A Study of the Impact of the Social Composition of Top Management Teams on Organizational Innovation.

Abstract

This study analyzes the relationship between the social composition of top management teams and innovation adoption in the banking industry. Research indicates that the top management team has an influence on organizational innovation (O'Reilly and Flatt, 1986; Hage and Dewar, 1973). Based on the literature on group decision making, the social composition of the top management team with regard to homogeneity or heterogeneity on six member characteristics (Education Level, Age Mean, Major, Functional Background, Length of Service, and Industry Familiarity) is hypothesized to influence the team's innovation adoption behavior and , as a result, the relative innovativeness of the firm. Theory and research indicate that this aspect of group composition is critical in underst and ing a variety of group processes and outcomes including decision making (Janis, 1977). This research is a survey design conducted in the banking industry (N = 199). Two respondents from each bank, the CEO and the Human Resources manager, are included in order to assess interrater reliability. The relative innovativeness of a firm is measured by an item checklist developed from a set of interviews with top level bankers. Two categories of innovation, technological and administrative, are included. Three sets of analyses are conducted. First, hypotheses are tested using correlation analysis. Second, stepwise regressions evaluate the impact of each of the individual demographic variables, controlling for size and centralization. These control variables have been shown in previous research to have significant relationships with innovation. Third, multiple regressions include the control and the demographic variables to assess their combined influence. In addition, exploratory analyses are conducted that investigate the role of team cohesiveness. The relationship between team homogeneity and cohesiveness is evaluated with multiple regression; that between cohesiveness and innovation is examined using correlation analysis and regression. Generally, support is found for four of the six main hypotheses. In addition, support is found for the postulate that groups that are homogeneous on member abilities and heterogeneous on experience are more innovative. The control variables are generally found to be significantly related to the innovation measures. This research contributes to previous studies in the following areas: innovation adoption, group decision outcomes, and demography.