The external ties of top executives: implications for strategic choice and performance

Administrative Science Quarterly,  Dec, 1997  by Marta A. Geletkanycz,  Donald C. Hambrick

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The ability of executives to formulate and implement strategic initiatives that capitalize on environmental opportunities, while mitigating external threats, is vital to organizational success. The factors that affect strategic choice are therefore of central concern, and a large body of work has explored the determinants and processes of strategic decision making, with particular attention paid to the role of senior executives and top management teams in shaping organizational outcomes. Building largely on the conceptual arguments of Cyert and March (1963), Child (1972), and Hambrick and Mason (1984), researchers have found considerable empirical support for the view that organizational profiles reflect the characteristics and processes of senior management.

While prior studies have provided important insights, an understanding of the executive-level factors affecting strategic choice nevertheless remains limited. Empirical research on strategic choice and upper echelons has tended to focus on factors endogenous to the firm's senior executives (i.e., their backgrounds and personal characteristics) (e.g., Bantel and Jackson, 1989) and the social processes within top management teams (e.g., Eisenhardt and Schoonhoven, 1990). Yet research on executives, dating back to early studies, suggests that senior managers operate in a social context that spans organizational boundaries (e.g., Barnard, 1938) and that perhaps up to 50 percent of all executive time and effort is spent in boundary-spanning interaction (Mintzberg, 1973). Executives' boundary spanning activities and their associated interactions with external entities are of consequence to organizational outcomes. Study suggests that they are critical to executive effectiveness along numerous dimensions, including strategy formulation and implementation (Kotter, 1982). Yet despite the known importance of executives' boundary spanning ties on firm-level outcomes of strategy and performance, surprisingly little research has focused on these important links.

The purpose of our study is to address this oversight. We draw on complementary literatures to develop and test the idea that strategic choices are affected by the external ties of top management team members and that the informational and social influences arising from external interactions will be reflected in strategic profiles, particularly the degree to which the firm's strategy conforms to or deviates from central tendencies in an industry. We propose that an improved understanding of strategic choice can be gained by examining the effects of the executive team's external lies on organizational strategy and performance. Further, by examining the effects of a diverse set of external ties -- directorship ties, as well as other boundary spanning relations assumed by senior executives -- we extend understanding of the implications of several interorganizational relations maintained by top executives.

THEORY AND HYPOTHESES

As first elaborated by the Carnegie School (e.g., Cyert and March, 1963), top executives tend to make strategic choices under conditions of information overload and ambiguity. Apart from the inherent complexity of the decision-making process -- monitoring of external contingencies, interpreting their significance to the firm, formulating viable strategic alternatives, and finally selecting an appropriate course of action -- factors such as changing environments, conflicting informational cues, and competing goals and expectations tax the cognitive limitations of strategic decision makers (March and Simon, 1958; Cyert and March, 1963). Accordingly, strategic decisions are the result of behavioral factors rather than the result of techno-economic, rational optimization. Decision makers selectively perceive only a limited number of available cues (Simon, 1955) and adopt simplified models of reality (March and Simon, 1958; Finkelstein and Hambrick, 1996) shaped largely by their prior knowledge and experience. Additionally, strategic decision makers economize on search and choice processes, relying on established channels to acquire information and on external referents for insight into plausible alternatives (Cyert and March, 1963).

The logic of the Carnegie School served as the main foundation for Hambrick and Mason's (1984) upper echelons model of the relationships between top executives' characteristics and organizational outcomes. Both the Carnegie School and upper echelons research have been notably silent, however, on the influence of external referents and contacts on strategic choices. The promise of such a perspective is suggested by several literatures in which external ties are seen as important conduits for informational and social influences on executive decision making.

External Ties: Informational Influences on Strategic Choice

Executives' interactions with external entities provide access to several types of informational cues. Two themes particularly germane to strategic choice recur in the literature. They suggest that executives' external ties serve as conduits for information that shapes managerial views of the environment and contributes to the set of alternatives from which jstrategic choices are made.