variables. Findings A positive relationship is found between an innovation strategy and developmental performance appraisal. A cost strategy has a negative impact on the adoption of developmental performance appraisal. The findings also confirm that firms with a quality strategy and developmental appraisal have higher performance. In addition, firms adopting an innovation strategy and administrative appraisal enjoy higher return of equity. Research limitations/implications Future research should analyze the dynamics of the relationships between appraisal, strategy and performance to rule out the flaws of cross-sectional data. Another potential extension is the analysis of the interactions of the design of other human resources management practices with both competitive strategy and firm performance. Practical implications Firms can improve performance by aligning performance appraisal design with strategy. Those with an innovation strategy should choose administrative appraisal, and those competing on quality should focus on developmental appraisal. Originality/value This paper compares the theoretical recommendations on performance appraisal for different competitive strategies, what firms actually do, and the impact that the alignment between appraisal and strategy has on firm performance.