An Empirical Investigation of the Demographics of Top Management Team (TMT)

Upper Echelons and Other TMT Theories

The study of Top Management Teams (widely referred to in scholars as “TMTs”) in the strategic leadership literature, has blossomed since the 1980s (Glunk, Heijltjes, & Olie, 2001). In their review, (Finkelstein & Hambrick, 1996) examined almost forty empirical studies that focus primarily on the Top Management Team, its composition, and its impact on strategic actions or organization outcomes. While previous research has almost mainly considered the Chief Executive Officer (CEO) or a single individual leader, a new line of research emerged in the mid-1980s under the name of « Upper Echelon » perspective. (Hambrick & Mason, 1984) article, « Upper Echelons: The Organization as a Reflection of Its Top Managers » has generated a vital and productive stream of research on top management teams (Pitcher & Smith, 2001). They provided in their Theory a lift to the observational research by arguing that top management teams’ demographic characteristics (e.g., age, education, tenure, diversity) are good proxies for the underlying traits and cognitive processes of the top executives (Srivastava & Lee, 2008). Furthermore, (Hambrick & Mason, 1984) manifested that the organization’s performance is a consequence of these constructs (Díaz-Fernández, González-Rodríguez, & Pawlak, 2014).
The theory centres upon the apex of the organization’s structural hierarchy (Norburn & Birley, 1988) and proposes that the composition of the top management team makes the basis for managerial decisions and ultimately firm behaviour (S. Nielsen, 2010). (Hambrick & Mason, 1984) propositions were grouped into seven categories; age related, functional experiences, corporate influences, education, socioeconomic background, stockholding, and group heterogeneity (Norburn & Birley, 1988). They propose that executives’ characteristics serve to filter and distort information in a three-step process: executives’ experiences, values, and personalities which has effect on: their field of vision (the directions they look and listen), their selective perception (what they actually see and hear), and their interpretation (how they attach meaning to what they see and hear) (Hambrick, 2007).

Definition of Top Management Team

The basic unit of analysis for this research is the Top Management Teams (TMTs), in doing so, there are different streams presented in the literature to define TMT. Per (Katzenbach, 1997), « a real team is a small number of people with complementary skills who are committed to a common purpose, performance goals, and an approach for which they hold themselves mutually accountable ». Three main features of such teams are (Stovall, 2005):
Distinct abilities, skills and perspectives which add value to the collective output;
Sharing of leadership to completely utilize talents;
Mutual accountability.
Probably the most adopted definition of Top Management Team is the one as proposed by (Hambrick & Mason, 1984) in their Upper Echelons Theory. They proposed that researchers could distinguish members of a Top Management Team by equating executive titles with enrolment in the team. Recent studies of Top Management Teams have used this approach (Knight et al., 1999). In the same vein, alternative definition of TMT can be found in the literature, for example, (Carpenter, 2002) define TMT as the two tiers of the organization’s management (e.g., CEO, Chairman, Chief Operation Officer “COO”, Chief Financial Officer “CFO”, and the next highest management tier). This definition generally resulted in examining all executives above the Vice President (V.P) level, and yielded teams of approximately six members.
Sometimes, TMT is defined as all those executives around and above the president level, as well as any other officers who served as directors of the company, i.e., vice president, senior vice president, vice chairman, CEO, and any other officers who are members of the board of directors (Díaz-Fernández et al., 2014). (Ruigrok, Georgakakis, & Greve, 2013) suggested to define the term TMT as the highest level of corporate management by relying on companies’ self-reported definitions provided in the annual reports and corporate websites. They even added that in cases where two or more levels of senior management were reported, they define the TMT as the CEO and immediate subordinates. Similarly, TMT was defined by (S.Nielsen, 2010) as the officers who were members of the management board or executive committee as identified in the firm′s annual report. (Rivas, 2012) and (Finkelstein et al., 2009) define the TMT as ‘‘the constellation of the top three to ten executives reporting directly to the CEO’’.

TMT and Firm Performance

Looking at organizations’ performance on a long-term span, some of those organizations could prevail to sustain competitiveness, others are nearly still performing, while some other organizations no longer exist. Researchers in different fields have studied organizations from different perspectives. Economics have long considered how industries emerge, evolve, and decline. Similarly, sociology has long studied the entry and exit dynamics of populations of firms. While reasons for long-term success vary, researchers have suggested that top managers play a crucial role in strategic change and strategic decision. Research on the TMT addresses these questions by linking the TMT’s characteristics to outcome variables such as strategic change, innovation, and firm performance (Camelo, Fernández-Alles, & Hernández,2010).
In order to understand firm behaviour and its longevity, researchers have presented different approaches. For example, many of the studies have looked at the value the Top Management Team can bring to the organization performance (Díaz-Fernández et al., 2014 ; Eisenhardt, 2013 ; Khan, Lederer, & Mirchandani, 2013 ; Ruigrok et al., 2013). Other researchers studied how the Top Management Team can adopt different approaches to providing on-going support for managing the organizational challenges (Camelo et al., 2010 ; Dahya, McConnell, & Travlos, 2002 ; Norburn & Birley, 1988). Additionally, many of the theories (like the Upper Echelons Theory) have long recognized the influence of managerial characteristics and experiences on organizations strategic choices and behaviour, which ultimately will affect organizations’ long-term performance. As the top management takes important corporate decisions and sets strategic directions, it is recognized as a key component affecting a firm’s performance (Auden et al., 2006).

TMT Diversity Influence

Business organizations today have employees that are increasingly diverse in terms of their age, ethnic background, and gender (Darmadi, 2013). As (B. B. Nielsen & Nielsen, 2013) currently manifest: « Top Management Teams have become increasingly diverse over the past several decades, yet the performance implications of TMT diversity are not clearly established in the literature ».
While Upper Echelons Theory expects both positive and negative impacts of diversity, in the group effectiveness literature, diversity is often characterized as a “double-edged sword” which is beneficial only if managed successfully (Milliken & Martins, 1996 ; Naranjo-Gil, Hartmann, & Maas, 2008 ; S. Nielsen, 2010). The same has been referred to as “mixed blessing” by (Williams & O’Reilly, 1998). From a positive perspective, higher diversity provides more choices, accurate calculation of environmental changes and better assessment of alternatives. The negative aspects include slower decision-making, communication breakdowns, and interpersonal conflict. From another point of view, (Cannella et al., 2008) proposed the “dual aspect” of TMT diversity, which claims that its relationship to organizational performance is not positive or negative, yet team functions works as a moderated effect to that relationship.
The inconsistency among the different propositions of various studies has led to confusion and multiple possible conclusions. For example, (Díaz-Fernández et al., 2014) argue that TMT’s education-level diversity has a negative and significant impact on corporate performance and no significant effects for functionality and education background diversity have been found. (Hutzschenreuter & Horstkotte, 2013) study concludes that differences in educational background and in length of organizational tenure have a positive effect on information processing, task conflict, and learning, and thus may help the team to successfully handle adding new products in a given time period resulting in improved firm performance. The same study concludes that differences in age and nationality between TMT members can lead to friction within the team that disrupts information processing and coordination and thus may have a negative moderating effect, which contradicts with the findings of (B. B. Nielsen & Nielsen, 2013) where nationality diversity was found to be positively related to performance, and this effect is stronger in: longer tenured teams, highly internationalized firms, and munificent environments. Furthermore, the findings of (S.Nielsen, 2010) is supporting the same positive correlation. (Glunk et al., 2001) suggest that nationality of TMT and more specifically top management across countries differ in background characteristics as well as in-group dynamics. Moreover, (Hutzschenreuter & Horstkotte, 2013) findings related to age diversity (negatively moderating effect) is also in conflict with (Clark & Soulsby, 2007) who believe that young, less tenured and heterogeneous TMTs have the composition most likely to produce strategic and structural changes in turbulent contexts.

TMT Processes

Over the past decade, researchers have begun increasingly focus on the processes underlying TMT decision making such as comprehensiveness, consensus, social integration, conflict, and decision speed (Certo et al., 2006). The previous section has provided more explanation on the demographic attributes of TMT (the demographic attributes that have been studied most often are age, executive tenure, functional expertise and formal education), which were heavily based on Upper Echelons Theory. In recent years, scholars have criticized the theory approach and its reliance solely on demographic characteristics to predict organizational outcomes (Lee & Park, 2006). Other TMT attributes (other than demographic) were also the main theme of many scholars. For example (Daily et al., 2000) considered the Top Management Teams’ behaviour rather than the demographic attributes. (Glunk et al., 2001) even stated that process variables, such as communication, conflict and social cohesion have received some attention from scholars, however, power and influence has received distinctively less attention. (Simsek, Veiga, Lubatkin, & Dino, 2005) distinguish between two stream of research: one links TMT characteristics to such firm-level outcomes as global strategic posture, expansive global strategies, strategic change, commitment to innovation, and competitive moves. The second stream focuses more narrowly on fine-grained aspects of team process, including communication quality and frequency, social integration, inter dependence, and consensus. Whereas researchers in the first stream assumed that TMT characteristics adequately captured or were congruent with, a team’s various processes, those in the second stream attempted to specify intervening process mechanisms. They have tried to shed light into the “black box” or « causal gap » left by the first stream of research (Simsek et al., 2005). Rather, the majority of research in this area has used demographic variables as proxies for underlying cognitive capabilities and processes, thereby « black-boxing » cognitive variables of interest (Carpenter & Fredrickson, 2001 ; Levy, 2005). Some of the study outcomes are; innovation, strategy, strategic change, executive turnover and organizational performance (Glunk et al., 2001).

Table des matières

INTRODUCTION
CHAPTER 1 LITERATURE REVIEW – TOP MANAGEMENT TEAM 
1.1 Upper Echelons and Other TMT Theories
1.2 Definition of Top Management Team
1.3 TMT and Firm Performance
1.4 TMT Diversity Influence
1.5 TMT Processes
1.6 Inconsistency and Limitations
CHAPTER 2 PROPOSED CONCEPTUAL MODEL 
2.1 Introduction
2.2 Variables Selection
2.3 Input Variables: TMT Observable Demographics
2.4 Controlled Variables
2.5 Operationalization of Performance in Construction Industry
2.5.1 Performance in Construction Industry
2.5.2 The Dominant Dimension of Performance
2.5.3 Organization Outcome – Output Variables
2.5.4 Operationalization of Performance: Suggested Measures
2.6 Conclusion
CHAPTER 3 METHODOLOGY 
3.1 Background
3.2 The Adaptive Neuro-Fuzzy Inference System – ANFIS
3.3 Advantages of ANFIS
3.4 Fuzzy Systems and Neural-Networks
3.5 ANFIS Structure
3.6 ANFIS Layers
3.7 Building the Model
3.7.1 Data collection
3.7.2 Data Recording
3.8 Model Setting
3.8.1 Step 1: Stepwise Regression Analysis: Defining Input-Output Pairs
3.8.2 Step 2: Forecasting Models
CHAPTER 4 RESULTS AND DISCUSSION 
4.1 Introduction
4.2 Models performance evaluation criteria and benchmark
4.2.1 Step 1: Stepwise Regression Analysis
4.2.2 Step 2: Forecasting Models
4.3 Model Setting: Step 1: Statistical Tool: Stepwise Regression Analysis
4.3.1 Round 1 Results
4.3.2 Round 2 Results
4.4 Model Setting: Step 2: Forecasting Models
4.4.1 Defining Membership Function
4.4.2 Strategy 1: Two-Level Catalogue Classification – Majority Vote Classifiers method
4.4.2.1 Majority Vote Classifiers
4.4.2.2 Decision Tree
4.4.2.3 K-Nearest Neighbours (KNN)
4.4.3 Results
4.5 Strategy 2: Two-Level Catalogue Classification with Boxplot
4.5.1 Boxplot Method
4.5.2 Results
4.6 Strategy 3: Time-Series Forecasting using ANFIS
4.7 Discussion
4.7.1 Organization Outcome Variables
4.7.2 TMT Job-Related Demographics
4.7.3 Time Series Results
4.8 Study Limitations
CONCLUSIONS AND RECOMMENDATIONS 
5.1 Future Research
5.1.1 Theoretical Extensions – Redefining Diversity
5.1.2 Methodological Extensions
5.2 Main Conclusion
LIST OF REFERENCES 

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