Upper echelons theory and entrepreneurship

The underlying assumptions of the upper echelons theory are that top managers' decision-making processes determine competitive strategies, and that strategies affect firm performance (Hambrick and Mason, 1984). Further, decision-making processes are expected to be affected by the characteristics of individuals and composition of teams.

Competitive strategies may include the choice of business strategy, such as low cost, differentiation, and focus strategies. They may also affect corporate strategy such as vertical and horizontal integration, as well as diversification. Business and corporate strategies are well-known to affect the financial performance of firms and new ventures.

The upper echelons theory posits that the characteristics of individuals and teams influence their decision-making. Overall, the upper echelons theory counter-balances population ecology and institutional perspectives that tend to view individuals as unimportant.

Characteristics that have been examined include age, formal education, length of job tenure, and functional experience. For teams, heterogeneity, such as the diversity of functional backgrounds, age and experience, has been found to affect strategy-making (Vanaelst et al., 2006). Team cohesion and conflict have also been found to affect strategy and performance.

All entrepreneurship theory categories

Other Managerial Theories of Entrepreneurship:
  • Stewardship theory of entrepreneurship
  • Resource based theory and entrepreneurship
  • Resource scarcity theory of entrepreneurship
  • Resource dependency theory and entrepreneurship

    • Sources:

    Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of management review, 9(2), 193-206.

    Vanaelst, I., Clarysse, B., Wright, M., Lockett, A., Moray, N., & S'Jegers, R. (2006). Entrepreneurial team development in academic spinouts: An examination of team heterogeneity. Entrepreneurship Theory and Practice, 30(2), 249-271.


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