Top Management Team Characteristics and

Innovation Outcomes: A Review of the

Literature

ABSTRACT

This paper reviews the state of the art research on top management team (TMT)

characteristics and the effect on innovation outcomes. Both TMT’s background and

behavioral characteristics are reviewed. We start with describing and comparing five classic

papers published over the past 30 years. Subsequently, five recent papers are analyzed.

Relying on these papers, we come up with a comprehensive framework that provides

companies with the most important antecedents of top management teams, which will

ultimately result in increasing organizational innovation activities. Finally, conclusions and

suggestions for future research on top management teams and innovation outcomes are given.

1 INTRODUCTION The last decades, many scholars in strategic management have emphasized the role of top

management teams (TMT) on organizational outcomes. A TMT could be defined as all

executives with titles above the rank of vice president or serving on the firm’s board of

directors (Cannella and Hambrick, 1993; Michel and Hambrick, 1992). The stream of

literature about TMTs largely originates from the upper echelon perspective formulated by

Hambrick and Mason (1984). The main idea supporting the upper echelon perspective is that

individual characteristics influence preferences and attitudes of board managers, and the

dynamics of the board. Subsequently, manager’s strategic choices are affected (e.g., Smith et

al., 1994; Finkelstein, Hambrick, and Cannella, 1996). Here, the assumption is made that such

characteristics are related to cognitive abilities, attitudes, and expertise.

The composition of TMTs with respect to their background characteristics can be

operationalized in two ways. First, the average can be calculated for a particular board

characteristic. Arguments why averages of TMT characteristics are affecting organizational

outcomes are related to a TMT’s cognitive abilities, attitude to the organization, or degree of

risk taking (e.g. Hambrick and Mason, 1984; Bantel and Jackson, 1989). Another frequently

examined aspect of TMT composition is diversity of characteristics, which can be defined as

the degree in which background characteristics of TMT members differ from each other. Prior

research about TMT diversity report opposing results. Scholars found positive relations (e.g.

Eisenhardt and Schoonhoven, 1990; Norburn and Birley, 1988), negative relations (e.g.

Simons, Pelled, and Smith, 1999), or no relation at all (e.g. West and Schwenk, 1996).

Arguments why diversity in a board may be positive are an increase in generation of

alternatives, a better evaluation of alternatives, and a better prediction of changes in the

environment (Finkelstein and Hambrick, 1996; Jackson, 1992; Lant, Milliken, and Batra,

1992). In contrast, diversity may also lead to a slower decision making, interpersonal conflict,

and fewer interactions among board members (e.g. Hambrick and D’Aveni, 1992; O’Reilly,

Snyder, and Boothe, 1993).

Recent articles about TMTs and organizational outcomes put more emphasis on

behaviors of management teams. For example, authors have found a relation between

transformational TMTs and organizational outcomes (e.g. Jung, Chow, and Wu, 2002;

Eisenheiß and Boerner, 2010). Another way in which TMTs can improve organizational

outcomes is selecting locations that contain salient, novel, and vivid information (Li et al.,

2013) or seeking advice from external and internal sources (Alexiev et al., 2010).

One organizational outcome that may be affected by board characteristics is

innovation. According to Crossan and Apaydin (2010), ‘innovation is: production or adoption,

assimilation, and exploitation of a value-added novelty in economic and social spheres;

renewal and enlargement of products, services, and markets; development of new methods of

production; and establishment of new management systems. It is both a process and an

outcome.’ Innovation is important for a company. Management scholars argued that the

capability to innovate is the most important determinant of organizational performance (Mone

et al., 1998). Besides, innovation is considered to be a critical source of competitive

advantage in an increasingly changing environment (Dess and Picken, 2001). This study

focuses on innovation as an organizational outcome and aims to present a model that helps

organizations selecting the right board and guides a board in behaving in an appropriate way

in order to enable innovation within a firm.

Despite the widespread impact of the upper echelon perspective and the effect on

innovation outcomes, there is no comprehensive review about this topic. Besides,

contradicting results were found for several TMT characteristics. For example, the study of

Wiersema and Bantel (1992) found an insignificant relation between team tenure diversity

and corporate strategic change, whereas the study of Boeker (1997) provides support for the

negative relation between team tenure diversity and strategic change. Therefore, there is a

need to integrate the studies about TMT characteristics and their innovation outcomes, and

find explanations for the inconsistent results. With this review, we aim to identify the major

contributions and gaps within this field.

The next section describes the methodology on which we rely. Subsequently, in

section three we review prior research on board composition, a board’s desired behavior, and

innovation performance. Based on this review, a comprehensible framework is composed. In

section four, we discuss our findings and provide an agenda for future research on this topic.

2 SELECTION OF PAPERS For this literature review, five classic and five recent papers are used. As recommended by

Webster and Watson (2002), both manual and automated methods were used to select most

relevant papers in leading journals. The ISI Web of Knowledge’s Social Sciences Citation

Index (SSCI) and Google Scholar were used as databases. We used several criteria to make a

selection of candidate classic and recent articles. First, recent papers about TMT

characteristics and innovation outcomes were used to identify the key classic articles. Then,

for these classic articles we check whether the article analyzes TMT characteristics in terms

of innovation outcomes. Besides, we searched within the two databases using keywords such

as “innovation”, “top management teams”, “boards”, “upper echelon”, “top management team

characteristics”, and “board characteristics”. Our initial number of classic articles was thirty-

six. We have selected the five most relevant articles based on the number of citations per

paper, the journals in which they were published, and the distinctiveness as opposed to the

other initially selected articles.

The recent papers were selected in a somewhat different way. We used the same two

databases, and again used keywords to select candidate papers. To identify the most recent

contributions in literature, the articles are ordered based on the year of publication (i.e. most

recent articles first). Besides, we look at the list of papers that cited the classic papers. The

initial number of papers was fourteen. We selected the five recent articles based on the

number of citations, the journal in which the paper was published, the year of publication, and

the distinctiveness of the paper in terms of contradicting findings, new findings, and new

perspectives as opposed to the other thirteen papers.

FIGURE 1 Theoretical Framework

Source: Hambrick and Mason (1984); Bantel and Jackson (1989); Finkelstein and Hambrick (1990); Wiersema and Bantel

(1992); Boeker (1997); Jung, Chow, Wu (2003); Eisenbeiß and Boerner (2010); Alexiev et al. (2010); Talke, Salomo, and

Kock (2011); Li et al. (2013).

AV

ER

AG

E T

MT

TR

AIT

S

- Search Selection

Terrain Unfamiliarity

Terrain Distance

Terrain Source Diversity

External Advice

Internal Advice

- Search Intensity

Search Persistence

Search Effort

- Transformational Leadership

Innovation outcome

- Strategic Change

- Technical Innovation

- Administrative Innovation

- Product Innovation

- Exploratory Innovation

BEHAVIORAL TMT TRAITS

HE

TE

RO

GE

NE

OU

S T

MT

TR

AIT

S

Strategic Innovation

Orientation

Managerial Discretion

Demographics

- Educational

Specialization

Job-Related

- Functional Track

- Tenure

Demographics

- Age

- Amount of Formal

Education

- Educational

Specialization

Job-Related

- Functional Track

- Tenure

3 DISCUSSION OF REVIEWED PAPERS Figure 1 presents the conceptual framework. As can be derived from this figure, there is a

moderating effect of management discretion on the relation between average and

heterogeneous traits on innovation outcomes. Besides, advice is a moderator for the effect of

diverse traits on innovation outcomes. The relation between the heterogeneous background

variables and innovation outcome is mediated by strategic innovation orientation. This section

will further elaborate on the conceptual model. We will separately compare the classic and

recent papers. The classic articles particularly emphasize the role of TMT background

characteristics on innovation outcomes. In contrast, the recent papers used in this review

especially try to analyze how TMT members should behave in order to increase innovation

activity. For background characteristics, a distinction is made between job-related and

demographic background characteristics of TMT members.

3.1 Discussion of classic papers 3.1.1 Job-Related Characteristics

The role of experience on innovation outcome is consistently discussed in the classic papers.

Four different types of experience are covered: the functional background of a member, the

diversity in functional background of a TMT, the years of inside service, and the diversity of a

team on the years of inside service.

Hambrick and Mason’s (1984) article about the upper echelon perspective mentioned

both the functional track and the years of inside service as a possible antecedent for

innovation outcome. The authors classify functional tracks into two main categories: output

functions and throughput functions. Output functions (i.e. marketing, sales, and product

R&D) emphasize growth and search for opportunities in new domains. Throughput functions

(i.e. production, process engineering, and accounting) focus on efficiency improvements of

the transformation process. They propose a positive relation between the degree of experience

in output-functions of top managers and the extent of emphasis on output in its strategy, and,

among others, an increasing focus on product innovations.

It is notable that the other articles did not test this relation; although Bantel and

Jackson (1989) mention that there may be a link. They argue that cognitive and attitudinal

perspectives are shaped by a member’s functional experience. Surprisingly, Bantel and

Jackson (1989) only test the functional background diversity. According to the authors,

differences in attitudes, knowledge, and perspectives can create novel ideas, which ultimately

leads to an increase in innovation. Differences in manger’s functional background can create

these differences (Dearborn and Simon, 1958). They found a positive relation between

heterogeneity in functional backgrounds and innovation activity. Besides, Bantel and Jackson

(1989) split innovation into technical innovation and administrative innovation. It appears that

heterogeneity in functional backgrounds only positively affects administrative innovation

activity.

The years of inside service has been studied more extensively than the experience in

functional background. Hambrick and Mason (1984) propose a negative relation between the

number of inside service (tenure) of top managers and the strategic choices they make

involving new terrains. They reason that members having a low tenure are less committed to

the states quo (Carlson, 1972) and have a less restricted knowledge base, increasing their

diverse search activity (Cyert and Martch, 1973). Bantel and Jackson (1989) found no strong

support for this average tenure on either technical or administrative innovation activity.

However, other scholars found a negative relation between average tenure and change

(Wiersema and Bantel, 1992; Boeker, 1997; Finkelstein and Hambrick, 1990). An explanation

may be found in the way the dependent variable is defined. Bantel and Jackson (1989) try to

measure the innovation activity within a firm, which they define as ‘a program, product, or

practice that was in the early stage of acceptance and use in the industry’. The other studies

try to measure change. For example, Finkelstein and Hambrick (1990) measure change based

on six strategic indicators: (1) advertising intensity; (2) research and development intensity;

(3) plant and equipment newness; (4) nonproduction overhead; (5) inventory levels; and (6)

financial leverage. There is a difference between innovation and change. Innovation is a

structured practice and process that precedes change; change seems to be the end product. An

explanation for this paradoxical relationship is that managers with a low average tenure are

better able to turn innovation into change. A more viable explanation is the industry that is the

focus of the studies. The study of Bantel and Jackson (1989) focus on the banking sector only.

Explanations for non-significant findings in the article of Bantel and Jackson can be related to

the degree of managerial discretion, which is covered in the article of Finkelstein and

Hambrick (1990).

Finkelstein and Hambrick (1990) formulated a moderating effect for the relation

between average tenure and change. They argue that the relation between average tenure and

strategic persistence is dependent on the level of managerial discretion; in environments

where discretion is high, average tenure has a stronger positive effect on strategic persistence.

The higher the discretion, the more top managers can shape the organization. This, in turn,

means that TMT characteristics will be more reflected in organizational outcomes. The study

found support for this moderating effect of managerial discretion.

Finally, the diversity in tenure is investigated in various articles (e.g. Bantel and

Jackson, 1989; Wiersema and Bantel, 1992; Boeker, 1997). Main argument for the positive

relation between tenure diversity and change or innovation activity is that diversity in tenure

within a TMT lead to a higher diversity of information sources and perspectives, and an

increase in creative-innovative decision making, which will ultimately lead to increasing

changes or innovation activities. Bantel and Jackson (1989) and Wiersma and Bantal (1992)

did not find a significant relation, whereas Boeker (1997) did find a positive link between

tenure heterogeneity and change. This positive relation can be explained by the fact that

Boeker (1997) focuses on changes in semiconductor industries. These industries are

characterized by its high flexibility and innovation. This result is consistent with the concept

of managerial discretion used in the article of Finkelstein and Hambrick (1990). If flexibility

is higher, there will be a stronger effect of board characteristics on change. This means that in

investigating board characteristics and their effect on change and innovation activity, one has

to take into account the type of industry in which a firm operates, which is related to the

degree of managerial discretion.

3.1.2 Demographic Characteristics

In the classic articles, the demographic characteristics of boards that are discussed are related

to age and education. The age of a board can be measured in terms of average age. Age

heterogeneity appears to be not significant in all of the focal articles that test for this effect,

and will not be further discussed. Three different measurements for education within a board

are examined: the amount of formal education, the educational specialization, and the

educational specialization heterogeneity.

The average age of a board may affect the innovation in two ways. First, age is

positively related to a manager’s search towards security (Carlson and Karlsson, 1970; Vroom

and Pahl, 1971). Second, as age increases, a manager will be less flexible and, hence, rigidity

and resistant to change will increase (e.g. Child, 1974; Chown, 1960). Therefore, younger

managers will be more inclined to pursue risky strategies than older managers. This, in turn,

may positively influence a firm’s change and innovation activity. Empirical evidence for this

relation is found in the article of Wiersema and Bantel (1992). Bantel and Jackson (1989),

however, found insignificant results for the relation between average age and technical and

administrative innovation. Again, an explanation can be found in the different industries (or

managerial discretion) analyzed in the studies.

Three of the five classic papers mention the amount of formal education as a possible

determinant that influences change and innovation activity. Hambrick and Mason (1984)

argue that a member’s formal educational background may to some degree indicate a

member’s knowledge and skill base. Bantel and Jackson (1989) show that the average

education level is positively related to technical innovation, which also positively affects the

total innovation activity. Consistent results are found by Wiersema and Bantel (1992).

The type of education is investigated in the study of Wiersema and Bantel (1992).

They argue that certain academic fields are more associated with changes than others. For

example, science and engineering are close related to progress, invention, and improvement.

The authors found a positive relation between academic specialization in science and

engineering within a top management and the change. Their reasoning is that these academic

fields are more oriented towards change than others.

The educational specialization heterogeneity is a final demographic variable that may

affect the degree of change or innovation in an organization. Educational specialization

heterogeneity can be defined as the diversity in educational curriculum. Bantel and Jackson

(1989) found no significant relation of educational heterogeneity on both technical and

administrative innovation. Wiersema and Bantel (1992) did find a positive effect of

educational heterogeneity on corporate change. The rationale behind this relation is the same

in both articles: diversity in educational background is implies having diverse perspectives

which result in an increase in corporate change.

These contradicting findings for educational specialization heterogeneity together with

the inconsistent findings between articles for other background characteristics can all be

explained by the industry in which a firm operates. Boeker (1997), for example, analyzed

effects of board characteristics on change for the semiconductor industry and found many

significant results. In contrast, Bantel and Jackson (1989) analyzed TMT characteristics on

innovation activity and reported many insignificant findings. In line with Finkelstein and

Hambrick (1990), we argue that the industries differ along several important dimensions that

affect the level of managerial discretion. The higher the managerial discretion, the more effect

TMTs have on innovation and change.

3.2 Discussion of recent papers The recent articles are somewhat different to the classic articles. The classic articles generally

have an emphasis on board characteristics and the effect on innovation or change. The recent

articles, in contrast, address the desired TMT behavior in particular.

3.2.1 Desired TMT Behavior

A first behavioral characteristic that may increase innovation activity is the attention of TMT

members. Attention can be defined as a “cognitive process that involves the noticing,

interpretation, and focusing of time and effort on the acquisition of knowledge and

information’ (James, 1890; Kahneman, 1973). Managers allocate attention to certain aspects

in the environment and ignore others during search activities. Li et al. (2013) assessed the

effect of TMT attention on innovation. By investigating high-technology industries, they

found that in order to increase innovation activity, TMT members should consider conducting

search in diverse, unfamiliar, and distant terrains. Besides, employing persistent search

intensity may lead to increases in innovation activity. With search persistence, we refer to the

extent to which, on average, members continue their search to information, despite the

number of alternatives that already have been found.

The degree of advice seeking is another characteristic of TMTs that is found to have a

significant impact on innovation (Alexiev et al., 2010). The authors make a distinction

between external and internal advice seeking and try to explain the effect of these advisers on

exploratory innovation. External advisers are managers of other companies that provide

knowledge to TMTs that helps to keep aware of environmental changes. Internal advisers are

managers within a TMT’s own organization and may be helpful as these internal advisers can

provide TMTs with critical operational information or propose own initiatives for exploratory

innovation (Bower, 1970; Burgelman, 1983). Both external and internal advices help TMTs to

increase exploratory innovation (Alexiev et al., 2010). Besides, the authors found that if a

team becomes more heterogeneous in terms of demographic and functional attributes, internal

advice will have a stronger positive effect on exploratory innovation. The rationale behind

this is the increase in different perspectives. Surprisingly, external advice will have a weaker

effect on exploratory innovation if a TMT becomes more heterogeneous. The authors argue

that heterogeneous TMTs may have sufficient access to heterogeneous knowledge within the

firm. External advice would only be a substitute for this knowledge. Alexiev et al. (2010)

measure the diversity within a TMT based on three statements related to expertise,

background, experience, complementary skills, and abilities (adopted from Campion et al.,

1993).

A top manager’s leadership style is another important factor affecting organizational

innovation. Jung et al. (2003) investigated the effect of top managers that are

“transformational” on the activity in innovation. Transformational leaders have an emphasis

on longer-term and vision-based motivational processes (Bass and Avolio, 1997). The authors

found that top managers being “transformational” will result in higher innovation activity.

Besides, a manager being “transformational” is positively related to empowerment and an

organizational climate that supports innovation. Although empowerment decreases innovation

activity, an innovation-supporting climate within an organization positively affects innovation

activity. Eisenheiß and Boerner (2010) extend this by focusing on transformational leadership

and the effect on innovation at a team level (i.e. R&D teams). Jung et al. (2003) mention that

transformational leadership is beneficial and would facilitate innovation in R&D teams.

Innovation research suggests that innovation within R&D teams would increase if members of

R&D teams have a high level of intellectual autonomy (e.g., Kim, Min, and Cha, 1999).

These perspectives are integrated; the authors propose that transformational leadership needs

certain intensity levels to increase R&D team innovation. The authors found support for the

inverted u-shaped relation between transformational leadership and R&D team innovation.

The recent articles put more emphasis on the desired behavior of TMTs instead of

background characteristics of TMT members, as is the primary focus in the classic articles. To

increase innovation activity, TMTs should take into consideration where they look for new

information and knowledge. Their limited attentional capacity makes it necessary that TMTs

select parts of their terrain to attend to (Cyert and March, 1963; Dearborn & Simon, 1958;

March and Simon, 1958). Search intension is also a determinant that affects innovation

outcomes. This is the intensiveness of attention and captures a member’s allocation of

cognitive capacity to the attention process. Transformational leadership is a final behavioral

factor that is likely to have an influence on innovation outcome.

3.2.2 Strategic Innovation Orientation

Talke, Salomo, and Kock (2011) investigate the role of strategic innovation orientation as a

mediator between TMT diversity and the innovativeness of a firm. The authors delineate

between proactive market orientation and proactive technology orientation. Narver and Slater

(1990) define proactive market orientation as a firm’s position towards creating and

understanding its consumers and serving consumer needs. Technology orientation is a firm’s

position towards engaging in technological research and development, analyzing technical

potentials, and forecasting trends in technology (Gatignon and Xuereb, 1997). Diverse TMTs

will have a wider variety of information available, and a higher likelihood of creating

different and fresh views. This will lead to a more innovative posture (Milliken and Martins,

1996). Talke et al.’s (2011) results show a positive effect of TMT diversity on a firm’s

proactive market and a proactive technology orientation. This increase in strategic innovation

orientation will lead to an increase in firm innovativeness. The authors found a partially

mediating effect of innovation orientation on the relation between TMT diversity and a firm’s

innovativeness. These results emphasize the importance of TMT diversity as antecedents for

innovation outcomes.

4 CONCLUSION AND FUTURE RESEARCH This study was motivated by an attempt to develop a more fine-grained overview of the

literature about top management team characteristics and the effect on innovation outcomes.

The classic papers that are selected for this review focus on the upper echelon perspective, as

was first formulated by Hambrick and Mason (1984). Only these classic articles were selected

that address the effect on innovation outcome. Generally, a distinction can be made between

demographic and job-related characteristics. Within these categories, characteristics are

classified in average and heterogeneous traits. The recent papers that are selected for this

literature review focus on behavioral characteristics of a TMT and the effect on innovation

outcomes. These recent articles take a more institutional approach; organizations could shape

the behavior of TMT members. Broadly speaking, the recent articles could be divided in three

groups: search selection, search intensity, and transformational leadership. Besides, Talke et

al. (2011) show a mediating effect of both market and technology orientation on the relation

between heterogeneous background characteristics on a firm’s innovation activity, which

increases understanding in the way how diverse board characteristics can explain innovation

activity. For deriving conclusions and future research opportunities, we now integrate the

classic articles with the recent articles.

From the classic articles that test the effect of job-related board characteristics on

innovation outcome, we can claim that TMTs with a low average tenure and a high diversity

in functional background and tenure are more likely to have higher innovation activity

compared with TMTs with the opposite job-related characteristics. Based on the demographic

characteristics of a board, we conclude that innovation is likely to be higher than average if a

board consists of younger members having a high average educational level, particularly with

an academic specialization in science and engineering, and diverse educational

specializations. In the article of Finkelstein and Hambrick (1990), a moderating effect of type

of industry on the relation between a TMT’s average tenure and the change within a firm is

found. This is explained by the degree of managerial discretion (within an industry). They

argue that the higher the discretion, the more TMTs can shape the organization. Explicitly,

this means that manager characteristics will be more reflected in organizational outcomes,

such as organizational innovation. Interestingly, the effect of managerial discretion may also

apply for other demographic or job-related characteristics. Therefore, in Figure 1 we have

drawn managerial discretion as a moderator for all TMT background characteristics. This may

be an interesting opportunity for future research. The more so because we found contradicting

results for several demographic and job-related characteristics, which were explained by the

different type of industries that were analyzed within the different studies.

The heterogeneous background variables also have a moderating effect of external and

internal advice. Alexiev et al. (2010) argue that seeking internal and external advice will

directly help TMTs to increase innovation activity in new terrains. This effect becomes

stronger for more heterogeneous TMTs seeking for internal advice and weaker for more

heterogeneous TMTs seeking for external advice. Searching for information was also covered

by Li et al. (2013). During search activity, managers allocate attention to certain aspects in the

environment and ignore others. The authors found a positive effect of search intensity and

search selection on innovation activity within a firm. However, Li et al. (2013) focus on high-

technology firms in which managerial discretion is often high and innovation activity is, on

average, higher than in other industries. As already mentioned, we think that the effect of

TMT characteristics depends on the industry in which the firm operates. Therefore, we would

suggest investigating the role of search selection and intensity in new product introductions

also for other industries, taking into account the degree of managerial discretion.

The leadership style of TMTs can also be a factor that influences innovation outcomes.

Transformation leadership and the effect on innovation activity is analyzed by Jung et al.

(2003) and Eisenheiß and Boerner (2010). Jung et al. (2003) found a positive linear relation of

transformational leadership and innovation activity. However, according to Eisenheiß and

Boerner (2010), transformational leadership needs certain intensity levels to increase R&D

team innovation; otherwise there is no advantage in terms of innovation activity. Future

research could investigate which background characteristics would influence transformational

leadership, which may give increasing understandings in the way how background

characteristics affect innovation outcomes.

In sum, in selecting the optimal board with regard to innovation outcome,

organizations should select an on average younger board, with a low average tenure, a high

diverse tenure, and a high diversity in functional track. Besides, boards should have an on

average high average educational level, particularly with an academic specialization in

science and engineering, but also diverse academic specializations. These effects are higher if

managerial discretion is high and the diverse characteristics. In terms of behavioral

characteristics, search effort and persistence in a board help. A TMT can best search for

information in diverse, unfamiliar, and distant terrains. Also external and internal advice may

help increasing innovation activities. Finally, transformational leadership affects innovation

outcomes.

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