Top Management Teams

Annaloes M.L. Raes

• Publisher: Business Expert Press
• Year: 2011
• Print ISBN: 9781606491799
• eBook ISBN: 9781606491805
• Topic: Business
• Subtopic: Management
• Index: Business

This book provides an overview of the organizational mechanisms of TMT impact. When having finished this book, readers will know how a TMT exerts influence and have more insight in how to make TMTs more effective in their organizations. Insight into the ways in which TMTs influence their organizations can benefit practicing top managers, as well as non-executive directors, consultants, team coaches etc. It may help them in establishing early indicators of organizational performance, selecting new TMT members, diagnosing dysfunctional TMT behavior, and assessing the TMT's interaction with middle managers. Therefore, I expect this book to be interesting for a wide audience of practitioners and researchers.

Chapter 1

Teams at the Top

A top management team (TMT) matters for its organization, right? This assumption is widespread among both researchers and practitioners. In fact, it underlies many far-reaching decisions, such as rewarding team members for great organizational performance or firing them for poor performance. While researchers have established that TMTs do “matter” for their organizations,¹ the ways in which TMTs do that are complex and opaque.

The mechanisms of TMT impact evolve along a complex interplay of both strategic and psychological processes. This complexity can make it difficult for TMTs, and those around them, to see what it really takes to make them “work” for their organizations. In this book, I outline two sources of TMT impact: what happens inside the boardroom, when TMT members are among themselves, and what happens outside, when TMT members interact with others.

Inside the boardroom, I describe the social and psychological processes that shape the way in which TMTs make decisions. Outside the boardroom, I address how TMTs can effectively work with middle managers and achieve high-quality strategic decisions along with effective implementation. To get more insight into the particular challenges that TMTs face, I will first describe some typical characteristics of TMTs and their work.

What Is a TMT?

Many people still credit organizational performance to the decisions of a heroic, single CEO. CEOs, so it is assumed, steer organizations according to a “one-captain-on-a-ship” approach. They are the ones to be credited for successes or blamed for losses. Yet organizational reality is that many organizations nowadays have a TMT instead of a single decision maker at the top.² That is, the CEO creates a team of executives around him or her, and strategic decisions are made within the team.

The concept of TMT was introduced in the organizational literature more than 20 years ago by Hambrick and Mason.³ These authors simply referred to a TMT as “the firm’s officers.” More recently, researchers have specified a TMT to be “the aggregate informational and decisional entity through which the organization operates and which forms the inner circle of executives who collectively formulate, articulate, and execute the strategic and tactical moves of the organization.”⁴

As these definitions imply, the TMT is the group of executive managers highest in the organizational hierarchy. Such an organizational position implies, among many other things, that these managers have much freedom in the way they plan and execute their work. They also have to deal with a constant stream of unstructured information. Often they are faced with high time pressure for making decisions.⁵

Why would your organization want a team at the top? Does it actually need a team? And is it even realistic to expect such a thing as a team at the highest organizational echelon? Some researchers and managers argue that TMTs have little “teamness” to them and are in fact only a collection of strong players or a group of “semi-autonomous barons.”⁶ On the other hand, recent research has indicated that many organizations do have “real teams” at the top.⁷

A TMT can be seen as a real team when it is a distinct organizational entity, has clearly defined members, is reasonably stable in membership over time, and has members who are interdependent in their work.⁸ The prevalence of TMTs that work as real teams also seems to expand in response to the turbulence and complexity of the current global business environment of many organizations.⁹

In line with these developments, I focus in this book on TMTs that have at least a minimal level of teamness. That is, the TMT is seen by TMT members and others as a distinct organizational entity, has clearly defined members, is reasonably stable in membership over time, and has members who carry out its work with some level of interdependence.¹⁰ The extent to which these TMTs also show behavioral processes that indicate high levels of teamness will be further discussed in chapter 2, along with the performance consequences.

The TMT’s Strategic Work

A main objective of the TMT’s work is to formulate and implement strategic decisions that ensure the survival and growth of the organization.¹¹ Strategic decision making consists of the choice of a particular course of strategic action. Strategy implementation comprises the subsequent actions to make that strategy happen.¹² The TMT’s work of formulating and implementing strategy implies that the tasks of a TMT are more complex and varied than those of most other teams. TMT members must comprehend a great deal of vague, ambiguous, and often conflicting information.¹³

To formulate and implement high-quality decisions, the TMT is dependent on many other people both inside and outside the organization. The TMT’s interactions with others are therefore a particularly important aspect of its work. This exposure to many other people also implies that a TMT is highly visible for others both inside and outside the organization. Hence its actions carry symbolic meaning and tend to be closely watched, and discussed, by other managers and employees.¹⁴

Finally, TMTs often consist of members from different parts of the organization, such that these members are simultaneously part of the TMT and the heads of their own business units.¹⁵ Therefore, TMT members’ priorities, languages, and values are usually quite different from each other.¹⁶ These specific characteristics of the TMT create promises but also some pitfalls.

Promises and Pitfalls

Working as a team instead of individually is often preferred when work is too voluminous or too complex to be performed alone. Teams have the advantage of being flexible in how they deploy and use their resources, and they provide opportunities for team members to learn from one another.¹⁷ This is clearly the case for work at the top of organizations. Researchers have stated that the current organizational reality is often too complex for a single manager to oversee. A division of tasks among TMT members in a team structure can provide a way for dealing with this complexity.¹⁸

Researchers have proposed that by working in a TMT, the quality of strategic decisions can be increased because multiple managers can apply more diverse perspectives to solve a problem.¹⁹ The synthesis of these perspectives is expected to be superior to an individual’s decision.²⁰ The executives’ commitment to implement decisions can increase through the understanding and acceptance generated by joint decision-making processes.²¹ In addition, having a TMT at the top instead of a single manager has the potential to improve communication and cooperation among executives from different subunits.

Despite the theoretical advantages of having a team at the top, effective TMT functioning is not self-evident. According to psychological theories, the same diversity in perspectives and information that can produce better decisions may also impair the interpersonal relationships of TMT members.²² These theories would therefore suggest that similarity in perspectives would in fact be desirable for maintaining a positive atmosphere in the TMT.

Yet, on the other hand, too much similarity in perspectives may lead to the phenomenon called groupthink, when senior teams strive for high consensus at the expense of good decisions.²³ Thus, in addition to the uncertainty and complexity associated with strategic decision making, doing that in a team setting presents extra challenges and the potential for problems that relate to interpersonal issues.

Because TMT functioning itself is challenging, it may also be easy to forget that an important aspect of TMT work is to manage relationships with others. Such relationships with other stakeholders both inside and outside the organization serve as channels of information and influence. Researchers have shown that the quantity, quality, and diversity of TMT members’ relationships to others can be linked to organizational performance.²⁴ Therefore, an additional pitfall is that the TMT does not pay enough attention to systematically managing the relationships to others.

TMT Impact on the Organization

How can a TMT reap the benefits and avoid the traps of working in a team? Assuming that “good” performance of a TMT translates into an organization performing well, researchers have investigated which characteristics of the TMT matter the most for organizational performance. Two streams of research provide primary insight into these questions: research from the upper-echelons perspective in the strategy discipline and team research from the social and organizational psychology fields.

Composition of the Team

Scholars of strategy have studied TMTs from the perspective of the upper-echelons theory.²⁵ This theory emphasizes the role of TMT composition in terms of TMT members’ demographic characteristics, such as age or functional background, for explaining organizational performance. TMTs with demographically diverse members are proposed to have more capabilities for processing information than TMTs whose members are similar, and this diversity is expected to benefit strategic decision making and organizational performance.²⁶

Despite much empirical work, the results of studies that link TMT composition to organizational performance have been quite inconsistent until recently.²⁷ As a result, researchers have repeatedly concluded that considering TMT composition alone does not provide real insight into how TMTs influence organizational performance.²⁸ Some have even suggested to “call a moratorium for the use of demographic variables as surrogates for psychological constructs.”²⁹

For those readers interested in reading more on the role of TMT composition, some excellent reviews exist.³⁰ In the remainder of this book, I focus on the role of the TMT’s internal processes and states, as well as the TMT’s relationships to middle managers.

Internal Processes and States

Researchers have proposed that TMT performance is affected not so much by the composition of...

Table of contents

• Title Page
• Copyright Page
• Contents
• Preface
• Chapter 1: Teams at the Top
• Chapter 2: Inside the Boardroom: TMT Behavior
• Chapter 3: Outside the Boardroom: The Relationship Between the TMT and Middle Managers
• Chapter 4: TMT Sensemaking About Middle Managers
• Chapter 5: Middle Manager Perspectives
• Chapter 6: Making It Work
• Notes
• References
• Announcing the Business Expert Press Digital Library