THE RELATIONSHIP BETWEEN PERFORMANCE AND CONSENSUS AMONG TOP MANAGERS IN ENTREPRENEURIAL FIRMS
G. Dale Meyer
G. Page West III
Graduate School of Business & Administration
Campus Box 419
University of Colorado
Boulder, CO 80309-0419
Consensus among top managers has been the subject of considerable attention. Yet research results fail to establish a clear relationship between consensus and firm performance. Different studies have found positive, negative, and insignificant relationships between consensus and performance. Further, consensus-performance relationships have not been adequately explored in entrepreneurial companies. And yet arguably the entrepreneurship domain is a more critical environment in which to understand key top management team dynamics. Startup companies suffer from a "liability of newness" and lack accumulated organizational slack. In this environment either severe disagreement or complete agreement (groupthink) among top managers would likely have a profound impact on firm performance.
The present research focuses on top management consensus on goals and means in entrepreneurial companies. Enhancements to previous theory regarding consensus are included. Specifically, this research incorporates theoretically-supported arguments that the differential influence of individuals and of issues should be accounted for in consensus research. 'My study hypothesizes that CEOs wield a differential influence within entrepreneurial top management teams. Therefore, consensus should be measured around the CEO's point of view. In addition, some issues are hypothesized to be more important than others. Thus differentiation is made between primary and secondary sets of strategic goals and competitive means. The relationship of performance to consensus on each such set is evaluated.
The study was conducted among CEOs and top managers of 35 technology-based firms operating in three related SIC codes in Colorado. CEOs interested in participating designated the names of top managers in their companies to be surveyed. In confidential surveys returned by each respondent, the importance of 20 possible strategic goals and possible competitive means were rated. Measures of environmental dynamism, performance and life cycle stage were also collected. The CEOs' ratings were used as the centerpoint in developing measures of consensus, which were compared with consensus around an average of all top managers' ratings. The top quartile of the CEOs' ratings were used to differentiate between primary and secondary goals and means. Hierarchical regression analysis was used to evaluate the consensus-performance relationship, controlling for firm size.
On an overall basis consensus around the CEO's goals and means, and consensus around the average top management team's goals and means, both significantly predicted performance. However, the CEO perspective was not a stronger predictor. But different effects were uncovered when evaluating the relationship in dynamic versus stable environments. In perceived dynamic environments the CEO's point of view continued to significantly predict performance, while the average top management team perspective did not.
Consensus around the CEO's goals and means appear to be a stronger predictor of performance in earlier life cycle stages than in later life cycle stages.
While theory and much previous research has suggested the positive relationship between consensus and performance, the findings here find precisely the opposite effect. Where consensus around the CEOs point of view was a significant predictor of firm performance (on an overall basis, in dynamic environments, and in earlier life cycle stages), the relationship between consensus measures and performance were negative. Thus, enhanced performance is significantly associated with less consensus.
The findings also provide important new insights on the importance of primary and secondary issues in considering consensus. Consensus around primary goals and primary means were not significantly related to performance in either dynamic or stable environments, either individually in correlation analysis or in combination in regression. While overall consensus (combining all goals and means) significantly predicted performance, the source of the significance does not appear to be primary goals and means. Instead, secondary issues seem to provide the critical consensus-performance link. Confirming this, consensus on secondary goals was significantly related to performance in dynamic environments, where the direction of the relationship was negative.
This study tends support to the importance of the CEO's point of view in directing the young firm. The CEO's point of view is particularly important in dynamic environments and in the earlier stages of the company's development. The findings also suggest viewing consensus as that which occurs around a particular point of view, and not simply as an average of all points of view. Future research might seek to understand the implications of shifting sources of influence within entrepreneurial companies.
That consensus on secondary goals is negatively related to performance in dynamic environments echoes previous research findings on the deleterious effects of potentially dogmatic, strong-willed CEOs. Where CEOs may demand agreement to all goals, even those less critical to their companies, such agreement may have an adverse impact on firm performance. These findings also strongly support the negative effects of groupthink in environments which present many opportunities and which call for various points of view.
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