The effects of TMT faultline configuration on a firm’s short-term performance and innovation activities

Abstract

Faultline configurations in top management teams are of vital importance in predicting firm outcomes. Grounded in faultline theory, we hypothesise the positive effects of faultlines through the dual routes of coordination and information processing under conditions of various subgroup configuration types. Second-hand data from publicly traded Chinese information technology firms are used to test our hypotheses. The results demonstrate that TMT faultline strength is positively related to a firm’s short-term performance only when both the number and the balance of subgroups are high and is positively related to a firm’s innovation activities only when the number of subgroups is high and the balance of subgroups is low. This study contributes to faultline theory by enriching the connotation of faultlines with the configurational perspective and advancing the debate on the effects of team faultlines as we reveal the benefits of TMT faultlines.

Being Different, But Close: How and When Faultlines Enhance Team Learning

“…These findings contribute to the contextual perspective on faultlines which examines when and how the effects of faultline strength on team processes and outcomes may vary. Most of these contextual studies report that negative faultline effects are exacerbated or decreased (e.g., Bezrukova et al ., ; Homan et al ., ; Rico et al ., ; for exceptions with conditional positive effects see Bezrukova et al ., 2012; Meyer and Schermuly, ; Chung et al ., ; Xie et al ., ). This study extends this past work by demonstrating that faultline strength can enhance team processes and outcomes under certain conditions, thereby adding to the growing amount of studies that indicates that faultlines may have positive effects (cf.…”

“…Consistent with past diversity research (Joshi and Roh, ), recent faultline reviews (Thatcher and Patel, ; Meyer et al ., ) suggest that the effects of faultline strength may be highly contextual. Especially, structural aspects of faultlines are a relatively understudied area (for exceptions see Xie et al ., ; Zanutto et al ., ). We respond to this recent development in faultline research by considering the distance between subgroups as a structural aspect of faultlines and a contextual factor moderating the relationship between faultline strength and team learning.…”

“…Some recent studies even found positive effects of faultline strength on information elaboration, reflective reframing (i.e. sense making), employees' loyalty and team performance (e.g., Ellis et al ., ; Hutzschenreuter and Horstkotte, ; Iseke et al ., ) with some of them specifying the conditions under which these positive effects may occur (Bezrukova et al ., ; Meyer and Schermuly, ; Chung et al ., ; Xie et al ., ). In their faultline review, Thatcher and Patel () have concluded these potential positive effects of faultlines to be an area of future interest.…”

Top management team faultlines and firm performance: Examining the CEO-TMT interface

“…While the importance of knowledge-based faultlines has been widely recognized, their performance implications are not clearly established in the literature. On the one hand, some studies argue that the presence of knowledge-based subgroups increases the information processing capacity of the team, and promotes innovation (Xie, Wang & Qi, 2015), learning (Gibson & Vermeulen, 2003), and high performance (Hutzschenreuter & Horstkotte, 2013;Ndofor et al, 2014). In direct contrast, another stream of research posits that the impact of knowledge-based faultlines is predominantly negative (Bezrukova, Jehn, Thatcher, & Spell, 2012), as the resulting factions between team members generate knowledge fragmentation that impairs team functioning, and results in low performance (Li & Hambrick, 2005).…”

Strategic management research in the Journal of Management & Organization: International in orientation with an Australasian edge

“…The first article by Xie, Wang, and Qi (2015) explores the influence of top management team (TMT) faultline configuration on firm performance and innovation. In faultline theory, a TMT can split into subgroups where there is alignment of particular team member demographic attributes; there can be negative outcomes with this occurrence and also the possibility of positive outcomes.…”