Team Diversity and New Venture Performance: the Role of Family Relationships

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Author Information : Eun-Jeong Ko (Whitman School of Management, Syracuse University)
Johan Wiklund (Whitman School of Management, Syracuse University)

Year of Publication : Academy of Management (2015)

Summary of Findings : We found that bio-demographic and task team diversity exert opposite influences on performance, and pre-existing family relationships in a team dampen both the positive and negative implications of diversity.

Research Questions : 1. What are the impacts of demographic (age, gender and ethnicity) and task (startup, industry and management experience) team diversity on team performance of new ventures?

2. Does family relationships in new venture teams reduce the negative impact of bio-demographic diversity on team performance?

3. Does family relationships in new venture teams reduce the positive impact of task diversity on team performance?

What we know : Upper echelons theory suggests that the diversity, or heterogeneity, of top management teams (TMTs henceforth) has important implications for firm outcomes, including performance, because TMT diversity influences how well the team functions together. However, research examining the implications of diversity in new ventures has generated inconclusive results.

To a large extent this is because in applying upper echelons theory, scholars have focused mainly on cognitive ability from task diversity, not considering emotional conflicts from bio-demographic diversity among team members. The level of diversity of team members not only enhances shared cognition, but also potentially aggravates emotional conflicts. Further, potentially strong relationships extending beyond the workplace, such as family affiliations among team members, have not been considered although such relationships greatly affect team decision-making processes. This seems to be an important oversight because roughly 50 percent of all new venture teams seem to be composed of individuals that share a family affiliation, including high-tech firms.

Novel Findings : Stimulating new theoretical development in upper echelons theory by considering the relational embeddedness among team members, this study helps move the literature beyond the dominating “demographics only” perspective, which has been criticized in the literature. To be specific, this study suggests important insights that embedded relationships within a team, such as family affiliations, mitigate the negative impact of bio-demographic diversity and dampen the positive implications of task diversity. Our research also points to the fact that in newer teams, bio-demographic may be of greater importance because we received stronger support for our hypothesis regarding bio-demographic diversity than for our hypothesis concerning task diversity.

Novel Methodology : We examine the development of pre-launch entrepreneurial teams relying on panel data from Panel Study of Entrepreneurial Dynamics (PSED II). Using the high-quality longitudinal data of 293 teams with detailed demographic and family affiliation information on all team members, we conduct Poisson regressions for panel data.

Implications for Practice : This study sheds light on patterns that practitioners can expect in diverse work groups. In particular, entrepreneurs in nascent firms can take comfort in knowing that established relationships among team members can mitigate emotional conflicts in a team consisting of bio-demographically diverse team members. At the same time, acknowledging the possibility that task diversity, notably startup experience diversity, can be reduced due to the existing relationships, entrepreneurs can effectively manage the risk. Anticipating such a possibility may be critical if entrepreneurs (i.e. founders) hope to manage team members’ differences successfully.

Implications on Research: It is important to take the relational capital among team members into consideration when investigating team diversity and its differential influences depending on the type of diversity. However, we also note that 13.9% of the teams had some team departure or addition during the five years that the study lasted. Although this is a relatively low percentage, such team changes could potentially influence team diversity. Future research examining the impact of diversity in new venture teams would benefit from taking potential team changes into consideration. Also, the importance of bio-demographic diversity is likely to diminish over time as social categorization fades away while relational capital, formal structure and social norms develop. Thus, it will be worthwhile to investigate if the importance of family relationship remains the same or changes as the new ventures matures. Further, our assessment of relational embeddedness focused on family relationships. There are also other aspects of embeddedness that could be productively examined, including prior shared work history, or friendship. Such aspects of embeddedness may also be important.

Full Citations : Ko, E. & Wiklund, J. (2015) Team Diversity and New Venture Performance: the Role of Family Relationships. Journal of Management. Revise & Resubmit

Abstract : Integrating organizational conflict and upper echelons theory, this paper develops a conceptual model to examine how team diversity contributes to performance in new ventures. We hypothesize that bio-demographic and task diversity exert opposite influences on performance. Moreover, pre- existing family relationships in the team dampen both the positive and negative implications of diversity. Examining a panel of 293 new venture teams over a period of six years, we find that the majority of teams include family relationships. In support of our hypotheses, these relationships moderate the relationship between diversity and performance. Our conceptual model and empirical findings provide valuable insights to scholars interested in upper echelons theory, team diversity, family team and the new venture creation process.

Eun Jeong Ko

Eun Jeong Ko

Eun Jeong Ko is a Ph.D. student in entrepreneurship at the Whitman School.
Eun Jeong Ko
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