The influence of top management team heterogeneity on firms' competitive moves

Administrative Science Quarterly,  Dec, 1996  by Donald C. Hambrick,  Theresa Seung Cho,  Ming-Jer Chen

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In recent years, strategy researchers have directed attention to the specific moves and countermoves made by rivals within industries (e.g., Chen and MacMillan, 1992; Smith, Grimm, and Gannon, 1992), recognizing that organizational vitality may depend more on the quantity, quality, and speed of a firm's and its adversaries' on-going actions and responses in the competitive arena than on the traditional concept of sustainable advantage (D'Aveni, 1994). Studies have shown some important effects of firms' competitive behaviors on company performance, indicating, for instance, that quick responders gain market share at the expense of slow responders (Chen and MacMillan, 1992). Research also has shed light on the determinants, or antecedents, of firms' competitive action and response tendencies. For example, Chen and Hambrick (1995) demonstrated that small and large firms differ markedly in their competitive behaviors; for example, small firms were shown to be more active and faster in initiating competitive challenges than large firms.

This paper, like Chen and Hambrick (1995), is one of a series of studies drawn from an extensive and progressively developed database that represents a comprehensive longitudinal study of domestic airline competition during the 1980s. In contrast to previous strategy research, which had tended to infer competition from more static and aggregate firm attributes or from structural properties of the industry, this program of research has examined some fundamental competitive issues through the systematic analysis of concrete, tangible market-oriented actions taken by firms. The research program falls into three distinct but highly related streams. The first stream, focusing on competitive dynamics or the action/response dyad, has shown that competitive response can be predicted by the attributes of the attack, the attacker, and the defender (Chen and MacMillan, 1992; Chen, Smith, and Grimm, 1992; Miller and Chen, 1994). The second stream, of which the present study is a part, has investigated strategic competitive behavior at the firm level - its human and organizational origins as well as performance implications (Smith et al., 1991; Chen and Hambrick, 1995). The third stream, conceptualizing a firm's strategy as the entire repertoire of its competitive moves, has examined the antecedents and performance implications of competitive inertia (Miller and Chen, 1994), simplicity of competitive moves (Miller and Chen, 1996a), and nonconformity in competitive repertoires (Miller and Chen, 1996b).

The cumulative goal of this research program has been to develop a coherent predictive theory of competitive behavior, which has so far been lacking in the field of strategic management. Such a theory should ultimately be more reliable if it is based on a common set of empirical observations. This research approach, akin to the PIMS studies (e.g., Hambrick, MacMillan, and Day, 1982) and the Aston studies (e.g., Pugh and Hickson, 1972), is somewhat unusual in the field of strategic management but should be an effective and efficient way to accumulate knowledge in this field. The multiple studies - warranted because of the scale, detail, and evidences of reliability of the data set - have been complementary, yielding integrated insights into the complex topic of competitive dynamics.

This stream of research is still embryonic, however, and far more needs to be known. In particular, theorists of competitive dynamics can benefit, we believe, by expanding their attention from environmental and organizational determinants of behavior to include the characteristics of the decision makers, in particular the company's top management team. Such an upper-echelons approach (Hambrick and Mason, 1984) would acknowledge that human and social biases, filters, and idiosyncratic processes at the top of the organization substantially influence competitive behaviors. This line of thought has been consistently supported in examinations of a wide array of organizational outcomes (summarized in Hambrick, 1994), but with limited exceptions (Smith et al., 1991), it has not yet been considered as a way to improve explanations of microcompetitive action and response behaviors.

Taking the upper-echelons perspective, this paper examines the effects of top management team heterogeneity on firms' competitive behaviors and ensuing organizational performance. We expected that heterogeneity, a central construct in the literature on top management, would be important in competitive decision making, conferring breadth of perspective, on one hand, but with the potential for team dissensus and inefficiency, on the other hand (Jackson, 1992). With a large sample of specific competitive actions and responses of 32 U.S. airlines over eight years, we examine the associations between team heterogeneity and (a) the firm's propensity to act, the magnitude of these actions, and the speed with which they are executed, and (b) the firm's propensity to respond to adversaries' actions, the magnitudes of responses, and the speed of responses.