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Strategy ImplementationRequires the Right ExecutiveStyle: Evidence from Danish

SMEsDorthe D. Hakonsson, Richard M. Burton, Børge Obel andJørgen T. Lauridsen

We examine how and when executive style affects strategy implementation in Danish

Small and Medium Size Enterprises SMEs. We propose a framework that allows a simple

diagnosis of executive style and strategy implementation, and we then measure and assess

the performance consequences of (mis)alignment between the two. Executive style

determines how executives deal with information, i.e., how they delegate, make decisions,

and respond to uncertainty. Strategy implementation is the realization of strategy and

what the firm does. Analyzing data from 407 small- and medium-sized (SME) Danish

manufacturing firms, we show that a failure to align SME executive style and strategy leads

to a significant performance loss. Moreover, our findings demonstrate that the alignment

of executive style and strategy is especially crucial for SMEs pursuing change and inno-

vation. We conclude with managerial and theoretical implications.

2012 Elsevier Ltd. All rights reserved.

IntroductionShould the executive or the executive style align with the firm’s strategy to enable proper implemen-tation? What are the consequences if executives are not aligned? Here, we present a framework forunderstanding and self-assessing how executive style and strategy should be aligned. Furthermore,

Long Range Planning 45 (2012) 182e208 http://www.elsevier.com/locate/lrp

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our empirical examination of this framework provides evidence of the “when;” our findings dem-onstrate that the alignment of executive style and strategy yields better performance than when they are not aligned. The firm suffers opportunity losses in performance from misalignments.

Depending upon style, executives process information and allocate their attention and time indifferent ways. To be more specific, executives can have different styles in delegating responsibilitiesand avoiding uncertainty dtwo dimensions of executive style. We find these two dimensions of ex-

ecutive style in the Danish SME (small and medium size enterprise) data. From these two dimen-sions, we derive four basic executive styles, which we call Maestro, Manager, Producer, and Leader.A Manager will attend to detail and control feedback whereas a Leader will focus more globally onwhat might happen next, with less attention to the details of the here and now. A Maestro neitherfocuses on control nor adopts a long-term perspective whereas a Producer does both. The Managerand Leader are well known, but the Maestro and Producer styles are also present in the DanishSMEs. Each executive style offers a different conceptualization of what executives find important,which information they attend to, and how they use their time. An executive can be any of the fourtypes to varying degrees.

In a complementary fashion, we diagnose the Danish SMEs’ strategies and find that there are two

dimensions describing strategy, which we refer to as exploration and exploitation. As the words im-ply, exploration is oriented toward the new and different whereas exploitation relies on existingproducts and processes and makes the most of it. Following Miles and Snow’s typology, thesetwo dimensions lead to four strategy types: Reactor, Defender, Prospector, and Analyzer (Milesand Snow, 1978). A Defender focuses on efficiency dlow on exploration and high on exploitation.A Prospector is more effectivedhigh on exploration and low on exploitation. An Analyzer aims forboth efficiency and effectiveness and relies on high levels of both dimensions whereas the Reactor islow in both exploration and exploitation. Here again, the company can follow a particular strategy to a certain degree depending on how high or low it scores on each of the two dimensions.

Returning to the basic question, should the executive, or the executive style, match the firm’s

strategy, and what are the performance consequences if he or she does not? The information-processing logic from contingency theory suggests that a misalignment of executive style and strat-egy implies that the executive style will not support the implementation of a strategy. The generalargument is that the more uncertainty is embedded in the strategy, the more information-processing support will be required by the executive. In our analysis, we match the degree to whichan executive has a particular style with the degree to which a particular strategy is followed. By diagnosing the executive style and strategy of our Danish SME firms and using an information-processing logic, we predict when there are good alignments between the executive style and thestrategy and when there are misalignments. We measure alignments and misalignments in one

year but investigate their implications regarding return on assets performance over four years.Thus, our analysis includes a lag effect on performance. Our evidence supports the alignment of executive style and strategy; it also supports the performance loss of misalignment, but we donot directly measure whether executive style or strategy comes first. Our evidence also showsthat the performance consequences of misalignment are not symmetrical and that some alignmentsare more important than others, namely, the ProducereAnalyzer and LeadereProspector combi-nations. Thus, alignment is especially crucial for firms pursuing change and innovationdsituationsthat carry the greatest uncertainty.

Generally, SMEs, which include entrepreneurial companies, are the backbone of modern econ-omies. SMEs account for over 95 percent of firms and 60-70 percent of employment, and they generate a large share of new jobs in OECD economies. Many of the traditional problems facingSMEs, including lack of financing, difficulties in developing technology, constrained managerialcapabilities, low productivity, and regulatory burdens, become acute in globalized environments.Thus, SMEs must develop and implement the right strategy. Here, the SME executive plays an im-portant role. SMEs have fewer administrative layers and embedded systems, and thus, SME exec-utives usually have considerable latitude and influence in making strategic choices andimplementing them on a day-to-day basis (Ling et al., 2008; Lubatkin et al., 2006). Furthermore,

Long Range Planning, vol 45 2012 183



many SMEs are executive-owned. Therefore, SME executives are involved in not only formulatingstrategic choices but also implementing them.

Executive style, executive and top management teams, and their effect on strategic choices havebeen examined extensively (Finkelstein and Hambrick, 1996; Thomas et al., 1993). However, researchon the effect of implementing strategy is limited, and relatively broad conceptualizations of both ex-ecutive style and strategy make it difficult to understand the exact nature of the relationship between

executive style and strategy (Beal and Yasai-Ardekani, 2000; Gupta, 1984; Szilagyi and Schweiger,1984). Furthermore, few studies have examined this relationship within SMEs (enterprises with 10-499 employees), perhaps because very little data is available on SMEs and their executives. Setting stra-tegic direction is different than implementing strategies. Executive style encompasses many facets, andone important aspect relates to the support and implementation of corporate strategy. Half or more of strategic initiatives fail, usually as a result of factors under executive control (Miller et al., 2008).

For SMEs, implementation involves the managers in planning and organizing; they set prior-ities, specify tasks, and resource activities (Miller et al., 2004). In SMEs, managers must alsowork across a variety of areas. For instance, Loan-Clarke argued that executives in small busi-nesses are required to operate across a range of management competencies (Loan-Clarke

et al., 2000). Depending on the strategy pursued, this may include areas in which they haveno competency or interest, and as a result, they may not be successful in implementing the strat-egy. As one of our respondents stated:

He’s a typical engineer by training . If we’re dealing with product modifications or offers, he will base his decision on calculations of the minor details and feel fine about communicating his decision. But management is not like that. You will always hear arguments expressed against your decisions and

how they don’t fit particular departments or people. Here, you will always have the uncertainty. Soeven if, given the new strategy, he understands that this is the right decision to make, he will stall itsimplementation by saying: We need more time to think about this.

We build a framework, which is based on information-processing theory, that allows us to ex-amine and explain when and why particular combinations of executive style and strategy are prob-lematic. The managerial implications of misalignments are important because performance suffersand opportunities can be lost. In brief, strategy implementation requires the right executive style forSMEs. In terms of theory, we develop a nuanced specification and analysis of the relationship be-tween executive style and strategy that contributes to contingency theory.

This paper is part of a larger set of studies that examine the role of executive style, strategy andclimate, and, more generally, the multi-contingency theory of organizational design (Burton andObel, 2004). Burton et al. (2002) analyzed Danish SMEs for a larger set of multi-contingency fit

hypothesesd

a more general empirical examination of the theory. However, those tests analyzedthe data at an aggregated level of analysis, which left open the question at a more micro levelwith more specific fit hypotheses. Thus, we have undertaken additional specific studies to examinestrategy and executive style, executive style and climate, and climate and strategy. In this paper, weexamine the fit between executive style and strategy. In a related paper, we analyze the fit betweenexecutive style and climate, which is embedded in employees and their emotions; we focus on how the executive, given a particular climate, should complement the emotional biases of employees(Hakonsson et al., 2008). In both papers, we use the executive style (or leadership) dimensionsthat were developed and empirically tested in Hakonsson et al. (Hakonsson et al., 2006) These ex-ecutive style dimensions, preference for delegation and avoidance of uncertainty, are empirically derived using a confirmatory factor analysis from the Danish SME data that are used in both stud-ies. To complete the configuration of executive style, strategy, and climate, we examined the thirdlegdstrategy and climatedusing the same Danish SMEs (Burton et al., 2004). All of these studieslend significant empirical support for the multi-contingency theory developed in Burton and Obel(2004) and Burton et al. (2011). Each paper has added specific insights that, in our view, make the

184 Strategy Implementation Requires the Right Executive Style



multi-contingency model more theoretically sound, and they provide a basis for managerial insightsthat have not been available so far.

Aligning Executive Style with StrategyDepending on their information-processing style, executives will support the information-

processing needs of firm strategies to varying degrees. We develop a framework that allows forthe easy diagnosis and comparison of executive style and strategy, and we examine the performanceimplications of this relationship by analyzing data from 407 Danish SMEs. In Case 1 (Box 1), wedescribe what occurred when one of our case companies followed a change in strategy that createda misalignment between an Analyzer strategy and a Maestro executive style. In this case, the ownerexecutive realized that he was not the right person to implement the new strategy. He formally as-signed a new top executive and stepped down to become a working board member; in reality, how-ever, he did not loosen the reins, causing a misalignment between executive style and strategy.

Case 1: A Danish IT FirmWill the executive’s information-processing capacity, realized in his executive style, support the

information-processing needs of the strategy? We test whether there are significant differences inperformance outcomes for those firms where executive style and strategies are aligned or matchwell with respect to information processing. In the next section, we will present a theoretical argu-ment, based on a conceptualization of executive style and strategy in information processing terms,to illustrate why executive style-strategy alignment is necessary. Furthermore, we will test the stated(mis)alignment relationships using Danish SME data.

Diagnosing the Match between Executive Style and Strategy

Diagnosing Executive Style

We diagnose executive style as the executive’s information-processing patterns, which are impor-tant for strategy implementation. All SME executives, regardless of ownership or business type,implement a strategy with an executive style.

Previous SME executive style research has been dominated by four different approaches. First, thetrait-based perspective found that “entrepreneurs” are more risk taking and innovative than “Man-agers” or “owner Managers,” who tend to be reactive and passive ( Georgellis et al., 2000; Hyrsky,1999; Kuratko and Hodgetts, 2003; Utsch et al., 1999). Second, Sadler-Smith et al. focused on the re-lationship between actual managerial behaviors (based on competencies), entrepreneurial style, andsmall-business performance (measured as business growth) (Sadler-Smith et al., 2003). Third, a grow-ing number of studies have related SME executive cognitive styles to market orientation and perfor-

mance (Brigham et al., 2007; Martin et al., 2009). Fourth, competency research, which focuses on whatan individual can do and not necessarily what he or she does, focuses more on how particular cognitivestyles may bias executives from seeing and attending to particular information-processing anddecision-making types (i.e., what they do not do) (Boyatzis, 1982).

We conceptualize executive style as the patterns that describe the executive’s information-processing behaviors. We did not ask the top executives of our respondent SMEs to assess theirown executive styles; rather, we asked them to rate themselves on questions that capture theirinformation-processing behaviordinformation that is relevant for strategy implementation(e.g., “what is your preference for minimizing business risks?” and “what is your preference for de-tailed information processing?”). (Appendix A contains all variables used in the study.)

Applying factor analysis to these data, we found that the variability among executive responsescan be meaningfully reduced to two factors, or dimensions (see Appendix B for details), whichwe call “preference for delegation” and “uncertainty avoidance.” The first question about whomakes strategic decisions loads directly onto the first dimensiond“preference for delegation.” Atone extreme, low delegation, the executive prefers to make decisions alone and does not facilitate




Case 1.A Danish IT Firm

This case illustrates a misalignment between a Maestro executive style and an Analyzer strat-

egy. The case illustrates what can happen after a strategy change.

Consider one of our case companies: a Danish SME consultancy business located in Funen.

The firm was founded by “Jacob” in 1993 and sells ERP licenses and consultancy hours forimplementing software to the Danish market. The firm initially pursued a Reactor strategy,

focusing on winning market shares in an existing market, but it had no clear focus on explo-

ration or exploitation.

The strategy was executed masterfully by Jacob, who was a typical Maestro executive. He

was extremely risk-willing (low uncertainty avoidance). As a salesman, he would go out, com-

plete a deal, and then come back and ask whether it was possible to deliver. At the same

time, he was extremely dedicated and involved in all aspects of the business (low preference

for delegation). The strategy was a Reactor strategy with no clear focus. The firm reacted to

customers and requests that Jacob found in his extensive network.

His high spirits and devotion to the product were a perfect match for starting the business,and the firm quickly enjoyed enormous success, growing in size from 30 to 120 employees in

a couple of years.

However, as the firm grew in size, so did the number of customers. Assignments became

more complex in terms of both task specificity and the man-hours and expertise required.

Whereas most of the employees had previously been generalists, newly hired employees

were specialists. To exploit their specialized competencies, tight coordination of sales was re-

quired. It was necessary to sell the available expertise rather than simply asking customers

what they wanted and then “mixing it up.” At the same time, having discovered the increas-

ing potential for web-related products, the firm began establishing itself as a web hotel and

developing web solutions.Consequently, although the firm’s strategy and executive style worked well initially, the

misalignment of executive style and strategy became increasingly obvious as the firm expe-

rienced success and growth.

The firm’s new strategy was essentially an Analyzer strategy, which focused on efficiency

and control while pursuing some exploration through the development of web products.

This strategy required much more control (high uncertainty avoidance) coupled with decen-

tralization (high preference for delegation) to avoid bottlenecks in decision making.

Realizing that he was not the right person to implement the new required strategy, Jacob

stepped down to become chairman of the board, and a new executive, “Tim,” was employed.

Jacob, however, continued to attend all meetings and remained heavily involved in the dailyrunning of the business, preventing Tim from taking the reins and running the business prop-

erly. The firm’s successdnamely, Jacob’s executive styledhad become problematic, as it pre-

vented the firm from implementing the required strategy. The performance of the firm

suffered with a change from a handsome profit to a loss. The firm had to downsize and

sell off various activities to survive.

This case demonstrates a misalignment between the information-processing requirement of

strategy and the information capacity of the executive. The executive became a bottleneck

with severe performance consequences. His Maestro executive style, including his lack of ability

to delegate, created information bottlenecks with the aggressive Analyzer strategy, which

requires much more delegation. This blockage led to loss of opportunities and confusion, aswell as insufficient control due to low uncertainty avoidance




much debate or joint interpretation. In contrast, an executive with a high degree of delegationinvolves others in the decision-making process.

We call the second dimension “uncertainty avoidance.” According to Cyert and March, uncer-tainty avoidance means that individuals avoid the uncertainty of the future by not predicting thelong run, using short-term feedback, solving short-run operational problems, and reacting quickly rather than relying on longer-term forecasting and planning (Cyert and March, 1963). Executives

who rate low on uncertainty avoidance are likely to focus more on the long term, to take more risks,to rely less on control and more on motivation, and to pursue a generally proactive, external,outward-focused orientation in their information-processing behaviors.

Along with these two dimensions, we outlined four executive styles, as shown in Figure 1.Depending on their self-ratings, the top executives could match any of these to varying degrees.

Managers and Leaders are well-known executive styles (McGregor, 1960; Zaleznik, 1977). In ad-dition to these two classic executive styles, our two-dimensional representation revealed two addi-tional styles: the Producer and the Maestro. Each style is described below.

Maestros: Maestros score low on preference for delegation and low on uncertainty avoidance.Maestros are executives that prefer to be personally involved in decision making; they embrace un-

certainty and prefer long-term, proactive decision making. Such executives are like conductors, orMaestros, who want the orchestra to perform a new and difficult piece. However, when uncertainty overwhelms the Maestro’s ability to retain an overview, he may risk functioning as a bottleneck indecision making. “Jacob,” the former top executive and now working board member in our casefirm (see Case 1), was a Maestro; he was described as follows by his former PA:

Jacob was a real salesmandcompletely undisciplined. We used to have a drawing on the wall of a chariot, with Jacob portrayed as the untamable horse, and Tim (the newly hired top

executive) sitting in the back, trying to control him.

As an executive I am

LOW ON UNCERTAINTY AVOIDANCE:

- prefer motivation over control

- prefer detailed information

-prefer to wait and see before acting

- ...

Our strategy is

LOW ON EXPLOITATION:

- not focused on process improvement- . ..


HIGH ON UNCERTAINTY AVOIDANCE:

- prefer control over motivation

- prefer aggregate information

-prefer short term decision-making

Our strategy is

HIGH ON EXPLOITATION:

- focused on process improvement

- . ..


HIGH ON DELEGATION:

- prefer to delegate

Our strategy is

HIGH ON EXPLORATION:

- focused on product innovation

- focused on price concern

- . ..

Our strategy is

LOW ON EXPLORATION:

- not focused on product innovation

- not focused on price concern

- . ..


LOW ON DELEGATION:

- prefer not to delegate

PRODUCER EXECUTIVE

STYLE

ANALYZER STRATEGY

MANAGER EXECUTIVE

STYLE

DEFENDER STRATEGY

MAESTRO EXECUTIVE

STYLE

REACTOR STRATEGY

LEADER EXECUTIVE

STYLE

PROSPECTOR STRATEGY

Figure 1. Alignments between Executive Style and Strategy. Note: In figure 1, some of the variables spec-ifying the dimensions of the axes are shown. The full list is given in Appendix A




Managers: Managers score high on uncertainty avoidance and low on preference for delegation.By rating high on uncertainty avoidance, this type of executive prefers to deal with matters in a dis-ciplined way, focusing on the short term with an internal focus, a fine level of detail, and highcontrol of employee behavior. Managers are reluctant to delegate decision-making authority andprefer to implement decisions themselves. Our managers are similar to Zaleznik’s Manager types(Zaleznik, 1977), McGregor’s X types (McGregor, 1960), and what the SME literature refers to

as “Manager Managers” or “Owner Managers,” who are characterized as lower on risk takingand innovation than entrepreneurs. Managers focus more on securing income to meet immediateneeds than on profitability and growth (Stewart et al., 1998; Carland et al., 1984). Thus, in terms of specifying tasks, prioritizing, or resourcing activities, they tend to have an inherent bias toward con-trol and focus, regardless of the strategy pursued.

Leaders: Leaders score high on preference for delegation and low on uncertainty avoidance. Theirhigh preference for delegation means that a good deal of information processing and decision mak-ing is left to subordinates. Leaders are likely to facilitate considerable debate and joint interpreta-tion. At the same time, Leaders focus on the future, prefer long-term strategic decision making,assume risk, and have a generally proactive executive style. They are similar to Zaleznik’s

Leader-type; they focus on the future and are willing to delegate, but they are unlikely to emphasizea great deal of detail and control (Zaleznik, 1977). Leaders come closest to what the SME literaturehas referred to as Entrepreneurs. Leaders are not necessarily successful; their success is contingentupon the strategy to be implemented.

Producers: Producers score high on preference for delegation and high on uncertainty avoidance.Producers are willing to facilitate bottom-up innovation and debate through their preference fordelegation. At the same time, the Producer’s high uncertainty avoidance implies that he is likely to avoid risk taking and long-term focus. While the Producer may not initiate risky and innovativeideas himself, his high preference for delegation is likely to enable other people to deal with ambig-uous information and take risky action while he himself maintains overall focus and control of the

situation. In making decisions related to implementation, a Producer does not take many risks bututilizes the system and human resources to accomplish tasks even in very dynamic and volatile sit-uations. He wants to produce.

The executive’s scores on uncertainty avoidance and delegation determine the executive’s posi-tion in Figure 1. Thus, a particular executive can be characterized as one of the four types definedabove depending on location in the quadrants. For example, if the score is high on preference fordelegation and high on uncertainty avoidance, then the executive can be characterized as matchingthe Producer style to a high degree. If the scores on the two dimensions are both medium high, thenthe executive is still a Producer, though to a lesser degree. The particular score on the two dimen-sions is used in our analysis of misalignments.

The four executive styles describe the decision-making and information-processing styles that wefound. They capture the overall tendencies and patterns that were present in our data set. Each stylehas its own strengths and weaknesses, and there is no a priori successful executive style. What isimportant, however, is the degree of alignment with the firm’s strategy.

Diagnosing StrategyThere are many ways to describe business strategy. We chose Miles and Snow’s classic typologies of Defenders, Analyzers, Prospectors, and Reactors because this framework has been tested extensively and its reliability and validity are well documented (Ghoshal et al., 2003; Hambrick, 2003).

We asked the executives a number of questions that have previously been found to describe these

four strategies well (see Appendix A). Thus, as with executive style, we did not ask them to assesstheir own strategy; instead, we asked them questions that would allow us to assess the degree towhich they matched the four strategy types. Our data (once again using factor analysis) revealedthat the interdependency among the responses could be captured by two dimensions. We calledthe first dimension “Exploration,” following March’s seminal paper on learning strategies and other




uses of the term in decision making (Cohen et al., 2007; March, 1991). Exploration captures wellthe questions loading high on this dimension (Appendix B), particularly the high rating of new product innovation but also high prices that will attract pioneer customers and cover the high costsrelated to experimentation and risk taking. Sidhu, Volberda, and Commandeur posit that there isno generally accepted definition or measure of exploration orientation (Sidhu et al., 2004). On thebasis of information processing, they argue that broad information acquisition entails risk because

the outcomes of the committed resources are uncertain. Strategies scoring high on exploration willrequire continuous scanning of the external environment and internal development (Levinthal andMarch, 1993; Sidhu et al., 2004). In particular, newness and broadness of information are contin-uously needed to stay up to date on new ideas and trends (Katila and Ahuja, 2002; Taylor andGreve, 2006). Thus, the questions loading high on this dimension determine the relative explorationorientation in terms of the breadth, or scope, of the information acquisition required.

The second dimension is called “Exploitation.”Exploitation captures well the questions loading onthis dimension (Appendix B), particularly high loading on process improvement and the most recentknowledge on production methods. High exploitation strategies necessitate detailed and focused in-formation to keep up with the requirements for continuous refinement and fine-tuning of produc-

tion methods. However, the use of existing knowledge will dominate (Katila and Ahuja, 2002).Our use of exploration/exploitation is an insightful heuristic or metaphor for capturing thevarious needs of the four strategies. Our information-processing view enables an understandingof the classic Miles and Snow framework. Figure 1 represents the typologies along the two dimen-sions: Reactors, Defenders, Prospectors, and Analyzers (Ghoshal et al., 2003; Hambrick, 2003; Milesand Snow, 1978).

Reactor : A Reactor strategy scores low on exploitation and low on exploration. A Reactor strategy makes adjustments when forced by an urgent need or problem but lacks an intentional strategy to-ward innovation. The Reactor is generally not a viable strategy (Obel, 1993; Miles and Snow, 1978).Nevertheless, newly founded businesses that set out to win market shares for existing products

within existing markets are often Reactors (Miles and Snow, 1978). Information-processing de-mands are likely to be both inward focused and low on detail and focus.Defender : A Defender strategy is high on exploitation and low on exploration. Defenders focus on

a narrow product market domain and rarely venture outside of this domain (Miles and Snow,1978). Defenders strongly emphasize process innovation, refinement, and efficiency, but they donot focus much on product innovation. To remain competitive, a Defender strategy requires de-tailed and focused information to enable continuous refinement (rather than innovation) of currentproducts and production methods.

Prospector : A Prospector scores low on exploitation and high on exploration. A Prospector strat-egy continually searches for market opportunities and regularly experiments with potential re-sponses to new trends; i.e., this strategy takes an aggressive approach to innovation (Miles andSnow, 1978). Prospector strategies require continuous scanning of the external environment anddealing with a lot of new, broad information.

Analyzer : An Analyzer strategy scores high on exploitation and high on exploration. An Analyzerstrategy adopts a dual focus, refining existing products while experimenting with the discovery of new products (Miles and Snow, 1978). An Analyzer is a very complex strategy with complex information-processing needs. Jansen et al. found that ambidexterity requires differentiated explo-ration and exploitation (Jansen et al., 2009). In this way, Analyzer strategies are suitable for ambi-dextrous businesses. Here, paradoxical demands, such as long-term adaptability and short-termsurvival, are balanced (Andriopoulos and Lewis, 2010). Even if more companies find themselvesdealing with such tensions, previous studies only provide fragmented prescriptions largely targetedat top management teams (Andriopoulos and Lewis, 2010; Raisch and Birkinshaw, 2008). Our fo-cus on SMEs adds to this important gap.

Firm scores on exploration and exploitation determine the firm strategy in Figure 1. Thus, a par-ticular SME can be characterized as one of the four strategy types above depending on its location ina quadrant. For example, if the score is high on exploration and high on exploitation, then the SME




can be characterized as an Analyzer. If the scores on the two dimensions are both medium high,then the SME is still an Analyzer but to a lesser degree. The particular score on the two dimensionsis used in our analysis of misalignments.

Hypotheses

Four main hypotheses are developed for aligning our four types of executive styles and four types of strategies. First, we preview the rationale for the hypotheses. Second, we provide an overall rationalefor the detailed hypotheses below. An executive style with low delegation will match strategies thatare low on exploration; an executive style with high delegation matches well with high exploration.An executive with low preference for delegation will soon become a bottleneck in a strategy withhigh exploration, because high exploration will require involvement with new and broad informa-tion. High uncertainty avoidance matches high exploitation whereas low uncertainty avoidancesupports low exploitation. If a firm needs to refine and focus on fine-tuning its processes, thefirm will certainly not need an executive whose main focus is on seeking new opportunities andseizing long-run opportunities and risky options. These ideas are incorporated into the hypotheses

below, which we test with the Danish SMEs data.The four hypotheses match the executive style with the strategy that is being implemented. Eachhypothesis is the dominant statement concerning the interaction effects of the alignment of the ex-ecutive style and strategy. For each firm for each of four years, there are fifteen interaction relationvariables. These interaction variables measure the degree of alignment and misalignment for eachfirm in all fifteen interactions. We develop hypotheses for the dominant alignment of the interac-tion. Implicitly, we are also stating the misalignments, which support the alignment hypotheses.That is, the misalignments and their opportunity losses support the hypotheses in a comparativemanner.

Hypothesis 1: Greater alignment between the Maestro style and a Reactor strategy leads to greaterperformance.

Hypothesis 1 states that the Maestro is a good match for a Reactor strategy. It does not claim thata Reactor strategy is a good strategy, as it is a risky, non-viable strategy in the long run, but it may work for early phase startups (Miles and Snow, 1978). If the firm has a Reactor strategy, the Mae-stro style is a good match because the Maestro accepts uncertainty (low uncertainty avoidance)while keeping decisions close (low delegation).

Next, we examine when a Maestro is in misalignment with other strategies. In Table 1, these arethe off-diagonal situations. In the left column, there are three misalignments. The Maestro’s low preference for delegation is inappropriate in implementing both the Prospector and Analyzer strat-egies, whose high exploration requires delegation and a broad scanning of external environments;the opportunity loss is that poor delegation leads to delay and poor environmental scanning, both

leading to missed opportunities for change. For a Defender strategy, the Maestro’s low uncertainty avoidance leads to high risk taking and a lack of required focus on control for implementation.

Our executive, “Jacob” (see Case 1), was a Maestro-style executive who, despite having formally stepped down to become a working board member, remained involved in implementing an Ana-lyzer strategy. His former PA recounts:

As our required strategy changed, while Jacob remained involved in the business, his executive stylebecame a problem. As such, this problem grew larger the more successful we became.

The opportunity loss was that Jacobs deep involvement led to delays and confusion.Hypothesis 2: Greater alignment between a Manager style and a Defender strategy leads to greater

performance.

The Manager prefers little delegation and high uncertainty avoidance; the Defender strategy isnarrowly focused to maintain and control the status quo with an emphasis on processes and inter-nal operations for efficiency and limited process innovation. It is a low-exploration, high-exploita-tion strategy. The Defender strategy aligns well with the Manager style. The Manager can implementthis strategy well with his high focus on details (high uncertainty avoidance) and personal decisions




(low preference for delegation). This description of the Manager style also ties in well with previousSME literature documenting that Manager types focus more on the short term and immediate sur-vival (Stewart et al., 1999).

In terms of misalignments, the Manager style is less aligned with the Analyzer, Prospector, andReactor strategies. With the Analyzer and Prospector strategies, the Manager will become a bottle-neck for decisions because of a lack of delegation. The Manager is also misaligned with the Reactorstrategy, as the Manager’s high uncertainty avoidance and focus on control and efficiency will bea poor fit for the exploitation dimension.

Hypothesis 3: Greater alignment between the Leader style and a Prospector strategy leads togreater performance.

The Leader style is the most appropriate for successfully implementing a Prospector strategy. TheProspector strategy is high on exploration and low on exploitation. The Prospector requires a searchfor new trends and market opportunities and thus demands rich and large amounts of information.The Leader deals with these information-processing demands by having a high preference for del-egation, thereby allowing bottom-up innovation and broad scanning of the environment. In addi-tion, the Leader accepts uncertainty, which is required for the Prospector strategy.

The Leader style, with a high preference for uncertainty and delegation, focuses too little on de-tailed information to be a good match with the high exploitation of the Defender and Analyzerstrategies. The high exploitation requires a strict focus on efficiency. The organizational controlwill not be high, and there will be opportunity losses in efficiency and poor implementation.The leader will demand exploration that is not embedded in the reactor strategy.

Hypothesis 4: Greater alignment between the Producer style and the Analyzer strategy leads togreater performance.

The Producer style is the most appropriate executive style for implementing the Analyzer strat-egy. The Analyzer strategy is high on both exploration and exploitation. When exploration and

Table 1. Hypotheses and their variable specification




exploitation are pursued simultaneously, information-processing demands are high. It is necessary to generate new information and make decisions on novel issues; at the same time, focus on effi-ciency and control of existing activities is required (Lubatkin et al., 2006).

Although Jansen et al. do not focus on SMEs, they demonstrate the crucial role of senior teamexecutives in reconciling conflicting demands and facilitating the balancing of seemingly contradic-tory forces in ambidextrous firms (Jansen et al., 2008). Their study certainly emphasizes the impor-

tance of executives in firms pursuing high exploration and high exploitation simultaneously. ForSMEs, there is a similar need for executives who are able to reconcile apparently contradictory information-processing demands at the same time. This duality is met by the Producer, who prefersto delegate to reduce his own information-processing demands, thus facilitating bottom-up inno-vation and debate among employees. This delegation frees up his capacity to deal with more exten-sive information for new ideas and activities. At the same time, the Producer prefers detailed andfocused information and relies on high uncertainty avoidance, which fits in well with the high ex-ploitation of the Analyzer strategy. The Producer is a good match for the Analyzer strategy becausealthough the Producer is unlikely to initiate risky and innovative ideas himself (high uncertainty avoidance), he prefers to delegate and thereby is likely to facilitate the broad scanning of new

and ambiguous information and to take subsequent action. Thus, the Producer, who will pursuefocus and control while also allowing the firm to seize new opportunities, is well aligned with anAnalyzer strategy.

However, the Producer is not well aligned with other strategies. The Producer’s high uncertainty avoidance will clash with the Prospector and Reactor strategies, and his high preference for delega-tion will not ensure the required focus for properly executing a Defender strategy.

Testing the Performance Implications of (Mis)Alignment between ExecutiveStyle and StrategyTo investigate the executive style and strategy alignment hypotheses, we applied a multiple regres-sion framework. Performance (measured as return on assets (ROA)) served as the dependent vari-able, and the executive style-strategy alignment relationships served as the independent variables(see Appendix B for further information). Because we included ROA for four years, our regressionmodel includes a lag effect. Although this inclusion of ROA, of course, is not a full test of causality,it does allow us to include the impact of misalignments over the four-year timespan. The regressionvariables are interaction variables, which measure the interaction intensity of the alignment andmisalignment relations. The scores on the two dimensions describing the executive style and thescores on the two dimensions describing strategy and thus the particular position in the quadrantsof figure 1 (see above) are the variables that describe the misalignmentsdthe degree of alignment ormisalignment. See Table 1 for variable specification. Furthermore, the distribution of the data

across the two dimensions is illustrated in figure 2. We included size and ownership structure asindependent control variables. Size and ownership have been important contingencies and are par-ticularly important for SMEs (Burton et al., 1991). Our sample (see appendix B) contained a mix of public and privately owned companies, for which we also controlled.

We outlined sixteen basic relationships, which are based on our four hypotheses, between exec-utive style and strategy. See Table 1. Four relationships represent our hypotheses and the alignmentrelationships and are represented in the diagonal; twelve relationships represent misalignment re-lationships, e.g., a Manager style with an Analyzer, Prospector, or Reactor strategy, and they arerepresented in the off diagonal.

As described in Appendix B, only fifteen of the sixteen relationships are included, as there is a per-

fect linear relation between any one of the relationships and the other fifteen relationships. Wechose the Reactor-Maestro relationship as the base reference case in the regression model; it isthe base reference point against which all other relationships are compared.

The results of the multiple regression analysis with return on assets as our dependent variable areprovided in Table 2.




As shown in Table 2, ten of our twelve predicted misalignment relationships had the expectedsign; i.e., misalignment between executive style and strategy had negative consequences for perfor-mance, and alignment had a positive effect on performance. Of the ten negative relationships, sevenwere significant at the five percent level whereas one of the two unexpected positive signs was sig-nificant at the five percent level. Furthermore, two out of three alignment relations had a significantpositive effect (with the base case fixed at zero). The R-squared value of .21 indicates the amount of variance in performance explained by our regression model. The sample size for the regressionmodel is 108, as only 108 companies for which we had data on their financial results had answeredall of the questions required to measure both executive style and strategy. Given the range of 10-499employees, we checked whether size as a control would make a difference. From Table 2, the sizevariable was not significant and did not influence results. We also checked whether ownershipstructure (less than 50% and more than 50% private ownership, respectively) influenced our re-sults. Many SMEs are owner run, which has previously been found to affect firm behavior and per-formance (Ghobadian and O’Regan, 2006). As shown in Table 2, companies with employedexecutives performed slightly better than those without; businesses in which executives ownedmore than 50% performed slightly better than those in which executives owned less than 50%.However, none of these effects is statistically significant. Without controls, the R-squared valuewas .19.

Figure 2. Distribution of data across the two executive style and strategy dimensions. Note. The scatter plotshows Executive Style (E) and Strategy (S) scores. The n figures show the number of firms with scores prop-

erly above / below 0.5 on the four dimensions and serve as a descriptive illustration of the degree of align-ment. Interpretation: The four dimensions are indices ranging from 0 to 1. Scores above/below 0.5 can beseen as an indication of high alignment. Of the 113 firms, 31 (27%) fulfill this. The remaining firms are in“low” alignment and candidates for misalignment. There seem to be fairly representative scatters of Strat-egy and Executive Style companies across the quadrants. Comment: Be aware that some of the points in thescatter are not shown (if two points are too close to each other, then SAS needs to hide one of them).Therefore, if you count carefully, the number of E points is not equal to the number of S points. However,this detail does not affect the overall picture of the figure




The ResultsAs an overall indication of the validity of our construction, Table 2 reports a joint F-test for whetherthe average of the four alignment coefficients (those in the diagonal) is equal to the average of themisalignment coefficients (those outside the diagonal). The F-test strongly rejects this hypothesis,indicating that alignment indeed pays off in performance.

Next, let us turn to the results for Hypothesis 1. As mentioned above, the referent alignment re-lationshipdMaestro-Reactordis not included in the model. This exclusion implies that the modelcoefficient for this relationship is implicitly constrained to zero.

Examining the associated misalignments, the Maestro-Prospector, Maestro-Defender, andMaestro-Analyzer relationships (column 1 in Table 2) had negative impacts on performance, whichmeans that when the Prospector, Defender, or Analyzer strategies were led by a Maestro executivestyle, the firm incurred opportunity loss. However, only the Maestro-Prospector relationship is sig-nificant. Thus, from the perspective of the Maestro executive style, Hypothesis 1 is supported. Now,let us examine Hypothesis 1 from the perspective of the Reactor strategy (row 1 in Table 2). When

Table 2. Performance results of (mis)alignments between executive style and strategy




the Reactor strategy is executed by either a Leader or a Manager, the relationship shows a significantnegative sign; i.e., it has negative performance consequences. The Reactor-Producer relationship,however, shows a positive, significant sign. Overall, therefore, Hypothesis 1 is only very weakly sup-ported. This conclusion is supported by the F-test for Hypothesis 1, which indicates that the averageof the coefficients of the six related misalignment dimensions are not significantly different from thecoefficient of the Reactor-Maestro alignment dimension.

For Hypothesis 2, we find that the Manager-Defender relationship does not have a significantcoefficient. Thus, the payoff in performance with a Manager-Defender relationship is not signifi-cantly different from that of the Maestro-Reactor. The F-test for Hypothesis 2, however, providessome support of the hypothesis, as the coefficient of the alignment dimension is at a 10 percentsignificance level, different from the average of the coefficients of the six related misalignment di-mensions. An inspection of the coefficients of the associated misalignments (column 2 in Table 2)indicates that both the Manager-Analyzer and the Manager-Reactor relationships have a signifi-cantly negative impact on performance. The Manager-Prospector relationship does not lead to neg-ative performance implications, but the relationship is not significant. Generally, the Manager styledoes not work particularly well compared to our base case. Compared across the four strategy types,

the Manager does worse than any other executive style. This finding is surprising and is in contrastto our hypotheses.The Defender strategy has a negative sign with all four executive styles (row 2 in Table 2). How-

ever, only the Defender-Producer relationship yields a significant loss. The lowest negative coeffi-cient belongs to the Manager-Defender relationship, in accord with our hypothesis. Overall, theDefender strategy seems less sensitive to a unique executive style; i.e., different executive stylesmay be acceptable. In other words, our regression analysis cannot rule out that the Defender strat-egy may be implemented by all executive styles with the exception of the Producer style. Case 2,however, shows a concrete example in which a Maestro-Defender relationship does not work.The case thus supports the negative, although not significant, coefficient in our regression analysis.

To summarize, Hypothesis 2 is only weakly supported.For Hypothesis 3, the Leader-Prospector relationship has a positive coefficient and is weakly sig-nificant at the 10 percent level. This result indicates that the Leader-Prospector alignment only de-viates marginally from the Reactor-Maestro and Defender-Manager alignments with respect toperformance. However, for this hypothesis, the strongly significant F-test of the alignment coeffi-cient versus the average of the six misalignment coefficients indicates that alignment pays off.On the three associated misfit relationships (column 3 in Table 2), the Leader-Analyzer and theLeader-Reactor relationships both have significant, negative performance implications. TheLeader-Defender relationship also has negative, but not significant, performance implication.Combining a Prospector strategy with a Producer or a Maestro leads to a significant negativesign whereas a Prospector-Manager relationship shows a positive but non-significant sign. Thus,Hypothesis 3 is strongly supported.

Moving on to Hypothesis 4, the relationship between the Producer style and the Analyzer strategy has a positive sign, which is weakly significant at the 10 percent level. Thus, with respect to perfor-mance, the Analyzer-Producer alignment deviates only marginally from the three previously dis-cussed alignments. The F-test strongly rejects the equality of the alignment coefficient to theaverage of the six misalignment coefficients of row and column 4, thus supporting Hypothesis 4.Turning to the three associated misalignments (column 4 in Table 2), both the Producer-Defender and the Producer-Prospectorrelationships have a significant, negative impact on perfor-mance. For Reactor strategies executed by Producers, the relationship has a surprisingly positive,significant relationship to performance. The Analyzer strategy (row 4 in Table 2) is significantly negative when executed by a Leader or a Manager. With a Maestro, the sign is also negative butnot significant. Thus, Hypothesis 4 is strongly supported.

The overall results allow for the general conclusion that alignment between executive style andstrategy has positive performance implications in SME companies whereas failure to align executivestyle and strategy leads to a loss in performance. These conclusions are indicated by the correct




signs for twelve of fifteen alignment-misalignment relations. More specifically, the Prospector strat-egy requires a Leader style, and the Analyzer strategy requires a Producer style. In contrast, theDefender strategy may be most successfully implemented by the Manager as hypothesized, but itcan also be implemented by the Maestro and Leader. This finding is an interesting asymmetry inour results, which we elaborate on below. Finally, our results indicate that a Leader does not func-tion well with any other strategy than a Prospector. For other strategies and executive styles, there

seems to be elements of equifinality.

Implications for ExecutivesFor executives in SMEs, we find that aligning the executive style with the firm’s strategy is generally important and that misalignment leads to opportunity losses for the firm. Thus, we conclude thatexecutives matter when implementing strategy. This conclusion is not new. In fact, it is widely ac-cepted; however, it is not well supported beyond anecdotal evidence. Our framework provides clar-ity by building an understanding of how and when SME executive style and strategy must bealigned for the successful implementation of strategy. Thus, our work complements existing re-

search on this important relationship and extends it to the study of SMEs. Regarding the “why,”our framework allows for the assessment of alignment based on information-processing need, asdetermined by the strategy; this strategy will be met successfully by the executive style, which em-bodies the capacity to deal with information. Furthermore, we have empirically tested the “when”of this relationship by studying different alignments between executive style and strategy and exam-ining the performance consequences of both alignment and misalignment. We focus on strategy implementation in which executives make decisions, organize, set priorities, specify tasks, and re-source activities in SMEs (Galbraith, 1974; Miller et al., 2008).

We hypothesized four executive style and strategy implementation alignments: Maestro-Reactor,Manager-Defender, Leader-Prospector, and Producer-Analyzer. We find support for three of thefour, with the exception being the Manager-Defender relation. However, our findings are morecomplex than stated in the four hypotheses. Our results may be of interest to executives, as ourfindings indicate that the alignment of executive style and strategy implementation is more nuancedthan previously understood.

First, the Manager style seems to be a limited executive style. We did not find that the Manageraligns definitively with the Defender strategy, as hypothesized. Furthermore, the Manager style wasnot aligned with any of the other strategies.

Case 2: A Danish Elevator firmCase 2 explains what occurred in one of our case companies that did not succeed in aligning the

Maestro executive style with a Defender strategy. Even though the Maestro’s low preference for del-egation should match well with the Defender strategy, there is apparent misalignment with his high

uncertainty avoidance. It is not effective for an executive to focus on risky and long-term actions(e.g., low uncertainty avoidance) if the firm is pursuing a Defender strategy. That is, as long as theexecutive’s information processing remains focused on short-term and low-risk decisions (in thiscase, the executive reveals high uncertainty avoidance), he fits well with a Defender strategy. If a Maestro-style executive finds himself in a situation where he must implement a Defender strategy,however, the executive must be familiar with his low uncertainty avoidance style, and he must bewilling to suppress it for the benefit of the required strategy. However, the Defender strategy may also be implemented by a Manager and Leader styles. That is, the Defender strategy seems to benon-discriminating in its requirement for an executive. In this way, our results have strong impli-cations both when hiring new executives and in today’s modern world. Our regression results fur-

ther suggest that the Defender strategy can be implemented equally by Manager, Leader, andMaestro executive styles, as there are no significant opportunity losses. However, the magnitudesof the non-significant coefficients have the correct order, and the magnitude of the Manager-Defender coefficient is lower than for the other hypothesis. The Defender is only misaligned signif-icantly with a Producer executive style. That is, the Defender implementation does not seem to be




Case 2.A Danish Elevator firm

This case demonstrates the performance problems that result when a Defender strategy is

matched with a Maestro executive style. The lack of uncertainty avoidance of the Maestro

does not align with the Defender strategy’s focus on exploitation.

Originally founded in 1969, our second case firm operates in the elevator industry. In theearly 1990s, the firm was acquired by a competitor. After a few years, the competitor went

bankrupt, and the firm was bought back by the son of the former owner and founder. By

then, the firm had approximately 100 employees and consisted of four departments: one

in Jutland, one in Funen, one in Zealand, and one in Lithuania.

To quickly establish earnings, the executive rehired former employees. There was a distinct

focus on sales, perhaps even at the expense of EBIT (earnings before income tax). However,

there were almost no systems and structures to control sales; the strategy was that of a Reactor.

An engineer by training, the executive was technically very competent but perhaps had less of

an ability to manage the business and earnings in general. He would “go through fire and water”

to satisfy individual customer demands. His focus on sales and customers became a firm mantra;large orders would be celebrated for weeks. However, because there was no control or support

systems, there was no evidence-based knowledge for following up on actual earnings. At the

same time, because of the lack of control, the four departments slowly began to develop their

own ways of working things out, including negotiating independently with retailers.

Realizing that his approach was not working, the executive slowly started replacing his mid-

dle managers. The new middle managers immediately began establishing elaborate control

systems, and the firm slowly started earning more money. The strategy became more of a De-

fender strategy, with more focus on exploiting systems and processes and much more focus on

making the right purchases for further refinement. This approach went well, but then, the finan-

cial crisis occurred, accompanied by falling sales. Because their prices were at the higher end of the scale, which was justified by higher service levels, higher product quality, and the local pres-

ence of sales and repair agents, the firm’s strategy became problematic during the crisis, when

customer preferences changed toward lower prices rather than high service.

To succeed with the Defender strategy, it is crucial to cut costs through focusing on the ex-

ploitation of processes. It is also crucial that this need is communicated clearly and followed up

by executive actions.

Nevertheless, while the executive was aware of the required strategy, he faced difficulties im-

plementing it. His executive style was that of the Maestro. Even if he allowed employees inde-

pendence, he still demonstrated a low preference for delegation, as he had not delegated to

them the authority to make the final decisions that they felt were needed. As a Maestro, herated low on uncertainty avoidance, particularly because of his high concern with motivation.

This concern took precedence even at the expense of following up on orders and directions, as

he was afraid to demotivate. While he may not have been risk-prone, his focus on the long-

term led him to maintain a strategy of localized service and carry the associated costs, with

a belief that this strategy would prove worthwhile in the long run.

However, this lack of uncertainty avoidance was also preventing him from truly implement-

ing a Defender strategy. As one of his co-managers stated, “He may rationally understand the

need to change things, but emotionally, he’s struggling with executing the decisionsdeven if

he knows we’re losing money from it. So, big changes don’t happen overnight here.” This type

of executive style worked well before the crisis when things were calmer and sales were easier.During the crisis, however, tight control and immediate implementation were required, and the

Maestro executive style prevented this firm from executing the right strategy




sensitive to the executive style according to our statistical results. However, case 2 shows that ina particular company, the suggested hypotheses and logic holds true.

Second, we found that two alignments were particularly strong: the Leader-Prospector and theProducer-Analyzer. This finding implies that alignment is particularly crucial for firms pursuingexploration. Here, an executive style with a strong preference for delegation is essential, as high ex-ploration strategies need an executive style with the high delegation of the Leader and Producer

styles. Pursuing explorative strategies is demanding in information processing for SME executives.Executing explorative strategies is where uncertainty is high, no pre-established routines apply, andmanagerial discretion is greater (Mischel, 1977). Our results indicate that in such situations, align-ment is more crucial for SMEs than in other situations. This result is intriguing and highly relevantin today’s continuously changing environments, where businesses are often required to pursuestrategies that require high levels of exploration.

For the businesses included in our sample, the predicted relationships between executive style andstrategy implementation are important and influential for firm performance; they explain some 21%of the variance in performance. Thus, alignment is essential, particularly for firms pursing explorativestrategies. However, if there is a misalignment, should the executive or the strategy prevail?

By simply examining information-processing patterns, we cannot determine whether a given ex-ecutive will be able to change his style; we only derive typologies for assessing whether change islikely to be needed. As demonstrated by our case studies, it may be difficult for an executive tochange his style, but it is not impossible. A good place to begin is with an assessment of one’s pref-erences for delegation and uncertainty avoidance, as they relate to information-processing needs.We believe our framework provides an easy guide to assessing executive style.

Many SMEs, including some in our sample, are owned by executives. If there is a misalignmentbetween executive style and strategy, it may take some effort for the executive to change style. Insome situations, it may be difficult to change the style of the executive, as in case 1, and if one el-ement must change, it will probably be the strategy dnot the executive. Here, strategic choice fol-

lows the executive (Child, 1972). For non-owner firms, the choice is more complicated, as either theexecutive or the strategy can be modified. Our results do not speak directly to whether the executiveor the strategy should change.

Implications for TheoryExecutive style as well as executive and top management teams and their effect on strategic choice havebeen examined extensively (Finkelstein and Hambrick, 1996; Thomas et al., 1993). However, muchless work has focused on the effect of implementing strategy, an area of research that seems particularly relevant for SMEs, which usually have fewer administrative layers and embedded systems, giving theirexecutives considerable latitude and influence in making and implementing strategic decisions.

In this paper, we develop a deeper understanding by describing SME executive information-processing patterns, or biases, as captured in their executive styles, and we examine how fourspecific executive styles may affect the successful implementation of strategies. Strategic choice isdifferent from implementing strategies. Implementation involves running the business, includingprioritizing information, making resource allocations, and specifying tasks (Miller et al., 2008).Theoretically, our study adds clarity and refinement to influence of the relationship betweenSME executive style and strategy implementation on firm performance. The effect of executive stylein SMEs is crucial, as SME executives usually enjoy more discretion than their counterparts in largerbusinesses and have fewer embedded structures and administrative layers to rely upon. We alsofound that differences in size and ownership structure had no significant effect. This finding is

an important insight.In contrast to previous work on the role of SME executives, we do not argue that personality or

ownership matters; what matters is that a given executive style has the appropriate focus for theneeds of a specific strategy. For example, it is not effective for an executive to focus on risky andlong-term actions (e.g., low uncertainty avoidance) if the business is pursuing a Defender strategy;




however, a preference for innovation is not a problem as long one’s style matches a Defender strat-egy. That is, as long as the executive’s information processing remains focused on short-term andlow-risk decisions (in this case, revealing a high uncertainty avoidance), it fits well with a Defenderstrategy. To do so, however, the executive must be familiar with his low uncertainty avoidance style,and he must be willing to suppress it for the benefit of the required strategy. In this way, our frame-work is useful not only when hiring new executives but also, more generally, in today’s modern

world where strategies change often. Our framework can work as an eye-opener for businesses plan-ning to undergo strategic change; it can reveal whether they believe that executives can or willchange sufficiently to support the implementation of the new strategy. This issue may be crucialfor SMEs that plan to grow larger.

Finally, our framework provides a detailed level of understanding with its two-by-two dimen-sional context, which is more finely grained than previous models. Theoretically, this study contrib-utes to strategy conceptualizations that have previously conceptualized the Miles and Snow typologies dichotomously by presenting the Prospector and Defender strategies as two ends ona continuum, with the Analyzer strategy ranking somewhere in between (Miles and Snow, 1978;Thomas et al., 1991; Zahra, 1987). Similarly, it contributes to executive style typologies, which

have also traditionally dealt with two main types: Managers or Leaders (or Entrepreneurs andOwner Managers) (McGregor, 1960; Zaleznik, 1977). Our empirical findings that high explorationstrategies must be matched with high delegation executive styles for high performance indicate therelevance of our framework. In particular, Analyzer strategies, which have previously been misun-derstood and underexplored, are conceptually related to current studies on ambidexterity. Recentstudies have demonstrated the crucial role of top managers in pursuing ambidexterity (Andriopoulos and Lewis, 2010; Jansen et al., 2009; Lubatkin et al., 2006). Our results complementsuch findings by demonstrating in a very tangible fashion for SMEs that such strategies require ex-ecutives who are simultaneously high on preference for delegation and low on uncertainty avoid-ance (i.e., the Producer executive style).

LimitationsOur data come from Danish SME companies. As argued, effect of the relationship between execu-tive style and strategy on performance is particularly relevant in SMEs, which have lower structuralembeddedness, thus making SME executives influential in both strategic and operational matters(Ling et al., 2008; Lubatkin et al., 2006).

Our study has limitations. In terms of future research, our theory, hypotheses, data, and meth-odology are all consistent with a static view of alignments. Our two case studies were longitudinaland yielded insights on misalignments and change. Longitudinal studies with larger samples couldbuild on our understanding of change and adaptation, including the stability of alignment over

time and the relative importance of misalignments at different stages of strategy and in differentenvironments. The asymmetry of our results that explorative strategies require high delegation ex-ecutives whereas low explorative strategies can be implemented with more than one executive styleindicates the need for a deeper understanding of the dynamics and requirements of change.

Our data were collected in the geographical area of western Zealand, Funen, and the TriangleRegion in Jutland, Denmark. These three geographical areas are characterized primarily by maturetechnologies and industries, yet high exploration strategies are well represented. Nonetheless, cau-tion should be shown in extending our results to other types of industries. To test for the effect of mature industries, a larger, more diverse sample is required.

The SMEs in our sample were mostly owner managed. As argued, influence of the relationship be-

tween executive style and strategy on performance is particularly relevant in SMEs, with their lowerstructural embeddedness, thus making executives of SMEs influential in both strategic and opera-tional issues. Thus, our study adds nuanced understanding for SMEs, but generalizing these findingsfor larger firms should be done with caution. Furthermore, we have relied on executive self-reportingon executive style and strategy while using objective data on performance.




To capture top executives’ leadership styles, we rely on information-processing preferences, whichmay be constrained by situational or even personal constraints. Therefore, it is essential that the datarelate to preferred rather than enacted executive style, as we might otherwise obtain a biased view (Lamond, 2004; Finkelstein and Hambrick, 1996). Consistently, our data on executive style were ob-tained by asking the top executives to rate the extent to which they agreed with a number of state-ments related to their information-processing style and preferences. Thus, they were not asked to

assess the degree to which they followed the four executive styles; they were simply asked to rate them-selves on a number of questions that would reveal their information-processing preferences.

Nevertheless, self-reporting can always induce bias. One way of circumventing bias is to use sub-ordinate ratings, a common approach in leadership studies (Judge and Dobbins, 1995). In our case,however, the top executives were the appropriate respondents, as we were interested in understand-ing their preferences, which is not necessarily the same as their enacted leadership style. Futurestudies should use additional methods to capture these preferences.

Similarly, the executives were not asked to describe their strategy but rather the extent to whichthey agreed with a number of statements related to their strategy. We used these responses to po-sition them on the two dimensions and thereby the four overall strategy types. Although we fol-

lowed the general recommendation to rely only on data from the strategic apex, which is theexecutive in most SMEs, such self-report data may have led to bias in our responses, and futurestudies should consider additional ways of measuring firm strategy.

For performance, however, objective measures were used. Here, performance over four years wasmeasured. Thus, we have cautiously discussed causation. We recognize that using lags is not a fulltest of causation, especially in dynamic settings, but it does provide some indication.

Appendix A. Data Collected on Strategy, Executive Style, and PerformanceMeasuring Performance

To measure of financial performance, we used return on assets (ROA), where income is mea-

sured before tax but after interest payments and depreciation. ROA is one of the most widely used profitability ratios in organizational and strategic analysis (Bertrand et al., 2007; Hax et al.,1984; Lo and Sheu, 2007). Thus, the specific measure of performance to be applied isROA ¼ (EBT/ASSETS)*100% calculated for 1996, 1997, 1998, and 1999. Because we includeROA for four years, our regression model includes a lag effect.

Measuring Executive StyleFor executive style, we used Burton and Obel’s descriptive framework, which is based on a survey

of classic executive concepts and interpreted dimensions of executive style in a commoninformation-processing framework (Burton and Obel, 2004; Likert, 1967; McGregor, 1960;

Miller et al., 1982; Zaleznik, 1977). They found that executive styles can be described in terms of six dimensions: preference for delegation, short-term versus long-term focus, proactiveness versusreactiveness, preference for detail in collecting and interpreting information, motivation versuscontrol, and preference for strategic decisions. These six information-processing dimensions havebeen investigated in previous studies through the set of eighteen questions contained in Table A,which have been found to capture executive style well (Burton et al., 2002; Hakonsson et al.,2006). Furthermore, before collecting the data on these questions, a number of pilot studieswere conducted to check the appropriateness of these measures.

Measuring Strategy Miles and Snow’s framework allows the specification of a number of activities involved in each

archetype (Miles and Snow, 1978). Previous studies have shown how these activities relate to capitalrequirement, product innovation, process innovation, and quality concern (Segev and Gray, 1990).Our questions build on Segev et al.’s attempt to capture these five activities. We used their meta-variables for strategy content describing the Miles and Snow typology. Again, Table A shows themeasurement of the strategy questions.




Appendix B. Data Analyses

Factor Analysis

Tables B and C contain the factor analyses results for our executive style and strategy dimen-sions.These results have been published in a previous study (Hakonsson et al., 2006).

Table A. Executive Style and Strategy measures

Questions and how they were measured

Executive

Style

Measured by a total of eighteen questions: “Who makes strategic decisions?” (The categories were:

“top executive alone,” “top executive after discussion with Leader group,” “Leader group after dis-

cussion with top executive,” “Leader group with confirmation from top executive,” and “Leader

group without confirmation from top executive.”)

Sixteen questions measured on a 5-point Likert scale ranging from “extremely important” to “ex-

tremely unimportant,” “never” to “always,” or “total disagreement” to “total agreement”: “Solutions

of human problems/conflicts”; “Stimulate cooperation among divisions”; “Formulate ideas/visions”;

“Day-to-day guidance of employees”; “Develop/implement new routines and methods”; “Govern

economic decisions/control accounts and budgets”; “Ensure that rules and procedures are followed”;

“Ensure reasonable use of resources”; “Management preference for decisions based on detailed in-

formation”; “Management prefers to wait and see before acting if changes occur in the company’s

markets”; “Management controls whether leading employees follow company rules”; “Management

controls whether non-leading employees follow company rules”; “Management controls whether

leading employees reach the expected results”; “Management controls whether non-leading employeesachieve the expected results”; “Management uses results-based salaries and the like to motivate leading

employees”; “Management uses results-based salaries and the like to motivate non-leading em-

ployees.”

Finally: “Management preferences for minimizing business risk” was measured on a 3-point Likert

scale: “low,” “medium,” and “high.”

Strategy A total of five variables:

Capital requirement: Calculated as “assets/employees”;

Four questions all measured on a 5-point Likert scale ranging from “total disagreement” to “total

agreement”: Product innovation: “We give higher priority to product innovation than our compet-

itors”; Process innovation: “We give high priority to a good knowledge of the recent production

methods in our branch”; Concern for quality: “We have a good reputation among our customers”;

Price level: “Our products have a better price/quality relation than our competitors.”

Table B. Confirmatory Factor Analyses Results, Executive Style (N [ 241)

Manifest Variable Coefficient on Factor t-value R2

Delegation Uncertainty Avoidance

Preference for delegation 1.00 NA 1.00

Solution of human problems 0.07 0.84 0.00

Stimulate cooperation 0.13 1.42 0.01

Formulate ideas/visions 0.00 0.03 0.00Guide employees 0.61 7.59** 0.22

Implement new routines & methods 0.50 5.88** 0.15

Control accounts & budgets 0.65 8.36** 0.26

(continued on next page)




Covariance between Delegation and Uncertainty Avoidance: 0.06 (1.09)Correlation between Delegation and Uncertainty Avoidance: 0.08Mean of index: Delegation ¼ 0.45 Uncertainty Avoidance ¼ 0.43Note: The factor analysis restricted the dimension “preference for delegation” to be equal to the

similar question whereas “uncertainty avoidance” was constructed as a common factor of the re-maining 17 questions. Thus, the R 2 for Delegation was trivially equal to 1, so a t-value was notcalculated.

Multicollinearity Test:Next, we tested for the presence of multicollinearity in our data. Multicollinearity occurs when

the independent variables in the regression equation are strongly correlated. Multicollinearity doesnot affect the predictive power of the regression results, but it causes problems related to general-izability because the amount of variance explained by each variable in the equation will be inflated.To investigate the potential presence of multicollinearity, we applied the condition number (CN).(See Greene, 2003; Lefebvre et al., 1997). It is commonly held that a CN in excess of 40 may indicatecollinearity problems whereas a CN below 20 is an indication that there are no collinearity prob-lems. For the present case, the CN of 8.60 provides safe evidence that there are no collinearity prob-lems. Thus, we can utilize regression analysis, which assumes independence among the explanatory variables.

Table B (continued )

Manifest Variable Coefficient on Factor t-value R2

Delegation Uncertainty Avoidance

Rules & procedures followed 0.88 12.78** 0.46

Reasonable use of resources 0.33 3.75** 0.07Detailed information 0.46 5.32** 0.13

Wait and see before action 0.30 3.34** 0.05

Preference for minimizing risk 0.50 5.91** 0.15

Leading employees follow rules 0.89 13.05** 0.48

Non-leading follow rules 0.74 9.95** 0.33

Controls that leading employees reach expected results 0.37 4.26** 0.09

Controls that non-leading employees reach expected results 0.43 5.02** 0.11

Results-based salaries for leading employees 0.06 0.71 0.00

Results-based salaries for non-leading employees 0.14 1.56 0.01

*p<.05 **p<.01 GFI: 0.85 AGFI: 0.81.

Table C. Confirmatory Factor Analyses Results, Strategy (N [ 303)

Variable Coefficient on Factor t-value R2

Explore Exploit

Capital requirement 0.16 (1.48) 0.02

Product innovation 0.34** (3.11) 0.12

Process improvement 0.34** (1.65) 0.12

Quality concern 0.30** 0.45* (3.01)/(1.67) 0.30

Price concern 0.62** (3.44) 0.39

*p<.05 **p<.01 GFI: 0.98 AGFI: 0.94.Covariance among Exploit, Explore 0 (restricted). Mean of index: Exploit ¼ 0.51 Explore ¼ 0.62.




Regression Analysis:To investigate the effects of the hypothesized executive style and strategy alignment on perfor-

mance, we applied a multivariate regression framework. The framework maps the relationship be-tween ROA performance and the type of executive style and strategy. The effect was investigatedusing a regression model, specified as:

ROAit ¼ a0þSa jRE ji þSg jCRi þmit;

i ¼ 1,..., nt , t ¼ 96,97, 98, 99, j ¼ 1, ., number of relationswhere nt is the number of companies observed in year t for which the executive style and strategy

could be established and for which data on ROA were available (113 for each year, giving a total of 452 observations for the four years), mit a company dtime-specific white-noise error, a j and g j areregression parameters, and relations were assumed constant in all four years. REji represents an in-teraction relation measured as the interaction variable based on the four dimensions, which de-scribes the executive style and strategy. The definition of each RE j is given in Table 1. Thus, to

illustrate, Reactor-Manager is an index, obtained by multiplying the four terms (1-Exploit),(1-Explore), (1-Delegation), and (Uncertainty Avoidance). This index variable will hold high scoresfor companies that are highly misaligned in the Reactor-Manager direction and low scores for thosethat are close to alignment. As the original four variables were rescaled to indices in the intervalfrom 0 to 1 to avoid scale problems, the newly formed indices (as the Reactor-Manager index)will be restricted to the same interval. Finally, CR j represents the two control variables, size andownership.

Our regression model includes a lag effect because we measure the alignment of executive styleand strategy alignment in one year but investigate their implications on return on assets perfor-mance over four years.

In the multiple regression model, only fifteen of the sixteen relationships are included, as there isa perfect linear relation between any one of the relationships and the other fifteen relationships. Wechose to exclude the Reactor-Maestro relationship. As such, the Reactor-Maestro relationship canbe viewed as a base referent point in the model. Thus, excluding the hypothesis for the Reactorstrategy, where we have three misalignment relationships and the aligned relationship as the refer-ence point, we have four index variables for each of the other three hypotheses: one represents analigned relationship, and three represent misalignment relationships.

Each of the four hypotheses can be examined informally by inspection, i.e., by comparing the coef-ficient of the alignment dimension to the coefficients of the related misalignment dimensions.However, such comparisons are not formally statistically valid, and they do not give a definite answer

to the overall question as to whether alignment is superior to all related misalignments. We thereforeapply F-tests to evaluate this question. Specifically, for each alignment dimension, we calculate anF-test for the hypothesis that the alignment coefficient is equal to the average of the six related misalign-ment coefficients. Finally, in a similar manner, we calculate a joint overall F-test for all four hypotheses,which compares the average of the coefficients of the four alignment dimensions to the average of thecoefficients of all twelve misalignment dimensions. The significance of this joint F-test can be seen asa validation of our entire theory regarding alignment between strategy and executive style.

Appendix C. Methodology

Survey Data

To test our hypotheses, we used data on small and medium-sized Danish manufacturing firms(between 10 and 499 employees).These data have also been used for previous studies (Burtonet al., 2002; Obel, 1993; Burton and Obel, 2004). Our data are a subset of a larger database, whichcontains survey information from 1,097 small and medium-sized Danish manufacturing firms.




In this study, a subset of 407 enterprises is used, representing 135 medium-sized (50-499 em-ployees) businesses and 272 small (10-49 employees) businesses. The survey data comprised allthe businesses in western Zealand, Funen, and the Triangle Region of eastern Jutland. This meansthat a wide variety of industries were represented, as all manufacturing firms within this geograph-ical area were included. Table D includes a number of descriptive variables of our sample.

This explains the low response rate of especially small production and small firms.Our survey was conducted as a postal survey in spring 1997. The preliminary data collection pro-

cess was initiated by telephone interviews with the total population of businesses, where permissionwas sought to send a questionnaire to the top executive. Following the Danish business directory CD-direct, which is published by Købmandsstadens Oplysningsbureau, the total population con-tained 273 medium-sized manufacturing companies and 956 small manufacturing companies. Afterour initial telephone interviews, a total of 195 medium-sized companies and 411 small companieswere sent a questionnaire. Follow-up inquiries by telephone were made for all of the companies thathad not returned questionnaires. After the final deadline for submitting questionnaires, 135medium-sized and 272 small companies had responded. This means that the response rate of

medium-sized manufacturing companies was 49% (135 out of 273), and the response rate of smallmanufacturing companies was 28% (272 out of 956). No significant differences exist on the dimen-sions of size, age, and profitability between respondents and non-respondents. The data collectionprocedure and data are described further in Eriksen and Døjbak (Eriksen and Dø jbak, 1998a;1998b). (These publications are available from the first author of this article.)

By sending questionnaires to top executives, we followed the sampling strategy advocated by Seidler, which uses the same type of key informant in all of the sampled firms, thus holding thesample bias constant across the firms (Seidler, 1974).

Descriptive studies of the database firms show that as many as 85% of the medium-sizedmanufacturing companies and 66% of the small manufacturing companies had sales abroad. In

general, the medium-sized companies also derived a larger percentage (56%) of sales from abroad,compared to 43% of the small companies (Eriksen and Dø jbak, 1998a).

Because our purpose was to investigate the performance consequences of (mis)alignments be-tween executive styles and strategy, it was important to obtain information from firms where thetop executive’s style could be expected to influence the implementation of the strategy dnot just

Table D: Descriptive variables

Small production companies

(10-49 employees)

Medium-sized production

companies (50-499 employees)

Response rate 28% 49%

Number of employees 272 135

Annual Revenue (1995)

Median

SD

(N ¼ 51)

19,029.6

11,652.0

26,369.0

(N ¼ 73)

177,383.8

140,359,0

141,530.6

Return on Capital Employed (1995)Median

SD

9.710.0

11.2

8.38.6

11.2

No. of firms with sales abroad

Percentage of sales derived from foreign sales

66%

43%

85%

56%

Employed top executive

Top executive owns 50% or more

Top executive owns between 5-50%

24%

53%

22%

58%

26%

17%




its formulation. In SMEs, top executives are involved in both the strategy formulation and its im-plementation. Our data measure is the realized strategy or strategy implementation.

Our data on executive styles and strategy were obtained by asking executives to rate the extent towhich they agreed with a number of statements related to their information-processing anddecision-making preferences. This information was then used to calculate his ratings on the two di-mensions of preference for delegation and uncertainty avoidance. Similarly, we calculated the score on

the two-dimensions describing strategy on the basis of answers to the more detailed questions.Financial data for 1999, 1998, 1997, and 1996 were collected from public sources, i.e., the elec-

tronic database CD-Direct. Because all companies in the database are incorporated companies withlimited liability (A/S and ApS), they are required by Danish law to publish their annual financialresults. The database contains publicly available financial statements. Thus, the companies weresampled in 1997, and the accounting data span 1996, 1997, 1998, and 1999. This period was char-acterized by a growing and prosperous business environment in Denmark where economic growth,interest rates, unemployment, and other macroeconomic indicators were all improving.

In-depth Practitioner InterviewsIn addition to the survey, the first author conducted in-depth interviews in two companies that

are included in our sample data. The interviewees were the former personal assistant to the formertop executive in one firm and the quality manager in the second. These two cases have been ap-proved for consistency by our informants.

Number of observations appliedAs described above, the brutto sample consisted of 407 companies. Of these, 241 answered all

questions related to executive style and thus entered the construction of these dimensions; 303 an-swered all questions related to strategy and thus entered the construction of strategy. Furthermore,of these 241/303 observations, a subset of 113 companies answered both groups of questions andthus entered the construction of strategy/executive style interactions. Finally, financial figures

were missing for 5 companies, thus leaving us with 108 companies for the performance analysis.

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BiographiesDorthe Døjbak Hakonsson is MindLab Associate Professor of Management at ICOA e Interdisciplinary Center

for Organizational Architecture, Business and Social Sciences, Aarhus University, Denmark. Her research interests

relate to issues of micro-level information processing and organizational design. ICOA, Aarhus School of Business

and Social Sciences, Aarhus University, Fuglesangs Alle 20, 8210 Aarhus V, Denmark. Tel.: þ45 8716 5127, e-mail:

[email protected] .


mailto:[email protected]




Richard M. Burton is Professor of Organization and Strategy at The Fuqua School of Business. He is senior editor

for Organization Science. His most recent book, with Børge Obel and Gerardine DeSanctis, is Organizational

Design: A Step-by-Step Approach, 2011, second edition, Cambridge University Press. The Fuqua School of Business,

Duke University, Box 90120, Durham, NC 27708-0120, USA. Tel.: þ01 919 660 7700, e-mail: [email protected]

Supported by the Hartman Fund, The Fuqua School of Business

Børge Obel is Director of ICOA e Interdisciplinary Center for Organizational Architecture, Business and Social

Sciences and Professor of Management. His most recent work focuses on the relationship between organiza-

tional design, climate, and executives. ICOA, Aarhus School of Business and Social Sciences, Aarhus University,

Fuglesangs Alle 20, 8210 Aarhus V, Denmark. Tel.: þ45 8716 4835, e-mail: [email protected] .

Jørgen T. Lauridsen is Professor of Econometrics at the University of Southern Denmark, Denmark. His research

interests include advanced econometrics, statistics, and mathematical modeling. Using this expertise, he has

published numerous papers within the areas of Health Economics and Management Science. University of

Southern Denmark, Department of Public Health, Campusvej 55, 5230 Odense M, Denmark. Tel: þ45 6550 3880,

e-mail: [email protected] .








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