Top Management Teams’ External Ties for Implementing a Late Mover Strategy

Although there has been agreement among scholars that the external ties of the top management team (TMT) are an important means by which executives scan their business environment and gain firsthand insight into other organizations’ activities, the efficiency of boundary spanning activities of the TMTs has often been called into question. Accordingly, some successful firms (e.g., General Electric) prohibit one of the most important means for the strong external ties of their TMT -- outside directorship activities -- based on their belief that these activities often absorb significant amounts of managerial time and energy, thereby diverting their efforts away from the focal firm’s managerial activities. This study is designed to address this gap between the theory in the current literature and the conventional wisdom of practitioners. In keeping with prior research findings, it first provides a theoretical model, presenting the importance of the fit between the TMT’s external ties and a firm’s strategy for effective strategy implementation and high performance in late movers. In addition, some forms of intra- and extra-industry ties are hypothesized as more effective means for implementing late movers’ strategies, either imitation or resource substitution, than others. The findings in hierarchical regression analysis of a multiyear sample of first and late movers in the computer hardware manufacturing industry suggest that top managers’ participation in the boards of outside firms provides incremental performance benefits for late movers implementing a resource substitution strategy. They also reveal that top managers’ trade association leadership ties are more harmful to the performance of late movers implementing a resource substitution strategy than to the performance of late movers implementing an imitation strategy. However, inconsistent with expectations, the other types of the TMT's external ties were observed not to provide incremental performance benefit to late movers regardless of the types of strategy they pursued. While several implications for both management practice and research have emerged, perhaps the most fundamental contribution of this study is that it offers an objective measure for late movers’ strategies and thus provides research on an issue that has received surprisingly little attention from researchers -- mechanisms through which late movers have produced some remarkable successes over competitors -- despite their practical importance and theoretical development. The findings of this study also provide several insights for practicing managers by addressing how firms may use their top managers’ external ties to gain performance benefits. The external ties of top managers are of great importance to the form and fate of their organizations. Therefore, they should receive increased attention from those involved in the selection of top managers. Furthermore, the value of various external ties will not be the same for all late movers, but rather will vary depending on firms’ strategies. Thus, in order to gain incremental performance benefits from these various forms of the TMT’s external ties, late movers should establish and develop the ties that match the demands of their chosen strategy. For example, late movers pursuing a resource substitution strategy must seed their top management team with abundant stimuli for the services on other firms’ boards while minimizing the size of trade organizational leadership positions held by their top managers.