Examining the impact of organizational value dissimilarity in top management teams.

The chief executive officer (CEO) of an organization is generally held accountable for the firm's performance. However, the actual management of the firm is often shared among the top management team (TMT). The TMT is a small group of influential executives at the apex of the organization and is responsible for setting priorities, analyzing the environment, formulating strategies, and directing implementation (Hambrick, 1995). These tasks often involve decision processes that are unstructured, complex, and ambiguous (Finkelstein and Hambrick, 1996). Research has shown that the outcomes of such decision processes can be affected greatly by the characteristics of the team and its members.

According to Hambrick and Mason (1984), top managers make decisions that are consistent with their cognitive base, which is a function of their values and experiences. This cognitive base influences how individuals attend to ambiguous stimuli, how they interpret information, and their preferences for choices in strategic decision making. As a result, much TMT research has focused on composition and demography theory, which suggests that the composition of the TMT, with regard to various demographic characteristics, can explain TMT behavior and outcomes. The underlying premise in this work is that demographic characteristics are reasonable proxies for actual differences in cognitions, perceptions, and values (Carpenter et al., 2004). However, very little research on TMTs has actually examined cognitions, perceptions, and values directly (Barsade et al., 2000).

Organizational values are beliefs regarding desired objectives in the running of a business enterprise (Enz, 1988). Top management team members represent powerful subunits in an organization and may not uniformly agree on the importance of specific organizational values. However, consensus on the importance of organizational values among TMT members is deemed critical to organizational functioning. If members place different importance levels on values within the TMT, there may be a lack of shared understanding of priorities throughout the organization (Carpenter et al., 2004).

The purpose of this study is to examine the effects of dissimilarity in organizational values for TMT members. More specifically, the effects of two types of dissimilarity in values are investigated: (1) differences between a TMT member and his/her CEO and (2) differences between a TMT member and other members of the TMT. The impact of these two types of dissimilarity in organizational values on team conflict, team members' attitudes, and evaluations of the CEO's leadership effectiveness are explored with a sample of 31 CEOs and 133 TMT members. Figure 1 displays the model of relationships hypothesized in this study. A brief review of the literature on diversity in top management teams is presented in the next section, followed by supporting literature for the hypotheses on proposed effects of organizational value dissimilarity. Next, the research methodology and data analysis results are presented. The article is concluded with a discussion of implications of the results for practice and future research.

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Theory and Hypotheses

Studies on TMT composition have examined differences in demographic characteristics of members to infer differences in personal experiences, motivation, cognitive style, and values (Finkelstein and Hambrick, 1996). There are two seemingly conflicting perspectives about the implications of differences present in a TMT. One perspective suggests that executives that share similar characteristics are likely to operate from similar cognitive bases and values that increase the likelihood of agreement on goals critical to organizational success (Iaquinto and Fredrickson, 1997). The second perspective suggests that diversity in characteristics can lead to enhanced creativity and innovation by generating a wider variety of options in decision making (Cox et al., 1991).

From the first perspective, higher agreement among top managers regarding organizational roles and key characteristics of the firm increases predictability of behaviors and reduces ambiguity. Shared perceptions among TMT members facilitates communication and coordination and results in more effective and efficient decision making (Iaquinto and Fredrickson, 1997). This perspective is based on a well-established theoretical base of a similarity-attraction effect whereby similar attitudes or values have a reinforcing effect on attraction (see McGuire (1985) for a review). This attraction effect leads to satisfaction with other group members and social interaction among group members. Variation in experience, education, tenure and functional background will lead to difficulties in communication and diminish team integration (Smith et al., 1994).

Empirical studies have found support for the detrimental effects of heterogeneity on team functioning. Knight and his colleagues (1999) found that functional diversity and education diversity in TMTs were negatively related to strategic consensus, which was the extent to which members of a TMT shared a mental model of the role that various elements played in the firm's overall strategy (e.g., innovation, cost, service). They also found functional diversity had a positive relationship with interpersonal conflict. Diversity in teams has also been found to make trust, rapport, social integration, and communication less likely (O'Reilly et al., 1989; Tsui et al., 1995), leading to problems in implementing decisions (Simons, 1995). Hambrick (1995) found that fragmentation in the TMT was a major concern that could be potentially damaging. Fragmentation was described as the TMT not operating as a team but as a constellation of executives pursuing their own agenda with minimum collaboration or exchange. Significant heterogeneity in a team can increase the likelihood of fragmentation. However, Hambrick also cautioned against too much homogeneity in the TMT.

The second perspective on differences within a TMT, laid out theoretically by Hoffman and Maier (1961), suggests that diversity can also lead to enhanced problem-solving ability, creativity, and enhanced performance by providing for a wider variety of options in decision making (Cox et al., 1991). Heterogeneity may improve decision quality through the application of divergent perspectives to the type of complex problems typically faced by TMTs (Amason and Sapienza, 1997).

These two perspectives appear to suggest a paradox regarding the implications of diversity for TMTs, at least in regards to the decision-making quality and implementation that results from conflict. Research on conflict in TMTs, however, has found that there are two types of conflict that explain the different effects of TMT heterogeneity. Task or cognitive conflicts are substantive, issue-related differences in opinion while relationship or affective conflicts are disagreements over personal, individually-oriented matters (Amason et al., 1995). Some task conflict is considered to be essential for effective strategic decision making as frank discussions about assumptions underlying decisions and different alternatives generate sharing of a greater range of information and the identification of a richer set of possible solutions (Eisenhardt et al., 1997). Heterogeneity in TMTs increases the likelihood of task conflict, which is considered functional for teams as different job-related perspectives can bring about higher quality solutions.

On the other hand, relationship conflict appears to be dysfunctional for TMTs as it provokes hostility, distrust, apathy and cynicism. Diversity in teams also increases the opportunity for relationship conflict to surface as individuals may not respect or respond favorably to differences. Amason (1996) found support for differential effects of these two types of conflict in a study of 48 top management teams. Task conflict related positively to decision quality while relationship conflict related negatively to decision quality. However, each type of conflict had the exact opposite effect on affective acceptance within the TMT, with task conflict relating positively and emotional conflict relating negatively to affective acceptance.

Despite the differential effects of task and relationship conflict on decision-making quality and even acceptance of the decision, the process by which conflict occurs may lead both types to have similar negative influences on non-performance outcomes, such as satisfaction with the group and organizational commitment. While task conflict may result in better decision quality, the process of disagreement may still be a painful one, and inevitably result in some views and opinions being rejected. This could lead to dissatisfaction with the decision by the losing members, even in the face of positive outcomes. If the person's inputs are consistently rejected, this may also lead to a decline in organizational commitment. Similarly, relationship conflict may not only be deleterious to decision-making quality, but the interpersonal conflict that the process generates should also lead to decreased overall satisfaction with the group and weakened commitment to the organization.

Dissimilarity in Organizational Values