Strategic Decision-Making Processes as a Mediator of the Effect of Board Characteristics on Company Innovation: A Study of Publicly-Listed Firms in Greece

Article excerpt

Based on the Upper Echelons Theory that suggests the demographic characteristics of executives are linked to organisational processes and outcomes, the paper proposes that strategic decision-making processes mediate the relationship between board members' demographic characteristics and corporate innovation relating to product, process and organization. Based on questionnaires completed by 101 CEOs of Greek listed firms, the findings confirm that reporting and formalization as decision processes mediate the effect of board characteristics on innovation. Sound financial and formal mechanisms encourage Greek executives to take risks and invest in product or service innovation. Findings show that the executives' educational level is positively associated with financial reporting and rule formalization activities due to the changes that have been occurred in the Greek education system over recent decades. Functional background is found to influence only financial reporting activities. Finally, the managerial implications of this study are discussed.

Introduction

Academic interest in how executives influence strategic decisions and organizational outcomes has always been high in strategic management literature. Previous studies have portrayed the upper echelons' characteristics as determinants of strategic choices and their outcomes on organizational performance (Hambrick, Cho and Chen, 1996; Hambrick and Mason, 1 984; Smith et al., 1 994). Based on the Upper Echelon Theory, the executives' background and experiences have also been examined for their specific effects on strategic decisions, namely content (e.g. Bantel and Jackson, 1989; Damanpour and Schneider, 2006) and context (e.g. Bantel, 1993; Papadakis and Barwise, 2002). Content decisions refer to decisions that executives make either to select a core business that offers a competitive advantage or to exploit new opportunities in the market place (Hitt and Tyler, 1 99 1). Content decisions are associated with portfolio management activities, diversification, mergers and acquisitions and innovation strategies. However, context decisions are described as a process during which executives determine appropriate actions and directions for the firm (Elbanna, 2006).

Building on the fact that, firstly, strategic decision-making processes remain something of a "black box 'within the innovation literature and, secondly, limited research that has been carried out on the mediating effect between executives' characteristics and strategic outcomes (Hambrick, 2007), this study empirically investigates whether the strategic decision-making processes of financial reporting and rule formalization influence the relationship between the executives' demographic characteristics and innovation. It provides academics and business practitioners with a clear understanding of the specific strategic decision-making processes that mediate the relationship between executives' attributes and innovation strategies.

The study contributes to the existing literature and research on strategic management in several novel ways. Firstly, it proposes an integrative framework of potential strategic determinants of innovation, incorporating decision-making processes and managerial characteristics. This is the first study to the best of our knowledge that theoretically and empirically examines strategic decision-making processes as a mediator between executives' characteristics and firms' innovation. Secondly, although previous studies in the field (Kimberly and Evanisko, 1981) have conceived innovation adoption either as a multi-phase process or as an outcome of dichotomous decision, in this study, the construct of innovation captures product, process and organizational innovation strategies. Finally, based on a sample of 101 questionnaires completed by Greek CEOs, the study aims to identify the key influences on innovation in Greek companies as a contribution to addressing Greece's relatively low levels of innovation. …