NEW VENTURE TEAM CHARACTERISTICS, DECISION PROCESSES, AND DECISION QUALITY
Douglas W. Lyon, Utah State University
Gaylen N. Chandler, Utah State University
ABSTRACT
This research investigated the composition, processes, and decision quality of 96 new venture teams. We examined
demographic heterogeneity among new venture team members, team conflict and satisfaction during decision making, and the
impact of conflict and satisfaction on decision quality. Our results indicate that demographic heterogeneity among new venture
team members is associated positively with conflict and negatively with satisfaction. Conflict in decision making is negatively
related to perceived decision quality and satisfaction with decision making processes is associated positively with decision quality.
INTRODUCTION
The characteristics and processes of new venture teams are central to research on the success and failure of new ventures
(Sandberg, 1992). It is clear that teams frequently manage new ventures, and it is thought that teams can influence the
performance of a new venture. What is not clear however, is exactly how the makeup of new venture teams and their associated
processes impact performance. There is a fairly substantial body of work that has examined the characteristics of individual
entrepreneurs, with equivocal results (Gartner, 1988). For instance, Cooper and Dunkelberg (1981) examined number of previous
jobs held by entrepreneurs, and Begley and Boyd (1987) and Sexton and Bowman (1984) have examined entrepreneur personality
characteristics such as risk taking propensity, locus of control, and need for achievement. That research, however, does not
address the characteristics and processes of new venture teams, a subject that we know little about (Neiswander, Bird and Young,
1987). It may be that research into the characteristics and processes of new venture teams has been retarded by the inconclusive
results of the research into individual characteristics (Chandler and Hanks, 1994). This paper addresses those issues by examining
the impact of demographic heterogeneity on social cohesion and conflict among the members of new venture teams; and the
impact of social cohesion and conflict on decision quality.
Our first two sets of hypotheses concern the impact of demographic heterogeneity among new venture team (NVT)
members on decision making processes within the team. Specifically, we examine the impact of demographic heterogeneity on
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conflict in decision making and satisfaction with decision making. Research on demographic heterogeneity is perhaps most well
known as a proxy for the attitudes, values, beliefs, collective knowledge bases, etc. of top management team members in large
organizations. This “upper echelons” perspective (Hambrick and Mason, 1984) has spawned a vast literature that has linked
heterogeneity to a variety of strategic decision making processes such as innovativeness (Bantel and Jackson, 1989), and growth
among new firms (Eisenhardt and Schoonhoven, 1990). However, the upper echelons literature provides scant and inconclusive
evidence that heterogeneity is linked to decision making conflict, and satisfaction with decision making processes. This may be
due to inherent limitations of the upper echelons research (Priem, Lyon and Dess, 1999), or due to the fact that researchers do not
generally have access to top managers in large corporations and hence cannot administer the psychological batteries necessary to
examine decision making processes (Hambrick and Mason, 1984). This is not the case when examining entrepreneurs since they
are generally accessible via survey research. Nonetheless, research on the demography of entrepreneurial teams is infrequent
(Lyon, Lumpkin and Dess, 2000).
THEORETICAL PERSPECTIVE AND HYPOTHESES
While there is little research that directly links demographic heterogeneity to conflict, the diverse perspectives suggested
by demographic heterogeneity may lead to debate regarding the merits of decision alternatives (Schweiger, Sandberg and
Rechner, 1989). Demographic heterogeneity has been shown to reduce communication among team members (Zenger and
Lawrence, 1989), increase management team turnover (Wagner, Pfeffer, and O’Reilly, 1984), and generate disharmony (O’Reilly,
Snyder, and Boothe, 1993), disrupting management’s ability to function as a team. Under such circumstances, debate may stray
from the task and become personal, causing conflict to arise between team members. This leads to our first set of hypotheses.
Hypothesis 1a: Heterogeneity of political affiliation among the members of the new venture team will increase conflict in
decision making.
Hypothesis 1b: Gender heterogeneity among the members of the new venture team will increase on conflict in decision making.
Hypothesis 1c: Heterogeneity in years of industry experience among the members of the new venture team will increase conflict
in decision making.
Hypothesis 1d: Heterogeneity in years of education among the members of the new venture team will increase conflict in decision
making.
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On the other hand, while there may or may not be open conflict within a team, team member satisfaction with the decision
making processes and their general interpersonal relationships with other NVT members may suffer in the presence of
demographic heterogeneity. For instance, demographic heterogeneity has been shown to reduce social integration in teams
(O’Reilly, Snyder and Boothe, 1993). Socially integrated teams value cohesion, and positive interpersonal relationships
(O’Reilly, Caldwell and Barnett, 1989). Hence, heterogeneity may reduce the satisfaction and harmony of team members by
reducing or inhibiting the development of social integration. The voluminous literature in the similarity – attraction paradigm also
provides support for this perspective. From that perspective, individuals are attracted to other individuals who share similar
attitudes, interests and beliefs (Byrne, 1966). As demographic heterogeneity is a proxy for those constructs (Hambrick and
Mason, 1984), it is likely that demographic heterogeneity will reduce team member satisfaction with NVT decision making
processes. Our next set of hypotheses follows.
Hypothesis 2a: Heterogeneity of political affiliation among the members of the new venture team will reduce team member
satisfaction as decisions are made and implemented.
Hypothesis 2b: Gender heterogeneity among the members of the new venture team will reduce team member satisfaction as
decisions are made and implemented.
Hypothesis 2c: Heterogeneity in years of industry experience among the members of the new venture team will reduce team
member satisfaction as decisions are made and implemented.
Hypothesis 2d: Heterogeneity in years of education among the members of the new venture team will reduce team member
satisfaction as decisions are made and implemented.
Effective decision making requires both good decisions and successful implementation (Guth and MacMillan, 1986).
Satisfaction with the decision making process tends to lead to consensus and commitment to the decision (Dess, 1987). Such
feelings are likely to facilitate the implementation (Guth and MacMillan, 1986) and therefore the ultimate success of decisions.
Hence, NVT members who are satisfied with the decision making process will likely regard their decisions as more successful and
of higher quality. This leads to the next hypothesis.
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Hypothesis 3a: Team member satisfaction as decisions are made and implemented will have a positive impact on perceived
decision quality.
There are competing views on the role of conflict in decision making. On one hand, a number of studies have
demonstrated that teams that engage in task-related conflict rather than affective conflict make higher quality decisions (e.g.,
Schweiger, Sandberg and Rechner, 1989; Amason, 1996; Amason and Sapienza, 1997). Unfortunately, task related conflict can
mutate into affective conflict if criticism and debate are interpreted as personal attack. Affective conflict can be dysfunctional
because it often focuses on personal disputes or animosities between team members (Amason and Sapienza, 1997; Priem and
Price, 1991). Such conflict can reduce decision quality by “fostering cynicism, avoidance, or countereffort that could undermine
consensus and affective acceptance and decision quality” (Amason, 1996: 129). Hence, we believe that conflict among NVT
members will tend to reduce decision quality. Thus,
Hypothesis 3b: Team member conflict as decisions are made and implemented will have a negative impact on perceived decision
quality.
METHODS
Sample and Data Collection
We developed and mailed a questionnaire to the president of 988 firms founded in the State of Utah in 1993.
Utah State Department of Commerce provided the sample of firms from a listing of corporations and limited liability
companies registered in Utah. Since we collected the data in 1999, the firms were approximately five years old at the
time the data were collected. We selected 1994 as the data collection time frame because prior research indicates that new
venture teams stabilize after five years (Chandler and Hanks, 1998).
We followed number of procedures to obtain 183 completed questionnaires, a response rate of 21%. We mailed a
reminder postcard one week after the first mailing of the questionnaires, and then mailed a second set of questionnaires the
following week. One hundred and twelve questionnaires were returned as undeliverable. We reached the presidents of 620
companies by phone one month after the last mailing and requested that they return a completed survey. A comparison of NVT
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size, sales levels, industry representation, and number of employees revealed no significant differences between responding and
non-responding firms.
Measures
Our four measures of demographic heterogeneity, political affiliation, gender, years of industry experience, and years of
education were measured using the approach found in Wiersema and Bantel (1992). We employed the coefficient of variation,
defined as the standard deviation divided by the mean, to calculate heterogeneity for the continuous variables. Years of industry
experience and years of education were calculated in this manner. Blau’s index was used to calculate gender heterogeneity and
political affiliation heterogeneity. Political affiliation was categorized as Republican, Democrat, other, and none. Number of
team members was used as a control variable because team size has been associated with affective conflict (Amason and
Sapienza, 1997).
The dependent variables were team conflict during decision making, team satisfaction with decision making processes,
and decision quality. Team conflict during decision making was measured using the following 5 scale items: 1) Management
team members are frequently angry with each other; 2) There is personal friction between team members when decisions are made
and implemented; 3) When decisions are made there are sharply different views on how things should be done; 4) Personality
clashes are often evident during group decision processes; and 5) There is personal tension between team members. Team
satisfaction during decision making was measured using the scale items: 1) Management team members enjoy working with each
other; and 2) Management team members resolve differences of opinion amicably. Decision quality consisted of the three scale
items: 1) The overall quality of team decisions is excellent; 2) The overall quality of team decisions relative to their original intent
is excellent; and 3) The overall quality of team decisions given their effect on organizational performance is excellent. These
scales were derived through factor analysis using varimax rotation and the eigenvalue greater than one criterion. After
determining the scale items to include in each variable, the selected scale items were averaged to arrive at the variables used in the
statistical analysis. Coefficient alphas for conflict, satisfaction, and decision quality were .88, .69, and .89, respectively, levels
adequate for research purposes (Nunnally, 1978).
Statistical Procedures and Results
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Table 1 shows the results of the correlation analysis. As shown in Table 2, we placed team conflict and team
satisfaction in separate models to avoid possible multicollinearity.
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We employed multiple regression analyses to test hypotheses 1a – 1d and 2a – 2d. The results of that testing are
reported in Table 2. Hypotheses 3a and 3b were tested using hierarchical regression analysis (Cohen and Cohen,
1983). Table 3 shows the results of the testing of hypotheses 3a and 3b.
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Insert Table 2 about here
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Insert Table 3 about here
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The results of the statistical testing for hypotheses 1 and 2 are partially supportive of our arguments. Political affiliation
heterogeneity is shown to be a strong and positive predictor of decision making conflict among team members. Hence, hypothesis
1a is supported. The results of the statistical testing for hypotheses 1b-1d were not statistically significant and those hypotheses
were not supported. Gender, level of industry experience, and level of education heterogeneity were not related to decision
making conflict. Regarding hypotheses 2a-2d, both political heterogeneity affiliation and level of education heterogeneity are
strongly and negatively related to team satisfaction with decision making processes. Hence, 2a and 2d are supported. Hypotheses
2b and 2c are not supported. Gender and level of industry experience heterogeneity were not related to team member satisfaction.
Hypotheses 3a and 3b were both strongly supported. Team member satisfaction with the way in which decisions were made was
strongly and positively related to perceived decision quality. Team member conflict during the decision making process was
strongly and negatively related to perceived decision quality.
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DISCUSSION
The results of our statistical testing affirm the basic premise of our paper – demographic heterogeneity among NVT
members increases conflict and reduces member satisfaction in the decision making processes. More importantly, conflict among
team members reduced perceived decision quality while team member satisfaction with decision processes increased decision
quality.
One of our more interesting findings is that political affiliation heterogeneity appears to cause conflict among NVT
members. This finding may have been made more pronounced by the proximity of the national elections to our data collection
period (1999). Political affiliation is a personal attribute and is correspondingly more likely to cause affective conflict than a
measure of task related heterogeneity, such as level of industry experience heterogeneity (Jackson, 1992). Political affiliation
heterogeneity among NVT members also reduced satisfaction with team processes, a finding possibly due to reduced team
cohesion and harmony engendered by partisan political debate.
Despite the strength of our results, they must be interpreted with caution. One limitation of this study is that our data
reflects the knowledge and perspective of only the president of the firm and may therefore be biased. There is also an interesting
alternative theoretical perspective concerning team member satisfaction with decision making processes to be found in the
literature on social integration within management teams. Socially integrated teams tend to be motivated by a desire to maintain
group relations, and foster cooperation (O’Reilly, Caldwell and Barnett, 1989). Such cohesive groups tend to exhibit more
pressure for conformity (Hackman, 1976), with the attendant consequences of reduced debate and less comprehensive analysis of
strategic options (Schweiger, Sandberg and Rechner, 1989). These arguments lead one to expect that decision quality would
suffer since consensus seeking behaviors are less likely to exploit the different capabilities of team members (Schweiger and
Sandberg, 1989).
This research makes a number of contributions to prescriptive and descriptive theory in the entrepreneurship and strategy
literatures. First, it examines important contingency factors influencing new venture performance – new venture team
characteristics, interaction norms, and decision quality. Second, demographic heterogeneity is seldom examined in the context of
new venture teams. The usual research setting is large Fortune 500 companies whose managers are generally somewhat removed
from the day-to-day operations of the company. This may contribute to the somewhat equivocal results characterizing the upper
echelons literature (c.f., Finkelstein and Hambrick, 1996; Priem, Lyon and Dess, 1999). In a small business context however, the
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characteristics of new venture team members are likely to have a more direct impact on venture performance (Gartner, Shaver,
Gatewood and Katz, 1994) and may therefore be a more salient determinant of firm performance.
Our findings that team conflict is negatively related to perceived decision quality and satisfaction with decision making
processes is positively related to decision quality are significant in that they provide an indication that NVT processes are
associated with a vital top management function. Further, the fact that heterogeneity was associated with both conflict and
satisfaction suggests that the nature of the NVT can be managed to influence decision quality.
This research represents an early attempt to identify the characteristics of team members that are associated with
important decision making processes. Reduced conflict and increased satisfaction with decision making processes appears to lead
to better decisions. Subsequent studies should investigate other dimensions of personal and task related heterogeneity to more
clearly delineate the demographic characteristics of NVTs that are likely to lead to success or failure. In addition, subsequent
studies should also attempt to link decision quality to firm performance.
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TABLE 1
Descriptive Statistics and Correlations (N=125)
Variables
Mean
Standard
Deviation
1
2
3
4
5
6
7
1. # of team members
1.6
1.5
2. Political affiliation
heterogeneity
.10
.19
.16
3. Gender heterogeneity
.16
.22
.11
.10
4. Level of industry experience
heterogeneity
.71
.55
.05
-.10
.14
5. Level of education
heterogeneity
.19
.17
.03
-.03
.24
.20
6. Team conflict
2.30
.85
.09
.30
-.04
-.12
-.02
7. Team satisfaction
3.94
.78
-.04
-.28
-.01
-.09
-.18
-.46
8. Decision quality
3.87
.70
.00
-.15
.04
.01
-.03
.42
NOTE: All underlined correlations are significant at p < .05 level or better.
12
-.59
Table 2
Regressions to Test Hypotheses 1a-1d and 2a – 2d
Standardized Beta Coefficients Reported
Independent
Variable
# of team
members
Political
affiliation
heterogeneity
Gender
heterogeneity
Level of
industry
experience
heterogeneity
Level of
education
heterogeneity
F-Statistic
Adjusted RSquare
DV:
Team
Conflict
.045
DV: Team
Satisfaction
.363***
-.346***
-.022
.123
-.067
-.117
.018
-.273**
3.051**
.096
4.353***
.149
N = 96
N = 96
+ p < .10
* p < .05
13
.032
** p < .01
***p < .001
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Table 3
Regressions to Test Hypotheses 3a and 3b
Standardized Beta Coefficients Reported
Dependent Variable: Decision quality
Independent
Team
Team
Variable
Conflict
Satisfaction
.069
.031
# of team
members
.006
-.079
Political
affiliation
heterogeneity
.082
Gender
.050
heterogeneity
-.038
.042
Level of
industry
experience
heterogeneity
-.096
-.009
Level of
education
heterogeneity
-.574***
Team conflict
.357***
Team
satisfaction
F-Statistic
7.547*** 2.755*
Change in
.290
.099
adjusted R-
15
Square
Adjusted RSquare
.290
.099
N = 96
N = 96
+ p < .10
* p < .05
** p < .01
***p < .001
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