A key factor that can have a direct effect on an organization’s overall performance is the composition of its top managers. Teams of top leaders are commonly referred to as top management teams (TMT), and researchers have investigated how various aspects of an organization’s TMT effect its overall performance.
A question often asked by organizational researchers is, do TMTs composed of members from different backgrounds and experiences (diverse) function better than TMTs composed of members with similar backgrounds? Despite the great deal attention focused on this issue, the answer to this question is still unclear.
Most recently, Cannella, Park, and Lee (2008) examined the relationship between diversity of TMT members and overall firm performance under certain conditions: (1) whether team members are geographically close together or far away (e.g., not in the same physical building) and (2) whether the company is relatively uncertain (i.e., unpredictable, quickly changing) or stable (i.e., predictable).
So what exactly did these researchers find?
1) TMTs composed of members with different backgrounds and experiences are more effective when team members were in the same physical location than when they were geographically dispersed.
2) TMTs composed of members with highly similar backgrounds were less effective than diverse TMTs regardless of geographical dispersion. However,
3) TMTs composed of members from similar backgrounds were more effective than diverse teams when the competitive context is stable and predictable. But, when conditions in the organization are highly unpredictable, diverse TMTs prevail.
All in all, having members of a TMT in the same physical location has direct implications for overall organizational performance. And depending on the predictability of the current completive climate, it may or may not be beneficial to have TMTs consisting of members from diverse backgrounds.
Cannella, A. A., Park, J-H., & Lee, H-U. (2008). Top management team functional background diversity and firm performance: Examining the roles of team member collocation and environmental uncertainty. The Academy of Management Journal, 51(4), 768-784.