Chief Supply Chain Officers in Top Management Teams

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Chief Supply Chain Officers in Top Management Teams

The heterogeneity of the CSCO's and CEO's personal experience in

different cultural environments

Supply Chain Management MSc

University of Groningen, Faculty of Economics and Business

June 22, 2020

Master Thesis

Word count: 10 930

Gergely Grebicsaj

Student number: S3994422

Email: grebicsaj@student.rug.nl

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Abstract

This research is aimed to investigate the effects of the heterogeneity of Chief Supply Chain Officer’s and Chief Executive Officer’s personal experience in different cultural environments on firm performance. The relationship of top management team characteristics and organisational outcomes has been broadly investigated by scholars, but usually without the consideration of CSCO presence at top managerial levels. Therefore, this thesis intends to contribute to the academic literature of top management teams and CSCOs. The analyzed sample consists of S&P 1500 US based companies and those yearly return of assets performance metrics. In order to measure the heterogeneity of the CSCO-CEO pairs, I examined the foreign work experience and nationality of the executives. After a multi level regression analysis, the results showed a positive relationship between return on assets and CSCO-CEO foreign work experience heterogeneity. Moreover based on the analyzed data, the number of foreigners among the CSCO-CEO pair had a negative impact on firm performance.

Contents of Figures

Figure 1 - Conceptual model 9

Table 1 - Variables summary 18

Table 2 – Descriptive statistics 19

Table 3 - Model 1: General information 20

Table 4 - Model 1: Fixed Effects Parameter Estimates 21

Table 5 - Model 1: Random Components 21

Table 6 - Model 1: Random Effect LRT 21

Table 7 - Model 2: General information 22

Table 8 - Model 2: Random Components 22

Table 9 - Model 2: Random Effect LRT 22

Table 10 - Model 2: Fixed Effect Omnibus tests 22

Table 11- Model 2: Fixed Effects Parameter Estimates 23

Table 12 - Model 2: Simple effects Omnibus Tests 23

Table 13 - Model 2: Simple effects Parameter estimates 24

Table 14 - Hypothesis results summary 24

Table 15 - Descriptive statistics of Internationalization 27

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1. Introduction

The recent trends of global business operations reflect that supply chain management is getting more and more crucial for companies to achieve efficient and effective performance. On one hand, supply chain management has gained importance due to continuous changes in customer demand and supplier competition trends (Melnyk et al., 2009; Mentzer et al., 2001). Moreover, the globalization of many company activities and the increased tendency of outsourcing have lead to more complex and interconnected supply chains, which require close attention from corporate executives and academic scholars too (Baldwin, 2012).

The main goal of corporate top management teams (TMT), which usually include the roles of CEO, COO and CFO, is to create value for shareholders. The most common TMT tasks to achieve that involve strategic decision making and implementation (David, 2018; Wenner & LeBer, 1989). Supply chain management considerations are especially essential for TMTs to achieve specific strategic aims in different contexts. For instance, supply chain strategies can be predecessors of achieving social and environmental sustainability and financial profitability (Horvath, 2001). Meanwhile, the CEO usually has the highest influence over strategic decisions, the cooperation with other executives is necessary to accomplish effective supply chain strategies (Espedal et al., 2012). Recently a new role has emerged from mainly middle levels to TMTs, called the Chief Supply Chain Officer (CSCO), who is responsible for supply chain related strategies and operations (Hendricks et al., 2015). In the past supply chain managers have already played important roles in company success, but they were not included in TMTs, where they could have closely participate in top level strategy decision making (Groysberg et al., 2011). Nowadays, this pattern has been changed and CSCOs are appointed to TMTs more frequently (Wagner & Kemmerling, 2014).

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2 Consequently, many previous researches aimed to identify the different underlying relationships between TMT members’ characteristics and firm performance (Carpenter et al., 2004). The earliest and most broadly accepted study is the Upper Echelons Theory by Hambrick and Manson (1984). They have created a framework which proposed, that the TMT members’ heterogeneity of psychological and other observable characteristics affect strategic decisions and company performance. Recently, Wagner and Kemmerling (2014) focused on the likelihood of CSCO’s presence in TMTs, but firm performance considerations were excluded. Afterwards, in order to fill some gap about CSCOs, Roh et al. (2016) carried out a detailed study about CSCOs and firm performance, focusing on different firm specific contingencies. All in all, it can be deducted that initial motives were presented to enlighten the impacts of CSCO on companies. Nonetheless, I believe the specific relationship of the CSCO-CEO pair is especially important, due to their strategic importance in supply chain management (Espedal et al., 2012). The heterogeneity of the CSCO-CEO pairs’ personal characteristics may lead to conflicts about strategic decisions, which could lower the effectiveness of the corporate supply chain function. Personal characteristics can have many sub- dimensions varying from cognitive, demographic, cultural and experience aspects (Carpenter et al., 2004). In my research, I focus specifically on personal experience in different culture environments for the following reasons.

For today, in the field of supply chain management globalization has become a common term. It refers to the degree of globalized purchasing and distribution operations, which results in complex worldwide supply chain networks with many participating stakeholders (Baldwin, 2012). One complexity consequence of the geographic dispersion is the possible cultural diversity among the supply chain players (Tsing, 2009). The cultural differences in supply chains create new challenges for CSCOs, who have to adapt and acquire specific skills to handle cultural diversity. For instance, working in culturally diverse teams can result in non-democratic decision making processes and the lack of common understanding of specific operations (Park, 2019). Moreover, the cultural background of a person can influence attitude towards innovations and the level of commitment to previously established strategies, which are highly relevant in dynamic supply chain practices (Geletkanycz, 1997; Hoffman & Hegarty, 1993; Wadhwa et al., 2008).

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3 or different social surroundings which are differentiated based on dissimilar national norms and habits (Hofstede, 1984). Nowadays, the ability to cope with cultural dissimilarities has been seen as a valuable personal asset in the field of supply chain management, meanwhile the level of international experience widely varies among executives (Georgakakis et al., 2016; Tsing, 2009). The heterogeneity of the executives’ experience of cultural environments may suggest that they have different perceptions about cultural diversity issues and the required solutions for them.Therefore, this research is aimed to answer the following research question:

How does the heterogeneity of the CSCO's and CEO's personal experience in different cultural environments influence company performance?

In order to measure the heterogeneity of experience in different cultural environments, I intend to investigate the CSCO-CEO pair’s experiences in foreign countries. My first approach is to gain insight about their professional experiences at foreign companies, where they could face cultural diversity in corporate contexts. Moreover, a prior study suggested that high amount of international sales can increase cultural diversity impacts on firm performance (De Jong & van Houten, 2014). Therefore, with different internationalization levels the heterogeneity of the CSCO-CEO may not have the same impact on performance measures. Therefore, I will also analyze the internationalization’s moderating role in the relationship of executive heterogeneity and firm performance.

Moreover, as a result of globalization, the number of foreign executives has been rising in TMTs. Meanwhile, people with foreign nationalities can also possess unique experiences about cultural differences during their life time. Those deeply rooted experiences can affect their behaviour and co-worker relationships in their current work environment (Staples, 2007). Consequently, for my second approach, I will identify whether the CSCO-CEO executives are foreigners in the analyzed company and period or not. In that way I expect to deduct additional conclusions about the effects of the CSCO-CEO pair’s non-professional cultural experiences on company performance.

In the following section the theoretical background is presented, which is followed by hypothesis development. Next the applied methodology is explained, including a detailed description of the data gathering process and the analysis method. Afterwards, the results and conclusions are discussed, including theoretical contributions, managerial implications, research limitations and future research propositions.

2. Theoretical background

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4 management as a key strategic capability. Finally, an overview is showed about cultural diversity and its role in corporate organisations.

2.1 Upper Echelon Theory – Top management teams

The exact definition of top management teams (TMT) widely varies among different studies, however most commonly it is referred to the coalition of executives, who are responsible for corporate strategic decision making (Carpenter et al., 2004). The most important member is usually the Chief Executive Officer (CEO), who is responsible for leading the TMT and coordinate the processes of strategy related decisions and implementations (Daily & Dalton, 1997).Regardless of the usual dominance of the CEOs, the collaboration of top management members has been proved to be essential for achieving high level of performance in many corporate settings, such as market share gaining and profit generation (Baumol et al., 1964; Finkelstein, 1992). Hence, the question of what exactly influences effective cooperation among TMT members may arise.

Hambrick and Mason (1984) built up the Upper Echelon Theory (UET) about this phenomenon, focusing on the relationship between executive characteristics and strategic outcomes of companies. In their framework many personal manager characteristics were included from cognitive values to more easy observable demographic attributes, which are assumed to affect managerial decisions and eventually firm performance. Management personal characteristics are clearly significant indicators of firm performance, which has been supported by other studies too (Carpenter et al., 2004). On one hand, different cultural and social norms are able to have an effect on personal decision making processes and outcomes (Vitell et al., 1993). Moreover different experiences, such as international encounters, can mediate manager’s cognitive behaviour, which also relate strategic outcomes by altering the executives’ viewpoints about the necessary steps towards their desired strategy (Nielsen & Nielsen, 2011).

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5 many inconsistencies in the findings, which can bring confusion for the readers. This was proposed by Wang et al., (2016) who conducted a meta analysis of the published contradicting results about CEO characteristics and firm performance. One of the main conclusions of their report was that, executives’ personality and past experience significantly impact firm performance outcomes either positively or negatively (Wang et al., 2016).

According to previous literature, the exact relationship of TMT’s heterogeneity and firm performance has been a truly controversial topic. Prior research showed that TMT heterogeneity has a negative impact on firm performance in the short-run, while the heterogeneous team composition might offer benefits in the long-run (Murray, 1989). Also in some cases, heterogeneity can enhance the company’s ability to effectively adapt to environmental factors, such as customer requirements, supplier relations and governmental regulations (Schneider, 1987). Additionally, higher team heterogeneity can bring real benefits for TMTs, such as increased creativity during decision making or advanced overall ability to cope with uncertainties (Bantel & Jackson, 1989; Murray, 1989). On the other hand, it was suggested that high heterogeneity is an antecedent of managerial conflicts which, decreases firm efficiency and profitability (De Dreu, 2006). In addition, many academic papers showed other downsides of team heterogeneity as well, in terms of lower communication effectiveness, slower decision making processes and decreased innovative attitudes (Caldwell et al., 1989; Zenger & Lawrence, 1989). In general, the propositions of previous academic literature about TMT heterogeneity are rather contradicting. This phenomenon is emphasized in Nielsen’s study (2009), who mentions that the positive or negative contributions of TMT heterogeneity can vary across different contexts. For instance, the question of the company’s short-term/long-term orientation or the type of heterogeneity (e.g. educational, experiences, nationality) can alter final results about TMT heterogeneity and firm performance (Nielsen, 2009).

2.2 The emergence of SCM and CSCOs

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6 SCM usually considers purchasing and logistics operations as the main functions of the area, but recently new aspects gained relevance such as supply chain integration, knowledge sharing, process improvement and sustainability (Tan et al., 2002). Due to the broad scope of SCM, which comes mostly from global operations and cross-functional roles, supply chain managers tend to face more responsibility in efficient information processing, coordination and integration than managers in other positions (Sanders & Carpenter, 1998; Kiessling et al., 2014; Lu & Shang, 2017 ).

Sandberg & Abrahamsson (2010) highlighted the corporate executives’ specific roles in SCM. Specifically, they suggested their essential roles in supply chain risk sharing practices, partner relationship management, performance control and exploration of continuous improvement opportunities. The broad scope of SCM reflects that, effective supply chain strategies require from the involved executives a special “horizontal” perspective of their organisation. The horizontal perspective makes possible to oversee and align different supply and demand conditions in a comprehensive manner (Fisher & Hammond, 1994; Mangan & Christopher, 2005). Meanwhile in a survey study, supply chain professionals confirmed that top management support is one of the most effective facilitator for SCM success. Executive support is crucial because of their unique positions at the top of the organisation, where the executives have the ability and authority to monitor the overall supply and demand conditions (Larson et al., 2007). However, conflicting interests in strategic investment decisions can emerge between the top executives and supply chain managers. For instance, while supply chain managers tend to support long term investments in information sharing and relationship management systems, CEOs might favour investments which yield immediate performance improvements (Slone et al., 2007). Besides, the deep understanding and knowledge of SCM is often missed at top management levels, which leads to the lack of commitment to SCM investments and the ignorance of supply chain performance measures (Fawcett et al., 2006; Slone et al., 2007).

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7 The amount of researches focusing on CSCOs is not substantial at the moment. One of the initial studies investigated, whether the presence of CSCOs in TMTs influence company performance or not (Wagner & Kemmerling, 2014). The results were surprising, because it showed that the company’s operating margins were lower when CSCOs were appointed to TMTs. Apparently, the cause of the negative relationship can lay in different predicting factors, which were excluded from the research. However, the study gave insight about the effectiveness of CSCOs in supply chain strategy implementations. The SCM functions were accomplished more successfully due to the involvement of supply chain managers in top level strategic decision making (Wagner & Kemmerling, 2014). In addition, Roh et al., (2016) examined how different firm related contingencies influence the appointment of CSCOs to TMTs and the corresponding company performance results. The firm’s leverage ratio, product diversification and internationalization level were taken into account. All of them proved to be positively associated with the likelihood of CSCOs’ appointment to TMTs, while all three positively moderated the relationship of CSCO presence and firm performance.

2.3 Cultural diversity and sensitivity

The term “culture” is usually defined in many ways in common language and literature. Harris and Moran (1989), said that culture refers the people’s communicable knowledge about coping with a particular environment. Moreover, in common language culture is often a substitute for identity, nationality and demographic class (Hofstede, 1984). The most broadly accepted dimensions of national cultural diversity have been proposed by Hofstede (1984), who defined power distance, individualism, masculinity and uncertainty avoidance, as important indicators of cultural dissimilarities in different countries.

One of the first studies which introduced the term ‘diversity management’ was published in 1987 (Johnston & Packer), which highlighted the upcoming importance and challenges of managing working groups with diverse age, gender and cultural characteristics. For the end of the 1990s, multinational companies widely used diversity management as a tool for dealing with employee differences in local and foreign subsidiaries (Strachan et al., 2010). An essential consideration of diversity management is the balance between the assimilation of individuals with different cultural backgrounds to the shared corporate culture, and the protection of the differentiable unique cultural traits of each person. For instance it was argued, that communication practices, directness and rationality should be linked more closely to the shared group norms instead of personal beliefs. With other words, for support organisational common interests the authentic self should be hold back by individual employees to some extent (Ferdman & Roberts, 2014).

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8 culture of a company can moderate the level of job satisfaction and organisational commitment of employees, which were proved to be determinants of organisational performance (Lok & Crawford, 2004; Riketta, 2002). An indicator for organisational culture differences can be the cultural dissimilarities in different nations. For example, the level of bureaucracy, the employee empowerment and decision making centralizations can highly differ between Western and Eastern companies (Chen & Francesco, 2000; Sommer et al., 1996). Moreover, the concept of “translational monolingualism”, which includes the differences between actual “meaning” conceptions in languages, is considered as a main reason behind working inefficiencies in international organisations (Park, 2019).

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3. Hypothesis development

In this section, I present my conceptual model. The baseline theory which is broadened, is the Upper Echelon Theory proposed by Hambrick & Mason (1984). This research is specified to the effects of CSCO-CEO pair’s experience heterogeneity of different culture environments on firm performance. For an overview of the investigated relationships, the conceptual model is presented in Figure 1.

Figure 1 – Conceptual model

3.1 International work experience

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10 to mitigate the effects of relational risks, such as opportunistic behaviour, loss of competences, and incomprehension. Meanwhile, the decreased relational risks can create profitable partnerships in the supply chains (Cheng & Chen, 2016). Moreover, the effective management of cultural differences by the CSCO can improve an organisation’s cross-border partner relationships and knowledge sharing procedures, which can be a source of competitive advantage for the participating firms (Cheng & Fu, 2013).

Based on the previous arguments, which included the benefits of foreign work experience specifically for the CSCOs and also highlighted the role of the supply chain strategies in organisational success, I propose my first hypothesis below.

H1: The international experience of the CSCO positively influences firm performance.

In spite of the possible benefits of individual international experience, the necessary collaboration of the CSCO-CEO pair brings the question what happens if their experience differs. Prior researches suggested that managers’ personal values are affected by their individual experiences. Also, it is expected that with similar backgrounds they will establish similar values. On the other hand, if the experiences highly diverge from each other, different values and beliefs may emerge (Carpenter et al., 2004). If managers confront different values and opinions, their decision making efficiency can decrease. The root can be the occasional mistrust and misunderstandings among them, which could require time and resource consuming conflict resolutions (Hambrick & Mason, 1984; Tuckman, 1965).

Moreover, working experience homogeneity can improve team cohesion, by providing similar frames and knowledge for problem solving. However, when the international experiences differ among executives, the CSCO and CEO could have different scanning methods for international markets, institutions and cultural environments. The scanning of business environments can include the identification of competition trends, demand patterns and expansions opportunities (Michel & Hambrick, 1992; Roth, 1995). Consequently, if the environmental scanning approaches of the CSCO’s and CEO’s differ, it could result in different views of possible opportunities and threats in the foreign markets (Shapiro et al., 2008). The misaligned scanning procedures, due to personal differences, can eventuate in decreased organisational strategy success with lower performance results (Hambrick, 1982).

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11 valuable international expansions might be missed due to misinterpretations of perceived data about the environment. This eventually could result in further profit losses for the company (Herrmann & Datta, 2005). Also, internal communication practices indirectly affect external integration procedures with business partners. Therefore, integration can be endangered too, if the CSCO and CEO do not follow a consistent internal communication strategy (Jacobs et al., 2016; Argenti, 2015). In that case, firm performance can be negatively affected again, because a proper implementation of supply chain integration can boost up operational excellence and revenue growth (Rai et al., 2006).

Moreover, experience heterogeneity between managers can result in slower and less likely actions at competitive markets (Hambrick et al., 1996). According to the Red Queen Effect theory, companies’ competitive actions are highly relevant success factors across the whole supply chain, and continuous competitive moves have to be taken by the participants in order to stay in business on the long run (Derfus et al., 2008). For example, partnerships with highly capable suppliers can be really valuable, consequently intense competitive rivalry tend to occur at upstream factor markets (Ellram et al., 2013). Also, the recent emergence of e-commerce has forced companies to offer same price levels for similar products. Therefore the up-to-date and flexible capabilities in the field of customer service have become essential competitive factors. CSCOs and CEOs have to be aware of that recent trends, and simultaneously adapt their customer relationship strategies in the whole supply chain, in order to keep up with the actual customer requirements and gain higher profit margins (Boyaci & Gallego, 2009). It can be concluded that, experience heterogeneity can have a negative impact on decisions making efficiency, environment scanning procedures, internal communication effectiveness and competitive actions. Consequently, based on the previously discussed studies my second hypothesis is presented below.

H2: The heterogeneity of international work experience between CEO and CSCO negatively influences firm performance.

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12 diverse supply chains. These can alter resource allocation strategies of suppliers and overall supply chain performance (Krause et al., 2007; Pulles et al., 2014). The level of trust between partners can rely on different cultural attributes, such as social norms and behavioural assumptions (Doney et al., 1998). In addition, cultural distance can influence new product development opportunities, due to complexities in vertical integration practices. The sources of the integration difficulties usually are inefficiencies in knowledge sharing and coordination (Parente et al., 2011). From a SCM perspective it can be concluded, that firm internationalization requires from executives the ability to handle cultural differences effectively. Meanwhile, foreign work experience can significantly contribute to this skill through cultural sensitivity improvement. Specifically, cultural sensitivity can strengthen the executives’ capability to create trust and valuable business relationships in foreign markets (Shapiro et al., 2008).

The argument for my second hypothesis showed that, the heterogeneous foreign experience of the CSCO-CEO pair can create obstacles in decision making process, environment scanning procedures, effective internal communication and competitive behaviour. At this point, I intend to broaden my framework with the contingency of internationalization, which might moderate the effects of CSCO-CEO heterogeneity on firm performance for the following reasons. First of all, effective environmental scanning is said to be a key success factor of export operations, as it helps to form appropriate market entry strategies. In case the executives fail to apply a proper scanning strategy because their dissimilar experiences, international business units could suffer substantial profit losses due to the scanning misconceptions (Lim et al., 1996). Therefore, high internationalization levels might empower the negative effects of the CSCO-CEO pair’s misunderstandings in scanning methods.

Secondly, studies have showed that risks in international operations can be mitigated by supply chain integration. The minimized operational risk can result in cost reductions for both local and cross-border firms (Suzuki et al., 2011). Also, integration intentions can enhance flexibility in operations and exploit possible complimentary relations in globalized industries. For these reasons, if the CSCO and CEO fail to address a proper internal communication policy, integration efforts are also negatively influenced, which might affect the firm’s international performance more drastically (Argenti, 2015; Mosoma, 2004).

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13 on firm performance, because their possible inefficiencies in environment scanning, integration and competitive strategies would not be that substantial. Hence, my third hypothesis is presented below. H3: The effect of the heterogeneity of international work experience between CEO and CSCO on firm performance is positively moderated by the firm’s internationalization level.

3.2 Foreign nationalities

A previous study found positive direct relationship between executives’ national heterogeneity and TMT performance (Elron, 1997). However, effective cross-cultural management, which creates cultural synergy, is essential to not suffer disadvantages of nationality differences. This means, that the organisation’s SCM policies and practices should be formed based on the CSCOs’ and CEOs’ cultural patterns, in order to create value from their diversity (Adler, 1980). Evidently, different nationalities have many cultural differences, which can affect the individuals beliefs, values and decision making practices (Gladwin, 1981). The cultural differences might come from the individual’s experiences in a specific institutional and social environment, where the CSCO and CEO have spent the early years of their life (Hambrick et al., 1998). Formal institutional experience shapes the executives’ view about political and economic rules, while informal institutions influence tacit norms and social interactions (Lott & North, 1992). The most basic informal attributes of thinking, feeling and acting attributes are established during childhood, which are so deeply rooted, that any substantial change in behaviour during foreign work experience is unlikely (Hofstede & Hofstede, 2005). Therefore, national diversity can provide experience about cultural and institutional dissimilarities across countries. Those experiences of the CSCO-CEO pair can affect organisations in many aspects. According to Greve et al. (2009), nationally diverse management teams tend to develop strategies, which take into account international stakeholders’ preferences more carefully. Moreover, a nationally diverse management team can be an indicator for the international workforce’s motivation and their positive attitude towards international career opportunities (Greve et al., 2009).

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14 requires from companies to operate in agile and flexible manners, in order to serve the continuously changing demand patterns (Hyland et al., 2003). Last but not least, foreign CSCOs and CEOs might be able to perform successful foreign market entries with high speed and efficiency due to their experiences about national diversity. One clear benefits would be the mitigated cost elements of cultural adaptation during the expansions (Bloodgood et al., 1996; Herrmann & Datta, 2005; Nielsen, 2010). Based on the previous arguments, I intend to test the following hypothesis:

H4: The number of foreigners among the CSCO-CEO pair positively influences firm performance.

4. Methodology

4.1 Data collection

The unit of analysis in my thesis is one fiscal year of a given company, where the CSCO and CEO have worked together in the same TMT. As I intend to analyze the relationship between CSCO-CEO personal characteristics and yearly firm performance, my dataset consists of three main parts, firm specific information (ROA, internationalization), CSCO information and CEO information.

The data regarding CSCO characteristics and firm performance was provided by my thesis supervisor. Initially, I would like to introduce the specific steps and methods, which he did with his colleagues during the data collection. First of all, the population of the examined companies are S&P 1500 US firms, which are publicly traded in the US stock exchange. These are typically larger firms, however the firm specific information are easily accessible, because these companies are legally required to publish specific data about their operations and executive teams (John & Senbet, 1998). The first step was to identify the cases in the population where a CSCO was appointed to the TMTs. For this purpose they used Execucomp, which is a commonly accepted research database in the field of many management researches (Dezsö & Ross, 2012). For identifying the CSCOs in the database, my supervisor used the searching criteria of Roh et al. (2016). The first main challenge was related to the definition of the CSCO, because this role’s description can widely vary among different companies. Therefore, the classification of CSCO job titles in Execucomp focused on the following keywords: “Chief Supply Chain Officer”, “CSCO” and other sub-elements of the titles like “Corporate”, “Chief” or “Executive Vice President” and “Supply chain”. Also, managerial positions on lower management levels were excluded which partially included SCM tasks. The reason behind that was to include only the roles which carries responsibilities about the companies’ whole supply chain practices, not only about specific areas such as procurement or purchasing.

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15 BoardEx and Execucomp do not mark firms and individuals in the same code formats. Therefore the comparison and matching of the two datasets were necessary, in order to link the same companies and executives. On one hand, CUSIP was used for this purpose, which is a data identifier technique. CUSIP helped my supervisor to match the same firms across the two databases. Afterwards, they applied the Fuzzy-matching technique to match individuals from the same firm. Following that, in order to gather the characteristics of the previously matched CSCOs, they checked the BoardEx database manually for personal characteristics. A complication occurred in the matching procedure, which originated from the huge difference in the number of matching candidates between the two databases. Therefore, they have used a python based program, which helped to increase accuracy and made the matching process faster.

After matching and combining the two databases, my supervisor and his colleagues created the variables. The variable categories included personal characteristics of CSCOs, related to education, work experience, demography and firm performance measures. Moreover, they summarized the firm specific information, including internationalization levels of each firms. Eventually all cases, where a CSCO had been appointed to a TMT were identified within the time range of 1992 to 2018. Finally, the total number of available fiscal years, when both CSCOs and CEOs worked in the same TMT, was 623.

In terms of the CEOs’ personal characteristics, I performed the data collection with 5 other university students from the University of Groningen SCM master program. First, we divided the 623 observations equally among ourselves. Afterwards, everybody searched for the previously established set of variables of CEO’s characteristics at the BoardEx database individually. In order to minimize the rate of human error, each person was assigned to another peer to check his/her data collection work. For a start, sample of 10 observations was picked randomly by the evaluator from the peer’s sample. Afterwards, the evaluator repeated the data collection separately. In case of a higher mismatch ratio than 20%, the data collection had to be double-checked and corrected by the evaluated student. Moreover, one of my main variables includes the nationality of the companies and executives. However, the nationality data was often missing from the BoardEx database. In order to fill the missing data gaps, I have used the internet as a source when it was possible, specifically the company’s websites and LinkedIn profiles.

4.2 Variables

4.2.1 Dependent variable

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16 performance measure, because it takes into account the companies’ relative size of investments, which makes possible to compare different size companies more easily (Selling & Stickney, 1989). Moreover I have chosen the ROA for my measurement, because SCM contributes significantly to ROA results. On one hand ROA is highly affected by reactive supply and demand management strategies, where an adaptive supply chain network design can positively influence ROA metrics (Wagner et al., 2012).Also, inappropriate inventory level strategies are able to increase cost elements, which at the end lowers profitability and ROA. Similarly, degraded customer service elements can lower revenue bonuses from customers (Lee, 2002). Besides, integrated supply chain strategies and sustainability considerations, both from social and environmental aspects, have been proved to be beneficial for corporate financial performance and ROA (Wang & Sarkis, 2013).

4.2.2 Independent variables and moderator

The independent variable for H1 is the foreign experience of the CSCOs. Foreign experience is measured as counting the foreign firms, which the CSCO had worked for before the analyzed fiscal year. As the companies in the sample are from the US, any company outside the US is considered as foreign firm. Following that, in order to be able to measure foreign experience heterogeneity of the CSCO-CEO pairs, the number of previous foreign workplaces of the CEO was counted similarly. Following that, I calculated the absolute value of the difference between the two which gave me the final independent variable for H2. I considered higher foreign experience heterogeneity when the absolute value of the difference between the numbers of foreign firms they have worked for was higher.

Regarding H3, for the interpretation of the firms’ internationalization level as a moderator, the approach of Roh et al. (2016) was followed. Based on their study, the level of internationalization can be calculated by dividing the amount of international sales by the total sales. Finally, in order to make numeric conclusions for my last hypothesis (H4), I created a variable which states how many foreigners are among the CSCO-CEO pair. As the analyzed firms are based in the US, I considered an executive a foreigner if he/she is not from the US. Specifically, I allocated 0 if both the CSCO and CEO are from the US, 1 if only one of them is from the US while the other is not, and 2 if both of them are not from the US.

4.2.3 Control variables

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17 First of all, I applied a general control variable which refers to the year when the dependent variable was measured. According to financial researches, in the past 20 years average ROA values fluctuated considerably, partially due to different cycles in the global economy. Thus the year is included as a categorical variable, with the range of 1999-2018.

Moreover, based on the approach of Roh et al. (2016), I used two indicator variables which state if the company had acquired another firm in the examined year or in the previous year. The final model is expected to give a more realistic estimation of the real life relationships because, acquisitions can lead to more complicated and complex supply chain processes, which might alter ROA values significantly (Naor et al., 2010). The value of 1 is assigned to the acquisition variable if the firm performed an acquisition in the observed year and 0 otherwise. Similarly, the second acquisition variable has the value of 1 if the company had been engaged in an acquisition a year before the observed year and 0 otherwise. I also included the firms’ leverage ratio and their level of product market diversification, because prior researches showed their possible effects on firm performance (Campello, 2006; Hitt et al., 1997).Leverage was measured as the book value of long term liabilities divided by the book value of the total assets (Graham et al., 2013). For estimating product market diversification of companies, I applied Roh et al.’s (2016) previously calculated values. The Herfindahl Hirschman Index (HHI) is originally a measure for market concentration, but after a reverse coding process they constructed the product market diversification of companies. My last control variable in terms of firms’ characteristics is the assets’ size of each company. The value of corporate assets can affect firm performance results through strategic competitive advantage and valuating practices in accounting (Aboody et al., 1999; Kochhar, 1997). The assets size variable was generated as the natural logarithm of the value of total corporate assets.

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18 Table 1 – Variables summary

Variable name Variable type Description

ROA Dependent Return of assets = Operating income/ Total assets

Company ID Cluster Unique database IDs for each firm

Foreignfirm_CSCO Independent Number of foreign firms the CSCO had worked for Foreignfirm_hetero Independent

The absolute value of the difference between the number of foreign firms the CEO and CSCO had

worked for

Internationalization Moderator International sales / Total sales

Foreigners_total Independent The number of foreigners among the CSCO-CEO pair Year Control Categorical: the date of the analyzed year Acquisition Control Dummy: 1 if the firm performed an acquisition in the

analyzed year, 0 otherwise

Acquisition_lag Control Dummy: 1 if the firm performed an acquisition in the previous year, 0 otherwise

Leverage Control Long term liabilities of the firm / Total assets Diversification Control Product market diversification measured as Herfindal

Index (HHI)

Assets_size Control Ln (Total assets of the firm)

TMT_compensation Control Ln (Total compensation of every executive)

TMT_tenure Control

Mean number of years all reported TMT members have served in their current positions for each firm

year observation

TMT_size Control Ln (The number of person in TMT each year)

4.3 Data analysis

My initial assumption was that, due to firm specific characteristics the average ROA values could highly vary across different companies. For instance, employee turnover rates, corporate social responsibility programs and customer satisfaction levels can have an impact on organisational performance and also varies among companies significantly (Hancock et al., 2013; Saeidi et al., 2015; Sun & Kim, 2013). Therefore after a significance test of clustering effects, I followed a firm-fixed approach, in the form of multi level regression. In the past, the method of multilevel modelling was mostly applied by statistics specialist, due to calculating and conceptual complexities. Eventually, for today many software packages includes multi level regression functions, which provides flexible ways to analyze complex data sets for a wide range of researchers. The term of “multi level” refers to a data set characteristic, which means that data samples often consist of individual subject observations (first-level) which are clustered in organisational groups (second-(first-level). In the multi level approach the individual subjects share the same characteristics associated with their second-level clusters, while first-level characteristics can differ among the subjects (Nezlek, 2008).

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19 than single level regression. In terms of single regression, the lack of considerations about possible variable level differences and clustering effects can lead to lower statistical power and inadequacies in result implementation. For instance in case of single regression, value aggregation within clusters can commonly substitute the multi level approach, but it leads to the reduction of analyzed units, which lowers statistical power (Hox et al., 2010). Besides, the application of multi level analysis helps to avoid inaccurate conceptual implication regarding population homogeneity, which could be highly heterogeneous in real life. With other words, the multi level approach enlightens and implies heterogeneous traits of the sampled units, which increases statistical generalizability (Lindley & Novick, 1981).

I consider my dataset as a multi stage sample with two levels, a company level (second-level) and an individual year subject level (first-level). The individual subjects are the years, when a given company achieved a measureable ROA, and these years are nested based on different companies. There are a total of 173 companies, which means that there are 173 second-level clusters. Meanwhile, there are a total of 623 yearly performance observations, which refers to 623 pieces of first-level subject. Moreover, each first-level observation includes the corresponding characteristics of the company for the given year. These consist of the background of the current CSCO, CEO and other firm related information for that year. The amount of missing values of the variables on each level is presented below at Table 2. Consequently due to the missing values, the final sample for my analyzed data decreased in volume.

Table 2 - Descriptive statistics

N Missing Mean Minimum Maximum

ROA 613 10 0.1116 -0.48 0.41 Company ID 618 5 - - - Foreignfirm_CSCO 599 24 0.397 0 5 Foreignfirm_hetero 556 67 0.534 0 5 Internationalization 484 139 0.279 0 1 Foreigners_total 236 387 0.233 0 2 Year 618 5 2011 1999 2018 Acquisition 615 8 0.0943 0 1 Acquisition_lag 620 3 0.0903 0 1 Leverage 616 7 0.265 0.22 1.35 Diversification 616 7 0.853 0.20 1.00 Assets_size 619 4 7.80 3.92 11.7 TMT_compensation 576 47 7.05 1.65 9.68 TMT_tenure 623 0 4.78 1.00 15.00 TMT_size 620 3 1.79 1.10 2.56

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20 and standard errors, which reflects the parameters’ significance, and residual errors at the distinct levels. Due to the relatively large number of companies in my sample (173), the possibility of biased variance components is lower than in case of a small number of clusters (Luke, 2000). Therefore I applied the Maximum Likelihood Estimation (MLE) approach for coefficient calculation.

My first model is unconditional, which means it does not include any predictors, but allows the group means on the ROA to randomly vary. Model 1 determines if the variance of the intercepts is significant and provides an estimate of any inter-class correlation. In my research context, Model 1 tests if the ROA averages significantly vary among different companies. Secondly, I continued with the estimations of fixed regression coefficients by adding my independent and control variables. Model 2 assesses the contribution of each first-level predictor variables to the ROAs. Due to the involvement of the previously proposed control variables in Model 2, I expect sufficient statistical power.

5. Results

Firstly, I tested if multi level regression is sufficient for my analysis. The collected sample of companies decreased to 613, due to missing values of ROA. The initial statistics analysis showed that the grand mean of ROA is 0.109 across companies, while the standard deviation of companies’ average ROA from the grand mean is 0.0816. Moreover the Random effect LRT test of Model 1 (Table 6) reflects that, the random component of ROAs is significant (p < .001) among the clusters. In other words, the individual residuals of the analyzed firm years are not independent and the sample truly consists of clustered firm years. The level of clustering can be considered substantial, because the value of inter class clustering is 0.658 (Table 5). Consequently it can be assumed that, company specific characteristics have a significant effect on firm performance values. Therefore, I proceeded with multi level regression in order to be able to consider firm-fixed effects.

Table 3 - Model 1: General information

Estimate Linear mixed model fit by ML

Call ROA ~ 1 +( 1 | Company ID )

AIC -1408.092

BIC -1394.837

LogLikel. 707.046

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21 Table 4 - Model 1: Fixed Effects Parameter Estimates

Names Estimate SE df t p

Intercept 0.109 0.00691 170 15.8 <.001

Table 5 - Model 1: Random Components

Groups Name SD Variance ICC

Company ID (Intercept) 0.0816 0.00666 0.658

Residual 0.0589 0.00347

Table 6 - Model 1: Random Effect LRT

Test N. Par AIC LRT df p

(1 | Company ID) 2.00 -1072 338 1.00 <.001

In Model 2, I added the nine control variables and the independent ROA predictors based on my four hypotheses. The analyzed data set decreased to a total sample of 161 units, because observations with

incomplete data were excluded. The new marginal and conditional R-squared values are 0.292 and

0.848. Table 8 and 9 suggests that the clustering effect remained significant at this stage too (p<.0001; ICC=0.785).

Based on Model 2 my first hypothesis (H1), which says that the foreign work experience of CSCOs positively influences firm performance, is not supported statistically (p=0.963). However the estimated fixed effect coefficients reflects a slightly positive relationship (β =0.00100) (Table 11). Regarding H2 I argued that foreign work experience heterogeneity of CSCOs and CEOs negatively influences firm performance. The result is significant (p<0.001) about H2, but the relationship coefficient is positive (β =0.06361) (Table 11). Consequently H2 is not accepted.

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22 Table 7- Model 2: General information

Estimate Linear mixed model fit by ML

Call

ROA ~ 1 + Foreignfirm_CSCO + Foreignfirm_hetero + Internationalization + Foreigners_total + Year +

Acquisition + Acquisition_lag + Diversification + Levarege + Assets_size + TMT_compensation + TMT_tenure + TMT_size + Internationalization:Foreignfirm_hetero+( 1 | Company ID ) AIC -408.000 BIC -300.151 LogLikel. 239.000 R-squared Marginal _0.292 R-squared Conditional 0.848

Table 8 - Model 2: Random Components

Groups Name SD Variance ICC

Company ID (Intercept) 0.0745 0.00555 0.785

Residual 0.0390 0.00152

Table 9 - Model 2: Random Effect LRT

Test N. Par AIC LRT df p

(1 | Company ID) 34.0 -300 110 1.00 < .001

Table 10 - Model 2: Fixed Effect Omnibus tests

Name F Num df Den df p

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23 Table 11 - Model 2: Fixed Effects Parameter Estimates

Name Effect Estimate SE df t p

(Intercept) (Intercept) 0.23393 0.10673 115.2 2.1919 0.030

Foreignfirm_CSCO Foreignfirm_CSCO 0.00100 0.02135 71.0 0.0471 0.963

Foreignfirm_hetero Foreignfirm_hetero 0.06361 0.01776 123.8 3.5809 < .001

Internationalization Internationalization 0.09027 0.06326 74.1 1.4271 0.158

Foreignfirm_hetero ✻ Int. Foreignfirm_hetero ✻ Int. -0.08988 0.06243 71.7 -1.4398 0.154

Foreigners_total Foreigners_total -0.05189 0.01779 126.4 -2.9161 0.004 Year1 2000 - 1999 -0.11612 0.03996 138.1 -2.9059 0.004 Year2 2001 - 1999 -0.16745 0.03926 140.7 -4.2648 < .001 Year3 2002 - 1999 -0.15685 0.03958 145.7 -3.9629 < .001 Year4 2003 - 1999 -0.14602 0.03968 146.5 -3.6803 < .001 Year5 2004 - 1999 -0.13797 0.04062 148.7 -3.3963 < .001 Year6 2005 - 1999 -0.14752 0.04007 146.0 -3.6811 < .001 Year7 2006 - 1999 -0.17323 0.04366 147.7 -3.9675 < .001 Year8 2007 - 1999 -0.13706 0.04315 153.9 -3.1765 0.002 Year9 2008 - 1999 -0.14153 0.04299 156.4 -3.2924 0.001 Year10 2009 - 1999 -0.15431 0.04266 154.7 -3.6169 < .001 Year11 2010 - 1999 -0.12211 0.04289 154.4 -2.8469 0.005 Year12 2011 - 1999 -0.08966 0.04450 158.6 -2.0149 0.046 Year13 2012 - 1999 -0.13573 0.04593 159.3 -2.9552 0.004 Year14 2013 - 1999 -0.12159 0.04657 158.9 -2.6109 0.010 Year15 2014 - 1999 -0.15338 0.04871 160.6 -3.1489 0.002 Year16 2015 - 1999 -0.17819 0.05056 159.7 -3.5245 < .001 Year17 2016 - 1999 -0.16252 0.05097 161.0 -3.1887 0.002 Year18 2017 - 1999 -0.17288 0.05161 160.9 -3.3499 0.001 Year19 2018 - 1999 -0.18587 0.05496 161.0 -3.3817 < .001 Acquisition 1 - 0 -0.02177 0.01513 127.7 -1.4387 0.153 Acquisition_lag 1 - 0 -0.02642 0.01313 122.2 -2.0124 0.046 Diversification Diversification -0.09037 0.04958 99.1 -1.8228 0.071 Levarege Levarege -0.06057 0.05010 143.2 -1.2089 0.229 Assets_size Assets_size -0.00736 0.00912 64.6 -0.8070 0.423 TMT_compensation TMT_compensation 0.01081 0.00702 139.2 1.5393 0.126 TMT_tenure TMT_tenure -0.00263 0.00398 151.2 -0.6593 0.511 TMT_size TMT_size -0.03399 0.02878 135.3 -1.1811 0.240

Table 12 – Model 2: Simple effects of Foreignfirm_hetero : Omnibus Tests Moderator levels

Internationalization F Num df Den df p

Mean-1·SD 10.459 1.00 161.5 0.001

Mean 4.487 1.00 122.5 0.036

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24 Table 13 – Model 2: Simple effects of Foreignfirm_hetero : Parameter estimates

Moderator levels

Internationalization Estimate SE df t p

Mean-1·SD 0.0591 0.0183 161.5 3.234 0.001

Mean 0.0382 0.0181 122.5 2.118 0.036

Mean+1·SD 0.0174 0.0290 91.2 0.599 0.551

Note. Simple effects are estimated keeping constant other independent variable(s) in the model

Table 14 – Hypothesis results summary

Name Hypothized relationship Estimated relationship Significance (p) Result

Hypothesis 1 Positive relationship 0.00100 0.963 Not significant

Hypothesis 2 Negative relationship 0.06361 <.001* H2 is not accepted

Hypothesis 3 Positive relationship -0.08988 0.154 Not significant

Hypothesis 4 Positive relationship -0.05189 0.004* H4 is not accepted

Note: significant result (p<.05): *

6.1 Discussion

6.1 Mayor findings and contributions

6.1.1 The CSCO-CEO pair’s foreign experience heterogeneity

A broad literature showed that there have been considerable efforts among researchers to enlighten and understand how the corporate executives influence firm performance outcomes. The Upper Echelon Theory (UET) has been proved in many contexts that the TMT members’ personal attributes have significant impacts on firm performance. Within UET, the executives’ heterogeneity has been especially meaningful predictors of team efficiency and firm outcomes. Meanwhile the importance of SCM function of corporations has emerged simultaneously with supply chain managers to TMTs, the gap of CSCO’s in UET has not been filled completely. Therefore, I examined the relationship of the CEO-CSCO executive pair in terms of their heterogeneity. In order to gain insights within the context of SCM, I analyzed the effects of their previous experiences in different cultural surroundings on company performance.

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25 the CSCO’s foreign work experience influences firm performance only to a limited extent. Considering the complexity of a firm operations and ROA calculations, it can be a valid scenario that the impact of the CSCO’s experience remains considerably low compared to other factors, which predict ROA values. Large corporations operate in a complex manner with many internal ROA predictors, such as the ratio of fixed and variable costs, financial liquidity or the amount of intangible assets innovations (Arrow, 2002; Selling & Stickney, 1989; Takon & Ogakwu, 2013). Moreover, external factors can also predict ROA results. Supplier performance, product life cycles and competitors’ pricing strategies can be meaningful influencers of companies’ ROA statements (Chen et al., 2004; Selling & Stickney, 1989). Evidently, the characteristics of the CSCO could mostly contribute to firm performance results through an effective supply chain function strategy. However, the firm’s supply chain function can also be linked to many factors within and outside of an organisation, which are hard to observe and measure appropriately all together. For instance, internal financial policies and marketing strategies can influence the performance outcomes of SCM implementations (Caniato et al., 2016; Jüttner et al., 2007). Therefore the identification of the real effects of CSCO’s international experience might require a broader corporate involvement with more control elements (Chan & Qi, 2003).

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26 the company’s operations in different aspects. For instance, uncertainty can increase the potential of quality losses and delayed deliveries, therefore the capabilities to minimize its effects are essential for CSCOs and CEOs. Based on these arguments, it can be a scenario that the high experience heterogeneity of the CSCO-CEO pair supported creativity and uncertainty capabilities, which contributed to firm performance positively.

Besides, previous studies reflected that executives’ experience heterogeneity degrades internal communication effectiveness and effective competitive reactions, which eventually negatively affects supply chain integration and the company’s overall competitive position (Hambrick et al., 1996; Herrmann & Datta, 2005; Jacobs et al., 2016; Mosoma, 2004; Roth, 1995; Zenger & Lawrence, 1989). Nonetheless, the result of high firm performance under high heterogeneity contradicts these propositions. The cause may lie in the findings of a prior research, which said that low management team heterogeneity might limit the company’s overall ability to form agile supply chain strategies (Schneider, 1987). However, supply chain agility can be a key source of positive firm performance and competitive advantage. It refers to the ability to react in time to environmental factors, such as customer requirements, supplier preferences, governmental regulations or other unpredictable disruptions (Blome et al., 2013; Braunscheidel & Suresh, 2009). Also, agility is also said to be a success factor both in the field of integration and in battles with competitors. On one hand, integration requires from participants to be flexible in their operations in order to cooperate and create trust with partners (Chan et al., 2009). Meanwhile, the reliable fulfilment of fluctuating customer requirements is crucial at competitive markets (Reeves & Deimler, 2011). Therefore, a conceivable scenario could be that the heterogeneity’s positive impacts on agility overwrote the other possible negative side effects on communication effectiveness and competitive behaviour. Nielsen’s study (2009), which showed that the impacts of heterogeneity can strongly depend in firm specific contingencies, validates the contradictions between expected and actual results. He proposed that the effects of heterogeneity can have diverse impacts in different firm-specific contingencies, which can eventually result in prediction complexities in this topic (Nielsen, 2009).

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27 shows the density of different internationalization levels. It can be noted that the number of firm with higher internationalization levels (above 0.50) is apparently lower than firm with less international sales. As the number of analyzed units with higher internationalization levels is considerably less, the insignificance might be a consequence of imbalanced data (Shaw & Mitchell-Olds, 1993).

Table 15 - Descriptive statistics of Internationalization

N Mean Median Minimum Maximum

161 0.282 0.244 0.000 0.973

Figure 2 – Internationalization density

6.1.2 National diversity among the CSCO-CEO pair

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28 and time resources, which is in line with negative performance impacts (Hambrick & Mason, 1984; Tuckman, 1965).

Furthermore, Kaczmarek and Ruigrok (2013) have found out that national diversity in TMTs can be beneficial only if the company’s internationalization level is high. They argued that the foreign executives often misaligned in organisations that are not operate in a wide international scale (Kaczmarek & Ruigrok, 2013). As previously mentioned, in my results most of the analyzed companies have internationalization levels below 0.5, therefore the negative effects of foreign CSCO-CEOs might be explained by Kaczmarek and Ruigrok’s (2013) findings. This is also in line with Harmrick et al.’s paper (1998), which proposed that foreign executives are mostly suited to cope with creative assignments and have weaker capabilities to handle local, coordinative tasks (Hambrick et al., 1998).

In addition, Adler (1980) proposed that the national diversity can bring cultural synergy, if the company’s cross-cultural management practices are constructed based on the cultural attributes of organisational members. The achievement of cultural synergy can be important for companies because it involves the utilization of the TMT’s national diversity, which creates advantage from their cultural differences (Adler, 1980). Cross-cultural management can be a facilitator of the synergy effect. In the context of SCM, cross cultural management refers to strategic level diversity policies for external partners and practices for the moderation of diversity conflicts in internal operations (Søderberg & Holden, 2002). Previous studies in SCM showed that, the development of cultural-synergy can utilize different types of market knowledge, contributes to managers’ effectiveness in post-merger integration processes and accelerates plant setup activities in developing countries (Drucker, 1988; Monin et al., 2013). Thus, another reason for the negative impacts of the CSCO-CEO pair’s cultural heterogeneity might be the lack of cultural synergy within the organisations. It can be a scenario that the firms’ cross-cultural management limited the cultural synergy of the CSCO-CEO pairs, and consequently the opportunities to improve firm performance were missed.

6.2 Managerial implications

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29 dangers and benefits of heterogeneous working teams. Moreover, this study may also reflect that executives should consider taking foreign work opportunities, which helps them to create heterogeneous team compositions in the future. From a human resource perspective, this might also mean that executives with foreign experience are truly valuable at supply chain related job markets. Additionally, executives should pay careful attention in case of nationally diverse TMTs, because national diversity can negatively influence firm performance. In order to create value from different nationalities, companies should find a way to utilize the executives’ different cultural experiences and integrate their special capabilities into corporate strategies.

6.3 Limitations and future research

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30 decisions. In that way, their personal insights could be shared about the underlying applications of cultural sensitivity, which can be harder to observe through official, quantitative data.

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