February, 1997 - Vol. 1, No. 5

Top Management Teams that Act and Respond

A study of top management teams in the U.S. airline industry reveals that those with greater diversity are quicker to take competitive actions but slower to respond to competitors' challenges.

The researchers examined the competitive actions of 32 U.S. airline companies during the period after deregulation, 1979-1986. They also studied their reactions to competitors' initiatives. Company actions and reactions include price reductions, advertising initiatives, and new routes. The investigators also identified the extent to which a company's top executives vary in their educational backgrounds (such as engineering, economics, business, law), functional background (e.g., finance, marketing, operations), and number of years with the company. The researchers find that airlines whose top management team members have more diverse backgrounds are:

1. more likely to take competitive actions but less likely to respond to competitors' actions;
2. slower to take competitive actions and react to competitors' actions;
3. more likely to achieve greater market share and higher annual profits.

Implication: Build diverse leadership teams but also build devices to hasten decision making.

Implication for global operations: Bring managers of diverse national backgrounds into management -- and then redouble efforts to ensure that theycan act and react swiftly as a team.

Source: Donald C. Hambrick, Theresa Seung Cho, and Ming-Jer Chen, "The Influence of Top Management Team Heterogeneity on Firms' Competitive Moves," Administrative Science Quarterly, Vol. 41, n. 4, December, 1996, pp. 659-684.

Globalizing Leadership Development

In a collaborative effort with the World Economic Forum, Price Waterhouse is assembling essays on leadership and change by nearly 40 chief executives of major international companies. Several of the CEOs reflect on the challenges of globalizing their leadership:

Percy Barnevik, ABB Asea Brown Boveri Ltd.: In leading this Europe-based engineering and manufacturing firm with operations in 140 countries, he writes that "it is important to set the tone from the top and reward people who promote the global group and support other people." However, "global managers are not born -- they must be developed. Among our 25,000 managers we need some 500 truly global managers with global business responsibilities. One key route toward creating this group is to transfer promising young mangers to other countries. Another is trainee programs where part of the training is assignment to another country."

Rahul Bajaj, Bajaj Auto Ltd (with James J. Schiro): "To support" the internationalization of companies like Bajaj -- one of India's leading producers of scooters and related products -- "greater numbers of emerging markets executives are currently being educated in top international business schools and training in worldclass organizations."

Minoru Murofushi, Itochu Corporation (with Hideki Kurashige): In overseeng a Japanese trading company with $130 billion in annual sales, we "have already begun to transform ourselves" into "a globally integrated business developer.... We will gather 'best practices' from both the west and the east of global management and leadership."

Melvin R. Goodes, Warner-Lambert Co. (with G. William Dauphinais): With 60 percent of its revenues from outside it home market, this U.S. pharmaceutical firm uses 360-degree feedback evaluations worldwide to foster "changes in its culture worldwide" and to keep "people focused in a company where the diversity of businesses and product lines and the company's global reach makes focus a vital and constant challenge."

Source: Price Waterhouse, Lessons from the CEO (tentative title), publication expected in fall, 1997.

Leading by Managing People

Wharton Executive Education is offering an open-enrollment program in "Managing People: Effectiveness Through Individual and Group Dynamics" on March 23-26 and November 23-26, 1997

Information:execed@wharton.upenn.edu and http://www.wharton.upenn.edu/execed

The "lightning mobility of capital flows around the world" creates "permanent pressure for high returns on capital.... Financial capitalism today is overtaking manufacturing capitalism. If this trend is not kept under check by strong, farsighted corporate leadership, which balances the short term interests of shareholders with the long-term interests of the company, it is bound to exacerbate resentment, social tensions and labor strife."

-- Klaus Schwab, founder and President of the World Economic Forum, and Claude Smadja, its Managing Director, International Herald Tribune, January 31, 1997.