Enhancing Performance with Product-Market Innovation: The Influence of the Top Management Team

Powerful competitors and rapid technological change have made the quest for competitive advantage more difficult and its accomplishment less sustainable (D'Aveni, 1994). Corporate entrepreneurship in general and innovtion in particular are frequently regarded as important means of achieving superior performance in such competitive environments. Corporate entrepreneurship has been variously conceptualized as the strategic renewal of established corporations, and innovtion and venturing within established corporation (Guth and Ginsberg, 1990), and innovation within existing businesses (Sandberg, 1992). Lumpkin and Dess (1996) argue that innovation is a key element of a firm's entrepreneurial orientation, and Covin and Slevin (1991) note that innovation is an important dimension of a firm's repertoire of entrepreneurial behaviors. In fact, innovation is so important to corporate entrepreneurship that it may be considered the essence of such activity (Covin and Miles, 1999). Hence, the management of innovation ha s become a subject of significant research interest (e.g., Hitt et al., 1999). The research question examined in this article asks that impact top management them (TMT) demography has on the effectiveness of firms' product-market innovations. As Lumpkin and Dess (1996) note, top management team characteristics are a key contingency factor influencing the relationship between firm-level innovation and firm performance. Contingency models advance our understanding of organizational phenomena because they move beyond bivariate relationships and explicitly recognize the need for increased model specification (Rosenberg, 1968). Hence, to enhance our understanding of how innovation may contribute to performance outcomes, we examine the impact of management team characteristics upon that relationship. However, TMT demography is generally modeled as an independent or dependent construct rather than in a contingency model (Finkelstein and Hambrick, 1996). Briefly, upper-echelons research frequently posits that the decisions of top management are primary drivers of firm performance, and those decisions are influenced by the demographic makeup of the top management team. The upper-echelons literature has met with equivocal results (c.f., Finkelstein and Hambrick, 1996), particularly when attempting to link TMT demography directly to firm performance (e.g., Murray, 1989; West and Schwenk, 1996). We believe that a perspective that recognizes an interaction effect between strategy and the top management team may more accurately reflect the strategy formulation and implementation process. We discuss and test that perspective in this study. The article is organized as follows. In the next section we provide the theoretical background and development for two hypotheses regarding 1) the direct effect of innovation on firm performance and 2) an interaction effect between innovation and top-management team characteristics on firm performance. Next, we discuss the sample, data and statistical procedures. The article concludes with a discussion of the results of our hypotheses testing, implications of this study for practitioners and scholars, limitations of the study, and avenues for future research. CONCEPTUAL BACKGROUND AND HYPOTHESIS Miller and Friesen (1978) cite product-market innovation, that is, innovation comprised of product design, market research, and other marketing-related activities, as an important element of a successful innovation strategy. Other authors (e.g., Maidique and Patch, 1982) discuss technological innovation--an emphasis on research and development, and technical expertise related to new or improved products and processes--as the driver of a successful innovation strategy. Lumpkin and Dess argue that while the distinction between product-market innovation and technological innovation may provide a useful means to conceptualize innovation, in practice the distinction between the two is frequently blurred, ". …