British Journal of Management, Vol.

20, 581597 (2009)

DOI: 10.1111/j.1467-8551.2008.00606.x

The Inuence of Top Management Teams

in the Strategic Orientation and
Performance of Small and Medium-sized
Enterprises
Alejandro Escriba-Esteve, Luz Sanchez-Peinado and
Esther Sanchez-Peinado
Department of Management, University of Valencia (Spain), Av. de los Naranjos s/n., 46022 Valencia, Spain
Corresponding author email: alejandro.escriba@uv.es
Identifying which factors aect rms performance is a critical issue in strategic management research. This paper addresses the inuence of managerial team over the
behaviour and performance of small and medium-sized enterprises (SMEs). By treating
top management team (TMT) characteristics as predictors of a rms strategic
orientation, we seek to provide a more complete understanding of how the
characteristics of managerial teams shape decision-making processes and SMEs
behaviours in order to successfully compete in low municent environments. Based on
primary data regarding managerial characteristics and rms behaviours of a sample of
295 SMEs, our results conrm that a rms strategic orientation plays a mediating role
in explaining how TMT characteristics determine SMEs performance.

Introduction
Since Hambrick and Masons (1984) seminal
article on the upper echelon (UE) perspective, a
signicant amount of research has been devoted
to analysing the impact of top management team
(TMT) characteristics and composition on strategy and performance (Bantel and Jackson, 1989;
Finkelstein and Hambrick, 1990; Haleblian and
Finkelstein, 1993; Hambrick, Cho and Chen,
1996; Michel and Hambrick, 1992; Pegels, Song
and Yang, 2000; Wiersema and Bantel, 1992).
These studies were carried out under the assumption that demographic characteristics serve
The authors appreciate the valuable contributions,
suggestions and comments of two anonymous reviewers
of British Journal of Management, which have stimulated signicant improvements to the paper. This study
has beneted from nancing from the Research Project
GV2004A16 of the Generalitat Valenciana (Spain).

as surrogates for the beliefs, values and cognitions

of managers. Despite the advantages of objectivity
and data availability of TMT demographic information, the UE perspective has been criticized
for ignoring the black box in which mediating variables are assumed to act as links between
demographics and outcomes (Pettigrew, 1992). Providing empirical evidence of these mediating variables is important for strategy research, since this
gap in the literature encompasses not only group
processes but also strategic choice and its proximate
constructs central to the strategic management
paradigm (Priem, Lyon and Dess, 1999).
With the intention of reducing this gap, we
introduce the concept of rms strategic orientation (SO) as a variable that mediates between
TMT characteristics and rm performance. By
introducing this concept, traditionally analysed
in the strategic management and entrepreneurship
literature, we intend to go further in the comprehension of the impact of TMT demographics on

r 2008 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford
OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.

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A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

how rms face environmental challenges. A rms

SO is an indicator of the processes developed
to analyse and integrate new information, to
coordinate decisions, to examine the evolution of
environmental factors and to assess new projects
(Covin and Slevin, 1989; Lumpkin and Dess, 1996;
Morgan and Strong, 2003; Venkatraman, 1989).
Consequently, by considering the complementarities between UE theory and strategic management and entrepreneurship perspectives, we
analyse such processes and behaviours that other
studies assumed to be well captured by demographic characteristics.
The objective of this paper is twofold: (1) to
identify the demographic predictors of SO; and
(2) to analyse the role of SO as a mediator of the
relationship between TMT characteristics and
small and medium-sized enterprise (SME) performance. The distinctiveness of this paper is
based on the analysis of the linkage between
managerial characteristics, rms SO and performance in a sample of SMEs operating in mature
industries. Previous research eorts have independently studied the inuence of TMT on either
performance (Haleblian and Finkelstein, 1993;
Norburn and Birley, 1988; Smith et al., 1994) or
SO (Chaganti and Sambharya, 1987; Thomas,
Litschert and Ramaswamy, 1991). However, few
studies have provided a framework that jointly
analyses the managerial characteristics, the mediating processes and attitudes by which managers
shape the direction of their rms, and the eect of
these postures on rm performance.
To examine these relationships, we choose
SMEs operating in mature industries as a sampling framework. First, we focus on SMEs because
they provide a more direct setting to empirically
test the eects of TMT characteristics on rms
attitudes and performance than do other companies. SMEs usually lack the amount of slack
resources and administrative systems that help
larger companies in their decision-making processes and, consequently, SMEs have to rely
more on the abilities of their managers (Lubatkin, Ling and Veiga, 2006). In addition, agency
theory and resource arguments from the strategy
literature indicate that boards may have a more
important role in small businesses than in corporations (Johannisson and Huse, 2000). Thus, as
most board research uses samples from large
corporations, there is a need to explore the role of
managers in SMEs (Huse, 2000).

Second, we select mature industries because they

can be dened as low municent environments that
pose major challenges for organizational survival.
In this type of environment characterized by
stable and sometimes declining demand and intense
competition decisions made by managers are
crucial and will signicantly aect SME performance (Child, 1972; Goll and Rasheed, 2005;
Zahra and Covin, 1993).
In the following sections, we rst introduce the
theoretical perspectives and develop the hypotheses focused on the relationships between TMT
characteristics, rms SO and performance. Then,
we describe the methodology used for the empirical analysis, the measurement of dependent and
independent variables and we discuss the main
results of our study. The paper concludes by
addressing implications for research and practice.

Theoretical perspectives
TMTs demography
The strategic choice paradigm (Andrews, 1971;
Child, 1972) has generated a large body of
research examining the inuence and control of
executive managers over an organizations future
direction. Strategic choices have a large behavioural component and consequently reect
the idiosyncrasies of decision makers. The UE
perspective articulated by Hambrick and Mason
(1984) provides a framework within which the
role of top managers in inuencing organizational outcomes can be interpreted. The basic
assumption of this perspective is that an individuals demographic characteristics are indicators
of that persons underlying experiences, training,
cognitive orientation, attitudes and perspectives,
which constitute the mental driving force that
supports his or her decisions.
Many researchers have advocated the use of
demographic data in view of the following: (i) the
advantages of objectivity, comprehensibility,
content validity, replicability and data availability, as top executives are typically unwilling to
submit to batteries of psychological tests (Finkelstein and Hambrick, 1996); and (ii) research
relying on UE theory has yielded statistically
signicant ndings regarding the identication of
relationships between TMT demographic characteristics, strategies and performance. Thus, the
accumulation of signicant studies provides
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Inuence of TMTs in SMEs

compelling empirical justication for the continued use of the UE perspective (Goll and Rasheed,
2005).
This approach, however, has been criticized
because it does not access the black box, i.e. the
processes linking demographic characteristics and
organizational outcomes. For example, Lawrence
(1997) noted that demographic variables are often
used to represent subjective concepts (attitudes,
cognitions and values) without providing a rationale for why this is a valid approach. Thus, scholars
have assumed that demographic predictors are in
congruence with the intervening processes (e.g.
information processing, problem solving, coordination procedures etc.) through which they are
theorized to inuence rm performance. As a
result, intermediate steps in theorized causal
chains are not tested but are assumed to be true
in demographics-based research (Lawrence, 1997).
In this paper, we attempt to reduce this gap in
the literature by introducing the concept of SO as
a variable that mediates between TMT characteristics and rm performance. The rms SO is
an indicator of how it operates, reecting specic
aspects of decision-making styles, methods and
practices (Morgan and Strong, 2003; Venkatraman, 1989). The eect of TMT characteristics on
SO is likely to be particularly strong in SMEs
because small size and exible organizational
structures intensify TMTs involvement in all
processes and activities of the rm (Brunninge,
Nordqvist and Wiklund, 2007). In contrast, in large
rms, top managers might be separated from how
a rm operates by layers of middle managers.
Conceptualization of SO
A rms SO refers to the processes, practices and
decision-making activities that lead to its growth
(Lumpkin and Dess, 1996). In an attempt to identify the variables that are relevant to organizational patterns of strategic decision processes,
many researchers have focused on delineating
the dimensions of a rms SO. In the context of
SMEs, one of the most widely used constructs of
rms strategic posture is the typology of Miles
and Snow (1978). They proposed dierent
strategic archetypes interrelating organizational
strategy, structure and process variables within a
theoretical framework of co-alignment. They
identify four types of rms strategic postures:
prospectors, defenders, analysers and reactors.
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Although this methodology is well grounded

in the management literature, classicatory
approaches are restricted solely to intergroup
comparison, preventing any investigation of
intragroup analysis (Speed, 1993).
To overcome the empirical limitations of a
classicatory approach, other authors have adopted
a comparative approach, and have conceptualized rms SO not across strict strategy classications but along scales of specic dimensions.
The most popular scale is the entrepreneurial
orientation construct, developed by Covin and
Slevin (1989), which has received robust theoretical and empirical support in the context of SMEs
(e.g. Covin and Slevin, 1989; Kreiser, Marino
and Weaver, 2002; Wiklund, 1999; Wiklund
and Shepherd, 2005). Based on the earlier work
of Miller (1983), Covin and Slevin (1989) conceptualize entrepreneurial orientation as a latent
construct composed of three dimensions: innovativeness, risk-taking and proactiveness.1
However, researchers have recently recognized
that relying solely on an entrepreneurial mindset
provides an incomplete understanding of SMEs
performance (Wiklund and Shepherd, 2005).
Ireland, Hitt and Sirmon (2003) suggest that an
entrepreneurial orientation can create temporary
competitive advantages, which rms may fail to
sustain eectively. Understanding the reasons for
these dierentials among companies wealth
creation requires analysing their vision of the
future and their strategic planning processes
through which they develop, exploit and sustain
competitive advantages (Hitt et al., 2001; Venkataraman and Sarasvathy, 2001).
Based on this reasoning, several authors
propose to conceptualize SO as a corporate
posture that combines both entrepreneurial and
strategic dimensions (Morgan and Strong, 2003;
Venkatraman, 1989). This SO concept focuses on
(i) building competitive advantages and exploring
1

In the entrepreneurial orientation construct, innovativeness involves seeking creative or unusual solutions to
problems and needs. It reects a rms tendency to
engage in and support new ideas, novelty, experimentation and creative processes. The risk-taking dimension
reveals the willingness to commit signicant resources to
opportunities in the face of uncertainty. Finally,
proactiveness refers to a posture of anticipating and
acting on future wants and needs in the marketplace,
thereby creating a rst-mover advantage (Covin and
Slevin, 1989).

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A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

new business opportunities through innovation,

experimentation and risk-taking decisions; and
(ii) sustaining competitive advantages through
analysis, organizational planning and long-term
vision.
The combination of strategic and entrepreneurial dimensions is especially important for SMEs
operating in mature industries. Such industries are
low municent environments, characterized by
shortage of resources and declining demand,
presenting fewer opportunities and more competition than benign ones (Goll and Rasheed, 2005).
Consequently, SMEs in low municent environments may be forced to engage in uncertain, risky
and resource-consuming actions to maintain
viability. They may also need a greater analytical
eort to understand and deal with threats, and a
longer-term vision to secure a competitive edge in
the marketplace (Goll and Rasheed, 2005; Morgan and Strong, 2003). As a result, an aggressive,
innovative, risk-taking and analytical strategic
posture may be particularly benecial to SMEs
in mature environments. In contrast, in industries
with a higher level of municence, rms can survive and obtain good performance while avoiding
risky actions (Covin and Slevin, 1989) or dedicating less eort to strategic analysis (Goll and
Rasheed, 2005).
Therefore, the conceptualization proposed in
this paper considers SO as the specic managerial
attitude that guides the strategic planning and
decision-making processes, including entrepreneurial postures, and analytical and long-term
behaviours. In theory, a continuum of SOs exists
(Wood and Robertson, 1997). Clustered at one
end of this continuum are organizations with
proactive orientations,2 which are guided by welldeveloped strategies emphasizing innovations
2

In this paper, we use the term proactive to refer to a

specic rms SO, characterized by innovative, aggressive, risk-taking, analytical and long-term behaviour.
Other authors have used the term proactiveness as an
integral dimension of the SO or entrepreneurial orientation construct to refer to the participation of rms in
emerging industries and the continuous search for
market opportunities (e.g. Covin and Slevin, 1989;
Kreiser, Marino and Weaver, 2002; Lumpkin and Dess,
1996; Venkatraman, 1989). In this paper, proactive
orientation is related to a large extent to the prospector
and analyser archetypes of Miles and Snow (1978),
reecting the entrepreneurial traits of Millers (1983)
construct, and the analytical and futurity dimensions of
Venkatramans (1989) strategic orientation.

and eectiveness (long-term consideration). A

rm with such SO engages in product-market
innovations, undertakes somewhat risky ventures, is the rst to come up with new products,
and develops demand and market analysis. At
the other end of the continuum are organizations
with defensive orientations,3 which usually have
less well-developed strategies and are more
inuenced by management intuition, hunches
and unplanned reactions to unanticipated events
(Cyert and March, 1963; Miles and Snow, 1978).
In those rms, the top management style is
decidedly risk-averse, non-innovative and nonaggressive. This type of defensive SO reects a
short-term perspective with relatively little value
placed on formal planning, low levels of demand
and market analysis, and low anticipation of
environmental changes.

Hypotheses development
Demographic predictors and SO
Managers have an important role in dening the
actions and events that will inuence the organizations current or future orientation. Variables
such as average age, level of education, amount
of experience, number of members or number of
family members in the TMT may condition the
rms behaviour in terms of receptivity to change,
willingness to take risks, diversity in information
sources and perspectives, and creativity and
innovativeness in decision-making.
Age. The managers age can be viewed both as a
proxy for the extent of experience and as a signal
of his/her resistance to risk-taking and change.
Age has been associated with greater conservatism and less risk-taking (Child, 1974), reduced
ability to learn new behaviours, and greater
commitment to the status quo (Datta, Rajagopalan and Zhang, 2003; Hambrick, Geletkanycz
and Fredrickson, 1993; Weinzimmer, 2000).
Older managers have less ability to grasp new
ideas and have a limited capacity for dealing with
challenging situations, which may explain the
adoption of a more conservative stance (Herrmann and Datta, 2006). These behaviours may
limit the rms capacity to face the stagnating
3

Defensive orientation in this paper is related to a large

extent to the defender and reactor archetypes of Miles
and Snow (1978).
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Inuence of TMTs in SMEs

forces of mature industries, which require looking for new opportunities and taking risky
ventures. In contrast, younger managers might
tend to seek additional information when making
decisions, evaluate information more accurately
and have better cognitive resources to map
complex situations (Greening and Johnson,
1996). Consequently, younger managers have a
heightened ability to recognize and act on
environmental opportunities, and may tend to
pursue more proactive behaviours. Therefore, the
rst hypothesis asserts that:
H1: Firms whose TMT members are younger
will exhibit a more proactive SO.
Level of education. Firms operating in mature
industries have to cope with competitive situations that require an objective assessment of
threats and opportunities as well as the generation of new alternatives to survive. Executives
with a high level of education are able to make
high quality decisions because they have cognitive abilities to process and analyse information,
and to execute more complex decision-making to
manage ill-structured situations (Papadakis and
Barwise, 2002; Usdiken, 1992). They can also
discriminate better between an extensive variety
of alternatives to understand environmental
and organizational problems (Goll, Sambharya
and Tucci, 2001; Greening and Johnson, 1996;
Herrmann and Datta, 2005; Wiersema and Bantel,
1992) and therefore to devise more appropriate
responses to intense competition. Furthermore, a
higher level of education has been associated with
greater tolerance for ambiguity, and greater
openness to change and innovation (Wally and
Becerra, 2001). Therefore, we expect that TMTs
with higher levels of education will be positively
related to a rms proactive SO.
H2: Firms whose TMT members have higher
levels of education will exhibit a more proactive
SO.
Previous experience. The previous experience that
managers accrued by working in other rms or
industries is linked to more innovative ideas and
to the breadth and variety of perspectives that
managers hold within the organization (Finkelstein and Hambrick, 1990). Teams that include
managers with experience in other rms or
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585
industries have a wider vision of strategic decisions, make use of a greater variety of information
sources and have dierentiated capabilities (Lee
and Park, 2006). Therefore, they tend to make
more changes in structure, procedures and people
compared to teams whose members have been
promoted from within the rm (Chaganti and
Sambharya, 1987; Hatum and Pettigrew, 2006).
These attitudes and skills are highly valuable in
low municent environments because they provide
dierent points of view and innovative solutions
to deal with conditions typical of this type of
industry. In contrast, managers who have developed their careers exclusively in one organization
can be assumed to have relatively limited perspectives when faced with environmental threats
(Cyert and March, 1963; Herrmann and Datta,
2006). Therefore, rms with TMTs characterized
by higher levels of experience from outside are
more likely to adopt a more proactive SO.
H3: Firms whose TMT members have greater
experience from outside will exhibit a more
proactive SO.
TMT size. TMT size is a critical element of group
demography because it represents a teams
structural and compositional context (Amason
and Sapienza, 1997). The research examining
the relationship between TMT size and proactive
orientations remains ambiguous. As TMT size
grows, the diversity of opinions, values and
interests increases (Bantel and Jackson, 1989;
Smith et al., 1994). Therefore, larger groups have
greater cognitive resources at their disposal, which
may contribute to improved group knowledge,
creativity and performance (Certo et al., 2006).
However, larger teams may also face greater conict because of the potentially diverse points of
view that might prevail. Moreover, larger groups
may suer from problems related to control
and coordination, with the result that performance
declines. As Simsek et al. (2005) pointed out,
opportunities for interaction and reciprocity
among team members decrease as teams grow in
size, and thus quality and quantity of communication among team members diminish.
Because the TMT formulates and implements
the rms strategy, it must coordinate and control
the behaviour of its members. The greater the size
of the team, the greater the likelihood that goal
and information asymmetries between team

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A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

members will exist, which in turn means that

rules and regulations are more likely to be needed
for coordination and control (Smith et al.,
1994). But SMEs usually have little experience
in sophisticated planning and coordination systems (Daily and Dalton, 1992). Consequently, the
introduction of formal coordination systems
and bureaucratic controls in SMEs can impede
the organizations ability to innovate and adapt
to environmental conditions. Similarly, size may
constrain the exchange of information among
managers and thus limit the eectiveness of planning and analytical procedures needed in low
municent environments. For these reasons, we
expect that team size will be negatively related to
proactive SOs.
H4: Firms with larger TMTs will exhibit a less
proactive SO.
Family members involvement. Behavioural processes of TMTs depend on their composition
(Hatum and Pettigrew, 2006). Family rms
generally dominate the economic landscape and
consequently the presence and participation of
members from the owner-family in the managerial processes should be considered in the UE
model (Chrisman, Chua and Steier, 2005). Ensley
and Pearson (2005) stated that the type and
degree of involvement of family members aect
the dynamics of interaction within the team and
how managers process information. However,
there is no consensus about the specic inuence
of family involvement on the processes, attitudes
and values of the managerial team. They found
that while the involvement of family members in
the rm management enhances TMT cohesion
and shared strategic cognition, it also may
constrain other team members from speaking
out and questioning ideas.
Some other researchers consider that heterogeneity and a broad managerial mindset are
important factors that foster the ability to create
and support ideas (Hatum and Pettigrew, 2004).
Therefore, the contribution of professional managers in the team may provide aggressiveness and
analytical and risk assessment skills to the rm,
which are capabilities and expertise needed in low
municent environments. But family SMEs face
capital and managerial constraints because ownership and control structures reduce their ability
and willingness to attract professional managers

(Carney, 2005). Founding families that control

the decision-making processes and have dominated the organization for years may increase the
likelihood of an inward focus and limit the
exploration of innovative ideas (Zahra, Hayton
and Salvato, 2004). By reducing constructive
questioning and creativity, rms may be less
likely to adopt a proactive SO.
In contrast, by incorporating non-family managers, SMEs may raise their levels of heterogeneity and professionalism in the managerial
team, foster an analytical orientation to problem
solving and increase the chance of conict of
ideas, innovation and entrepreneurship (Zahra,
Hayton and Salvato, 2004). Therefore,
H5: Firms with a higher proportion of family
members in the TMT will exhibit a less
proactive SO.

SO and performance
Prior theory and research have suggested that
strategic behaviour is a key factor for organizational success (e.g. Covin and Slevin, 1989; Miles
and Snow, 1978; Venkatraman, 1989; Wiklund,
1999; Zahra, 1991). As mentioned before, current
environmental pressures require a strategic posture that combines entrepreneurial attitudes and
orientations toward analysis and long-term view.
This notion of SO suggests that some rms
are more willing than others to continually search
for opportunities, target premium market segments, and skim the market ahead of competitors (Lumpkin and Dess, 1996). Firms with
more proactive SOs are expected to exhibit higher
levels of risk tolerance in ambiguous situations
and are more likely to develop product and
process innovations (Covin and Slevin, 1989).
Such aggressive and innovative orientations may
be especially important for rms operating in low
municent or competitive environments (Covin
and Slevin, 1991; Miller, 1983; Wiklund, 1999;
Zahra, 1991). A rm with a proactive orientation will respond to environmental conditions
through searching for new businesses or markets,
and trying to shape the nature and direction of
competition to its own advantage.
However, low municent industries also require continuous searching to identify problems
and opportunities, conducting extensive analyses,
using formal planning processes and adopting a
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Inuence of TMTs in SMEs

longer-term vision to understand and deal with
threats (Goll and Rasheed, 1997, 2005; Morgan
and Strong, 2003). Consequently, in mature
industries, entrepreneurial but also analytical
attitudes should be adopted by rms in order to
face environmental challenges. This analytical
approach also relates to the comprehensiveness/
rationality trait conceptualized and measured as
an important construct of strategic management
process by Fredrickson (1984). This author found
that comprehensiveness or rationality, dened as
the extent to which a TMT utilizes an extensive
decision-making process when dealing with opportunities and threats, was positively associated with
rm performance in low municent environments.
In sum, rms operating in mature industries
would benet from proactive SOs, which balance
aggressive and risk-taking behaviours with more
analytical orientations. These actions would help
rms to acquire sustained rather than temporary
high performance levels (Zahra and Covin, 1995).
Therefore,
H6: Firms with a more proactive SO will have
higher performance levels.

Methodology
Sample
Data were gathered through a questionnaire that
was randomly mailed to 1800 SMEs from seven
mature industries in Spain (food processing, shoe
manufacturing, tiles and ceramics, machine-tool
producers, furniture, textiles and road transportation).
The questionnaire was reviewed by two professors (distinct from the authors) specialized in
entrepreneurship and strategic management for
construct validity. The revised version of the
questionnaire was pre-tested, through personal
interviews, with ve CEOs from SMEs operating
in mature industries. The nal questionnaire, a
cover letter describing the study and assuring
condentiality, and a letter by local authorities
encouraging participation were sent to the CEO
of each company4 during the year 2003.
4

We obtained rms addresses and names of CEOs from

the SABI-INFORMA database (Bureau Van Dijk and
D&B Informa), the most important source of business
and nancial information in Spain. CEOs were assured
that their company would not be identied by name at
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587
The use of single informants could potentially
result in a common method variance problem.
To reduce this concern, we took several steps: (i)
we selected CEOs as appropriate informants
because they are the most knowledgeable respondents with regard to the concepts covered by the
survey (Harveston, Kedia and Davis, 2000; Tan
and Tan, 2005), especially in the case of SMEs
(Lyon, Lumpkin and Dess, 2000; McKiernan and
Morris, 1994); (ii) we veried the direct participation of CEOs in providing data through random
telephone calls to 20 responding companies;
(iii) we collected independent and dependent
variables from dierent sources (TMT characteristics and rms SOs were collected from primary
data and performance was obtained from secondary sources), in order to prevent respondents
cross-checking their own internal consistency
(Podsako et al., 2003); and (iv) we checked
each questionnaire for proper completion.
Overall, we obtained primary data from 301
SMEs. A total of 244 rms responded within eight
weeks (13.5%). During a period of four weeks we
made follow-up telephone calls and 57 more
participants returned their completed questionnaires. Six questionnaires were rejected because of
inadequate completion. Thus, we used 295 questionnaires for the empirical analyses. The nal
response rate of our study, 16.39%, is comparable
with the response rate of survey studies using UE
theory and focusing on SMEs, both in Spain (6%
in Casillas and Acedo, 2005; 10% in Entrialgo,
2002; 19.1% in Suarez-Ortega and Alamo-Vera,
2005) and in other countries (18% in Ensley and
Pearson, 2005; 14.15% in Harveston, Kedia and
Davis, 2000; 11% in Simsek, 2007; 21% in Simsek
et al., 2005). Furthermore, this response rate is
acceptable in view of the fact that surveys of top
management generally tend to have relatively low
response rates5 (Caligiuri, Lazarova and Zehetany time, and that the results would be presented only in
an aggregate and anonymous form. In return for their
participation, we promised to send the respondents a
copy of the results of the study, which were mailed
during 2004.
5
Some studies show higher response rates (see, for
example, Avlonitis and Salavou, 2007; Jeong, Pae and
Zhou, 2006; Knight et al., 1999; Smith et al., 1994;
Wiklund and Shepherd, 2005). However, these studies
use dierent methods to collect information such as indepth personal interviews with top management or
telephone interviews. Dierent methods of gathering

588

A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

bauer, 2004; Hambrick, Geletkanycz and Fredrickson, 1993; Sambharya, 1996; among others).
Firms in our nal sample were operating in a
variety of industries: food-processing (15.3%),
shoe manufacturing (13.9%), tiles and ceramics
(11.8%), machine-tool producers (16.7%), furniture (16.7%), textiles (12.8%) and road transportation (12.8%). Around 70% of the rms are
family rms, and 12% of the rms had been in
business for ten years or less. The average
number of years that rms operate in their core
businesses is 25.8 years. A total of 181 rms had
operations abroad in an average of 15 countries.
In order to make sure that there was no bias in
the data, we conducted several analyses. First, to
assess non-response bias, a random sample of 70
responding rms was compared to a random
sample of 70 non-respondents regarding number
of employees, annual revenues, total assets and
return on assets (ROA). Results revealed nonsignicant dierences between these two groups
(po0.05). Second, we performed t test comparisons between early respondents and late respondents (i.e. those rms that returned the
questionnaire only after having been phoned to
encourage participation). The analysis revealed
no dierences (po0.05) between these two
groups regarding size (number of employees,
annual revenues and total assets), protability
(ROA), SO and the main TMT characteristics.

Questionnaire and measurement of variables

The questionnaire was structured into two sections. The rst section contained questions
related to the CEOs perceptions about the
behaviour of their rms during the last three
years. In the second section, the respondents were
rst provided with a denition of a TMT, a
group of senior managers that generally make
decisions that are important to the rms future
(Amason and Sapienza, 1997; Papadakis and
Barwise, 2002), and they were then asked to
identify and provide demographic information
about those who had been members of their
TMTs over the past three years. We asked for the
data such as some form of population screening or preselection of the survey population, personal interviews
or the use of the Internet may help to achieve better
response rates than mail surveys (Cycyota and Harrison,
2002).

number of TMT members and obtained aggregated numerical information on TMT characteristics (average age of members, number of
members with university-level education, number
of managers with experience outside the rm and
number of members with familial ties). Then, we
calculated percentages of members with high
education, experience and familial ties to obtain
relative measures independent of the size of the
team.
TMT characteristics and rms SO during the
last three years were used to predict the rm
current and future performance. We measured
performance as a three-year average ROA (2003
2005 period). Averaging served to smooth any
potential uctuations associated with a single
years performance. We obtained performance
data from the SABI-INFORMA database.
Table 1 summarizes the measurement of
dependent and independent variables, as well as
the references used to operationalize them.
A 12-item scale measured the SO construct.
This scale was adapted from existing instruments
proposed by Covin and Slevin (1989), Miller and
Friesen (1982), Morgan and Strong (2003) and
Venkatraman (1989). We provided a list of 12
items related to the SO dimensions and we asked
respondents to characterize their rms attitudes.
To assess construct validity, we ran factor
analysis. In exploratory factor analysis (EFA),
the factor loadings for the items included in the
SO scale indicated the existence of four dimensions (aggressiveness, analysis, innovation and
risk-taking). Two items showing factor loadings
lower than 0.60 were dropped from the scale.
Next, we subjected the remaining set of items to
conrmatory factor analysis using EQS software
(a widely used structural equation modelling
program) to assess construct validity and the
overall model t for a four-factor solution. Table
2 lists the initial items included in the SO scale
and Figure 1 shows a diagram of the nal
scale.
We assessed the reliability of the scale by
analysing Cronbachs alpha. The value of alpha
for the SO scale was 0.720, which is an acceptable
level according to Nunnally and Bernsteins
(1994) recommendations (levels above 0.70).
The scale also presents convergent and discriminant validity. To assess the dimensionality and
convergent validity of the scale, we observed the
results of the conrmatory factor analysis. All
r 2008 British Academy of Management.

589

Inuence of TMTs in SMEs

Table 1. Variables measurement
Variables

Measure

Strategic orientation

TMTs age
TMTs level of
education
TMTs experience
Familial nature of
TMT
TMTs size
Performance

Studies

See scales measurement below (Figure 2; Tables 2

and 3)
Goodness of t indices: BentlerBonett normed t index
0.932; BentlerBonett nonnormed t index 0.952;
comparative t index 0.967; Lisrel GFI t index 0.960;
Lisrel AGFI t index 0.929; standardized RMR 0.041
Average age of the top managers
Percentage of managers with university level of
education
Percentage of managers with previous experience in
other rms and/or other sectors
Percentage of managers related to the family owners
Number of top managers composing the team
ROA (mean ROA of years 2003, 2004 and 2005)

Adapted from Covin and Slevin (1989) and

Venkatraman (1989)

Norburn and Birley (1988), Weinzimmer (2000)

Datta, Rajagopalan and Zhang (2003), Wiersema
and Bantel (1992)
Finkelstein and Hambrick (1990)
Chrisman, Chua and Steier (2005), Ensley and
Pearson (2005)
Haleblian and Finkelstein (1993), Simsek et al.
(2005), Smith et al. (1994)
Certo et al. (2006), Michel and Hambrick (1992)

Table 2. Initial SO scales measurement

Dimension

Managers perceptions about the rms behaviour during the last three years . . . (1, strongly disagree; 2, disagree;
3, indierent; 4, agree; 5, strongly agree)

Aggressiveness

Sacricing protability to gain market share (V1)

Cutting prices to increase market share (V2)
Establish deliberated plans to cope with environment opportunities and threats (V3)
Emphasize eective information seeking and key information identication for decision-making (V4)
Follow formal procedures to coordinate decisions between dierent areas (V5)
Emphasize innovation to anticipate future market needs (V6) (associated with the innovation dimension after EFA)
Conduct prospective studies to examine the evolution of key environmental factors (V7) (removed after EFA)
Constantly seeking new products and markets (V8)
Usually the rst ones to introduce new brands or products in the markets (V9)
Sometimes decisions in the company have produced important changes in the way we operate as an organization
(V10)
The company tends to develop less risky investment projects than competitors, although income expectations are
lower (V11) (reverse-coded)
Assessment of new projects is based on intuition instead of analysis (V12) (removed after EFA)

Analysis

Futurity
Innovation
Risk-taking

factorial loadings had acceptable magnitudes

(higher than 0.6) and were highly signicant, as
their t values were higher than 3.291 (po0.001).
Moreover, the value of the BentlerBonett
normed t index for our scale was 0.932, exceeding
the recommended value of 0.9 and indicating
strong convergent validity (Bentler and Bonett,
1980). To assess discriminant validity, we performed a correlation analysis among the SO
dimensions. The four dimensions, aggressiveness,
analysis, innovation and risk-taking (factors F2 to
F5 in Figure 1), exhibited correlations below 0.90.
After assessing the reliability and validity of the
scale, we determined the rms SO to be the mean
of scores from the ten items nally included.
r 2008 British Academy of Management.

Results and discussion

Table 3 lists the descriptive statistics for the
variables included in the study and the correlation matrix. Figure 2 presents the theoretical
model and the hypotheses derived from it.
We used a structural equation model using
EQS software to determine whether the observed
pattern of relationships among the variables was
consistent with the theoretical model. Figure 3
shows the standardized path coecients and the
indices for the goodness of t of the model. All
indices reveal a good t of the model.
Consistent with our expectations, the empirical
results show that the SO of SMEs, as an indicator

590

A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

0.000

D2

1.000

V1

1.000***

0.015***

0.822

0.570***

Aggressiveness
(F2)

V2

E2

D3
0.444

0.896***

0.753

V3

0.659***

Strategic Orientation
(F1)

E1

0.682***

Analysis (F3)

0.731

V4
0.670***

0.745***

0.743

V5

D4

E3
E4
E5

0.667

Innovation (F4)

0.633

V6

0.774***
0.738***

0.675

V8

0.531***
0.797***

0.604

V9

E6
E8
E9

D5
0.847

0.568

V10

0.823***
0.614***

0.790

V11

Risk-taking (F5)

E10

E11

***to3.291; po0.001

Figure 1. Strategic orientation scale (conrmatory factor analysis)

Table 3. Descriptive statistics and correlation matrix
Variable
1.
2.
3.
4.
5.
6.
7.

Performance
Strategic orientation
Familial nature of TMT (%)
TMTs size
TMTs age
TMTs level of education (%)
TMTs experience (%)

Mean

SD

6.43
3.2247
50.1082
4.074
41.8747
39.2984
21.0281

11.905
0.49119
44.66638
3.8842
7.84723
35.35074
26.08633

0.012
0.046
0.011
0.015
0.090
0.018

0.192**
0.216**
0.202**
0.216**
0.357**

0.208
0.061**
0.102
0.208**

0.263**
0.301**
0.246**

0.337**
0.137*

0.307**

Notes: *po0.05; **po0.01.

of the processes developed to analyse information, examine environmental factors and assess
new business opportunities, mediates between
TMT characteristics and the performance achieved
in low municent environments. Hence, our
ndings conrm that team demography inuences
organizational performance through team processes, practices and decision-making activities.
With regard to demographic predictors of
proactive SOs, Hypothesis 1 proposed that the
average age of TMTs is negatively correlated to
proactive SOs. Our results provide support for
this relationship (see Figure 3). Traditionally,

researchers have considered that youthfulness of

managers favours entrepreneurial attitudes in
rms decision-making processes because younger executives typically take more risks than older
ones, show greater levels of creativeness and
show a greater ability to identify and act on
environmental opportunities (Bantel and Jackson, 1989; Wiersema and Bantel, 1992). Moreover, younger TMTs also tend to show more
analytical abilities to process information and
cope with the challenges arising from competitive
environments (Greening and Johnson, 1996).
Therefore, younger managers are more likely to
r 2008 British Academy of Management.

591

Inuence of TMTs in SMEs

TMTs age
H1 ()
TMTs education

TMTs experience

H2 (+)

H3 (+)

Strategic
Orientation

H6 (+)
Performance

H4 ()
TMTs size
H5 ()
TMTs familial
nature

Figure 2. Theoretical model

TMTs age
0.136*
TMTs education

TMTs experience

0.050

0.281***

Strategic
Orientation

0.183**

ROA (mean years

20032005)

0.071
TMTs size
0.122*
TMTs familial
nature

*t41.96, po0.05; **t42.576, po0.01; ***t43.291, po0.001 Goodness of models t: BentlerBonett normed t index 0.984;
BentlerBonett nonnormed t index 1.037; comparative t index 1; Lisrel GFI t index 0.997; Lisrel AGFI t index 0.982; standardized
RMR 0.020; w2 5 3.349 (5 degrees of freedom; p 5 0.6464040.05)

Figure 3. Estimated model

promote the entrepreneurial behaviours and

analytical eorts needed in mature industries.
Hypothesis 2 focused on the inuence of the
level of education of top managers on rms SOs.
We nd no signicant relationship between these
variables. Thus, our data do not support
Hypothesis 2 (see Figure 3). We expected that
executives with higher levels of education would
have greater cognitive abilities to manage complex
situations and would be more open to change and
innovation. However, the level of education may
r 2008 British Academy of Management.

not be sucient to explain proactive strategic

postures. On the one hand, the variety of specic
academic disciplines as well as the combination of
dierent functional backgrounds of managers
could play a signicant role in explaining a rms
SO and thus they should be investigated in future
studies. Indeed, previous studies have found that
diversity in cognitive perspectives facilitates creativity, innovativeness and analysis (Wiersema and
Bantel, 1992). On the other hand, Wiklund and
Shepherd (2003) suggest that the inuence of

592

A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

managers growth aspirations on rms growth is

moderated by the level of education. Their results
show that education facilitates growth for those
who want their rms to grow. Following a similar
reasoning, the level of education in our study
might constitute a moderator factor of the
relationship between SO and performance, instead
of an antecedent of such orientation. This could
explain a non-signicant main eect relationship
with SO.
In accordance with Hypothesis 3, we nd a
higher likelihood of proactive SOs in teams that
have more managers with previous experience in
other rms or industries. These teams benet
from a wider conceptualization of problems.
They use a greater variety of information sources
and have greater capabilities to manage new
business opportunities, which stimulate proactive
behaviours and strategic changes. However,
managers who achieve top positions due to
promotions from within their rm may have a
narrower knowledge base to formulate strategic
decisions (Chaganti and Sambharya, 1987).
Consequently, TMTs whose members have little
or no experience in other rms or industries are
less likely to adopt proactive orientations. This
result is especially important for SMEs, because
their managerial teams are usually smaller and
they have fewer resources to scan and analyse
information. Thus, they are very dependent on
the skills, experience and professionalization of
top managers. Incorporating diverse experiences
within the team provides important capabilities
to compete in mature industries.
Although our results do not allow us to
conrm Hypothesis 4, we observe an interesting
non-signicant relationship between TMT size
and SO. This result could be explained by the
characteristics of our sample. The informationprocessing capabilities of large teams are needed
to help SMEs adapt to the greater information
requirements of low municent environments.
However, the characteristics of most SMEs
involve a simple organizational structure with
little planning and control (Miller and Toulouse,
1986; Robinson and Pearce, 1984). Therefore,
as teams increase in size, communication and
coordination between members may become
problematic in SMEs because of their lack of
experience in planning and control systems. The
benets of team size in SMEs may therefore be
inhibited by the potential problems of coordina-

tion and communication associated with larger

teams, resulting in a non-signicant inuence.
Consistent with Hypothesis 5, we nd that
increased presence of family members in the
TMT is negatively related to the adoption of
proactive SOs. Family rms usually have a stable
organizational culture that favours independence
and is characterized by strong routines and
personal values, inhibiting their ability to face
changes and new business opportunities, and thus
reducing their capacity for growth (Carney, 2005;
Wiklund, Davidsson and Shepherd, 2003). In
contrast, rms less controlled by family members
are more likely to accept innovations and to
explore new arenas (Zahra, Hayton and Salvato,
2004). Furthermore, familiarity limits the professionalization of management, and thus may
become a barrier to successful incorporation of
talented non-family managers (Zahra, 2005).
Hence, the lesser degree of professionalization
of TMTs in family rms could result in lesser
analytical abilities for problem solving and
decision-making and, consequently, in less proactive SOs.
After analysing the organizational antecedent
factors of rms SOs, focus is turned to the
performance consequences of such orientation.
Our results show that there is a signicant and
positive relationship between proactive SO and
performance, supporting Hypothesis 6. Therefore, SMEs adopting proactive SOs in low
municent environments obtain better performance levels in subsequent years than rms with
more defensive orientations. Such environments
require not only entrepreneurial attitudes, like
aggressiveness and risk-taking behaviours, to
search for new businesses or markets (Covin
and Slevin, 1991; Morgan and Strong, 2003;
Zahra, 1993) but also greater analytical eorts to
generate the best possible solution alternatives to
the intense competition (Goll and Rasheed, 1997,
2005; Morgan and Strong, 2003).

Conclusions
This paper represents an attempt to explore the
role of managers in SMEs by studying the attitudes and processes through which they inuence
company performance. Although previous studies have already focused on the relationship
between TMT demographics and the adoption of
r 2008 British Academy of Management.

Inuence of TMTs in SMEs

various strategic options and behaviours (e.g.
innovation, strategic archetypes, diversication
and internationalization strategies etc.), our
study contributes to the literature by providing
empirical support to the mediating role of a rms
SO in the relationship between TMT demographics and performance; developing a more
complete conceptualization of a rms SO
according to current environmental pressures;
analysing the TMTSOperformance relationship in the context of SMEs operating in mature
industries; and incorporating the eect of familiarity to explain the strategic postures of SMEs.
Our results evidence that rms operating in low
municent environments whose managers promote a more proactive SO outperform companies
showing more defensive behaviours. SMEs have
to innovate to remain competitive in such
environments, but they must also use the appropriate management systems for problem solving
and devote greater analytical endeavours to deal
with increasing competition.
Such proactive behaviour is more likely to
emerge when the managerial team benets from
the cognitive diversity oered by younger
members and/or executives with distinct prior
experiences in other rms or industries. A high
involvement of family-owner members in managerial roles can constrain the adoption of
proactive SOs and consequently may limit the
potential performance of SMEs.
Accordingly, our ndings have important implications both for research and practice. On the
one hand, rms may respond to environmental
challenges by adopting various SOs. The alignment of an organizations SO to environmental
conditions is important for success and, consequently, it should be considered during the strategy formulation and deployment stages. On the
other hand, corporate policies regarding executive stang, development and TMT composition
can have a signicant inuence on the promotion
of the proactive SO needed to compete successfully in low municent environments.
Despite these contributions, this paper has
some limitations that provide further research
opportunities. First, this study has examined a
limited range of demographic variables. Future
research could explore whether a rms SO is
inuenced by other specic TMT characteristics
(e.g. the managers specic educational and
functional backgrounds; heterogeneity; internar 2008 British Academy of Management.

593
tional experience; tenure in the team, rm and
industry etc.). Second, we collected our data
from a single respondent. Although information
obtained from a single top manager may need to
be treated with some caution (Bowman and
Ambrosini, 1997), several authors argue that it
is reasonable to use the CEO as a reliable source
of information if the business is small and
specialized (Birley and Westhead, 1990; Zahra
and Covin, 1993). Using multiple respondents
from TMTs in future studies would permit the
construction of consensus-based data sets and
reduce concerns about common method variance. Third, ROA is a widely used measure of
accounting performance in management research, but non-nancial variables (e.g. market
share, rm survival, innovation, reputation etc.)
are also important indicators of rm performance
(Lumpkin and Dess, 1996), and thus they should
be taken into account in future studies.
This study focused on SMEs operating in
mature industries in Spain. Given that the eect
of some characteristics of TMTs could be
contingent, generalizations to other countries
and industries should be made with caution. If
national cultures dier in terms of frames of
reference, tolerance for uncertainty or the interpretation of crisis and threats, TMTs from
dierent countries may vary in their perceptions
and responses to similar environmental conditions (Carpenter and Fredrickson, 2001; Geletkanycz, 1997; Sharma and Manikutty, 2005;
Wiklund and Shepherd, 2003). Consequently,
evaluating how TMT characteristics shape rms
SOs in dierent countries may provide valuable
insights on this issue. Moreover, our ndings
show that, in low municent environments, rms
combining entrepreneurial attitudes with analytical orientations achieve higher performance
levels. Future research should examine which
type of strategic posture better ts specic
settings (e.g. emerging or municent environments), as well as which managerial characteristics relate to the adoption of appropriate
behaviours in each context.
Although we have attempted to introduce a
dynamic perspective to analyse the eect of
TMTs characteristics and rms SOs on performance, we consider it necessary to continue
investigating the issue of time in future studies.
Managerial characteristics and capabilities inuence the capacity of an organization for recogniz-

594

A. Escriba-Esteve, L. Sanchez-Peinado and E. Sanchez-Peinado

ing the need for change over time. Consequently,

changes in the managerial team may have a signicant eect on the evolution of a rms performance and its adaptation to environmental
conditions. But, at the same time, environmental
changes or new organizational strategies may
entail new requirements with regard to the
capabilities of the managerial team (Michel and
Hambrick, 1992; Sanders and Carpenter, 1998).
Longitudinal studies focused on the reciprocal
interaction between the composition, characteristics and aspirations of TMTs and rms resources,
learning experiences and performance would
provide valuable knowledge about the determinants of the rms competitiveness and survival.
This last issue is especially pertinent to SMEs
operating in mature industries. While these rms
face increasing challenges, derived from globalization pressures and the acceleration of social
and technological changes, they usually tend to
remain with the status quo and resist strategic
renewal. Studying the role of top executives in
limiting or encouraging strategic change can add
important insights to the body of knowledge on
strategic renewal and improvement of competitiveness, especially in the face of stagnating or
declining industries.
Finally, addressing other intervening processes
that take place among TMT members would
increase our understanding of how the composition and dynamics of a managerial team aect
rms orientations. Studying the power or inuence that one or some of the members (the
founder, CEO, informal leaders or group of
family-managers) can exert on the team would
provide new insights into how managerial teams
of SMEs shape their strategic behaviours. This is
especially applicable for family rms, in which
the inuence of the founder is often highly
signicant on the decision-making processes and
on the rms culture and strategic vision (Feltham, Feltham and Barnett, 2005; Hatum and
Pettigrew, 2004).

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Alejandro Escriba-Esteve is associate professor of strategic management at the University of

Valencia. He received his PhD in management from the University of Valencia in 1999. His research
is focused on the impact of TMT and networks on rms strategic choices, as well as partners
dynamics in strategic alliances. He has published his work in international peer reviewed journals
such as International Small Business Journal, International Marketing Review and Journal of
Knowledge Management.
Luz Sanchez-Peinado is lecturer of strategic management at the University of Valencia. She received
her PhD in management from the University of Valencia in 2003. Her current research interests
include rms entrepreneurial and strategic orientation, TMTs characteristics, and entry modes in
diversication strategies. She has published her work in international peer reviewed journals such as
International Small Business Journal, Journal of International Entrepreneurship and International
Entrepreneurship and Management Journal.
Esther Sanchez-Peinado is associate professor of strategic management at the University of
Valencia, Spain. She received a PhD in management from the University of Valencia in 2003. Her
research is currently focused on the impact of rms strategic orientation on strategic choices, as well
as internationalization strategies in service rms. She has published her work in international peer
reviewed journals such as International Business Review, International Small Business Journal and
Journal of International Marketing.

r 2008 British Academy of Management.