Management Accounting Section Midyear Meeting

Performance Evaluation for R&D-Employees: The Drawbacks of Nonfinancial Measures and How to Mitigate Them

• In Event: Performance Measures and Innovation (Mixed Methods)

Abstract

To remain competitive in the long run, organizations need to both explore new possibilities and exploit existing competencies in their innovation efforts. Such diverse demands, however, render the design of an effective performance evaluation system for R&D employees a particularly challenging task. In this paper, I investigate potentially unintended consequences of employing commonly used nonfinancial measures for evaluating innovation performance. More concretely, I argue that employing patent-based measures for performance evaluation in R&D reduces employees’ exploitation behavior whereas the use of customer-based measures creates negative consequences for their exploration behavior. In a second step, I suggest that a firm’s corporate culture plays a critical role in mitigating these negative effects. More specifically, I argue that a culture built on open and flexible communication and structures may foster a better understanding of the need for both exploration and exploitation and help R&D employees pursue both behaviors in their work context. I test my hypotheses using survey data from 295 companies in the chemical and pharmaceutical industries and find evidence that is consistent with my predictions.

Author

• Markus Wabnegg, WU Vienna University of Economics and Business