The Top Management Team, Formulation of Corporate Strategy and Organizational Performance: a Critical Review of Literature

Abstract

This paper will investigate the relationship between the top management team (TMT), corporate strategy and organizational performance. Hambrick and Mason (1984) stated that the more complex a decision, in strategic measures, the more important the personal characteristics of the decision makers, such as age, career experiences, job tenure, education, culture, socioeconomic background, specialization, and so on. Upper echelons theory focuses on the characteristics of the top management team and especially the top executives who have great power to influence decision making of organizations. The definition of the upper echelon theory mainly states that, decision-making is based on the interpretations of the executives, and these interpretations are embedded in the executives’ cognitions, experiences, values, and knowledge (Hambrick, 2007). This is a significant issue that needs to be solved empirically. The influence of top management on corporate strategy that in turn impacts on organizational performance remains unclear. To advance our knowledge of the role of the CEO and the TMT we need a better understanding of their impact (if any) on strategic decision making processes and/ or the underlying characteristics which are important (Rajagopalan et al., 1997; Smith et al., 1994). The paper further deals with Top Management Teams (TMTs) and how, based on diverse research efforts, this critical group at the apex of the firm has background characteristics that enhance predictability of organizational performance levels (Hambrick & Mason, 1984). These characteristics are founded on a set of values and beliefs or the cognitive base fundamental in the exercise of the formal role associated with the upper echelon of an organization. Although success in most organizations is attributed to TMTs, other organizational members in lower echelons require to be involved in all aspects of organizational life because they are equally important in contributing to organizational performance.