Top Management Team Communication Networks,

Environmental Uncertainty, and Organizational

Performance:
A Contingency View

Xin Liang
Assistant Professor
Hermann Achidi Ndofor
Assistant Professor
Richard L. Priem
Professor
Joseph C. Picken
Clinical Professor

Presented by:
Faheem Riaz
Mehak Durrani
Nael Chiragh
Sijal Asif Khan

Introduction
Open communication and reliable

information are imperative for an

organization (Eisenberg and Witten, 1987)
More distant communication can be useful
for groups facing complex tasks
Importance of TMT communication patterns
and firm performance with environmental
uncertainty

Literature Review & Hypothesis

TMT Communication Patterns
TMT is the most consequential group in an organization

(Carpenter et al., 2004)

Communication affects organizations in a big way
(DeWine, 2001 and others)
Communication is important to help carry out an
organizations functions (Mintzberg, 1973)
Results suggest appropriate communication is sufficient
for exchanging information

TMT Communication Patterns and

Environmental Uncertainty
Structures should be appropriate for external

environment to achieve success (Pfeffer and Salancik,

1978)
Uncertainty is the most important environmental
attribute (Duncan, 1972)
Uncertainty can be dealt by:
Planning ahead, delegation of authority (Thompson,
1967)
Structural differentiation and specialization (Galbraith,
1973; Lawrence and Lorsch, 1967)
Environmental scanning systems (Yasai-Ardekani and
Nystrom, 1996)
Developing flexible, informal decision-making
processes (Fredrickson, 1984; Mintzberg, 1973).

Information is processed through formal

and informal procedures and interactions.

Organizations perform best in uncertain
environments. (Miller, 1992)
Communication density vs.
Communication centrality.

Communication Network Density

TMTs with a dense communication network are
more effective (Eisenhardt, 1989)
High uncertainty leads to ambiguous information
(Milliken, 1987)
Different manager interpretations could lead to
group conflict (Tekleab et al., 2009)
High network density glues TMT roles together
(Molm, 1994)
TMT communication network density affects
decision making as well (Johnson, 1990)

To summarize:

TMTs with uncertain environments require

denser communication networks
A small communication network will lead to
higher performance

Therefore,

Hypothesis 1: As environmental
uncertainty increases, concomitant
increases in TMT communication network
density will be positively related to firm
performance.

Communication Network

Decentralization
The more the network centralization, the more
likely an individual controls communication
(Wasserman and Faust, 1994)
A lower TMT communication network would mean
decentralization
Network decentralization has certain advantages
(Burns and Stalker, 1961)
Higher centralization is more frequently associated
with CEOs (Finkelstein et al., 2009)
A centralized TMT tends to be sub-optimal
(Eisenhardt, 1989)

Therefore,

Hypothesis 2: As environmental
uncertainty increases, concomitant
increase centrality is negatively related to
performance.

Methodology
Sample
CEOs and presidents of 32 organizations
(Southwestern metropolitan area)
Organization size 40 to 26000 employees
Service and manufacturing sector
13 public and 19 private
404 executives
Work experience of 9 years (2.9 years in current
position)
Team size 7 to 15

Research Tool

Interview

Mapping TMT communication

network
Challenges
1. Identifying members of top management
.Using the technique of Amason (1996),

Simons and Peterson (2000)

.People involved in strategic decision
making
2. Time limitations
.Two weeks prior to the interview
.Easily recall accurate information

3. Use of various media

.Irrelevant to the study
.Focus of number of communication ties

and frequency

Data Collection
Step 1: first interview with CEO and
presidents
Discuss general purpose and confidentiality
Step 2: second interview with top
executives
Team of MBA students used structured
interviews
Each TMT reported the frequency of their
contact
Results recorded by using four level scale

Measures (variables)
TMT communication network density
Strength (frequency of contacts)
Number of ties (one to one contact)
Network Density =YVk /g(gT)
g= no. of nodes or managers
Vk= value (contact frequency)
*Used for assessing amount of information
exchanged

TMT communication network decentralization

use inverse of Wasserman and faust
network centralization
Comparison of total flow of information
Environmental uncertainty
Level of instability and unpredictability
Perceptual measures
Used Miles and Snows 5-item measure

Results (two factor solution)

Inter-rater relibilities 0.61 to 0.98, Average of three
factors 0.75
Key elements of
environmental
uncertainty

Dynamism
Changes
regarding
product life
cycle,
competition and
customer
preferences
Highly correlated

complexity

Munificence

Extent of
uncertainty in
the pattern of
industry growth
and expansion

Using Likert
scale for
evaluating
relative growth
rate

Relatively low
correlation 0.35

Organizational Performance
Interrelated components (efficiency and effectiveness)
For uniformity, two measures were used (growth and
profitability)
Results
Inter-rater reliability 0.60 to 0.80
Alpha for overall performance 0.712
Alpha for comparative performance 0.705
Other control Variables
CEO centrality
TMT tenure heterogeneity
TMT functional heterogeneity

Analysis and Result

Shows means, standard deviations and

Pearson bivariate correlations

Contingency relationship (three

regression models)
First Model: two performance dependent
variables and three control variables
CEO centrality (positive coefficient of p<0.001)
Greater information concentration leads to
higher performance
Second model: two independent variables
added
Communication density( + coefficient p<0.01)
Decentralization and environmental uncertainty
influences performance directly

Hypothesis 1 supported
Positive relationship between

communication density and environmental

uncertainty
Hypothesis 2 not supported
Decentralization and environmental
uncertainty is positively linked with
performance

Findings
More communication means better

performance
Influence of TMT communication networks
on performance is linked to the
environmental uncertainty of firms
The concentration of communication
Negative effects between network
decentralization and environmental
uncertainty

Influence of centralization on
decision making
Strategies are usually ambiguous, risky
Coordination and quick decision making

warrants strong leadership

Operational decisions are structured,
monotonous and less influential
Decentralization encourages employees to
implement decisions

Limitations
Data on contact between managers relied

on their recollection raises validity

concerns
Examining managers record of contact is
still a concern
More subjective measures were used
Sample was only 32

Conclusion
How important effective communication is for the

progress of an organisation
Providing practical information in a concise
manner supported by facts
The environment and the level of risks of a firm
have to be considered
Communicating in a team has advantages and
disadvantages
Hidden agendas can affect the overall
performance
Nestle for example has a decentralized
communication system.