Top management team composition: A strategic decision-making perspective of the homogeneity-heterogeneity paradox

Ever since Hambrick and Mason (1984) focused the discussion on the upper echelon, or top management team (TMT), strategic management scholars have sought to understand the antecedents, dynamics and impact of this decision-making body on organizational performance.Much of the prior research has focused on the impact of team diversity. Strong and contradictory evidence exists that TMT homogeneity (heterogeneity) is both an asset and a liability. Some researchers point out that heterogeneous teams enjoy a broader cognitive base (Ancona & Caldwell, 1992) are therefore more innovative (Bantel & Jackson, 1989), and adapt easier to environmental change (Murray, 1989).However, others have argued that team diversity heterogeneity breeds conflict (c.f., Pelled, 1995) which slows decision-making. They suggest that TMT homogeneity enhances social cohesion (O'Reilly & Flatt, 1989) and improves communication.Therefore, this dissertation addresses the general research question--How can team homogeneity (heterogeneity) be both an asset and liability? Three alternative solutions are proposed.First, a contingency solution is proposed which suggests that under certain conditions team heterogeneity improves firm performance, whereas under other conditions, heterogeneity has the opposite effect, and therefore homogeneity is preferred. Second, a compromise solution is proposed, and argues for moderate levels of team homogeneity (heterogeneity). Third, a multidimensional solution is proposed which makes the argument that high levels of performance require top management teams to be simultaneously both homogeneous and heterogeneous, but along different demographic dimensions.These three alternative solutions were examined using a strategic decision-making framework. Each model was theoretically considered in terms of how well it meets the task requirement of the decision-making framework. It was argued that the multidimensional approach would provide the most robust resolution to the debate. Hypotheses were proposed and tested.The findings support the examination of executive teams as an appropriate unit of study due to their significant impact on firm performance. The results indicate that the impact of homogeneity (heterogeneity) is entirely dependent on the underlying demographic. Of the three competing resolutions, the multidimensional approach received the greatest support, as predicted.