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This study's argument is that a firm's diversification determine the degree of integration it needs across business units, which in turn influences the ideal composition of its corporate top management team. Archival data from 134 firms revealed that the degree of social cohesion and type of knowledge base within a firm's top management team were related to the degree of interdependence the firm's diversification posture demanded. Contrary to our hypotheses, experience in core functional areas among top team members was positively related to corporate performance in low-interdependence firms and negatively related to it in high-interdependence firms.
With the vast preponderance of America's largest manufacturing firms engaging in multiple lines of business (Baysinger & Hoskisson, 1989; Ravenscraft & Scherer, 1987), corporate diversification is an issue of great practical and theoretical significance, Early theorists focused primarily on the lids between diversification strategy, structure, and processes (e.g., Berg, 1973; Chandler, 1962; Fouraker & Stopford, 1968; Pitts, 1974; Wrigley, 1970). However, following a path set out by Rumelt (1974), recent researchers have focused on the performance implications of different diversification strategies (e.g., Bettis, 1981; Bettis & Hall, 1982; Montgomery, 1979).
With a few exceptions (e.g., Gupta and Govindarajan, 1986), the emphasis on studying the fit between strategy and accompanying organizational arrangements has diminished. This change is unfortunate since optimally managing a particular type of diversification is as important as selecting a portfolio in the first place. In fact, some of the most vocal criticisms of multibusiness firms often have to do with mismanagement of their constituent pieces; critics have cited mechanical, formula-based control and allocation systems (Hamermesh & White, 1984; Hayes & Abernathy, 1980), unknowledgeable or ill-timed intrusions into business-level affairs (Vancil, 1979), and inability to achieve hoped-for synergies (Porter, 1985).
This study extends in a new direction the concept that different diversification strategies require different managerial approaches. Focusing on the management of total enterprises, our argument is that a firm's diversification posture determines the degree of integration needed across its business units. The more tightly related a firm's businesses, the greater the need for integration and coordination among them. This need for integration will influence the composition of a corporation's top management team, particularly affecting the degree of cohesion among top executives and the profile of their knowledge...