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process (Shu, Page, Gao, and Jiang, 2012).
More critically, external ties might direct managers’ attention to aspects of an
organization’s environment (Ocasio, 1997) and enable access to certain external information
(Gulati et al., 2002), subsequently promoting organizations’ social learning of adaptive
responses rather than other, less productive forms of interorganizational imitation (Kraatz,
1998). Furthermore, newly hired executives with prior exposure to different products and
strategies affect the subsequent product-market entry decisions of the firm (Boeker, 1997).
As Penrose (1959) suggested, different firms face different supply and demand conditions,
and the profitability of investment in different directions is affected accordingly. Thus, a
reasonable expectation is that the more external ties a top manager brings to a top
management team (TMT), the more likely the TMT is to identify new market opportunities
to utilize the members’ intra-industry experience. Therefore, we posit the following:
Hypothesis 1: The more external ties a TMT has, the more the TMT’s intra-industry
experience enhances the firm’s intra-industry performance.
4.2 Fit between External Ties of Managers and Industry Evolution
Previous studies have suggested the following aspects in which industries evolve. First,
the uncertainty and ambiguity are high initially and decrease over time (Daft and Lengel,
1986; Tushman and Nadler, 1986; Aldrich, 1999; Murmann and Tushman, 2001; Lant,
2003). Second, the rate of innovation decreases over time as the cost of innovation increases
and ultimately outweighs the economic rents generated (Gort and Klepper, 1982; Klepper
and Simons, 2000). Third, competition moves from product innovation to process innovation
(Abernathy and Utterback, 1978). Finally, the customer base changes from technology
enthusiasts and early adopters to mainstream markets (Moore, 1999). Then, how would these
changes affect the importance of the external ties of managers?
As suggested, a firm’s resource dependence on the external environment often increases
with the level of environmental uncertainty (Pfeffer and Salancik, 1978). In addition, the
information sources for innovation have been suggested as moving from places that are more
distant from the firms in the focal industry to within the firms (Gort and Klepper, 1982).
Moreover, it has been observed that product innovation, as opposed to process innovation, is
more externally oriented by the business ties of managers (Shu et al., 2012). Thus, as the
industry ages, a firm’s reliance on the external ties of managers should decline. This logic
leads to the following hypothesis: