Innovation objectives, managerial education and firm performance — an exploratory analysis
Personal intuition and casual observation of the business press suggest that people matter. The characteristics of top managers, e.g., their educational background, their career paths, and their personal traits, play some role in the assessment of a firm’s prospects. This does not just reflect the demand for managerial folklore. Some narrative accounts in the management literature, e.g., in entrepreneurship, also attest to the importance of individuals (see, e.g., Roberts 1991). Historical studies have linked firm strategy, performance, and idiosyncratic characteristics of top executives — Chandler’s (1962) study of organizational structure and strategy being a particularly well-known example. Thus, one cannot simply ignore the potential relationship between a firm’s performance and the talents, skills, and training of its top managers. Yet, this nexus has played only a minor role in the literature on strategic management or organization1.
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- 1.Schrader (1995a) convincingly criticizes various bodies of literature for this neglect. He argues that the heterogeneity of top executives may be a major determinant of the heterogeneity of firm strategies and performance outcomes.Google Scholar
- 3.Brockhoff (1998) poses this question for business adminstration in Germany, but expresses doubts that the U.S. results presented by Schrader (1995a) carry over to the German context. See also Brockhoff (1996).Google Scholar
- 4.In a previous paper (Harhoff 1997), the same data were used to develop and test an industrial organization model of innovation. The strategic management and the industrial organization views of the world are not necessarily at odds with each other. Industrial organization models typically emphasize that the choice of innovation inputs (e.g. RandD expenditures) precedes output decisions. Thus, the most natural game-theoretical setup involves a first stage in which RandD decisions are made, and a second stage involving output or price decisions. The extension pursued here sees strategic choices - the firm’s choice of a particular set of innovation objectives - as a very first decision with long-term implications. This view predicts that innovation strategy will be very persistent over time, and that firms will make these choices based on their perception of long-term comparative advantages. These arise in a world of heterogeneity quite easily from the firm’s histories and stochastic elements.Google Scholar
- 5.See for example Jensen and Ruback (1983). For studies on managerial turnover in Germany, see Poensgen (1982), Kaplan (1994), or Schrader and Lüthje (1993). A detailed survey of the turnover literature is presented in Schrader (1995a, ch. 8 ).Google Scholar
- 6.See - inter alla - Jensen (1988) or Franks and Mayer (1995).Google Scholar
- 7.See Barnard (1968). The costs of information acquisition and retrieval are also central to Arrow’s discussion of alternative modes of economic organization. Cf. Arrow (1974).Google Scholar
- 8.Schrader ( 1995a, ch. 5) discusses and partly integrates models of rational decision-making, leadership, bounded rationality, principal-agent relationships, rituals and symbols in organizations, and models of the firm as a political process. Many of these approaches lend themselves to viewing the personality and characteristics of top managers as important determinants of strategic choices and performance. For reasons of space, I refrain from a discussion here.Google Scholar
- 9.I forego a detailed discussion of “strategy” - the term is used as an abbreviation for the firm’s long-term objectives and of its focus on particular means of achieving these. This is broadly consistent with Chandler’s definition of strategy (cf. Chandler 1962). For a discussion of various other notions of strategy, see Schrader (1995a, ch. 3). A firm’s strategic behavior (as discussed in this paper) may be a product of rational choice, trial and error, or pure chance.Google Scholar
- 12.Schrader (1995b) focuses on these two groups, since they are the largest ones in the U.S. and in Germany. Moreover, technical and managerial training are profoundly different, having emerged from separate historical developments in each of the two countries.Google Scholar
- 13.Ideally, one should test for selection problems arising from this attrition process. As a first indication that problems are unlikely to emerge, the firm size and age distributions do not display significant differences between firms that were represented in both years and firms that only participated in 1993.Google Scholar