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Top Management Team Diversity and Firm Performance: Moderators of Functional-Background and Locus-of-Control Diversity

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  • Christophe Boone

    ()
    (Faculty of Applied Economics, University of Antwerpen, 2000 Antwerpen, Belgium)

  • Walter Hendriks

    ()
    (Faculty of Economics and Business Administration, Maastricht University, 6200 MD, Maastricht, The Netherlands)

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    Abstract

    Past research on the relationship between top management team (TMT) compositional diversity and organizational performance has paid insufficient attention to the nature of TMT team processes in interaction with TMT diversity. We fill this gap by studying how three team mechanisms (collaborative behavior, accurate information exchange, and decision-making decentralization) moderate the impact of TMT diversity on financial performance of 33 information technology firms. We focus on two fundamentally different forms of TMT diversity: functional-background (FB) and locus-of-control (LOC). We argue that the former has the potential to enhance decision quality and organizational performance, whereas the latter might trigger relational conflict, and is, therefore, potentially detrimental to firm effectiveness. The ultimate aim of our study is to analyze which team processes help to transform distributed FB knowledge into high-quality decisions and organizational effectiveness, and which help avoid the potential detrimental effects of LOC diversity. We find that a TMT's collaborative behavior and information exchange are necessary conditions to unleash the performance benefits of FB diversity, but do not interact with LOC diversity. In addition, decentralized decision making spurs the effectiveness of functionally diverse teams, while at the same time reinforces the negative consequences of LOC diversity on firm performance.

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    File URL: http://dx.doi.org/10.1287/mnsc.1080.0899
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 2 (February)
    Pages: 165-180

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    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:2:p:165-180

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    Keywords: top management teams; team diversity; organizational performance;

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    Cited by:
    1. PELI, Gábor & SCHENK, Hans, 2011. "Organizational decision-maker bias supports market wave formation: Evidence with logical formalization," Working Papers 2011006, University of Antwerp, Faculty of Applied Economics.
    2. Gul, Ferdinand A. & Srinidhi, Bin & Ng, Anthony C., 2011. "Does board gender diversity improve the informativeness of stock prices?," Journal of Accounting and Economics, Elsevier, vol. 51(3), pages 314-338, April.
    3. Mayer-Haug, Katrin & Read, Stuart & Brinckmann, Jan & Dew, Nicholas & Grichnik, Dietmar, 2013. "Entrepreneurial talent and venture performance: A meta-analytic investigation of SMEs," Research Policy, Elsevier, vol. 42(6), pages 1251-1273.
    4. Fischer, Timo & Henkel, Joachim, 2013. "Complements and substitutes in profiting from innovation—A choice experimental approach," Research Policy, Elsevier, vol. 42(2), pages 326-339.

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