Top Management Team Fit in the U.S. Airline Industry

Journal of Applied Management and Entrepreneurship, Jul 2006 by Jones, Michael Brandt

Executive Summary

This study examines the manager-strategy fit of the top airlines in the United States and its influence on performance. It posits that a proper fit between the characteristics of the top management team and the firm's strategy will have a positive impact on performance. The strategy of the airlines is categorized using Porter's (1980, 1985) generic strategies. The characteristics, which are consistent with those that Hambrick and Mason (1984) considered important in strategic decision-making, include age, tenure, and level of education. This study revealed no significant difference between the age, tenure, and level of education of the top management teams of cost leaders and a differentiation firm in the U. S. airline industry. In addition, the presence of a strategy-manager fit did not have a positive influence on performance. This study found support for Porter's (1980) stuck in the middle proposition. The airlines that chose one of Porter's generic strategies outperformed the stuck in the middle firms.

Introduction

In the wake of the September 11, 2001 terrorist attacks, the United States economy suffered tremendous losses. According to Kim and Gu (2004), no industry suffered more than the United States airline industry. The already troubled industry lost $7.7 billion in 2001 due to fewer passengers. Even though most airlines in the U. S. sustained losses in the period following the 9/11 attacks, some airlines remained profitable. Southwest Airlines and Jet Blue showed positive profit margins every year following 2001 (Hoover's Online, 2005).

The purpose of this study is to examine the relationship of the business-level strategy, top management team characteristics, and firm performance of the major domestic airlines in the United States. This research seeks to determine if a manager-strategy fit leads to higher performance in the U. S. airline industry. The airline industry is vital to the U. S. economy and accounts for over 11 million jobs and 9 percent of the U. S. gross domestic product (Kim & Gu, 2004). The significance of this industry warrants research that will determine the strategies and managerial characteristics that lead to higher performance.

This examination of the airline industry takes a contingency approach by merging Hambrick and Mason's (1984) upper echelon theory with Porter's (1980, 1985) generic strategies. This research uses Hambrick and Mason's theory to examine the appropriate managerial characteristics. Porter's generic strategies of cost leadership, differentiation, and focus will be used to classify firms by strategy. A predominant theme of this study is that the characteristics of top managers influence the execution of strategy and organizational performance.

These research findings are important to managers of all industries because they will distinguish between the high and low performers of the various strategic types. This study will show managers the business-level strategies that provide a sustainable competitive advantage in times of crisis. Managers of other industries similarly affected by the events of 9/11 may gain insight into viable strategies.

This study is important to human resource professionals and others involved in the selection, recruitment, and promotion of executives. Griffeth and Horn (2001) recommend employee selection methods that enhance person-job fit. The concept of managerial fit involves selecting the appropriate personnel that fit the organization's strategy. This study will determine if a proper fit leads to higher performance in the U. S. airline industry.

This knowledge will allow practitioners to determine the importance of matching the demographics of recruits to their corporate strategy. In addition, this information may provide insight into the viability of promoting individuals into roles that will match their characteristics to the corresponding strategy. If managerial fit is important, corporations may want to develop executives for roles that match their characteristics.

Practitioners will find this research relevant because it shows one method of competitor analysis. The study will use a scatter diagram to plot the airlines based on cost and quality data. Porter (1980) advocated the scatter diagram for competitor analysis, while others in the literature applied the method (Kling & Smith, 1995). Managers of airlines can use this information to see how they measure against their competition. In addition, managers in other industries can use the same technique to map their industry based on cost and quality.

This study is also important to academics. The role that top managers play in organizations is an important topic in strategic management and organizational behavior (Kathuria & Porth, 2003). To quote Pitcher and Smith (2001, p. 1), "There are few more important subjects to strategy scholars, or for that matter to practitioners, than the link between the people at the strategic apex of the organization and that organization's performance."