The Effect of "Inner" and "Outer" TMT Size on the Performance of International Firms

Abstract

In a recent study that examined the moderating role of environmental turbulence and discretion on the relationship between top management team (TMT) size and firm performance, Haleblian and Finkelstein (1993) established the importance of top management team size as a factor that can affect firm performance. One reason the size of a firm's top management team is important stems from the impact that size has on the information processing capabilities of the top management team. In many ways a top management team can be considered the information-processing center of an organization (Thompson, 1967). Although the ability to process information is important for all firms, it becomes even more important as the level of a firm's international involvement increases. This is because, for most of these firms, a shift into international markets represents a major environmental shift (Bartlett and Ghoshal, 1989). Even within particular industries, worldwide companies must develop very different strategic and organizational responses to changes in their environment (Bartlett and Ghoshal, 1989). The increased complexities introduced by increased international activity force organizations to find a management team with the flexibility to develop adaptive strategies (Miller, 1991). As more and more businesses are finding it necessary to expand into international markets in order to remain competitive (Porter, 1990; Bartlett and Ghoshal, 1989, 1991; Lovelock and Yip, 1996), developing an understanding of how TMT size interacts with level of internationalization has become a more important issue. To date, the issue of whether or not a firm's level of foreign involvement moderates the relationship between a management team's size and firm performance has not been examined. As more firms venture into international markets, it becomes important to understand whether or not the relationship between TMT size and firm performance observed in the past (Haleblian and Finkelstein, 1993) will also be seen among firm's with varying levels of foreign involvement. The purpose of the current study is to explore the moderating effect of international involvement on the relationship between top management team size and firm performance. Specifically, it is proposed that in addition to the contributions made by team size and internationalization to the explanation of firm performance, the interaction between the size of a firm's top management team and a firm's level of international involvement will have performance implications. By exploring the moderating effects of international involvement, we may better predict the nature and direction of the influence of this moderator on the success of internationally active firms. In addition, results from the current study should provide the necessary foundation from which to develop more complex manager-performance models. CURRENT STATE OF THEORY Top Management Team Size For the most part, strategic management scholars have not done much research on the effects of top management team size on firm performance. Only four studies were found that specifically included team size as a predictor of firm performance. Cooper and Bruno (1977) and Eisenhardt and Schoonhoven (1990) were able to link team size with growth. Hambrick and D'Aveni (1992) found that firms facing bankruptcy were likely to have smaller teams than matched-paired survivors. Haleblian and Finkelstein (1993) argued that the effect of team size on performance depends on both the decision-making environment and the problem-solving task faced by the team. They suggest that smaller teams are more likely to be effective when operating in a relatively stable environment and faced with relatively routine decisions. On the other hand, when decisions are complex and nonroutine, and the environment more turbulent, larger teams, with greater information-processing ability, are more likely to be productive. This research suggests that there are advantages and disadvantages to both large and small top management teams. …

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