Refocusing has become one of the major strategies pursued by large organizations in the 1990s. Prior research in the area of upper echelons (top management team) leadership has revealed that there is a strong relationship between top management team characteristics and organizational strategies and outcomes. However, researchers have confined their studies to exploring the impact of observable upper echelon characteristics, namely the demographic traits on corporate strategies and performance. In this paper I will try to integrate main sets of upper echelon leadership characteristics.
During the past decade there has been considerable research investigating the relationship between upper echelons (top management team) leadership characteristics and organizational strategies and outcomes. The leadership of upper echelons is critical to success in companies.
To a very large extent, such behavior on the part of top managers can be explained using the principle of bounded rationality (Reger, Mullane, Gustafson and Demarie, 1994). According to this principle, managers are not completely rational in the decisions they take. Managers are often constrained by the limited information they receive from the external and internal environments and therefore, take decisions which can be described as rational only within certain bounds. Therefore, it is important to develop a theoretical framework in the area of upper echelons leadership for understanding how the psychological characteristics of top managers influence the relationship between their demographic characteristics and organizational strategies and outcomes.
The business environment during the past two decades has been extremely dynamic. While corporate diversification seemed to be the norm in most industries till the 1990s, it is important to note that corporate refocusing (i.e., reducing the level of diversification within a firm in order to focus on the core business), has been more popular since the late 1990s (Markides, 1992; Donaldson, 1994). Refocusing represents an important aspect of corporate strategic change and requires dynamic leadership on the part of the top managers (Amburgey, Kelly & Barnett, 1990; Hoskisson and Hitt, 1994). The top management of a firm represents the dominant coalition of the firm and has considerable influence on whether and how the firm should refocus to maintain a competitive position in the industry (Hambrick & Mason, 1984). The success of the refocusing strategy depends on how the top managers are able to lead the initiation and the implementation of this strategy.
The demographic characteristics of upper echelons have a considerable impact on the organization's propensity to refocus and that this relationship is moderated by the psychological characteristics of its managers.
The impact of demographic characteristics: Hambrick and Mason (1984) state "organizational outcomes - both strategies and effectiveness are viewed as reflections of the values and cognitive bases of powerful actors in the organization." p.193. Drawing on Hambrick (1984) model of strategic decision making, Hambrick and Mason (1984) theorize that a manager's background characteristics can partially predict strategic choices and performance in organizations. They propose that observable managerial demographic traits such as age, tenure, education and functional backgrounds are important aspects of managerial leadership and that they can influence organizational strategies and performance.
Following Hambrick and Mason's (1984) conceptual model on upper echelons leadership, several researchers have tested their propositions in order to establish the linkage between demographic characteristics of top managers and their ability to lead the organization to desired outcomes. The studies conducted by Murray (1989), Norburn and Birley (1988), Bantel and Jackson (1989), Cho, Hambrick and Chen (1994), reveal that top management demographic characteristics such as age, education, functional backgrounds, top management team tenure and organizational tenure were significant predictors of organizational performance thus providing support for Hambrick and Mason's (1984) propositions.
A review of the recent literature in the area of corporate restructuring reveals that refocusing is a important strategy pursued by organizations in the late 1980s and 1990s (Cameron, Freeman and Mishra, 1991; Hoskisson and Hitt, 1994; Donaldson, 1994). Markides (1992) and Bethel (1993) state that as a correction for over diversification of the 1960s and 1970s, many firms resorted to corporate refocusing in the 1980s and 1990s. Corporate refocusing involves asset divestment to reduce diversity and to increase focus on the core business (Hoskisson and Hitt, 1994).
If organizations are to emphasize refocusing as an important corporate strategy, it would be interesting to examine to what extent Hambrick and Mason's (1984) upper echelons leadership theory is applicable to corporate refocusing. I propose a refinement of Hambrick and Mason's (1984) theory in order to understand corporate refocusing. Although demographic characteristics of the top managers are important in initiating refocusing, their psychological (political and cultural) characteristics can wield considerable influence in leading the implementation of this strategy (Pfeffer, 1993). Thus the demographic and psychological characteristics of top managers are important predictors of the team's ability to lead the refocusing strategy.
The impact of psychological characteristics: Managerial leadership is also derived from the psychological characteristics of managers. The psychological characteristics of top managers have a considerable impact on organizational strategies and outcomes (Hambrick & Mason, 1984). Psychological characteristics include the power and culture of top managers and influence the leadership exercised in organizations. Unlike the earlier studies on strategic changes, the application of Hambrick and Mason's (1984) upper echelons theory to corporate refocusing is complicated by several factors. First, corporate refocusing involves a deliberate shift on the part of the firm from diversification. This implies that resources that have been previously allocated to multiple business units will now be concentrated in a few strategically similar units. This will set off a major political upheaval especially at the upper levels. Top managers would want to hold on to their territories and would play political games if any attempt is made to reduce their standing in the dominant coalition and in the organization.
Second, corporate refocusing involves a major change in the organization's culture. The organizational culture which is manifested in the top managers is deep rooted in the organization's history and traditions. Any attempt to change the culture will again be met with resistance by the top managers. Thus, the psychological attributes of top managers can influence the relationship between their demographic characteristics and corporate refocusing.
Top managers have a considerable impact on the organization's decision to refocus. From a short-term point of view, refocusing involves reduction in the organization's fixed and overhead costs. In addition to divesting unrelated units from the firm's portfolio, top managers also take steps to initiate headcount reduction (Cascio, 1993). From a long-term point of view, refocusing involves directing the firm to a competitive position that is sustainable (Hamel and Prahalad, 1990). By marshaling all the resources towards a core business, the firm hopes to improve and strengthen its position to enable it to compete in the industry. Thus, leadership of top managers plays a crucial role in ensuring that the firm develops a sustainable competitive advantage.
Prior research has revealed that there is a significant association between the age of the top managers and their ability to steer the organization to success. Taylor (1975) found that age has a considerable influence on a manager's ability to process information. His study revealed that managerial age is negatively associated with the ability to integrate information in decision making. Consequently, older executives may have a greater commitment to the status quo and may avoid pursuing strategies that are a departure from previously established ones (Fincham and Rhodes, 1999). Conversely, as Hambrick and Mason (1984) propose, youthful managers are more prone to take risks and to attempt the unprecedented. Grimm (1991) found that younger the manager, greater the propensity to pursue strategic changes. Therefore, lower the average age of the top managers, greater the propensity to take bold decisions that increase emphasis on the core business.
Willingness to pursue strategic change is associated more with managers who have relatively spent less time in the organization. In the leadership succession literature, several researchers have found a positive association between new chief executive officers (C?O) and strategic changes. Greiner (1989) found that new C?Os are more likely to implement strategic changes over a short time period. A new C?O brings unique skills and talents which are conducive to carrying out changes (Thompson and McHugh, 2002). For example, when George Fisher took over the leadership position at ?astman Kodak in 1994, one of the first strategies he undertook was to refocus the company. Fisher divested many businesses that did not fit in with the company's core business (Fincham and Rhodes, 1999). Other companies where new C?Os initiated refocusing include, Johnson & Johnson and Caterpillar. In addition to the impact of new C?Os on strategic changes, there is also considerable support in the literature for the influence of other senior executives of the top management team on strategic changes.
Murray (1989), Fincham, R. and Rhodes, P. (1999) have argued that managers with shorter organizational tenure are less socialized into adopting the organization's existing norms and values than managers with longer tenure who have a greater commitment to the status quo. Therefore, new managers are likely to introduce different values and changes in the organization. These arguments find empirical support in the study conducted by Wiersema and Bantel (1992). Their study revealed that firms most likely to undergo corporate strategic changes had top management teams characterized by shorter organizational tenure. Therefore, managers who contemplate major changes in the firm's corporate strategy such as increased emphasis on the core business, and decreased diversification activity are likely to have shorter tenure.
In the upper echelons and leadership succession literature, there is considerable support for the association between top management team tenure and organizational outcomes. Singh and Harianto (1989) argue that longer team tenure among top managers creates greater identification with the organization and therefore, such members may not be willing to take risks. Bantel and Jackson (1989)found that longer the tenure of the team members, greater the resistance to organizational changes. This is because, long tenured team members may find it difficult to implement policies which represent a departure from established practices and procedures. Hoskisson and Hitt (1994) argue that longer the top management team tenure, greater the likelihood that the power of this team will become institutionalized, thus reducing the possibility of implementing strategic changes.
Managers who are fairly new to the team are more likely to understand the changing environment and to take the necessary actions. They are more likely to pursue growth in the core business even if it means directing a major portion of the firm's resources to a single industry.
Hambrick and Mason (1984) postulated that a person's level of formal education will be positively related to the ability to lead the organization to positive outcomes. This is due to the fact that higher educational levels are associated with higher information processing capability and the capacity to deal with complexity. There is considerable empirical support for Hambrick and Mason's (1984) theory. These studies include findings of a positive association between amount of formal education and organizational growth. Similarly, Bantel and Jackson (1989) found that higher levels of education are more likely to result in comprehensive and innovative decisions.
One of the main theories that can be applied to understand the psychological characteristics of top managers is institutional theory (Smith, 1991). Several researchers have argued that leadership in organizations is not entirely a rational process and that it is influenced by the institutional context within which managers have to operate. Institutional context refers to rules, norms and beliefs surrounding economic activity that define or enforce socially acceptable economic behavior.
At the upper echelons level, institutional factors affect leadership in the following ways. First, the history and tradition of the organization promotes institutionalization which infuses in managers a value that is beyond the technical requirements of the task at hand (Thompson and McHugh, 2002). This process of institutionalization operates to produce a common understanding about what is appropriate and meaningful behavior. Institutionalization produces a common culture among the top managers. This culture influences rules of conduct, leadership styles, decision making approach, administrative procedures and perceptions of the environment. Managers rely on shared conceptions and symbols which are embedded in the cultural infrastructure and thus may be prompted to pursue the status quo instead of what may be best for the organization (Zucker, 1987). ?ven if some of the managers are new to the team and to the organization, the culture may be so entrenched that the longer tenured managers may socialize the new managers into accepting the status quo. Therefore, even when the environment calls for a business focus on the part of the organization, managers may not pursue the strategy for fear of disrupting the managerial culture.
Second, institutionalization confers power on the managers which implies that they can influence rules and dictate how resources are going to be allocated among the various activities of the organization (Liebeskind, 1993). Refocusing can disrupt the power base of the organization prompting anagers to pursue the status quo instead of guiding their behavior to dynamic strategies such as refocusing.
Thus, although the demographic characteristics of top managers can influence corporate refocusing, this impact will be stronger only if the psychological characteristics of the managers operate to produce a mentality that considers the best interests of the organization. In other words, in the interest of the organization, if managers are able to exhibit rational behavior, it would be possible to initiate and successfully lead refocusing. Rational behavior on the part of the managers calls for a willingness to share power instead of holding on to one's territory. Second, it calls for a willingness to embrace cultural changes.
However, one of the main arguments of this paper is that the leadership of top managers has considerable bearing on the organization's propensity to refocus. We have built a theoretical framework proposing that the demographic and psychological characteristics of top managers can influence the ability to lead corporate refocusing. We have argued that even if the top managers possess the desired demographic traits, their culture and power base may come in the way of the organization's attempt to succeed at refocusing. The business environment of the 1990s is replete with cases of firms that have succeeded at refocusing and firms that have not. To succeed at refocusing, it is imperative that top managers embrace cultural change and share power among themselves. The environment of the 1990s and the next millennium calls for concerted efforts on the part of organizations to strengthen their core businesses, reduce costs, embrace technology, empower employees, and face heightened global and domestic competition.
In this paper, we have studied one aspect of leadership, namely, the influence of demographic and psychological characteristics of top managers on corporate refocusing. We recognize that leadership is a very broad area and that there are many other dimensions which may also affect corporate refocusing. Some of these dimensions include, personality traits of leaders, their experience in the business world, their interpersonal skills and charisma. Our unit of analysis has been the top management team. Although in many organizations it is important to have a strong individual who can provide the momentum for change, we decided to focus on the top management team instead of on a particular individual because corporate refocusing needs the commitment of all its top managers if it is to be successfully implemented.
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