Top Management Team Correlates of Organizational Growth in a Small Business Context: A Comparative Study

Organizational growth can potentially provide small businesses a myriad of benefits, including greater efficiencies through economies of scale, increased power, the ability to withstand environmental change, increased survival rates, increased profits, and increased prestige for organizational members. Many small firms desire growth because managers have come to expect growth as a natural condition, and growth is equated with progress (Boardman, Bartley, and Ratcliff 1981). Consequently, organizational growth is often used as an indicator of effectiveness for small businesses and is a fundamental concern of many practicing managers. Several researchers have recently argued that we need a better understanding of the correlates of small business growth. Cooper, Gimeno-Gascon, and Woo (1991) contended that it is important to understand factors that foster small-business growth in order to increase our understanding of firm survival, as identifying the determinants of growth may help to decrease high failure rates among small firms. Similarly, Kunkel and Hofer (1991) found that existing theory on the phenomenon of small business performance is incomplete and encouraged researchers to further investigate the determinants of new venture performance. Traditionally, research in entrepreneurship has focused on identifying the characteristics of the individual who starts a new venture rather than on the characteristics of the top-management team (TMT) that manages a small business (Sexton and Bowman 1986; Miller and Toulouse 1986; Sandberg and Hofer 1987). Following this pattern, research that does try to identify correlates of small-business growth tends to examine the intrinsic or psychological characteristics of individual entrepreneurs (Tucker, Singh, and Meinhard 1990). Further, although there is research in the area of strategy and organization theory that has produced results with respect to research examining the influence of TMT characteristics on organizational growth, the majority of this research has focused only on large organizations. The use of TMT theory may have important applications to small businesses. Many small businesses utilize TMTs to manage organizations (Eisenhardt and Schoonhoven 1990; Feeser and Willard 1990). Moreover, some growth-oriented small businesses and entrepreneurs who lack the expertise to run businesses themselves often have boards of directors and advisory boards that function as TMTs to help manage their businesses (Fry 1993). Therefore, in order to advance our understanding of the factors that may contribute to small-business growth, this study empirically tests TMT theories of organizational growth to assess the extent to which they can be applied to a small-firm context. Conceptual Development The majority of conceptual theory on TMTs has been developed by Hambrick and Mason (1984) and Gupta (1984). These authors have identified those TMT characteristics that may influence organizational growth, including the heterogeneity, size, and age of a TMT. Based on this work, the conceptual development of our study applies these variables to a small-firm context. Heterogeneity of the Top Management Teams The degree to which the experience and backgrounds of the members of the top management team vary appears to positively influence firm growth. Through case analysis, Nystrom and Starbuck (1984) and Eisenhardt and Bourgeois (1988) found that conflict influences a management team's success because it reduces tendencies toward complacency. Additionally, Eisenhardt and Schoonhoven (1990) suggested that a team profile with backgrounds in a wide range of industries produces constructive conflict. They argued that this form of heterogeneity produces better decision-making because whereas members with many years in a particular industry can offer insights based on rich experience, newcomers can provide fresh perspectives, Eisenhardt and Schoonhoven found modest statistical support for a positive relationship between heterogeneity in industry experience and organizational growth. …