Academic journal article Management : Journal of Contemporary Management Issues

Upper Echelons Theory Revisited: The Need for a Change from Causal Description to Casual Explanation

Academic journal article Management : Journal of Contemporary Management Issues

Upper Echelons Theory Revisited: The Need for a Change from Causal Description to Casual Explanation

Article excerpt

1. BACKGROUND

There is some reason to believe that organizations parallel the profile of the dominant individuals who manage the affairs of the organization and that some organizational pathologies may reflect pathologies in the personality of these dominant individuals. Their perceptions of the corporate environment can be said to determine to a large extent how organizations or business units act in response to their environment. Thus, the organizations are what their leaders think, feel, perceive, and believe. This was the thesis of the seminal paper by Hambrick and Mason (1984), known as the Upper Echelons (UE) perspective.

Upper echelons theory states that organizational outcomes - both strategies and effectiveness - are reflections of the values and cognitive bases of powerful actors (senior executives) in the organization (Carpenter, Geletkanycz, & Sanders, 2004; Hambrick & Mason, 1984). More specifically, the theory states that top managers' perception of their corporate environment influences the strategic choices they make which eventually affects the performance of the organization. It further states that their fields of vision (the areas top managers direct their attention to) and for that matter the perceptions of the environment that result are restricted by their cognitive base and values. This is because the attentional process is constrained by the limited capacity of humans for information processing at any given time and as a result, our decision to attend to certain elements in the environment is determined by our dispositions and personal tendencies. In other words, personal characteristics of top managers determine the aspects of the environment that they can "see" and what they see inform the decisions they make regarding strategic choices which ultimately affects the bottom-line of the organization. The revision of the theory by Carpenter et al. (2004) adds mediators and moderators of top management team effects such as power, team processes, integration, incentives, and discretion to the model. They also re-conceptualize both strategic choices (which in the original version of the theory are mediators) and firm performance as organizational outcomes.

In order to test this theory, management researchers have approached the question of whether top managers influence their organizations in two ways. First, they assess top executives demographics and relate them to the metrics of organizational performance. Second, they measure the underlying psychological traits of top executives and determine whether or not they relate to the performance of organizations. However, the majority of the UE research took the 'demographic' approach rather than the 'psychographic' one with a handful of studies assessing both demographic and psychographic variables. Based on the original and revised versions of the theory, it can be suggested that top managers' personal characteristics can directly influence the organizational outcomes (Carpenter et al, 2004; Hambrick & Mason, 1984).

Empirical studies that followed from Hambrick and Mason's (1984) thinking suggest that indeed the top management team (TMT) matters to organizational performance. For instance, Bantel and Jackson (1989) and Murray (1989) documented that top management team demographics related to innovation and firm performance respectively. It was therefore considered crucial for organizational scientists and practitioners alike to understand the factors that underpin the cognitions, values, and perceptions of top management teams. Until recently, the distinguishing feature of these studies was that they typically studied top management team demographic variables such as age, functional background, education, tenure, and similar variables in relation to the organizational outcomes (Carpenter et ah, 2004; Sparrow, 1994). As the studies proceeded, certain variables were conceptualized as "control variables" or moderators. They included organizational age, size, and environment. …

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