The External Ties of Top Executives: Implications for Strategic Choice and Performance

Author(s): Marta A. Geletkanycz and Donald C. Hambrick

Source: Administrative Science Quarterly , Dec., 1997, Vol. 42, No. 4 (Dec., 1997), pp.
654-681
Published by: Sage Publications, Inc. on behalf of the Johnson Graduate School of
Management, Cornell University

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The External Ties of Top We examine the extent to which executives' boundary
Executives: Implications spanning relations inside and outside their industry af-
fect organizational strategy and performance. We posit
for Strategic Choice and
that the informational and social influences of external
Performance ties will be reflected in the degree to which the organiza-
tion's strategy conforms to or deviates from the central
Marta A. Geletkanycz tendencies of its industry and that the alignment of ex-
Boston College ecutives' external ties with the firm's strategy will be
Donald C. Hambrick beneficial to firm performance. Using a multiyear sample
Columbia University of firms in the branded foods and computer industries,
we find that executives' intraindustry ties are related to
strategic conformity, that extraindustry ties are associ-
ated with the adoption of deviant strategies, and that
alignment of executives' external ties with the informa-
tional requirements of the firm's strategy enhances orga-
nizational performance. Our results also show that a
unique or differentiated strategy is not universally advan-
tageous and that the benefits accruing from strategic
conformity are especially strong in the more uncertain
computer industry.'

The ability of executives to formulate and implement strate-

gic initiatives that capitalize on environmental opportunities,
while mitigating external threats, is vital to organizational
success. The factors that affect strategic choice are there-
fore of central concern, and a large body of work has ex-
plored the determinants and processes of strategic decision
making, with particular attention paid to the role of senior
executives and top management teams in shaping organiza-
tional outcomes. Building largely on the conceptual argu-
ments of Cyert and March (1963), Child (1972), and Ham-
brick and Mason (1984), researchers have found
considerable empirical support for the view that organiza-
tional profiles reflect the characteristics and processes of
senior management.
While prior studies have provided important insights, an un-
derstanding of the executive-level factors affecting strategic
choice nevertheless remains limited. Empirical research on
strategic choice and upper echelons has tended to focus on
factors endogenous to the firm's senior executives (i.e., their
backgrounds and personal characteristics) (e.g., Bantel and
Jackson, 1989) and the social processes within top manage-
ment teams (e.g., Eisenhardt and Schoonhoven, 1990). Yet
research on executives, dating back to early studies, sug-
gests that senior managers operate in a social context that
spans organizational boundaries (e.g., Barnard, 1938) and
that perhaps up to 50 percent of all executive time and ef-
fort is spent in boundary-spanning interaction (Mintzberg,
1973). Executives' boundary spanning activities and their as-
sociated interactions with external entities are of conse-
? 1997 by Cornell University. quence to organizational outcomes. Study suggests that they
0001-8392/97/4204-0654/$1 .00. are critical to executive effectiveness along numerous di-
mensions, including strategy formulation and implementation
We are grateful to Eric Abrahamson, Ron (Kotter, 1982). Yet despite the known importance of execu-
Burt, Eric Leifer, Aneil Mishra, and Bob tives' boundary spanning ties on firm-level outcomes of
Yavitz for their contributions on earlier
strategy and performance, surprisingly little research has fo-
drafts of this manuscript. The paper has
also benefited from the constructive cused on these important links.
comments of Associate Editor Mark
Mizruchi and three anonymous ASO re-
The purpose of our study is to address this oversight. We
viewers. draw on complementary literatures to develop and test the
654/Administrative Science Quarterly, 42 (1997): 654-681

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 External Ties

idea that strategic choices are affected by the external ties

of top management team members and that the informa-
tional and social influences arising from external interactions
will be reflected in strategic profiles, particularly the degree
to which the firm's strategy conforms to or deviates from
central tendencies in an industry. We propose that an im-
proved understanding of strategic choice can be gained by
examining the effects of the executive team's external ties
on organizational strategy and performance. Further, by ex-
amining the effects of a diverse set of external ties-direc-
torship ties, as well as other boundary spanning relations
assumed by senior executives-we extend understanding of
the implications of several interorganizational relations main-
tained by top executives.

THEORY AND HYPOTHESES

As first elaborated by the Carnegie School (e.g., Cyert and

March, 1963), top executives tend to make strategic choices
under conditions of information overload and ambiguity.
Apart from the inherent complexity of the decision-making
process-monitoring of external contingencies, interpreting
their significance to the firm, formulating viable strategic al-
ternatives, and finally selecting an appropriate course of ac-
tion-factors such as changing environments, conflicting in-
formational cues, and competing goals and expectations tax
the cognitive limitations of strategic decision makers (March
and Simon, 1958; Cyert and March, 1963). Accordingly, stra-
tegic decisions are the result of behavioral factors rather
than the result of techno-economic, rational optimization. De-
cision makers selectively perceive only a limited number of
available cues (Simon, 1955) and adopt simplified models of
reality (March and Simon, 1958; Finkelstein and Hambrick,
1996) shaped largely by their prior knowledge and experi-
ence. Additionally, strategic decision makers economize on
search and choice processes, relying on established chan-
nels to acquire information and on external referents for in-
sight into plausible alternatives (Cyert and March, 1963).

The logic of the Carnegie School served as the main founda-

tion for Hambrick and Mason's (1984) upper echelons model
of the relationships between top executives' characteristics
and organizational outcomes. Both the Carnegie School and
upper echelons research have been notably silent, however,
on the influence of external referents and contacts on strate-
gic choices. The promise of such a perspective is suggested
by several literatures in which external ties are seen as im-
portant conduits for informational and social influences on
executive decision making.

External Ties: Informational Influences on

Strategic Choice

Executives' interactions with external entities provide access

to several types of informational cues. Two themes particu-
larly germane to strategic choice recur in the literature. They
suggest that executives' external ties serve as conduits for
information that shapes managerial views of the environ-
ment and contributes to the set of alternatives from which
strategic choices are made.

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 Shaping managerial views of the environment. Among
the most critical functions of boundary spanning activity and
the interaction it accords is the acquisition of environmental
information (e.g., Mintzberg, 1973). Through their interaction
with outside entities, executives derive important insight into
their external context. While documentary media also convey
information about environmental changes and trends, re-
search into environmental scanning suggests that executives
greatly prefer information from personal contacts (Aguilar,
1967). Contributing to this preference are several advantages
personal transmissions offer over documentary media, in-
cluding timeliness, richness, and the circumvention of in-
traorganizational biases (e.g., O'Reilly, 1983; Daft and Len-
gel, 1984).

The influence of external contacts extends beyond informa-

tion acquisition, however, to affect interpretation as well.
Under conditions of bounded rationality, decision makers
look to their counterparts in an effort to draw meaning from
the numerous and often ambiguous cues drawing their at-
tention (Festinger, 1950, 1954). They construct a logic for
their own immediate contexts by relying on the experiences,
definitions, and interpretations bestowed on similar contexts
by their counterparts (Berger and Luckmann, 1967). In this
manner, external contacts convey information about the en-
vironment and its changing contingencies. At the same time,
they shape the frames of reference by which executives un-
derstand the external context.

Providing examples of strategic alternatives. Executives

reduce the level of uncertainty with which they must con-
tend by turning to external referents for cues on appropriate
courses of action. Cyert and March (1963) described the ten-
dency for decision makers to economize on the uncertainty-
laden processes of alternative generation and evaluation by
turning to outside referents for cues on viable approaches.
DiMaggio and Powell (1983) expanded on this premise in
their theory of institutional isomorphism, arguing that one
explanation for organizational homogeneity is the tendency
for managers to look to other firms occupying their environs
to learn about policies and practices that appear to deal ef-
fectively with critical environmental contingencies. Have-
man's (1993) study of savings and loan associations sup-
ports these assertions, showing that firms often mimic the
actions of larger, more successful organizations.
Apart from helping executives cope with the uncertainty in-
herent in the choice process, external referents offer models
that expand the range of strategic options available for selec-
tion. This is particularly important given the barriers to adap-
tation posed by executives' cognitive limitations (Child and
Smith, 1987). Executives tend to become committed to the
organizational status quo, including existing strategies and
policies (Hambrick, Geletkanycz, and Fredrickson, 1993),
which compromises their ability to recognize the need for
and institute adaptational adjustments. Child and Smith
(1987) argued that external ties provide a means to compen-
sate for such tendencies, allowing executives firsthand in-
sight into the need for change, as well as approaches other
firms have used to negotiate critical contingencies. In many
cases, this insight includes concepts and practices that ex-

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 External Ties

tend beyond executives' limited repertoires. Together, the

above themes suggest that boundary spanning interaction
will impart a significant informational influence relevant to
strategic choice. A second literature suggests that external
interaction also conveys formidable social influence.

External Ties: Social Influences on Strategic Choice

Early work on social influences addressed the role external

ties play in the absorption of uncertainty associated with
critical resource dependencies. Building on Selznick (1949),
Thompson (1967), and Zald (1969), studies have demon-
strated that firms tend to establish ties-particularly inter-
locking directorates-with sectors that provide or withhold
access to critical resources (e.g., Pfeffer, 1972, 1974; Burt,
1980). Perhaps the greatest volume of research in this
stream centers on organizations' capital dependencies and
linkages with financial institutions, arguing that directorate
ties, through cooptation or control, reduce the uncertainty
associated with interfirm resource transfers (e.g., Dooley,
1969; Mizruchi and Stearns, 1988). Findings not only show
that directorate ties change in concert with shifts in critical
external contingencies (e.g., Boeker and Goodstein, 1991)
but also that directorate ties facilitate access to the essential
resources provided by outside concerns (Stearns and Mizru-
chi, 1993; Mizruchi and Stearns, 1994).1

More germane to our focus on strategic choice, however, is

a stream of research arguing that external ties serve as con-
duits for social influence, promoting the diffusion of views
and practices across firms. It builds on observations that so-
cial interaction encourages homogeneity (or conformity) in
actors' perspectives and behaviors (e.g., Festinger, 1950;
Coleman, Katz, and Menzel, 1966; Janis, 1972). Much as the
actions and perspectives of social referents are especially
salient in uncertain contexts (Cyert and March, 1963), social
influences encouraging conformity tend to be strongest
when individuals face uncertainty (Festinger, 1954). Con-
formist influences are spread in the course of the social con-
struction of reality (Berger and Luckmann, 1967), as well as
institutional conceptualizations of organization (e.g., Fligstein,
1985), and are reinforced through the use of common lan-
guage (Pondy, 1977), shared experiences, and professional
networks (DiMaggio and Powell, 1983; Galaskiewicz, 1985).
In short, social interaction not only helps to shape execu-
tives' frames of reference, it brings their views and insights
into close alignment with those of their contacts.
1
Relatedly, research has found that external ties affect the
In recent research, directorships have
been examined from a number of differ- interfirm transfer of a wide range of organizational innova-
ent, yet complementary social perspec- tions. Arguing that directorate ties constitute important con-
tives. For example, one stream has fo-
cused on the social influence dynamics
duits of social influence, researchers have found evidence
between boards and chief executive of- that firms will often adopt the same practices, including poi-
ficers (CEOs). It has produced evidence
son pills (Davis, 1991) and multidivisional structures (Palmer,
suggesting that the relative balance of
power between the board and the CEO Jennings, and Zhou, 1993), as those organizations to which
affects a broad host of organizational they are linked via director networks. Similarly, directorate
practices, including the adoption of ex-
ties have been shown to play an important role in the spread
ecutive perquisites and incentives (e.g.,
Cochran, Wood, and Jones, 1985; Beatty of corporate acquisitions (Haunschild, 1993; Palmer et al.,
and Zajac, 1994; Westphal and Zajac, 1995) and political activity (Mizruchi, 1992). Together, this
1994) and the selection of both CEOs
and new board members (Westphal and
evidence suggests that through their interaction with outside
Zajac, 1995; Zajac and Westphal, 1996). entities, executives are exposed to social information con-

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 cerning other firms' policies and practices, which they then
often emulate in their own organizations. Accordingly, the
external ties of top management teams should have signifi-
cant effects on their decisions and should be reflected in
organizational strategy and performance outcomes.

Executives' External Ties and Strategic Choices

Research in recent years has found that the characteristics

of the top management team are highly predictive of a wide
array of organizational outcomes and are substantially more
predictive than characteristics of the CEO alone (e.g., Bantel
and Jackson, 1989; Finkelstein and Hambrick, 1990; Smith et
al., 1994). Empirical evidence reveals that executive team
attributes are significant determinants not only of organiza-
tional strategy, but also of firm-level performance outcomes
(e.g., Eisenhardt and Schoonhoven, 1990). Yet none of these
studies has considered the role of the executive team's ex-
ternal ties in affecting organizational outcomes.

Concurrent with this void in the strategic literature is a rela-

tive inattention in the interorganizational relations literature to
the broader set of boundary spanning ties of executive
teams and its effects on organizational outcomes. Existing
research into external ties focuses almost exclusively on di-
rectorship linkages, allowing only narrow insight into the ef-
fects of executives' external relations. As Haunschild (1994:
392) noted, "this focus on interlocks ignores the fact that
firms have many other types of interorganizational relation-
ships" likely to convey similar informational and social influ-
ences. Her study of acquisition premiums demonstrated
that, in addition to directorship ties, relationships with out-
side (investment banking) professionals contributed to the
premium decision. With relatively rare exceptions (Ga-
laskiewicz and Wasserman, 1989; Mizruchi, 1992; Palmer,
Jennings, and Zhou, 1993), a larger complement of external
ties has yet to be examined for its effects on strategy.

A company's strategy can be considered on any number of

dimensions, including whether it emphasizes product differ-
entiation or low cost (Porter, 1980), innovation or reliability
(Miles and Snow, 1978), innovation timing or focus (Maid-
ique and Patch, 1982), domestic or international activity
(Bartlett and Ghoshal, 1989), and so on. Recently, a growing
stream of research (e.g., Miller and Chen, 1995; Deephouse,
1996; Henderson, 1996) has suggested that an important
way to conceptualize a firm's strategy is according to the
extent to which it adheres to or deviates from the central
tendencies of the industry, what Finkelstein and Hambrick
(1990) called strategic conformity. As noted earlier, execu-
tives tend to develop a limited repertoire of strategic alterna-
tives and often become wedded to one particular strategic
approach, thus limiting their capacity to envision alternate
courses of action. In a study of firms operating in three in-
dustries, Finkelstein and Hambrick (1990) observed that the
top management team's firm tenure was related to strategic
conformity. Consistent with observations that prolonged ten-
ure is associated with restricted information processing, reli-
ance on habits and routines, and reduced willingness to take
risks (Katz, 1982), their analyses revealed that firms headed
by teams with long tenures adhered closely to industry aver-

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 External Ties

ages. Thus, Finkelstein and Hambrick concluded that pro-

longed firm experience induces an inward or restricted mind-
set, which ultimately limits the potential for more novel
strategic endeavors, while encouraging greater adherence to
an industry's central tendencies.

Other literature suggests that the executive team's external

ties are also likely to affect strategic conformity. As noted
earlier, external ties constitute important channels for the
transfer of informational and social influences that help to
shape decision makers' frame of reference, thus affecting
the policies and practices adopted by firms. Granovetter
(1973) observed that personal contacts may alternately rein-
force existing perspectives and insights or may expose ac-
tors to novel ideas and opportunities. The key to this distinc-
tion is the location of outside contacts, whether they cohabit
the same environment or operate in different contexts. Con-
tacts who share the same operating environment often pro-
vide little information that is new or different from actors'
own knowledge base. By contrast, contacts operating in
other contexts travel in different circles; they interact with
different individuals and are exposed to alternate sources of
ideas. Accordingly, the insights they provide are more novel.

Consistent with these arguments, senior executives' exter-

nal ties are likely to affect strategic conformity, though we
expect that their effects will vary. Specifically, ties to entities
within the firm's industry subject executives to an abun-
dance of information about the practices common to the in-
dustry, while ties to entities outside the industry impart
more novel information and exposure to diverse profiles and
practices. Consequently, intraindustry and extraindustry ties
are expected to have different effects on strategic conform-
ity, or the extent to which the firm adheres to the average,
or typical, strategy of the industry. Here, we use the term
strategy to refer to a firm's realized strategy, an observable
post hoc pattern in major choices made by the firm (Mintz-
berg, 1978). With this conceptualization, we are not focusing
on a firm's intended strategy, or a priori guidelines and
plans. The latter constitute perceptual phenomena which, as
Mintzberg (1978: 935) argued, are incapable, alone, of cap-
turing the complex nature of strategy. Rather, as a pattern in
a stream of decisions, strategies tend to form gradually, and
thus often unintentionally. Accordingly, a firm may or may
not intend to be highly conformist or deviant, and its deci-
sion makers may or may not even think in terms of conform-
ity, but objective indicators allow us to assess the extent to
which the firm exhibits observed, realized conformity. Thus,
although the word strategy often connotes intention and pur-
posive design, consistent with the vast majority of empirical
research on strategic management, we examine organiza-
tions' realized strategies.

Intraindustry ties, or linkages to entities operating within the

same competitive field, facilitate interaction among manag-
ers who face the same contingencies. Several studies have
shown that a significant amount of commonality character-
izes the perceptions and definitions of managers operating
within the same industry. Spender (1977), labeling these
common views shared recipes, suggested that they emerge
as a function of managers' similar experiences amassed

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 through industry tenure. Hambrick (1982) noted a compa-
rable homogeneity in views fostered by executives' reliance
on common sources of industry information.

The tendency for shared industry views, coupled with the

homogenizing influences that emerge in social interaction,
suggests that intraindustry interaction is likely to solidify or
reinforce dominant industry perspectives. In turn, the ability
of executives to identify novel opportunities or conceive of
innovative strategic options is likely to diminish with greater
intraindustry social contact, making executives less likely to
envision and implement alternatives that deviate from the
most common tendencies in the industry:
Hypothesis la: An executive team's intraindustry ties will be posi-
tively related to strategic conformity.
Extraindustry ties, or linkages to entities operating outside of
the firm's competitive field, by contrast, should increase
managers' ability to formulate strategies that deviate from
common practice in the industry. Extraindustry contacts do
not rely on the same frame of reference shared by members
of the focal industry. Rather, their views of the environment,
business practices, and even goal setting are shaped by dif-
ferent experiences and diverge from those in the focal indus-
try. Moreover, because they function in disparate environs,
the media that extraindustry contacts use for environmental
scanning and the signals they attend to are likely to vary as
well. As a result, in the course of extraindustry interaction,
executives gain exposure to varied information and perspec-
tives. Such cosmopolitan interaction is noted for challenging
longstanding beliefs and assumptions, opening the way for
greater innovation (Rogers, 1983). Finally, extraindustry con-
tacts are likely, albeit not certain, to employ a different set of
competitive practices. Thus, extraindustry interaction pro-
vides an opportunity to acquire insight into courses of action
that extend beyond prevailing industry practice:
Hypothesis 1 b: An executive team's extraindustry ties will be
negatively related to strategic conformity.

Implications for Organizational Performance

In considering the performance implications of strategic con-

formity, an important paradox arises. On one hand, strategy
scholars have typically maintained that differentiation or
uniqueness is the path to competitive advantage and high
performance (e.g., Porter, 1980). On the other hand, re-
searchers have argued that important advantages accrue
from strategic conformity. Evolutionary economists have ob-
served that firms within an industry tend to converge upon
superior practices, specifically those behaviors that efficient
market forces have selected and retained (Alchian, 1950; Hir-
shleiffer, 1977, 1985). By extension, firms conforming to pre-
vailing practice should, on average, accrue positive returns.
Deviant firms, by contrast, not only assume the risks associ-
ated with divergent and often suboptimal approaches, but
they also incur the costs and inefficiencies of experimenta-
tion (e.g., Anderson, 1988).

Conformity to industrywide tendencies also enhances organi-

zational legitimacy. In a recent study of banking firms, Deep-
house (1996) found that organizations whose strategic em-

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 External Ties

phases adhered to the industry average were conferred

greater legitimacy by key constituencies than firms with
more deviant profiles. While institutional scholars have noted
that conformity to prevailing norms may reduce technical
efficiency (Meyer and Rowan, 1977), they have also con-
tended that the legitimacy accruing to conformist firms may
be advantageous to economic performance for several rea-
sons. First, legitimacy enhances external constituencies' con-
fidence in the viability of the firm, rendering the firm and its
outputs more attractive to outsiders (Oliver, 1991). Second,
legitimacy reduces the uncertainty surrounding critical de-
pendencies, lending greater stability to interorganizational
exchanges and superior access to resources (DiMaggio and
Powell, 1983). Firms that deviate from prevailing practice
forego the benefit of legitimacy and its related advantages.
In doing so, these deviant firms incur real and often signifi-
cant costs in obtaining the requisite support of key constitu-
encies, including customer groups, suppliers, and skilled em-
ployees (Meyer and Rowan, 1977: 350; Zucker, 1987).

On balance, then, the main effect of strategic conformity on

performance is unclear. Research does suggest, however,
that under conditions of greater environmental uncertainty,
the benefits of conformity are likely to be especially pro-
nounced. Because uncertainty increases the ambiguity sur-
rounding means-ends linkages, it confounds the task of for-
mulating approaches that are superior to conventional, or
average, practice (Cyert and March, 1963; DiMaggio and
Powell, 1983). Also, uncertainty increases the difficulty exter-
nal constituencies face in assessing the viability of firms
(Meyer and Rowan, 1977). By conforming to average or ac-
cepted practice, firms not only avoid the heightened risks
associated with novel approaches that depart from collective
industry wisdom, but also the accompanying elevated costs
their more deviant counterparts face in attracting the en-
dorsement and support of customers, high-quality employ-
ees, and other critical resource providers. Consistent with
these arguments, Henderson (1996) recently observed that
computer firms whose technology strategies conformed to
widely accepted standards best endured disruptive events;
they gained not only enhanced survival prospects but also
greater sales growth.

In a reconciliation of the performance paradox, then, we pro-

pose that while firms may at times succeed in tapping a
unique performance advantage through deviation, conformity
is not without its own performance benefits. In particular,
we expect the benefits of conformity to be especially advan-
tageous to performance in a context of relative environmen-
tal uncertainty:
Hypothesis 2: The association between strategic conformity and
organizational performance will be more positive for firms operating
in a more uncertain environment than for firms operating in a less
uncertain environment.

Strategic Conformity, External Ties, and Organizational

Performance

The implications of external ties for organizational perfor-

mance can be traced to the well-established concept of
managerial fit. Researchers have found, in an array of con-

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 texts, that organizations perform well to the extent that the
competences and profiles of their senior executives align
with, or fit, the strategies they are pursuing (e.g., Gupta and
Govindarajan, 1984; Michel and Hambrick, 1992). Moreover,
Pfeffer (1972) observed that organizations that had a better
match between their board structures-or external links via
directorate ties-and their firms' critical resource dependen-
cies reaped superior returns. This suggests that it is benefi-
cial for the senior executive team to have the types of exter-
nal ties that will support the firm's strategic profile. This is
evident in the case of an executive team pursuing a highly
conformist strategy, adhering closely to industry conven-
tions. Unless the team has substantial intraindustry ties,
there is a great risk that the firm will imitate the readily ap-
parent aspects of industry practice but fail to comprehend
the details or subtleties of execution. Competitive advantage
often lies in the less evident aspects of a strategic approach,
including, for example, the configuration of internal systems,
processes, and resources necessary for effective implemen-
tation (Barney, 1991; Porter, 1996). Intraindustry interaction
provides the opportunity to glean insight into other firms'
experiences with strategic practices, including the trials they
have encountered in implementational efforts (e.g., Burt,
1987). An executive team lacking in such ties fails to benefit
from these insights and may suffer a relative informational
disadvantage in implementing a conformist strategy.
Similarly, a top management team pursuing a highly noncon-
formist (or deviant) strategy benefits greatly from extraindus-
try ties. These linkages provide a stream of firsthand infor-
mation and ideas from other arenas that help to support
both the formulation and implementation of strategies that
depart from common industry practice. As argued earlier,
extraindustry ties inform executives about other environ-
ments and the different competitive practices pursued within
them; as such, they expand the set of strategic alternatives
available for selection and executives' knowledge about their
use. Research suggests that managerial effectiveness, and
organizational success, is in part determined by executives'
abilities to envision and implement a broad range of strategic
options (Hambrick and Finkelstein, 1987). Extraindustry ties
not only increase managerial awareness of different strategic
alternatives, they provide firsthand insight into the subtleties
of those strategic practices that would otherwise only be
obtained at the expense of often costly experimentation or
trial and error learning (e.g., Burt, 1987). Consequently, we
expect that extraindustry ties will improve the team's ability
to pursue a deviant, nonconformist course of action success-
fully:
Hypothesis 3: Intraindustry ties will moderate the relationship be-
tween strategic conformity and organizational performance. The
greater the combination of strategic conformity and executive team
intraindustry ties, the higher the firm's performance.
Hypothesis 4: Extraindustry ties will moderate the relationship be-
tween strategic nonconformity (deviance) and organizational perfor-
mance. The greater the combination of strategic nonconformity (de-
viance) and executive team extraindustry ties, the higher the firm's
performance.
Although we posit that the external ties of senior executives
affect strategic choice, and thus will be reflected in organiza-
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 External Ties

tional outcomes of strategy and performance, we do not ex-

pect this relationship to be total or complete; hence, those
firms that have the greatest alignment between their strate-
gic profiles and their executives' external ties will perform
the best.

METHODS

Sample

We drew samples from the branded food and computer in-

dustries to examine the generalizability of our ideas across
environments varying in dynamism and uncertainty. Each of
these industries is a widely accepted, recognized industry
grouping among both managerial and financial communities.
As a result, considerable information on each industry and its
member firms is widely available. We used several indepen-
dent sources to draw a sample comprising the 30 largest
publicly traded firms in each of the two industries for 1983-
1987, including industry rosters reported in Fortune and ana-
lysts' surveys reported in Standard and Poor's Industry Sur-
veys. Consistent with observations that Standard Industry
Classification (SIC) codes are helpful in resolving the problem
of industry (boundary) definition (e.g., Porter, 1980; Scott and
Meyer, 1991), we then confirmed industry classification by
examining primary SIC codes at the 4-digit level (SIC 3573)
for computer firms and at the 2-digit level (SIC 20) for
branded food firms. The use of a broader SIC grouping for
food firms was mandated by the small number of publicly
owned firms assigned to specific 4-digit categories. We ex-
cluded conglomerate firms and holding companies. Our
sample was limited to larger firms because data on senior
executives and their external ties are often unavailable for
smaller organizations; consequently, it is biased toward large
firms. Five firms originally included were later dropped for
varied reasons (e.g., leveraged buy-out, merger), leaving a
total of 55 firms that we examined over a baseline five-year
period (fiscal years 1983-1987). With pooling (discussed be-
low), we examined a total of 275 firm-year observations.

As noted above, our choice of industries was designed to

test the generalizability of our hypotheses across contexts
differing in levels of uncertainty, as well as to explore hy-
pothesized differences between such contexts. Prior re-
search suggests that a host of factors contributes to environ-
mental dynamism and uncertainty, with perhaps the most
commonly cited including: innovation, technological disconti-
nuity, demand instability, supply instability, competitive ri-
valry, and market growth (e.g., Aldrich, 1979; Dess and
Beard, 1984). Over the study period, 1983-1987, the com-
puter and branded foods industries differed substantially
across many of these factors. For example, the computer
industry was characterized by rapid technological change,
volatile growth, and demand instability. At the same time,
according to Standard and Poor's Industry Surveys, market
share positions were subject to frequent changes. These
conditions stand in stark contrast to the significantly less tur-
bulent characteristics of the branded foods industry. This
sector experienced slower, more consistent growth and far
less technological disruption. Moreover, the market share
positions of major food firms were relatively static. Reflect-

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 ing these differences in dynamism across the two environ-
ments, Value Line reported average industry betas-a sum-
mary of uncertainty used by investment analysts-of 1.3 and
0.8 for the computer and food industries, respectively (mar-
ket beta = 1.0). Together then, industry reports and analyses
suggest that the conditions faced by firms in these two in-
dustries differed substantially over the study period, with
computer firms facing far more turbulent and uncertain cir-
cumstances than firms in branded foods.

While sociometric surveys are often used for studying inter-

personal ties, they are not feasible for examining past ties.
Moreover, senior executives of major firms are generally re-
luctant to submit to detailed questionnaires, and surveys of
senior-most executives typically produce low response rates.
Therefore, all data used in this study were archival. All infor-
mation related to top management team members (including
their external ties) was drawn from Dun and Bradstreet's
Reference Book of Corporate Management, Standard and
Poor's Register of Corporations, Directors and Executives, as
well as corporate proxies and 10-K statements. In determin-
ing top management team membership, we included all indi-
viduals with titles above and including senior vice president
(e.g., chairman, vice chairman, president, CEO, COO), for an
average team size of 6.2. We gathered data pertaining to
strategic profiles and organizational performance from COM-
PUSTAT files.

Measures

This study focuses on the external or boundary spanning

linkages previously identified as (1) common at the senior
executive level, (2) central to the interorganizational ex-
change of information relevant to strategic choice (e.g., Pfef-
fer and Salancik, 1978; Child and Smith, 1987), and (3) avail-
able through archival sources. These decision rules excluded
some broader forms of interpersonal linkage, including elite
ties (Domhoff, 1967), personal acquaintanceships (Ga-
laskiewicz and Wasserman, 1989), and relationships with
professional service firms (Haunschild, 1994). For each year
(time t), we calculated the total number of external ties of all
members of the top management team for each form of in-
tra- and extraindustry linkage examined (specified below).
Since the number of external ties covaries with top manage-
ment team size, we divided intra- and extraindustry tie mea-
sures by team size.
Intraindustry ties. Two types of ties have repeatedly been
cited in the literature for facilitating the transfer of informa-
tion across firms operating in the same industry: the interor-
ganizational mobility of executives-or intraindustry importa-
tion-and trade association ties.

Intraindustry importation, or the hiring of executives from

other firms in the same industry, is a primary means by
which firms glean insight into their counterparts' actions and
policies (e.g., Baty, Evan, and Rothermel, 1971; Aldrich,
1979; Child and Smith, 1987). Imported executives bring
with them knowledge gained through personal experience
with other firms' policies and practices, as well as relation-
ships with former contacts and associates (Granovetter,
1988). Research suggests, however, that while newly im-

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 External Ties

ported executives initially retain their external communica

links (e.g., Virany, Tushman, and Romanelli, 1992), over tim
their attention becomes increasingly inward-focused, and
external links are gradually abandoned (Katz, 1982). For
these reasons, the measure of importation was limited to
those top management team members who within the pre-
vious 10 years were hired from firms whose primary indus-
try was the same as the focal firm's. Each of these execu-
tives received a score of 1 (i.e., one intraindustry tie), which
was then adjusted for recency by a factor taking the form:
(10 - firm tenure)/10. Thus, an executive who had been
with the focal firm for five years received an importation
score of .5.

Trade association leadership ties capture officerships in in-

dustrywide organizations (e.g., president of the Grocery
Manufacturers of America). Trade associations constitute
vehicles for the exchange of information concerning environ
mental contingencies (Porter, 1980). They also constitute a
forum for the establishment and proliferation of industry
rules of behavior (Herman, 1981; DiMaggio and Powell,
1983). To capture active participation and interaction, rather
than nominal membership alone, the measure counted the
number of trade association leadership positions held by ex-
ecutives.

Extraindustry ties. Researchers have identified a second

array of linkages central to the transfer of information and
social influence across firms operating in different industries
They include the extraindustry importation of executives into
the top management team, outside directorships (to and
from the focal firm), and memberships in professional and
general business associations.

Extraindustry importation, or the hiring of executives from

outside the focal firm's primary industry, introduces an infu
sion of strategic information that differs from the industry
recipes shared by existing top management team members
(Hambrick, Geletkanycz, and Fredrickson, 1993). We mea-
sured extraindustry importation like intraindustry importation,
using a count of extraindustry hires added to the top man-
agement team within the previous 10 years, adjusted for re-
cency.

Top management team outside directorships, or service on

other firms' boards is an important means by which execu-
tives scan their business environment (Useem, 1984) and
gain firsthand insight into other organizations' activities (e.g.,
Burt, 1983). Citing motivations for outside board service,
Mace (1986: 105) quoted an executive: "because I want to
learn, I want to broaden my contacts and to get inputs from
outside the group I live with and work with on a daily basis.
went on the board of a company recently which is strong on
consumer marketing-that's an area I want to know more
about." Haunschild (1993) argued that executives' outside
directorships are likely to be the most influential of external
ties, given the direct involvement of executives both in the
acquisition of information and in internal decision making (cir
cumventing intermediaries and gatekeepers). Evidence
shows that outside directorships (or "sent" interlocks) facili-
tate the interorganizational transfer of numerous practices

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 (e.g., Davis, 1991; Haunschild, 1993). This measure was a
count of all top management team members' directorships
in outside firms. Consistent with prior research (e.g., Zajac,
1988), our data revealed that executives in the sample had a
small number of directorship ties (fewer than 10 percent) to
firms operating in their same industry. We excluded these,
ensuring that the measure reflects only extraindustry linkage.

Outside directors serving on the focal firm's board, or "re-

ceived" interlocks, have also been cited as important con-
duits for the interfirm exchange of social information leading
to the promulgation of shared views among business leaders
(Domhoff, 1970) and the transfer of organizational practices
across industry boundaries (e.g., Davis, 1991; Haunschild,
1994; Palmer et al., 1995). Though outside directors are not
responsible for creating strategic policy, they act as advisers
and counselors to senior management (Mace, 1986; Lorsch
and MacIver, 1989) and thus help shape managerial thinking
by bringing external information and insight to the attention
of executive team members, as well as unique (outside) per-
spectives. As one executive summarized in Mace (1986: 14),
"the board can do wonders for the management by provid-
ing wisdom from the outside world-windows through
which other points of view are added to management think-
ing, which is a multiplication of the sources of information
for better management decisions." We measured this vari-
able by counting all outside directors with primary responsi-
bilities outside of the focal firm's industry, excluding the very
few within-industry directorships.

Professional association ties, or memberships in organiza-

tions that draw executives from diverse industries for profes-
sional discourse, are primary mechanisms for the exchange
of social information among organization leaders (e.g., Ald-
rich and Pfeffer, 1976; DiMaggio and Powell, 1983). To mea-
sure these ties, we counted top executives' memberships in
industry-spanning associations such as the Conference
Board and the Business Roundtable.

Strategic conformity. Strategic conformity is the degree to

which the firm's business strategy profile adheres to central
tendencies of the industry. We employed a method of mea-
suring firm-level strategic conformity developed and vali-
dated by Finkelstein and Hambrick (1990) that has close ana-
logues in research examining strategic homogeneity at the
industry level (e.g., Miles, Snow, and Sharfman, 1993;
Dooley, Fowler, and Miller, 1996). The construct is consis-
tent with the view that strategy is an observed pattern in an
array of actions (Mintzberg, 1978). For the single-business
firm, which we studied, these actions are particularly re-
flected in firms' strategic resource deployments across key
functional activities-including marketing, production, re-
search and development (R&D), and finance. It is through
the deployment of organizational resources across these ac-
tivities that firms manifest their competitive approaches
(Chandler, 1962; Bower, 1970; Hofer and Schendel, 1978;
Hambrick, 1980; Porter, 1980, 1985; Oster, 1982).

We identified indicators of key strategic resource deploy-

ments from previous empirical research (e.g., Schendel and
Patton, 1978; Harrigan, 1985). The strategic dimensions in-

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 External Ties

cluded: advertising intensity (advertising expense/sales), capi-

tal intensity (fixed assets/number of employees), plant and
equipment newness (net plant and equipment/gross plant
and equipment), R&D intensity (R&D expense/sales), over-
head efficiency (selling, general, and administrative expense/
sales), and financial leverage (total debt/equity). Advertising
intensity, capital intensity, plant and equipment newness,
and R&D intensity are indicators of the allocation and man-
agement of firm resources across marketing, innovation, and
capacity expansion activities. Overhead efficiency captures
the expense structure of the firm, while financial leverage
reflects the organization's approach to capital management.
As noted earlier, each constitutes a salient dimension of
business strategy. When considered together, the dimen-
sions provide an overview of sample firms' competitive pro-
files, or how they are configured to compete in their chosen
domains. We did not examine the product-market arrays of
the firms, since these choices reflect where the firms com-
peted, rather than the type of competitive weaponry and re-
source deployments they used.

Following Finkelstein and Hambrick (1990), we measured

conformity in the firm's strategic resource deployments by
standardizing, for each year of study, each strategic indicator
by industry (mean = 0; standard deviation = 1) and then cal-
culated absolute differences of each firm's score from the
industry averages. To create a single, composite indicator of
conformity, we summed together all six difference measures
(Cronbach alpha = .62) and multiplied by minus one to con-
vert the construct's meaning to one of conformity. The
strengths of this approach are several. First, the measure
taps an array of meaningful competitive dimensions, each of
which reflects important strategic choices by the firms' ex-
ecutives. Further, it reflects realized dimensions, rather than
executives' perceptions or intentions. Thus, the measure ef-
fectively captures actual organizational outcomes, consistent
with strategic choice arguments. Second, the component
metrics are not only widely recognized as important by ex-
ecutives and other constituencies but are pertinent across
industries. This is important for two reasons. Unlike factors
that are idiosyncratic to specific industries, these dimensions
are susceptible to broad (including extraindustry) interorgani-
zational influence. Also, the generalizability of the dimen-
sions across environments renders them conducive to cross-
industry study. Third, the acceptable Cronbach alpha
(Nunnally, 1978) indicates that the several dimensions of
strategic conformity examined do in fact covary, confirming
that an overall pattern has been captured.

A potential concern with this approach is whether industry

means capture modal tendencies.2 If firms simply vary
widely on a dimension, without any clear central tendency, it
would be inaccurate to speak in terms of conformity or devi-
ance. To alleviate these concerns, we examined histograms
of the component strategy dimensions. Plots of each indus-
2
try's data revealed distinct central peaks for each dimension;
We could not construct a conformity
measure based on differences from the none of the distributions was without a peak, and none was
mode because the individual strategic bimodal. In a few cases, however, the distribution was
dimensions constitute ordinal data;
hence, no two firms had identical values
skewed. Therefore, we also conducted all of our analyses
in any given year. using median-based conformity measures. The average cor-

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 relation between the median- and mean-based measures
was .87. Tests of hypotheses using the median-based
scores produced results consistent with those reported here
for mean-based conformity.
We measured strategic conformity at time t+2 because a
two-year lag allows for delays from the time executives par-
ticipate in external interactions that might affect their strate-
gic thinking, engage in decision making activities, and then
have those decisions become manifested in observable indi-
cators. While ties are often stable and enduring, executives
are most likely to recall and use information derived from
recent interactions. Further, each of the strategic dimensions
we examined is amenable to change in a relatively short
time, suggesting that a short lag is appropriate. Analyses ex-
amining strategic conformity with a one-year lag produced
results highly consistent with those reported here.
Performance. Performance was measured as the firm's av-
erage return on assets (ROA) in years t+2 and t+3. A com-
mon gauge of organizational profitability, ROA captures the
degree to which management has effectively deployed firm
assets; thus, it is useful in assessing the performance impli-
cations of business strategies (Oster, 1990). The measure
was taken for t+2 and t+3 in recognition of the delay be-
tween the time when strategic actions are undertaken and
their impact is reflected in performance data. Because it is
widely acknowledged that extraneous factors can introduce
variability into single-year measures, we used two-year aver-
ages (e.g., Oster, 1990; Meyer and Gupta, 1994). We also
performed a second set of analyses using two-year averages
of return on sales (ROS). The two performance measures
were highly correlated (.91), and the pattern of results was
substantively unchanged.
Control variables. Top management team firm tenure has
been shown to exhibit a positive relationship with strategic
conformity (Finkelstein and Hambrick, 1990). It was mea-
sured as the mean number of years members of the execu-
tive team had spent in the firm. Firm age was measured as
the number of years since the firm was founded. Firm size
was measured as the log of total assets. We examined
other indicators of size, including total sales and number of
employees, and obtained similar patterns of results. Strate-
gic conformity at time t was measured using the method
cited above. Current performance (t) was measured as re-
turn on assets (ROA) at time t. We used a dummy variable
to designate environmental uncertainty (0 = stable food in-
dustry; 1 = uncertain computer industry).
To clarify the temporal ordering of our measures, we ob-
served external ties in year t, strategic conformity in t+2, and
performance for t+2 and t+3, while controlling for additional
factors, including strategic conformity and performance,
present in year t. With this design, and the support of a rela-
tively strong theoretical foundation, we enhance our ability to
interpret the external ties as influences on strategy and per-
formance, rather than the reverse. Nevertheless, these mea-
sures cannot rule out other causal directions or explanations.
Data Analysis
The data contain both cross-sectional and time-series com-
ponents, which are amenable to a pooled time-series meth-
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 External Ties

odology in which cross-sections are aggregated across

years. Employed by a growing number of organizational re-
searchers (e.g., Eisenhardt and Schoonhoven, 1990; Finkel-
stein and Hambrick, 1990), this method permits consolidated
use of the full dataset. The pooled results reflect the aver-
age effect of the independent variables over the full study
period, yielding more precise statistical estimates than would
year-by-year subsamples.

Because pooling violates OLS assumptions of independence

of observations, we tested hypotheses using a generalized
least squares (GLS) model incorporating corrections for firm-
specific autocorrelation, as well as for heteroscedasticity
among interfirm residuals. We employed Kmenta's (1986)
autoregressive-heteroscedastic model for pooled time series
data:

Yit = b1Xjt,1 + b2Xit,2 + bkXitk + Eitl

where i equals 1, 2, . . ., N, t equals 1, 2, . . .T, k equals 1,

2, .. K. N equals the number of cross-sectional units or
firms contained in the sample (55), T equals the number of
time periods (5), and K equals the number of explanatory
variables. The model was applied to data corrected for auto-
correlation and heteroscedasticity. Following Kmenta, we
applied the Cochrane-Orcutt transformation to correct for
firm-specific serial correlation, and used the Prais-Winston
adjustment for first-year observations. We examined Durbin-
Watson statistics to verify that autocorrelation had indeed
been corrected. Subsequently, we corrected for cross-sec-
tional heteroscedasticity by dividing the independent and de-
pendent variables by firm-specific error variances obtained
from regressions on the autocorrelation-corrected data. Plots
of residuals confirmed that heteroscedasticity had been re-
moved. Tests of hypotheses 3 and 4 called for the use of
interaction terms between strategic conformity and execu-
tives' external ties. To alleviate multicollinearity, each of the
variables was mean-centered prior to forming the multiplica-
tive term (Cronbach, 1987). Because we used corrected GLS
models, R-squares cannot be reliably interpreted (Kmenta,
1986) and, therefore, are not reported here.

RESULTS

Table 1 presents descriptive statistics and correlations for

the study's key variables.

Table 2 reports GLS regression results with strategic con-

formity as the dependent variable. Hypothesis 1a posited
that an executive team's intraindustry ties would be posi-
tively related to strategic conformity. The results provide
only partial support for this proposition. Consistent with ex-
pectations, intraindustry linkages via trade association ties
were positively related to strategic conformity (p < .10), sug-
gesting that executive leadership of industry trade associa-
tions encourages adherence to the industry's prevailing stra-
tegic tendencies, though the effects are not very strong.
Intraindustry importation ties were not significantly related to
firms' adherence to the industry's strategic tendencies, indi-
cating that intraindustry hires into the top management team
do not play a major role in conformist tendencies.

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Table 1

Descriptive Statistics and First-order Correlations*

Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13

1. Strategic conformity (t + 2) -4.50 1.78

2. Average ROA (t + 2, t + 3) .05 .09 -.02
3. Intraindustry importation .11 .16 -.10 -.29
4. Trade association ties .13 .21 .02 .19 -.30
5. Extraindustry importation .09 .16 -.10 -.01 .03 -.17
6. Topteam outside .64 .62 -.11 .09 -.14 .15 -.13
directorships
7. Outside directors on firm's 1.42 1.12 -.14 -.14 .21 -.04 -.05 .44
board
8. Professional association .21 .28 -.05 -.04 -.18 .33 -.18 .31 .15
ties
9. Top team firm tenure 16.27 8.44 .16 .29 -.66 .40 -.54 .36 -.05 .23
10. Firm age 40.80 30.19 .15 .25 -.37 .21 -.10 .33 .19 .31 .44
11. Firm size 2.10 2.01 .15 .18 -.28 .11 -.07 .16 .06 .26 .23 .37
12. Strategic conformity (t) -4.43 1.80 .66 .06 -.13 .03 -.18 -.07 -.07 .06 .17 .19 .18
13. Current performance .06 .09 -.08 .65 -.29 .16 -.11 .10 -.11 .06 .28 .22 .21 .11
14. Computer industry dummy .51 .50 .16 -.30 .46 -.51 .10 -.26 -.01 -.31 -.51 -.47 -.24 .15 -.24

* Correlations greater than .12 are significant at the .05 level; pooled sample: N = 275.

Hypothesis 1 b posited that extraindustry ties would be nega-

tively related to strategic conformity. The results offer strong
support for this hypothesis, with three of the four measures
of extraindustry ties exhibiting a significant negative relation-
ship with strategic conformity. The importation of executives
from outside the firm's focal industry, outside directors serv-
ing on the firm's board, and participation in general profes-
sional associations each appear to accord executives expo-
sure to influences facilitating a departure from prevailing
industry strategies. Top executives' service on outside

Table 2

GLS Regressions on Business Strategy Conformity (t + 2) (N = 275)*

Intercept .1 95'
(.102)
Intraindustry importation -1.097
(.675)
Trade association ties .776'
(.462)
Extraindustry importation -3.295 -
(.561)
Top management team outside directorships -.084
(.1 53)
Outside directors on firm's board -.347--
(.089)
Professional association ties -.992w
(.315)
Top management team firm tenure -.319--
(.036)
Tenure2 .007--
(.001)
Firm age .009--
(.004)
Firm size .1 16-
(.063)
Strategic conformity (t) .336----
(.049)
Computer industry dummy -.300
(.225)

*p < . 10; * p < .05; * -p < .01; *-p < .001.

* Unstandardized regression coefficients are reported. Standard errors are in
parentheses.

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 External Ties

boards, however, unlike the other extraindustry ties, does

not appear to affect the tendency to conform to or deviate
from prevailing industry practice.

Several control variables also showed significant effects on

strategic conformity. Predictably, strategic conformity at time
t was positively related to strategic conformity at t+2. Both
firm size and age were positively related to conformity. Top
management team firm tenure was significantly associated
with strategic conformity, but unlike the positive and linear
findings reported by Finkelstein and Hambrick (1990), a curvi-
linear relationship was observed here. In particular, teams
with moderate tenure were found to adopt more deviant
strategies, while those with very short or very long tenures
followed more conformist approaches.

Hypothesis 2 predicted a more positive relationship between

strategic conformity and performance for firms operating in
the more uncertain computer industry. The GLS results in
table 3 support this proposition. Model 1 reports results for a
basic model consisting of all variables. Model 2 then adds
the interaction term of the computer industry dummy and
strategic conformity. Consistent with expectations, computer
firms had markedly better performance if they adhered to
industry tendencies. This is demonstrated by the strong
positive effect of the interaction of the computer industry
dummy and strategic conformity on firm performance
(p < .001). As the interaction terms do not allow an interpre-
tation of the absolute association between conformity and
performance in each of the two industries, we conducted a
separate analysis of the two industry subsamples (not
shown). It confirmed that conformity was positively related
to performance for computer firms; however, in the less un-
certain foods industry, strategic conformity was negatively
related to performance. Hence, as with many other strategic
behaviors, it appears that the relative advantages and disad-
vantages of strategic conformity over deviance are largely
contingent on environmental characteristics. Firms operating
in a more uncertain environment accrue substantially more
benefits from a strategy of adherence to industrywide ten-
dencies.

Several control variables were also found to be important

determinants of performance. Current performance was
positively related to future performance. Firm age had a posi-
tive and significant effect on performance; however, firm
size was unrelated to performance. Finally, both intra- and
extraindustry executive importation were positively related to
performance, as was top management team participation in
professional business associations.

Finally, hypotheses 3 and 4 posited that external ties would

moderate the relationship between strategic conformity and
performance. As reported in table 4, the results of modera-
tor tests provide some evidence of a contingency alignment
among the executive team's external ties, strategy, and per-
formance. Hypothesis 3 argued that firms pursuing high-con-
formity strategies would accrue incremental benefits from
executive team members' intraindustry ties. The interaction
of strategic conformity and intraindustry ties, both through
the importation of executives and trade association leader-

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 Table 3

GLS Regressions on Average ROA (t + 2, t + 3) (N = 275)*

Model 1 Model 2

Intercept -.002
-.003
(.004) (.004)
Strategic conformity (t + 2) .004- -.008-'
(.002) (.003)
Intraindustry importation .1 17-- .057-
(.026) (.024)
Trade association ties .042 .023
(.025) (.026)
Extraindustry importation .042- .097----
(.025) (.027)
Top management team outside directorships -.001 .001
(.007) (.007)
Outside directors on firm's board -.003 -.005
(.004) (.004)
Professional association ties .034- .029-
(.016) (.016)
Firm age .001- - .001-*
(.0002) (.0002)
Firm size -.004 -.003
(.003) (.003)
Current performance (t) .11 3-* .087-
(.039) (.038)
Computer industry dummy -.026- .018
(.009) (.01 1)
Computer industry dummy x strategic .021- --
conformity (t + 2) (.003)

*p < . 10; *- p < .05; *' p < .01; U p < .001.

* Unstandardized regression coefficients are reported. Standard errors are in
parentheses.

ship positions, was positive, but only the product-term with

importation achieved significance, and this at a marginal level
(p < .1 0).

Hypothesis 4 proposed that firms pursuing nonconformist

strategies would obtain significant benefits if their executive
teams maintained greater extraindustry ties. The expected
sign for the interaction terms in table 4, then, is negative.
The table indicates that two of the four effects were signifi-
cant in the expected direction. Specifically, a negative rela-

Table 4

GLS Regressions on Average ROA (t + 2, t + 3) (N = 275)*

Interaction of strategic conformity with:

Intraindustry importation .020-

(.01 1)
Trade association ties .017
(.014)
Extraindustry importation -.018---
(.006)
Top management team outside directorships -.008---
(.003)
Outside directors on firm's board .003--
(.002)
Professional association ties -.001
(.007)

*p < .10; *- p < .05; *' p < .01; * -- p < .

* Interaction terms were added alternate
ized regression coefficients are reported. Standard errors are in parentheses.

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 External Ties

tionship was observed for conformity in combination with

extraindustry importation and with the top management
team's outside directorships. The direction of these findings
implies that, consistent with expectations, nonconformist or
more deviant firms gain added performance benefits from
interindustry linkages. The interaction of conformity and pro-
fessional association ties, while negative, was nonsignificant.
The results also indicate that one type of extraindustry link-
age had an effect opposite of our prediction in hypothesis 4.
Specifically, the variable for outside directors serving on the
firm's board, in interaction with strategic conformity, was
positively related to performance (p < .05), indicating that
outside directors contribute incremental performance ben-
efits to conformist organizations.

Considered collectively, these results suggest that some

forms of extraindustry linkage accord information and expo-
sure to novel ideas that enhance success in the implementa-
tion of nonconformist strategies. This is not the case for all
types of industry-spanning ties, however, as outside direc-
tors appear mostly to benefit conformist organizations.

DISCUSSION

In this study, we sought to extend understanding of the fac-

tors that influence strategic choice by considering the role of
executives' boundary spanning ties. Using data from two
contrasting industries, the stable and relatively certain
branded foods industry and the dynamic and uncertain com-
puter industry, yielded three major findings. First, the exter-
nal ties of executive team members contribute to the shap-
ing of organizational strategy, particularly the degree of
conformity to the industry's central tendencies. Second, stra-
tegic conformity is relatively beneficial to firm performance
in uncertain industries. Third, it is generally beneficial for ex-
ecutives' external ties to align with, or fit, the firm's strat-
egy.

The first major conclusion of our study, that top executives'

boundary spanning ties are related to organizational out-
comes, is consistent with research in the upper echelons
tradition and affirms prior observations that executive team
characteristics are reflected in strategic choices. Extending
Hambrick and Mason's (1984) original thesis, however, our
findings highlight the importance of considering executives'
external contacts, what social researchers label social capital
(e.g., Coleman, 1988; Burt, 1992), and they illustrate the im-
plications of executives' functioning in a social and informa-
tional context that transcends organizational boundaries. Our
findings suggest that external interactions contribute infor-
mation that complements other forms of executive experi-
ence; together, these bases of knowledge and information
help to shape organizational outcomes.
Similarly, our findings contribute greater understanding of
interorganizational relations and the implications of external
ties. Consistent with prior theory, our results suggest that
executives' ties impart informational and social influences
that have strategy-shaping effects. For the most part, prior
research has focused attention on the social influences asso-
ciated with directorate and ownership ties (e.g., Davis, 1991;

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 Haunschild, 1993; Palmer et al., 1995). Our study extends
this work and suggests the need to recognize that execu-
tives maintain a broader set of boundary spanning roles and
that the ties associated with these responsibilities influence
organizational strategy and performance. For example, trade
associations have been recognized to constitute important
forums for the interchange of information and coordination
of action among industry members (Aldrich and Pfeffer,
1976). Our results suggest that executive involvement in
these organizations partly contributes to strategic conformity.
The effect, however, is only marginally significant. This may
be due to several factors. First, while executives interact
within such settings to contend with mutually threatening
external challenges (Herman, 1981), they may guard against
excessive disclosure of information about their specific com-
pany practices. The relatively small number of trade associa-
tion leadership positions held by executive teams in our
sample (an average of less than one tie per team) also bears
noting. These ties may not be of sufficient magnitude to in-
fluence executive decision making significantly.

Interestingly, our results indicate that intraindustry importa-

tion does not contribute to strategic conformity. Though
some have argued that executive importation facilitates infor-
mation sharing and coordination across firms (e.g., Baty,
Evan, and Rothermel, 1971), the hiring of senior executives
from firms occupying the same industry environment does
not seem to promote strong adherence to prevailing industry
tendencies. One possible explanation for this finding is that
executives operating in the same industry are all sufficiently
like-minded that the addition of new members from within
the same industry has little incremental impact. This inter-
pretation is consistent with DiMaggio and Powell's (1983)
assertions that normative influences foster the development
of a cadre of essentially interchangeable professionals who
need not operate in the same firm, merely in the same envi-
ronment. It may be that existing top management team
members' knowledge of the industry, gained over the
course of their tenures, is highly similar to and as en-
trenched as that of new intraindustry imports, such that
newcomers add no substantive reinforcement. Clearly, con-
trolling for executives' background origins (as well as other
forms of external linkage) in future studies of interorganiza-
tional relations and strategic outcomes is warranted.

Our tests reveal that at least three types of extraindustry

linkage are strongly related to the adoption of deviant, or
nonconformist strategies. These findings are consistent with
prior observations that the importation of new members
from outside industries (e.g., Hambrick, Geletkanycz, and
Fredrickson, 1993), the service of outside board members
(e.g., Aldrich, 1979), and memberships in professional asso-
ciations consisting of participants from diverse environments
(Scott, 1985) constitute important means of gaining diver-
gent insights and perspectives. It appears that the social in-
teraction facilitated by such ties introduces views and infor-
mation that challenge, or at least complement, a focal
industry's wisdom; in turn, they enhance the ability of execu-
tives to envision, create, and implement strategies that de-
part from typical industry practice. This finding is of consider-

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 External Ties

able importance in light of the tendency for entire industries,

such as steel, banking, and automobiles, to become trapped
in spirals of excessive like-mindedness, even as they pursue
outmoded strategies (e.g., Yates, 1983; Goodman, 1988;
Newell, 1989). One apparent way out of the spirals is to
seed the top management team with abundant stimuli from
outside the industry, including hires from other industries,
interaction with outside directors, and involvement in cosmo-
politan business associations.

One form of extraindustry linkage we examined-top execu-

tives' service on outside boards-failed to show a significant
relationship with strategic conformity. This finding challenges
assertions that such ties are especially potent channels of
influence leading to strategic imitation (e.g., Haunschild,
1993), as well as evidence of their role in the interorganiza-
tional transfer of firm practices (e.g., Davis, 1991; Haun-
schild, 1993, 1994). Our finding is not alone, however, in
showing that when other types of ties are controlled, execu-
tive team members' service on outside boards (or "sent"
interlocks) are not major conduits of influence (e.g., Palmer
et al., 1995). A plausible explanation for such findings may
lie in the fact that invitations to participate on outside boards
are extended by those outside organizations (e.g., Lorsch
and Maclver, 1989; Palmer et al., 1995). Hence, unlike the
other types of extraindustry linkage examined here, they are
not under top executives' direct control. Consequently, they
may have more symbolic than substantive effect, with ex-
ecutives placing little emphasis on the information and in-
sights that outside board service offers. While executives
attend to the obligations of outside board service, contribut-
ing their thoughts and perspectives in other boardrooms,
they appear to bring back to their respective firms few in-
sights from those experiences. Thus, outside board service
may involve less learning than is often assumed. Clearly, fur-
ther research into this interpretation and its implications is
warranted. At the same time, these findings again empha-
size the importance of examining a broader array of ties in
future studies of external linkages, as all forms do not con-
vey the same degree of influence.

The second major conclusion of our study concerns the per-

formance implications of strategic conformity. Our findings
indicate that for firms operating in more uncertain industries
such as computers, a conformist approach is especially ad-
vantageous. Several factors may account for these findings.
First, effective formulation of strategy requires a careful and
systematic matching of internal capabilities with external
threats and opportunities (e.g., Hofer and Schendel, 1978).
This task is more straightforward in stable environments,
such as the foods industry, wherein executives can more
readily map their environment and identify promising oppor-
tunities. Strategic choice under such conditions entails less
complexity and ambiguity. Executives operating in the com-
puter industry, however, face far more difficult circum-
stances. Rapid changes in technology, demand, and compe-
tition lead to frequent, discontinuous shifts in critical
contingencies (e.g., Tushman and Anderson, 1986; Bour-
geois and Eisenhardt, 1988). Information is often ambiguous
and quickly rendered obsolete. Thus, the challenge of formu-

675/ASQ, December 1997

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 lating and implementing a timely and unique strategic ap-
proach more often exceeds top executives' decision-making
capacity. In essence, a deviant, idiosyncratic strategy in a
turbulent industry has a higher likelihood of being wrong and
impairing performance. The complex array of organizational
interdependencies characterizing the computer industry may
also account for some of the advantages of strategic con-
formity. Products such as microprocessors, memory devices,
monitors, and software must be compatible. A strategic de-
viant in this industry runs the risk of being incompatible-left
out of an intricately interconnected commercial web. More-
over, strategic "deviance introduces extreme technical, eco-
nomic, strategic, and administrative complexity (Stinchcombe
and Heimer, 1988). In adhering to prevailing norms, com-
puter firms are likely to achieve greater efficiencies in pro-
curing standardized components from outside sources and in
marketing their own products in a highly interconnected sys-
tem (Williamson, 1975; Henderson, 1996).

Equally important to consider are the legitimacy benefits

conferred by strategic conformity (Deephouse, 1996), par-
ticularly in an uncertain setting. Scholars have long argued
that legitimacy is an important organizational resource (Par-
sons, 1956; Perrow, 1970), helping to sustain the firm's op-
erations by engendering the support and endorsement of
key external constituencies. In the absence of legitimacy,
firms are forced to undertake efforts to instill confidence in
the firm's viability and mobilize the commitments of its
stakeholders, a process carrying significant, real costs
(Meyer and Rowan, 1977). Consistent with this view, our
findings suggest an inherent economic value underlying stra-
tegic conformity, particularly in an uncertain industry. Uncer-
tainty introduces greater ambiguity into stakeholders' efforts
to assess the fitness of the firm, its products and services
(DiMaggio and Powell, 1983). In turn, the costs of attracting
and engendering the support of customers, employees, sup-
pliers, investors, and other critical constituencies are el-
evated. Under more uncertain conditions, then, conformity to
prevailing practice, and the legitimacy it accords, appears to
be especially valuable.

Our third major finding was that strategy and external ties
interact to affect performance. The results primarily support
the argument that external links should exist to support the
informational requirements of the firm's strategy. Conformist
firms gain incremental benefits from the importation of in-
traindustry hires, while nonconformist firms generally benefit
from executives' connections outside the industry. Together,
these results suggest that ties that match the demands of
the firm's strategy are helpful to performance.

One significant finding deviated from the consistent set we

have just discussed: the beneficial effects of outside director
ties ("received" interlocks) for conformist firms. Prior re-
search on the role of outside directors may provide the most
plausible explanation. Several scholars have argued that out-
side directors are relatively passive participants in the strate-
gic management of firms (e.g., Herman, 1981; Mace, 1986).
While they bring to the firm unique perspectives and in-
sights, outside directors are not assumed to play an active
role in strategy implementation. Consequently, the advan-

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 External Ties

tage they convey may well be more specific to helping ex-

ecutives make better strategic choices-whether by provid-
ing information on the environment or alternative strategic
approaches-rather than aiding in the effective implementa-
tion of chosen strategies. Such explanation could account for
the incremental benefits outside directors contribute to con-
formist firms. It may be that outside directors contribute to
the executives' ability to make a more informed choice
about conformity. Alternatively, other factors may be at play,
including, for example, the ability of outside directors to help
attract resources to the firm (e.g., Aldrich, 1979). Outside
directors may confer the added legitimacy or support that
serves to set the conformist firm apart from its similar coun-
terparts. In effect, they may provide the leverage needed to
attract incremental resources, including customer support,
that might otherwise be directed to other firms sharing a
similar conformist profile.

Our results provide several insights for managers. We

present evidence that organizations are affected by the so-
cial interactions that executives experience in their boundary
spanning activities. Thus, the social capital that senior man-
agers bring to the firm may complement the human capital
they provide. Ideally, top management teams should be
composed with a consideration of executives' personal ties,
and there should be a market value for those ties. As our
results indicate, however, the value of such ties will not be
the same for all firms but, rather, will vary depending on the
firm's strategic posture. The external ties of senior execu-
tives are of great importance to the form and fate of their
organizations; they should receive much more attention from
those involved in executive selection and development.
Our findings also raise questions for future investigation. In
this study, we have limited our attention to some key forms
of informational and social influence executives' external ties
impart to organizational outcomes of strategy and perfor-
mance. Yet evidence suggests that numerous motivations
underlie the formation of external ties. For example, litera-
ture suggests that apart from organizational concerns, execu-
tives' personal interests (e.g., Zajac, 1988), including the sup-
port needed to advance individual agendas (e.g., Kotter,
1982; Burt, 1992), and relative social status (Domhoff, 1967)
drive the formation of ties. Consideration of these motiva-
tions and their consequences would not only facilitate
greater understanding of the nature and composition of ex-
ecutives' networks but would also lend greater insight into
their complex effects.

Similarly, greater attention to the patterns of similarity and

association between executive teams and their various ex-
ternal contacts seems warranted. Our study, with its focus
on intra- and extraindustry ties, draws attention to the imme-
diate operating environment of the focal firm and entities
with which its executives share linkages. Other bases of
similarity and dissimilarity may be equally relevant and
should be considered. One possibility is to look beyond in-
dustry-level to field-level membership. Research suggests
that firms frequently establish external ties with constraining
(buyer or supplier) sectors (e.g., Burt, 1983). Though beyond
the scope of the present investigation, an analysis of the in-

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 fluence of ties to entities in related sectors might contribute
greater understanding of the development and proliferation
of norms spanning broader organizational fields (DiMaggio
and Powell, 1983).

The concept of strategic conformity, including its anteced-

ents and implications, also deserves greater research atten-
tion. There is a relative dearth of research on the develop-
ment, proliferation, and consequences of strategic norms.
Our findings add to those of previous research by suggest-
ing that organizations can accrue benefits from a conformist
competitive stance. Further inquiry into the genesis of pre-
vailing practices and their implications might further our un-
derstanding of the relative benefits of strategic conformity
and its more commonly heralded antithesis, differentiation.

Finally, our findings suggest the need for a broader concep-

tualization of executive experiences and activities in future
research on top management teams and their effects on or-
ganizational outcomes. The traditional internal lens applied to
top management team research-focusing on executives'
intraorganizational roles and their accompanying social inter-
actions-is too narrow. Our findings show that executives'
boundary spanning activity plays an important role beyond
reducing environmental uncertainty. Further inquiry into ex-
ecutives' external ties would not only extend our under-
standing of the benefits of boundary spanning but would
also lend new insight into executives' effects on organiza-
tional strategy and performance.

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