S
TRATEGIC
L
EADERSHIP
FOR
ORGANIZATIONAL AMBIDEXTERITY:
Reflexivity as an Antecedent for Top Management Team Performance
Thesis MSc Business Administration
Executive Program Management Studies
O.J.C. Aneke
Student ID: 10730877
Supervisors: dr A. Alexiou and dr. P. van Neerijnen
University of Amsterdam | Amsterdam Business School
T
ABLE OF
C
ONTENTS
1 Introduction……… 3
2
Theory and Hypothesis………. 2.1 The Top Management………... 2.2 Reflexivity and how it gives rise to organizational ambidexterity……… 2.3 The moderating role of the decision making process within the management team on the relationship between TMT reflexivity and organizational ambidexterity..
8 8 9
10 3 Methods………...
3.1 Data and Sample……… 3.2 Measurements………
14 14 15
4 Results………. 18
5 Discussion and Conclusion……….. 5.1 The importance of TMT reflexivity in achieving organizational ambidexterity….. 5.2 The effect of leadership style on TMT reflexivity and achieving organizational ambidexterity………. 5.3 Managerial implications………... 5.4 Limitations of this study and suggestions for future research………...
22 25 29 32 33 References……… 36
1.
I
NTRODUCTION
When firms conceive their corporate strategy, one fundamental concern they have to deal with involves making decisions on how to be effective in managing today’s business, while being adaptable for tomorrow’s changing environment. In effect, this involves making compromises on how to invest available resources in the different activities the firm engages in. Organizational research points out the importance for firms to not only refine their existing products and procedures, but to also invest in the discovery and development of new opportunities and capabilities. As such, firm activities can be broadly classified in two different categories, exploration and exploitation (Smith and Tushman, 2005; He and Wong, 2004; March, 1991).
Exploration involves a strategy that attempts to prepare a firm for an uncertain future by searching for new products or capabilities to enhance a firm’s competitiveness. In essence, strategic exploration is designed to drive environmental trends by creating innovative technologies and markets, and as such can be characterized by search, discovery, experimentation, risk taking, variation, innovation, play, and flexibility. Exploitation, on the other hand, is designed to respond to environmental conditions by improving and refining the efficiency of current technologies, capabilities and resources; as such, it implies behaviors that can be described by refinement, efficiency, production, selection, implementation, execution, and choice (March, 1991).
Generally, a tension arises between exploration and exploitation; as both activities have opposing purposes and by their nature are contradictory, they require substantially different and inconsistent organizational architectures, processes, capabilities and cultures, which differently affect a firm’s adaptability and performance (Smith and Tushman, 2005; He and Wong, 2004; March, 1991). However, as organizations are faced with an increasingly turbulent environment and the continuous challenge of expanding their capabilities to generate new products for the future, as well as leveraging existing competences and improving the efficiency of existing products (Benner and Tushman, 2003), exploration and exploitation need to be combined as well, in order to benefit from their individual value enhancing effects. While this is a paradoxical challenge, as both represent two fundamentally different approaches to organizational learning (e.g. Benner & Tushman, 2003; Eisenhardt & Martin, 2000) and compete for resources, a key factor for ensuring a firm’s viability and sustained competitiveness requires the firm to pursue a dual strategy, with a strong need of finding an appropriate balance between these two strategic approaches (March, 1991).
Researchers in organizational theory and strategic management have adopted the concept of ambidexterity as a metaphor to describe an organization’s ability to simultaneously demonstrate exploration and exploitation across an entire system. Ambidexterity (an individual’s ability to use both hands with equal skill), when used within an organizational context, describes an organization’s capability to simultaneously achieve alignment and efficiency in the management
of existing business demands, as well as being adaptive to environmental changes through innovation (e.g. Gibson & Birkinshaw, 2004; Holmqvist, 2004; Van den Bosch et al., 1999; Tushman & O’Reilly, 1996; Duncan, 1976; Cao, Gedajlovic & Zhang, 2009). While scholars have tended to focus on how organizational ambidexterity is enabled and built and acknowledge the importance of top management teams (TMTs) in enabling and developing the required conditions for organizational ambidexterity (He and Wong, 2004; Gibson and Birkinshaw, 2004; Tushman and O’Reilly, 1997; O’Reilly and Tushman, 2008; Smith and Tushman, 2005; Gibson & Birkinshaw, 2004; Lubatnik et al., 2006), little is yet known about how an organization’s TMT contributes to shaping an ambidextrous organization.
To address this theoretical gap, the present study explores the group processes within TMTs that enable them to achieve organizational ambidexterity. I argue that TMT reflexivity is an important antecedent to organizational ambidexterity. Based on organizational learning literature I define TMT reflexivity as “the extent to which top management team members reflect upon and communicate about the top management team’s group decisions and processes and accordingly adapt them to current or anticipated circumstances” (West, 2000). Accordingly, I argue that the level of reflexivity determines the integrative potential of ambidextrous organizations by enabling TMTs to balance exploration and exploitation.
Secondly, a growing body of literature suggests the benefits of shared leadership (Pearce & Conger, 2003). This supports the notion that the TMT, rather than the top person, or CEO, has the greatest effects on organizational functioning (O’Reilly et al., 1993).
Instead of focusing on the individual top leader’s behavioral and cognitive capacities, I focus on aspects of leadership behavior from the top person which support and induce reflexivity within the TMT. I argue that TMT reflexivity is enabled by team centric decision making within the TMT, which allows the CEO to engage in a participative group process through which diverse TMT members jointly wrestle with difficult issues to make decisions and build commitment to implement those decisions (Edmondson et al., 2003). Only when top leader behavior enables high quality, mutual, and collective interaction between TMT members, characterized by quantity and quality of information exchange, collaborative behavior and joint decision making, a TMT is better equipped to balance strategic decisions with regard to exploration and exploitation and, thus, build an ambidextrous organization.
With this study I contribute to the literature on organizational ambidexterity by refining our understanding of the role of group processes within the top management team, specifically TMT reflexivity, on building organizational ambidexterity. By integrating the literature and empirically testing a model using data collected from among Dutch and German firms, I provide further support for the ambidexterity-sustained performance relationship. Furthermore, I provide support for the hypothesis that the degree of TMT reflexivity is a trait of the TMT,
rather than an ad-hoc moment of reflection induced by a third party, as previously suggested by others (Lüscher and Lewis, 2008).
In the following section I introduce my conceptual model and clarify the role of TMT reflexivity and top person leadership and provide a detailed explanation of how they enable TMTs to achieve organizational ambidexterity.
2. T
HEORY AND
H
YPOTHESES
Recent studies on organizational ambidexterity have noted the importance of the TMT’s capability to deal with the cognitive challenges of the exploration-exploitation paradox (e.g. Smith and Tushman, 2005). This makes the learning capacity of TMTs highly of interest for advancing our understanding of creating ambidextrous organizations.
2.1 The Top Management Team
A TMT typically consist of a CEO and senior executives who hold positions at or above the level of vice president such as president, chief financial officer (CFO), and chief operational officer (COO) and are considered to be “direct reports”( Carmeli and Halevi, 2009). A TMT member is an individual who has a key role in strategic and operational decisions made by the firm (Castanias & Helfat, 1991; Hambrick & Mason, 1984). While research has long documented that the attributes of TMT members have a direct impact on the performance of the firm, Hambrick & Mason’s (1984) upper echelon (UE) perspective has significantly advanced our current understanding of the organization as a reflection of its top managers. Recently, however, inconsistent and ambiguous empirical results have resulted in scholars concluding that the role of attributes of TMT members on organizational performance is doubtful (Carmeli and Halevi, 2009). Current research has turned its focus towards the consequences of TMT processes on organizational outcomes. TMT processes can be classified as a distinct form of group processes,
because TMT members deal with larger firm-related responsibilities, both on an individual level, as well as collectively as members of a firm’s top decision-making team (Carmeli and Halevi, 2009). In order to address the theoretical call for extending the UE perspective (e.g. Carpenter et
al., 2004) and integrating other determinants of managerial cognition and behavior I focus on the
role of TMT reflexivity on organizational ambidexterity.
2.2 Reflexivity and how it gives rise to organizational ambidexterity
Team based organizational design enables organizations to develop and deliver products quickly and cost effectively, enables organizational learning and promotes positive outcomes, such as creativity and innovation (Cohen and Bailey, 1997). However, in order to be effective it is of key importance that teams coordinate the actions of their team members. Reflexivity has recently gained much attention from research scholars and has been identified as an important determinant of the effectiveness of complex decision making teams (Widmer et al., 2009). Reflexivity is a multidimensional concept that involves questioning, reviewing, evaluating, debating and adapting, and so is more than merely reflecting on what has taken place. Teams demonstrating high levels of reflexivity are characterized by greater attention to detail, inclusiveness of potential problems, critical debate, both long term and short term planning and adaptation. When team members collectively reflect upon their objectives, strategies, team processes, and wider environments and adapt to these aspects of their functional worlds and make changes accordingly, the team will be more effective (West, 2000).
Although the majority of research on reflexivity has been performed on lower level teams (West, Borrill & Unsworth, 1998; West, 2000), it has been associated with outcomes such as team
innovation and innovative behavior (West & Anderson, 1996; De Dreu, 2002), team effectiveness (Tjosvold, 1990), effective problem solving (Bottger & Yetton, 1987), and new product development performance (Lee, 2008). I argue that reflexivity within TMTs has similar implications on a firm level. TMT members are viewed as strategic decision makers and the decisions they make, either independently or jointly, are a result of the interactions between the different TMT members and the type and variety of cognitive perspectives represented in the team (Wiersema & Bantel, 1992). As TMT members have a significant impact on organizational outcomes through their actions and decisions (Thomas, Clark & Gioia, 1993; Finkelstein & Hambrick, 1996; Carpenter, Geletkanycz & Sanders, 2004) I argue that TMTs that engage in reflexive behavior will be more effective in balancing exploration and exploitation, and therefore achieving organizational ambidexterity. Hence, we formulate our first hypothesis:
Hypothesis 1: TMT reflexivity is positively related to organizational ambidexterity.
2.3 The moderating role of the decision making process within the top management team on the relationship between TMT reflexivity and organizational ambidexterity
How TMTs approach the paradoxical challenge of balancing short-term performance and long-term adaptability, and the resource allocation trade-offs they have to make, depends on the locus of integration (Bunderson, 2003; Hambrick, 1994; Perlow et al., 2004).
In some TMTs integration of the contradictions associated with simultaneous pursuit of exploration and exploitation occurs at the CEO level. In other TMTs a group of senior executives, typically the CEO and his or her direct reports share the responsibility for integrating the strategic contradictions (Ancona and Nadler, 1989; Bunderson and Sutcliffe, 2003). In the first approach, labeled as the leader centric model, the CEO sits metaphorically at the “center of a wheel” surrounded by business unit leaders, each of whom consults and communicates only with the CEO and not with one another (Tushman et al., 2011). Here, the CEO manages each “spoke of the wheel” separately, and each business unit relies heavily on the CEO. The CEO collects information about each strategic agenda, processes that information and makes decisions primarily on his/her own. Many leader centric decision making teams manage through an inner circle of two to three individuals. Business unit leaders interact with the inner circle members to learn, advocate and report progress, but they rarely or not at all interact with other business unit leaders. Joint meetings with the CEO and other business unit leaders merely serve for the purpose of providing information updates and resolution between exploitative and exploratory strategies takes place in the CEO’s office (Tushman et al., 2011). Leader centric CEO’s are most effective with teams characterized by distinct roles, goals, and rewards, where leader-member interaction is extensive, but member-member interaction is limited and where leader coaching is focused on the product level and avoiding conflict between team members (Smith and Tushman, 2005).
As the CEO is responsible for making the trade-offs between exploration and exploitation this puts a significant cognitive burden on the leader centric CEO (Tetlock et al., 2004) and subjects the team to the CEO’s decision-making biases (Bazerman and Watkins, 2004).
The second approach to integrating the contradictions stands in stark contrast with the first approach, and has been labeled the team centric decision making model. Here, business unit leaders are brought together in the CEO’s key circle and decisions on how to allocate resources and make trade-offs between existing products and innovations are made collectively by the
whole TMT. Decision making occurs through social interactions within team centric teams and,
as such, I argue:
Hypothesis 2a: Team centric decision making within the TMT enhances the effect of TMT reflexivity on organizational ambidexterity.
Hypothesis 2b: Leader centric decision making within the TMT reduces the effect of TMT reflexivity on organizational ambidexterity.
Our hypotheses and their respective relationships are summarized in our conceptual model in figure 1.
Figure 1: Conceptual model of the present study.
Team centric decision making within TMT
Leader centric decision making within TMT
TMT REFLEXEVITY
ORGANIZATIONAL
AMBIDEXTERITY
H
2AH
2BH
13. M
ETHODS
3.1 Data and sample
To investigate my model, we conducted a survey among Dutch and German firms. From our data pool we selected those firms with a headcount between 25 and 250 employees. An employee headcount of 250 is the generally accepted upper-level cut-off point for small and medium-sized enterprises (SMEs) (European Commission recommendation 2003/361). Firms with a headcount of less than 25 employees were omitted in order to account for some degree of organizational and coordinative challenges, as very small firms are not likely to have the capability to structurally invest resources to simultaneously pursue both exploration and exploitation (Lubatkin et al., 2006). CEOs, who were asked to fill out the survey, were assured confidentiality and were offered a report in which their firm was benchmarked against their respective sector. After selecting for companies within the 25 to 250 employee range, and screening the data and accounting for missing data, we retained 455 usable questionnaires of the original 699 (65%).
Our final sample covers a wide scope of industries, including metal and wood manufacturing (31.4%), retail and wholesale trade (19.6%), administrative support, management of companies, professional, scientific and technical services (25%), utilities and construction (5.1%), arts, entertainment, and food industries (2.6%), health care, social assistance and educational services
(3.5%), and other services (2.2%). On average, the firms in the sample were 46.16 years old (SD = 8.45) and consisted of 87.71 (SD = 54.52) full-time employees.
In order to test for response bias, we examined differences between respondents and non-respondents on the number of full-time employees, total assets, and prior performance. T-tests showed no significant differences. We also compared early and late respondents on demographic characteristics and model variables. These comparisons did not reveal any significant differences (p< 0.05). This indicates that nonresponse bias was not a problem.
In order to assess validity and reliability of CEO response we asked CEOs to have another senior manager complete a second questionnaire. This resulted in 41 responses, corresponding to 9% of the firms from the sample of 455.
3.2 Measurements
Unless stated otherwise, all measures are based on a response scale in which 1 indicated “strongly disagree” and 7 referred to “strongly agree”. I have included the main variable items in appendix I.
Ambidexterity. Following previous research (Gibson and Birkinshaw, 2004; He and Wong, 2004;
Lubatkin et al., 2006), we developed a two-step measure for organizational ambidexterity, based on measures of exploration and exploitation by Jansen et al. (2006) and operationalized ambidexterity as the sum between exploration and exploitation following the Edwards test (1994) as suggested by Lubatkin et al. (2006). Exploratory factor analysis indicated that one item
had to be excluded from the exploration scale. The resulting six-item scale for exploration (α = 0.87) captured the extent to which organizations depart from existing knowledge and capabilities and pursue radical innovations for emerging customers or markets. For the firm-level exploitation scale, exploratory factor analysis indicated one item had to be excluded. The resulting six-item scale (α = 0.79) captured the extent to which organizations build upon and refine existing knowledge and capabilities and respond to changing environmental conditions by pursuing incremental innovations that meet the needs of existing customers (Benner and Tushman, 2003; Smith and Tushman, 2005).
Subsequent joint exploratory factor analysis showed each item loading clearly on their intended factor (all factor loadings were above 0.61, with cross loadings under 0.35) and both factors having eigenvalues greater than 1.
Top management team reflexivity. I used the six-item scale from Schippers et al. (2008) to measure
reflexivity in the top management team. These items are based on Carter and West (1998). The scale demonstrated high reliability (α = 0.93) and exploratory factor analysis showed high factor loadings (all factor loadings above 0.80). Confirmatory factor analysis provided further confirmation of the construct validity of reflexivity (χ²=32.226, DF=8, CFI=0.99, RMSEA= 0.09).
Control variables. In order to account for several alternative explanations I employed four control
variables. Firstly, while large firms may have access to more resources, they might lack the ability to simultaneously pursue exploratory and exploitative activities. To account for firm size I
included the number of full-time employees within the organizations. Secondly, as the size of the TMT is known to be a covariate of other TMT variables such as TMT diversity and cognition (Cho and Hambrick, 2006), I controlled for TMT size. As organizational inertia improves with age as incumbent firms are naturally more inclined towards exploitative efforts (Gilbert, 2005), I added the years since founding as the third control variable to account for organizational age. In an uncertain organizational environment it might be more difficult for a firm to sustain a balance between exploratory and exploitative activities, hence I included a four-item measure for state uncertainty as our fourth and final control variable (Ashill and Jobber, 2010).
Aggregation and measurement analysis. Before combining the data to the organizational level the
inter-rater reliability scores were determined on the main independent variables (James et al., 1993 and Landis & Koch, 1977). Respective Kappa values were 0.85 for exploration, 0.86 for exploitation, and 0.83 for TMT reflexivity. Kappa values of above 0.7 indicate a good level of agreement (James et al., 1993).
Analyses. I tested the moderating effect of the TMT decision making process of the relationship
4
.
R
ESULTS
Table 1 represents the descriptive statistics and correlations. In order to identify potential multicollinearity issues I calculated Variance Inflation Factors (VIF). The highest VIF was 1.879, which is well below the cut-off value of 10 (Bowerman & O’ Connel, 1990), indicating that there is no cause for concern over multicollinearity. Table 2 represents the outcomes of the hierarchical multiple regression analyses, where model 1 represents the baseline model, which contains only the control variables. Model 2 adds the direct effects of TMT reflexivity and Team centric/Leader centric decision making. The effect for both independent variables on ambidexterity is positive and highly significant (Reflexivity: beta= 0.40, p< 0.01; Team centric decision making: Beta= 0.32, p< 0.01).
Table 1: Descriptive statistics and correlations Mean SD N 1. 2. 3. 4. 5. 6. 7. 1. Ambidexterity 9.5003 1.68101 490 1.000 0.041 -0.045 0.040 0.290 0.426 0.407 2. TMT size 11.30 29.710 523 0.041 1.000 -0.058 0.125 -0.011 0.059 0.025 3. Age 45.97 8.936 583 -0.045 -0.058 1.000 -0.061 -0.010 0.156 0.126 4. Employees 1638.2339 13245.80192 615 0.040 0.125 -0.061 1.000 0.038 -0.021 0.017 5. State uncertainty 4.4934 1.11959 532 0.290 -0.011 -0.010 0.038 1.000 0.473 0.392 6. Reflexivity 5.0169 1.13953 544 0.426 0.059 0.156 -0.021 0.473 1.000 0.627 7. Team centric/ Leader centric 5.1832 1.17745 547 0.407 0.025 0.126 0.017 0.392 0.627 1.000 Sig. (1-tailed) 1. Ambidexterity . 0.188 0.168 0.205 0.000 0.000 0.000 2. TMT size 0.188 . 0.100 0.004 0.400 0.091 0.285 3. Age 0.168 0.100 . 0.086 0.413 0.000 0.002 4. Employees 0.205 0.004 0.086 . 0.211 0.324 0.360 5. State uncertainty 0.000 0.400 0.413 0.211 . 0.000 0.000 6. Reflex 0.000 0.091 0.000 0.324 0.000 . 0.000 7. Team centric/ Leader centric 0.000 0.285 0.002 0.360 0.000 0.000 .
Table 2: Results of Hierarchical Regression Analyses
Model 1 Model 2
Base model
Collinearity
Statistics Organizational ambidexterity
Collinearity Statistics B SE p VIF B SE p VIF Control variables Constant 7.849 0.523 0.000 6.318 0.512 0.000 TMT size 0.002 0.003 0.398 1.019 0.001 0.002 0.811 1.027 Age -0.007 0.009 0.414 1.006 -0.021 0.008 0.011 1.045 Employees 2,781E-6 0.000 0.642 1.020 3,961E-6 0.000 0.472 1.024 State uncertainty 0.434 0.070 0.000 1.002 0.110 0.074 0.139 1.335 Independent variables Reflexivity 0.396 0.087 0.000 1.879 Moderator Variable Team centric/ Leader centric 0.318 0.079 0.000 1.685 Independent variables TMT Reflexivity R2 0.088 0.233 Δ F 10.150 39.477 P 0.000 0.000
a. Model 1 (control variables): Employees, TMT size, Age, State uncertainty
b. Model 2 (control variables and predictor variables): Employees, TMT size, Age, State uncertainty, Reflexivity, Team centric/ Leader centric
c. Dependent Variable: Ambidexterity
To test for the moderating effect of Team centric/Leader centric decision making on the relationship between TMT reflexivity on organizational ambidexterity I performed a bootstrapped moderation analyses with confidence interval using PROCESS (Hayes, 2013). The findings summarized in table 3 confirm that both TMT reflexivity (coefficient= 0.4071, p< 0.01) and Team centric/Leader centric decision making (coefficient = 0.3171, p< 0.01) have a significant effect on ambidexterity. However, no significant level of interaction, i.e. no moderating effect of Team centric/Leader centric decision making on reflexivity, was observed (coefficient= -0.006, p> 0.05).
Table 3: Results of moderation analyses
Model R R Square ΔR2 F p-value MSE F df1 df2
Model
Summary 0.4593 0.2110
- -
0.0000 2.2141 38.5482 3 469 Interactions - - 0.0000 0.0180 0.8932 - - 1 469 Model Beta SE t-value p-value - - - - Constant 9.4959 0.0776 122.3184 0.0000 - - - - Reflexivity 0.4071 0.884 4.6068 0.0000 - - - - Team centric/ leader centric 0.3171 0.855 3.7096 0.0002 - - - - Interaction -0.0060 0.0444 -0.1343 0.8932 - - - -
These findings provide support for hypothesis 1 by showing that TMT reflexivity is a key antecedent for organizational ambidexterity. This indicates that TMT reflexivity increases the ability of TMTs to more effectively deal with the challenges associated with balancing explorative and exploitative firm activities and, hence, to realize organizational ambidexterity.
The present study also demonstrates a positive effect of Team centric/ Leader centric decision making within the TMT on ambidexterity. This was, however, not due to moderation of the effect of TMT reflexivity on organizational ambidexterity, but rather due to a direct effect on organizational ambidexterity. I did not manage to provide support for our hypotheses 2a and 2b. In the subsequent section I will further explore the findings and their implications for theory and practice on organizational ambidexterity.
5.
D
ISCUSSION AND
C
ONCLUSION
The notion that organizations need to build capabilities for managing and reconciling contradictory forces was already clear several decades ago (e.g. Cameron and Quinn, 1988; Poole and Van de Ven, 1989). However, top management team literature has remained particularly silent on how senior management teams deal with contradictions (e.g. Carmeli and Halevi, 2009; Adner and Helfat, 2002; Finkelstein and Hambrick, 1996) and theoretical and empirical support in organizational literature remains scarce. The purpose of this study is to encourage organizational scientists to bring the challenges and dynamics that senior management teams face in achieving organizational ambidexterity more to the forefront of organizational research.
March (1991) clearly articulated that firms are subject to contradictory strategic and organizational demands. While contradictions can have negative outcomes, such as slowing down organizational processes or increasing internal struggles for power, the literature also suggests that contradictory agendas can coexist and succeed simultaneously. In fact, March (1991) argues that sustained organizational performance and organizational adaptability to dynamic environments is embedded in the ability to effectively balance the contradicting strategies of exploration and exploitation. Maintaining such balance helps to keep the system viable in the face of environmental disturbances. If the scale is tipped towards too much
exploitation the firm is bound to inertia and dynamic conservatism. On the contrary, too much emphasis on exploration drives out efficiencies and prevents gaining economies of scale or learning by doing (He and Wong 2004; Van de Ven et al., 1999; Brown and Eisenhardt, 1997; Tushman and O’Reailly, 1996). Similarly, D’Aveni (1994) argues that a key factor for building sustained competitive advantage requires that firms pursue a dual strategy that involves both building existing products through organizing short-term for efficiency and in creating products that drive out those existing products through long-term innovation. In spite of these and other efforts to improve our understanding of organizational ambidexterity, researchers still need to explore the drivers of ambidexterity under different circumstances, such that the scope and depth of the subject is better understood (Venkatraman, Chi-Hyon, & Iyer, 2005). Specifically, organizational scientists acknowledge that the senior management team plays a significant role in shaping organizational context and achieving sustained performance (Hambrick and Mason, 1984; Cho and Hambrick, 2006; Gibson & Birkinshaw, 2004; Lubatkin, Simsek, Ling, & Veiga, 2006), and their members are at the junction of internal pressures for stability and external pressures for change (Smith and Tushman, 2005). Each member is responsible for taking calculated strategic and operational decisions that affect how these dual strategies are balanced. Senior management influences the realization of organizational ambidexterity both through various direct and indirect actions and decisions. Direct influence is exerted through the decisions they make about resource investments, as well as their integration throughout the structure of the firm (O’Reilly and Tushman, 2008; Teece, 2007). Indirect influence is embedded
in characteristics of organizational structures, systems and processes that senior management teams devise (March, 1991; Teece, 2007). Organizations that are successful in managing this challenge are able to build internally inconsistent architectures and cultures into business units such that the firm can both explore and exploit, as well as create synergistic integration between these inconsistent strategies.
Organizational literature on ambidexterity has predominantly focused on the outcomes of senior management team decisions, i.e. the structures, systems, and customs by which the organization deals with these strategic challenges (O’Reilly and Tushman, 2008). While leadership literature has long documented the linkage between leadership and organizational context (e.g. Schneider, Ehrhart, Mayer, Saltz, & Nilies-Jolly, 2005; Tsui, Zhang,Wang, Xin, &Wu,2006; Manz, Bastien, Hostager, & Shapiro, 1989; Mumford, Scott, Gaddis, & Strange, 2002) and the importance of contextual leadership, how top management teams transcend the exploration-exploitation paradox, master contradictory strategy and structure, and enable and create organizational ambidexterity remains an enigma that has yet to be solved (Lubatkin et al., 2006; Smith & Tushman, 2005).
In line with Smith and Tushman (2005) I extend on the critical role that top management teams play in achieving organizational ambidexterity. Specifically, I argue that a firm’s ability to realize organizational ambidexterity depends on TMT reflexivity. Indeed, our study finds confirmation that TMT reflexivity is correlated to organizational ambidexterity. Furthermore, I
hypothesized that the relationship between TMT reflexivity and organizational ambidexterity is moderated by the decision making process within the top management team and argued that team centric decision making enhances the effect of TMT reflexivity on organizational ambidexterity, and vice versa that leader centric decision making reduces the effect of TMT reflexivity on organizational ambidexterity. Within my study I did not find any support for this hypothesis. In the subsequent sections I will discuss the main theoretical implications of this study.
5. 1 The importance of TMT reflexivity in achieving organizational ambidexterity
Reflexivity has been identified as an important process for effectiveness and performance of teams that have to make complex decisions (Widmer et al., 2009; Schippers et al., 2012). Research on the contingencies of reflexivity has identified three main roles of reflective behaviors. First, through reflexivity team members are able to create a shared understanding (van Ginkel & van Knippenberg, 2009; van Ginkel et al., 2009; Nederveen Pieterse et al., 2010). Secondly, reflective behaviors enable teams to use different perspectives in complex problem solving (De Dreu, 2002; De Dreu, 2007; Nederveen Pieterse et al., 2010; Schippers et al., 2003). Finally, reflexivity allows teams to learn from the past (Schippers, 2009) by triggering double-loop learning processes (Lüscher and Lewis, 2008) through reframing of mental models (Lews, 2000; Lewis and Dehler, 2000; Luscher and Lewis, 2008), and through team learning
(Schippers et al., 2009). In that sense, team learning is the outcome of a team process as opposed to the performance outcome. When teams have learned from their previous interactions, they can better assess their goals and current situation in order to find solutions in real-time for new problems (LePine et al., 2008; Marks et al., 2001; Sitkin, 1992). Reflexivity helps teams to step back from the problem and find a root cause for such problem (Croskerry,2003; Flavell, 1979; Keith & Frese, 2005; Senge, 1990), and this will be conducive to learning (Bandura, 2001; Georghiades, 2004).
As such, our study provided support for our hypothesis that reflexivity aids managers in the top management team to transcend the exploration-exploitation paradox. Moreover, reflexivity forms an important antecedent for the ability of top management teams to benefit from the coexisting opposites of exploration and exploitation (Smith and Lewis, 2011).
With this study I contribute to organizational literature on ambidexterity by refining the nature of reflective behavior, specifically within top management teams, and providing empirical support for the conceptualization of reflective behaviors as important antecedents to organizational ambidexterity. I define TMT reflexivity as “a discussion-based process in which TMT members reflect upon, question, review, evaluate, debate, adapt, and communicate about the TMT group’s decisions and processes and accordingly adapt them to current or anticipated circumstances”. As such, reflective behavior is not necessarily dependent on the involvement of
an objective external party, as previously suggested (Lüscher and Lewis, 2008), but can in fact be considered as a characteristic of a top management team, with a strong relational dimension (Schippers et al., 2008).
In practice, teams often do not reflect spontaneously (Gersick & Hackman, 1990), and especially after poor performance team members may end up dealing with the problems in a detrimental way (e.g. blaming each other, external attributions, and working harder instead of smarter), rather than reflecting on a constructive future-oriented approach with the aim of improving performance. However, reflexivity can be built through leadership within teams themselves without external intervention or through training by an external third party (Gurtner et al., 2007; Schippers et al., 2008). In that sense, inducing top management team reflective behavior might be a practical intervention that may improve top management team performance, particularly after relatively poor initial performance (Schippers et al., 2012). At the same time, building reflexivity takes time and effort and should thus be considered as a long term investment.
As top management teams have to balance the need to learn and improve with task execution (Bunderson & Sutcliffe, 2003; Ilgen et al., 2005) an important question is therefore when to invest in building reflective capabilities. Although many studies conclude that reflexivity is an important asset for teams, the contingencies of team reflexivity have received relatively little attention from scholars. Schippers et al. (2012) argue that reflexivity may be especially helpful for
teams that suffer from relatively low performance and that teams that are already high performing might have less benefit in final performance. These teams may concluded that they already do well, which might lead to overconfidence on the final task (Vancouver et al., 2002), or, alternatively, may spend their time inefficiently reflecting on their performance while this is not necessary. Thus, our study suggests that using reflexivity as a managerial tool might be more useful when used under a specific set of conditions. Or rather, it would seem that investing in building reflexivity within top management teams makes more sense for teams that performed poorly or mediocre. Recently, Hackman and Wageman (2005) have proposed that the timing might be ideal for interventions after receiving performance feedback, because the readiness from team members will be high at the end of the performance period.
Our study emphasizes the intrinsic relational dimension of top management team reflexivity. As team members engage in a group process where they communicate ideas with each other, share concerns, reflect, question, evaluate or adapt their understanding they expand, combine, and reframe their existing mental models and through it create a new understanding of their work domain (Lewis, 2000). Through this rationalistic process the top management team makes sense of how the contradictory agendas can coexist and how to divide its resources across both exploration and exploitation to make both strategies succeed simultaneously. As such, this paper contributes to the ambidexterity literature by conceptually extending our understanding of which major top management team mechanisms address the challenge of developing
complex behavioral responses that foster organizational ambidexterity.
5.2 The effect of leadership style on TMT reflexivity and achieving organizational ambidexterity
Related, this study also addressed how leadership behavior affects organizational ambidexterity. Previous work has argued that patterns and styles of leadership are important factors that can either enhance or diminish reflexivity in a team (for a review see Widmer et
al.,2000). For instance, in order to enhance reflexivity, a team’s leader might discuss errors
within the team in order to allow the team to learn from the past through double-loop learning processes (Lüscher and Lewis, 2008), reframing of mental models (Lews, 2000; Lewis and Dehler, 2000; Luscher and Lewis, 2008) and team learning (Schippers et al., 2009). The team leader can also induce reflexivity more directly by encouraging the team to reflect on their objectives, strategies, and processes and in such a way stimulate their communication. This creates a shared understanding and enables the team to use different perspectives in complex problem solving. Conversely, if the team leader does not discuss errors within the team, or only solves conflicts without considering the long-term consequences and opportunities to learn from the past, he or she might refrain the team from acting reflective (Schippers et al., 2012).
Several studies on leadership argue that leadership behavior has a significant impact on reflexivity. Hirst et al. (2004) found that facilitative leader behavior, i.e. productive conflict
resolution, promoting respect of positive relationships between team members, and sharing of ideas and opinions, was positively related to team reflexivity. Similarly, Somech (2006) showed that a participative leadership style, i.e. fostering joint decision making or shared influence by superior and employees, was linked to team reflexivity in teams with high functional heterogeneity. Moreover, a directive leadership style, i.e. providing the team with a framework for decision making and action in alignment with the leader’s own vision, only increased team reflection in teams that scored low on functional heterogeneity.
The question why leadership affects reflexivity has received scant efforts within organizational research. The present study tried to address it by exploring the role of the decision making process within the top management team on the relationship between top management reflexivity and organizational ambidexterity. However, I did not find any empirical evidence in support of our hypotheses that team centric decision making within the top management team enhances the effect of TMT reflexivity on organizational ambidexterity, and vice versa that leader centric decision making reduces the effect of TMT reflexivity on organizational ambidexterity. I believe that a plain distinction between leader centric decision making and team centric decision making does not capture the more distinctive differences between different leadership styles and the effect these might have on a team, specifically on enhancing or reducing reflexivity. Furthermore, even though a strict leader centric top management team is defined by a top person that makes decisions on his or her own, it is unlikely that within the
top management teams of the firms I studied, or even any SME, the top person makes the decisions that affect how exploration and exploitation are balanced solely on his or her own.
Therefore, I believe that within top management teams the distinction between leader centric and team centric decision making is not discrete, but rather a continuum and the direction in which the scale tips depends highly on the context. Leader centric and team centric decision making should thus be considered as two conceptual extremes, rather than real life occurrences.
A number of studies have looked at the processes through which leadership affects team reflexivity, by focusing on a specific leadership style. Schippers et al. (2008) showed that transformational leadership- a leadership style that can be characterized by intellectual stimulation, individualized consideration, idealized influence, and inspirational motivation (Avolio, Bass, & Jung, 1999) - enhances reflexivity. This supports previous findings of Schippers (2003), that the stronger the effect of inspirational leadership on creating a shared vision and building trust within the team, the more it leads to a better discussion and review process, better error management, more evaluation, higher levels of team learning, and ultimately increased reflexivity. Several other characteristics of leadership have been shown to impact team reflexivity. A study by Haward et al. (2003) found a positive effect of shared leadership combined with democratic decision making on reflexivity. Other factors that have been shown to play a role in fostering reflexivity include cooperation (Tjosvold et al., 2002; Tjosvold et al.,
2004), social skills (Hoegl & Parboteeah, 2006), and team cohesiveness (Lee, 2008).
This study contributes to the ambidexterity literature in several ways. Firstly, by integrating the literature and empirically testing a model using data collected from among Dutch and German firms, I provide support for the reflexivity-ambidexterity- sustained performance relationship and refine our understanding of the role of TMT reflexivity on building organizational ambidexterity. While organizational literature on ambidexterity has predominantly focused on the contextual outcomes of senior management team decisions- i.e. the structures, systems, and customs by which the organization deals with strategic challenges- I follow the argumentation of recent studies and suggest that learning behaviors play a critical role for members of the top management team in dealing with strategic contradictions. As such, I argue that the double-loop learning processes, reframing of mental models, and team learning associated with TMT reflexivity directly impact senior management’s capability to simultaneously pursue exploration and exploitation. Secondly, our integration of the role of leadership into our conceptual model of the reflexivity- ambidexterity relationship, and our study results provide more insight into the direction for further research on the moderating role of leadership behavior on TMT reflexivity.
5.3 Managerial implications
Although teams often do not spontaneously reflect on their goals, objectives, strategies, and processes reflexivity can be built through leadership within teams without external intervention, or through training by external third parties (Gurtner et al., 2007; Schippers et al., 2008).
Contrary to large firms, SMEs might not always have access to the resources required to create and support complex organizational structures and processes through which exploration and exploitation are structurally separated, nor do they have similar capacity to larger organizations to integrate both strategies. Our study shows the critical importance of TMT reflexivity for managers within SMEs in building organizational ambidexterity, and as such investing in building reflexive behavior within top management teams can be an important initiative to realize organizational ambidexterity. TMT reflexivity is relatively cheap to develop and maintain, and in that sense inducing TMT reflective behavior might be a practical intervention to improve TMT performance. However, although it is beneficial to induce such behavior in a top management team, managers should be aware that this process is complicated. Organizational history often shapes the routines an organization follows in conducting its business and its response to a changing environment. One way to mitigate this complex process is to build solid foundations, not only in the way the top management team is designed and shaped, but also into the organizational context that enables an ambidextrous orientation. Here, the CEO and his/her team play a critical role and need to make a deliberate decision to invest in creating and sustaining a system that is capable of managing strategic contradictions.
5. 4 Limitations of this study and suggestions for future research
with multiple measurements, we should recognize that only experimental studies can confirm the causality implied in our conceptual model. While our findings are firmly based within a theoretical background, the results need to be interpreted with some caution. An apparent direction for future research would thus be to follow up in experimental study designs, rather than a survey design. Alternatively, further evidence might be provided in the collection of longitudinal data, which albeit a more pragmatic approach, would however not provide clear evidence of a causal relationship between reflexivity within top management teams and organizational ambidexterity. At the same time, we should recognize that another concern might be that the participants involved in the surveys were all CEOs. We sent out the surveys to CEOs of the respective companies as they are the most knowledgeable regarding the constructs of our research topic. While additional analysis showed there is no cause for concern regarding common method variance, future research could avoid this issue altogether by including the top ten managers of each firm. As top management team members, and especially CEOs, tend to have an expiration date within their respective organization, another question which might be raised is whether the findings can be generalized to field contexts. On the other hand, teams with an expiration date are fairly common in organizations (Chen & Klimoski, 2003; Haas, 2006; Reagans et al., 2004).
It would be particularly interesting if future researchers explicitly measure different learning behaviors within top management teams and model a potential feedback loop between TMT
reflexivity and organizational ambidexterity through these learning behaviors. Modeling the dynamics of learning and organizational ambidexterity within top management teams would provide major insights into how long-term organizational performance is related to the relational interactions within top management teams. Although there is conceptual work within the organizational literature on how senior managers differentiate and integrate exploration and exploitation, much more remains to be understood and more qualitative research is necessary.
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Appendix I: Survey items
Exploratory innovation (adapted from Jansen et al., 2006)
Our organization accepts demands that go beyond existing products and services. We invent new products and services. We regularly experiment with new products and services in the market.
We commercialize products and services that are completely new to our organization. We frequently utilize new opportunities in new markets.
Our organization regularly uses new distribution channels.
We regularly search for and approach new clients in new markets.**
Exploitative innovation (adapted from Jansen et al., 2006)
We improve our existing sales channels. Lowering costs of internal processes is an important objective.**
We improve the efficiency of our production processes and services.
Our organization expands services for existing clients.
We regularly implement small adaptations to existing products and services.
We frequently refine the provision of existing products and services.
We increase economies of scales in existing markets.
Reflexivity (Schippers et al. 2008) The management team of our organization…
…discusses different ways goals can be realized
…works out what can be learned from past activities
…assess whether the team is on the right track during task execution
…checks whether our activities produced the expected results.
… evaluates the results of actions
…considers alternative courses of action if things don’t work out as planned.
Team centric vs. leader centric decision making
Within our management team…
…we decide jointly on the implementation of new business activities.
…we are jointly responsible for setting strategic goals.
…we jointly determine the planning of the main operational activities.
…we approach each other to make important decisions.
evaluate business performance.
** Item deleted after exploratory factor analysis.
a All items were measured on a seven-point scale, anchored by 1= strongly disagree and 7= strongly agree, unless otherwise noted.
