Managerial change and strategic change: The temporal sequence

Depósito de investigación de la Universidad de Sevilla https://idus.us.es/ “This is an Accepted Manuscript of an article published in Journal of management & organization on 2017, available at: https://doi.org/10.1017/jmo.2016.49” MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 1 MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE Domínguez-CC, M. and Barroso-Castro, C. Abstract The relationship between managerial change and strategic change is a complex issue that challenges our understanding of how firms react to their business environment. In this study, we analyze the influence of the management team and more specifically their knowledge and capabilities in the process of strategic change. To do so, we delve deeper into the relationship between managerial change and strategic change identifying the sequence of these changes. Using qualitative methodology, we analyse ten companies listed on the Spanish Stock Exchange over an extensive period to formulate our propositions. Our analysis shows that managerial change precedes strategic change. Top management team reorganization, even without Chief Executive Officer succession, was a sufficient condition for strategic change to take place. Moreover, we identified key modifications that took place whenever strategic change occurred. Our results provide meaningful insights into the processes of strategic change within firms that broaden our theoretical knowledge in this area. Keywords: CEO succession, TMT, managerial change, reorganization, strategic change. MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 2 Managerial Change and Strategic Change: The temporal sequence Organizations in the twenty-first century are characterized by ever-increasing global competition, greater customer expectations and constant change. In this situation, the most risky strategy is inaction (Beer & Nohria, 2000; Farjoun, 2007; Wind & Main, 1999) or predictability (Rindova, Ferrier & Wiltbank, 2010). Thus, the strategic fit is still central to strategic management nowadays. Understanding this process can facilitate prompt decision-making at a time when speed has become a competitive weapon and it may also facilitate the strategic fit that all organizations desire (Rajagopalan & Spreitzer, 1997). According with resources-and-capability-based theory, strategic change can be understood as a dynamic process that takes place in the firm, in response to managerial interpretations of external or internal events (Adner & Helfat, 2003; Gedajlovic, Lubatkin & Schulze, 2004; Clark & Soulsby, 2007; Boyne & Meier, 2009). Since this perspective, the capability of a firm to respond to its environment is linked to the aptitude, experience, and competence of its top managers (Adner & Helfat, 2003; Gedajlovic et al., 2004). Some researchers have pointed out that top managers become blind to the need of change because they are committed to current strategies. Therefore, senior managerial turnover is the primary agency through which a strategic change occurs (Barker et al., 2001; Bigley & Wiersema, 2002; Boyne & Meier, 2009). Nevertheless, greater attention has to be paid to the role of managers in strategic change (Adner & Helfat, 2003), because there is still considerable ambiguity over what top managers actually do in the strategic planning process (Jarzabkowski, 2008). In this sense, nosotros nos planteamos si es realmente necesario cambiar la composición de Top Management Team (TMT ) para lograr a strategic change. Teniendo en cuenta resources-and-capability-based theory, our investigation sets out the following research question: is it necessary to incorporate new knowledge and capabilities in the TMT to achieve strategic change? A response to this question implies: (i) delving deeper into the sequence between managerial MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 3 change and strategic change; and, (ii) taking a closer look at the concept of strategic change, considering it as a complex construct with multiple interactions between its components. Both the sequence and the content of these changes as a process have overlooked by researchers (Van de Ven & Poole, 2005). Establishing the temporal sequence of change is per se one of the most important research questions in the field of management because may speed up its implementation in increasingly dynamic and turbulent environments (Rajagopalan & Spreitzer, 1997). Resources-and-capability- based theory considers that the top managers influence on strategic change. But, in order to establish a causal relationship between managerial change and strategic change, first we need to establish the sequences between both processes (Van de Ven & Poole, 1995). Previous research in this field has led to inconclusive results. Although some authors have contended that managerial change precedes strategic change (Barker, Patterson & Mueller, 2001; Bigley & Wiersema, 2002; Datta, Rajagopolan & Zhang., 2003; Gordon, Steward, Sweo & Luker, 2000; Lohrke, Bedeian & Palmer, 2004), others have placed strategic change before managerial change (Jarzabkowski; 2003; Wiersema & Bantel, 1993; Zhang, 2006). The inconsistence of the results may perhaps be explained for the different ways of measuring strategic change. Most empirical studies on corporate governance and strategic change have adopted a narrower approach in their definition of strategic change (Brunninge, Nordqvist & Wiklund, 2007). So, the majority of studies have focused on only one component of change—such as strategy (Barker et al., 2001; Boeker, 1997a; Greve & Mitsuhashi, 2007; Michael et al., 2010; Miller, 1993; Zhang & Rajagopalan, 2010), structure (Balogun & Johnson, 2004), power distribution (Miller, 1993; Weisbach, 1988), or control systems (Simons, 1994). Such a narrow definition of strategic change prevents the complexity of interactions between the different organizational and environmental variables from being captured (Rajagopalan & Spreitzer, 1997). According to Van de Ven and Poole (2005), this work develops its concept of strategic change as a process describing (1) the temporal order and sequence of events MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 4 (narrative process), (2) analyzing the differences observed in the different dimensions of strategic change over time (Variance method): strategy, structure, power and control system. Our results show that the reorganization of roles between the members of the team, a previously unused typology of change in the TMT, permits the renewal of the capabilities and knowledge of the top managers. The majority of previous studies on the literature have centred on the incorporation of new capabilities and knowledge in TMT, excluding the perspectives considered in this work. Our investigation shows how the assignment of new responsibilities to top managers makes them more aware of the changes in the environment, because they analyse it from a new approach, in a new role. In this way, renewed use of the capabilities and the knowledge of the TMT provoke strategic change, without any need to change the composition of the TMT. Furthermore, our research has identified key orientations in the development of strategy and structure, which means that we may improve our knowledge of the construct of strategic change. The proposed analysis has allowed the identification of key orientations in the strategy (linked to growth and innovation) and the structure of the firm (visible in its organizational chart and business unit reorganization) that are always present when strategic change takes place. Finally, following the suggestions of various authors (Petttigrew, 1990; 1997; Van de Ven & Huber, 1990; Van de Ven, 1995; Van de Ven & Poole, 1995; 2005), a longitudinal qualitative analysis was performed, to take into consideration both the dynamic character of the firm and the specific nature of the change itself. Qualitative information enables propositions and hypotheses to be put forward. This information will then form the basis of future research (Noda & Bower, 1996). The remainder of this paper is structured into four sections. The next section presents a review of the literature on strategic change and managerial succession. The following section describes the methodology employed in the study, followed by a presentation of the findings. The MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 5 paper concludes with a summary of the conclusions and their implications, including suggestions for future avenues of research. Theoretical Framework Direction of Change The resource-and-capability-based theory of the firm supports the view that the capability of a company to respond to its environment is linked to the aptitude, experience, and competence of its TMT (Dutton & Duncan, 1987; Adner & Helfat, 2003; Gedajlovic, Lubatkin & Schulze, 2004), which in turn determine priorities regarding its resources and capabilities (Mosakowski, 1998). The literature points out that managers possess different qualities and quantities of generic, industryspecific, firm-specific (Castanias and Helfat, 1991; 2001) and related-industry skills (Bailey and Helfat, 2003) that are at the same time valuable, rare, inimitable, non-substitutable and difficult to transfer. In the case of managerial change, only some of these skills are transferable. So, firmspecific and industry-specific skills held by managers are difficult to exploit, if the top managers change their firm or industry. On the contrary, if top managers change positions within the firm, they can exploit all of their skills. Nevertheless, researchers indicate that new top managers who have arrived at their posts through internal promotion, from within the firm, are accustomed to the way of doing things in the firm, and are less likely to initiate strategic change (Hambrick, Geletkanycz and Fredrickson, 1993). In contrast, an employee from another firm who accesses a top-manager post provides a fresh perspective that favours strategic change (Baily and Helfat, 2003), although not all of their capabilities may be exploited, especially firm-specific skills (Harris and Helfat, 1997). Nuestra cuestión de investigación analiza la veracidad de esta idea. En concreto nos planteamos si es necesario cambiar la composición del TMT para renovar los resources and capabilities of top managers de forma que se facilite strategic change? Human capital refers to learned skills (generic, industry-specific, industry-related specific and firm-specific skills) that MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 6 require some investment in education, training or apprenticeships, including on-the-job training. Managers can differ as regards their set of skills and their level of ability for each type of skill. As they progress in their careers and access new posts, the differences in the human capital that they bring with them and those that they acquire at work (Adner and Helfalt, 2003) become evident. Changes in senior management enrich the number of perspectives and increase the resource base, which gives the TMT the means to recognize the need for strategic change (Castro et al., 2009). New capabilities usually require knowledge that is likely to differ from the current knowledge base of the company (Zhara & Filatotchev, 2004). In short, the arguments of the resource-and-capability- based theory of the firm point to the importance of the renewal of the resources and capabilities of the TMT that can take place, through changes in the composition of the TMT. Hence, the strong influence of top managers, from this perspective, on the response of the firm to external changes (Rosenbloom, 2000; Virany et al, 1992; Tushman and Rosenkopf, 1996). Accordingly, some authors point out that senior managerial turnover is the primary agency through which a change in company strategy occurs (Barker et al., 2001; Bigley & Wiersema, 2002; Boyne & Meier, 2009; Elloumi & Gueyié, 2001; Gordon et al., 2000; Lant et al., 1992). In practical terms, any change in the TMT provides an opportunity to evaluate the role played by the senior executives in formulating and executing company strategy. If changes in top management precede strategic change, it is logical to suppose that a causal relation may exist between top managers and strategic change. TMT Changes and the Components of Strategic Change Strategic change involves simultaneous and discontinuous shifts throughout the organization in strategy, power, structure and control (Virany, Tushman and Romanelli, 1992). Some authors have also contended that ‘strategic change’ implies ‘radical modifications’ that take place within a short space of time—perhaps two years (Gordon et al., 2000; Romanelli & Tushman, 1994; Tushman & Romanelli, 1985; Tushman & Rosenkopf, 1996). However, more recent studies have MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 7 shown that the critical factor is the magnitude of change, rather than the time taken to implement it (Amis et al., 2004). In the literature, several studies have linked managerial succession to changes in one or more of the above-listed variables in the definition of strategic change—that is, strategy, structure, power distribution and control systems (Table 1). Several studies have established that Chief Executive Officer (CEO) succession (Miller, 1993; Pitcher Chreim, & Kisfalvi, 2000; Simons, 1994) and TMT changes have a positive influence on strategy formulation (Barker et al., 2001; Boeker, 1997a); on structure (Barker et al., 2001; Lant et al., 1992); on power distribution (Miller, 1993; Romanelli & Tushman, 1994; Weisbach, 1988); and on control system (Barker et al., 2001; Simons, 1994). But yet, their results have been inconsistent. Furthermore, some have referred to changes in ‘corporate strategy’ when discussing such matters (Boeker, 1997a), while others have considered changes to the level of ‘business tactics’ (Barker et al., 2001). . -------------------------------------------- Insert Table 1 about here -------------------------------------------- Further studies have indicated that the relation between managers and strategic change is contingent, among other aspects, on the environment (Virany, Tushman & Romanelli, 1992; Tushman & Rosenkopf, 1996), the temporal effect (Adner &d Helfat, 2003), the industrial effect and the external ties of top managers (Geletkanycz & Hambrick, 1997), and the structural positions of top managers in the network (Battilana & Casciaro, 2012). It is apparent from this brief review of previous studies (see Table 1) that empirical evidence exists to show that CEO succession, in particular, and, to a lesser extent, TMT turnover both affect a range of variables that can be considered components of strategic change. However, considerable ambiguity persists over the actual activities of top managers in the process of strategic change MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 8 (Jarzabkowski, 2008). Besides, most of these studies have focused on only one of these components of change, and especially on strategy. This paper includes all the components of strategic change and analyses the essential modifications that have to be present, so that we may consider change as strategic change. Methodology A response to our research question implies: (i) in the first place, an examination of the relation between managerial change and strategic change in greater depth, by analysing the sequence between these processes; and, (ii) in second place, it implies looking at both the concept and the content of strategic change in greater depth. Certain authors have analysed the most suitable research methods for the study of company change. These methods take into consideration both the dynamic character of the firm and the nature of change itself. Prominent among these methods are those proposed by Pettigrew (1990, 1997), Van de Ven and Huber (1990), Van de Ven (1992), Van de Ven and Poole (1995; 2005) and Fox-Wolfgramm (1997). Two definitions of change are often used in organizational studies: i) an observed difference over time in an organizational entity on selected dimensions; ii) a narrative describing a sequence of events on how development and change unfold (Van de Ven & Poole, 2005). The second approach is often associated with a process theory explanation of the temporal order and sequence, in which events occur based on a story or historical narrative that involve change (Pentland, 1999; Pettigrew, 1990; 1997; Poole et al, 2000). From this point of view, events represent changes in the variables and these changes constitute stages in the process within an input-process-output model. Thus, as a process unfolds, its sequence of events, inherent causes and consequences can be observed and the proverbial ‘black box’ is opened to establish the antecedents and the results of the changes that have been observed (Van de Ven & Huber, 1990). This analysis MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 15 place within the firms. This information allowed us to establish the sequence of events that took place in each company over the entire length of the study. The information of tables 4 and 5 are ordered in Tables 6 and 7. The table 6 only includes the firm-period which four parameter of strategic change had been modified. This is, the firm-period which strategic change had taken place. The table 7 includes the firm-period which no strategic change had taken place. . -------------------------------------------- Insert Tables 6 and 7 about here -------------------------------------------- No strategic change was observed in the firms in which only TMT turnover had taken place, with neither CEO succession nor reorganization (Type 2 in Tables 6 and 7). Nevertheless, this was not the case for the firms that had experienced TMT reorganization without CEO succession (Type 1 in table 7). In this regard, it should be noted that other firms, which developed strategic changes had all reorganized their management teams (Types 1, 3 and 4 in table 6). Conversely, firms that did not undergo strategic change had no TMT reorganization (Types 2, 5 and 0 in table 7). These findings reveal that TMT reorganization appears to be necessary to induce strategic reorientation, because it always precedes strategic change. In fact, none of the firms in this study would be able to initiate strategic change through CEO succession alone. So, CEO succession was perhaps not the main determining factor of strategic change in the firms under study. The change in the set of resources and capabilities of the TMT, when only the CEO changes, is not sufficient in itself to initiate strategic change. Some papers have described how major changes in the firms can occur even in the absence of CEO succession (Virany et al., 1992). These findings might reflect the complexity of modern companies, whereby any single individual, even a CEO, is unable to impose significant change without an accompanying change in TMT (Hambrick & Mason, 1984; Pfeffer, 1981; Wiersema & Bantel, 1992). MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 16 Our study has identified a new measurement of management change -reorganization-, which has not been used in prior studies. Managerial reorganization does not necessarily imply a change of the TMT members. Rather, it refers to a reshuffling of responsibilities that perhaps involve the same people. The findings of this study suggest that a reorganization of responsibilities might be sufficient to prompt change, without altering the composition of the TMT. Reorganization is a new typology of change in the TMT that manifests itself in the new use of the capabilities of the TMT members. From the point of view of the resource-and-capability-based theory, reorganization does not imply immediate renovation of the set of resources and skills of top managers. But the new combination of human capital, social capital and cognition, following the reorganization of the posts in the TMT, can strengthen the capability of the firm to initiate strategic change. The change arises when the directors face new experiences or new interactions with the environment, which allows them to pursue new possible lines of action (Tsoukas and Chia, 2002). In this sense, directors who participate in similar functional or business areas can make different decisions related to their content and timing, because different managers can hold different assessments on what they consider the correct course of action should be (Adner and Helfat, 2003). When reorganizing the knowledge and capabilities of the managers, by assigning them other roles, it is possible to overcome inertia and resistance to change. The assumption of responsibilities in a new post can help managers to lend greater attention to the business environment, because they analyse it from another perspective or function. The value of a resource, which has been of no value up until then, may be increased if it is exploited in another way (Newbert, 2008). Furthermore, managers can partly acquire knowledge and develop expertise and abilities through work experience (Bailey and Helfat, 2003). In this way, top managers acquire new human capital via learning and experience (Adner and Helfat, 2003) in their new posts. Therefore, TMT reorganization can facilitate the discovery of new opportunities in the business setting, provoking strategic change. On the basis of the above analysis, the following proposals can be formally stated: MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 17 Proposition 1a: Managerial change precedes strategic change in firms that are seeking to adapt strategically to their environments. Proposition 1b: TMT reorganization is a sufficient condition to provoke strategic change. By the other side, whenever CEO succession took place, subsequent TMT reorganization and sometimes TMT turnover were observed. These results reflect those of previous studies (Kesner & Dalton, 1994; Shen & Cannella, 2002). This change in managerial arrangements occurred regardless of whether the CEO successor was an outsider or an insider, or whether the change was forced or voluntary. Strategic Change Our analysis of the 3,909 articles showed that there are some rare periods with no change. All of the companies had made frequent modifications to their strategy and structure (Tables 3 and 4). In fact, changes in both strategy and in strategy and structure occurred on many occasions, on the same calendar date. This information supports the thesis of continuous change and the vision of the organization, as emerging patterns arise of continuous adaptation to the business environment (Tsoukas and Chia, 2002). The changes in power distribution were also very frequent, but we think that these changes are more customary in this sample, because it consisted of listed firms. Some authors have suggested that the term ‘strategic change’ implies that modifications in company strategy, structure, power distribution and control system have taken place within a certain time— for instance, a period of no longer than two years (Gordon et al., 2000; Romanelli & Tushman, 1994; Tushman & Romanelli, 1985). However, we have adopted the view in the present study that the key consideration should not be time. Instead, it should be the magnitude of change taking place in the company (Amis et al., 2004). We considered the magnitude of strategic change in terms of MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 18 the content and scope of the change that takes place. According to some authors (Virany et al., 1985; Tushman & Romanelli, 1994), strategic change implies modifications in strategy, structure, power distribution and control. In Tables 6 and 7, the changes that occurred are grouped by whether they modified the four parameters of change or, in other words, whether strategic change took place. Adopting this criterion, the qualitative analysis in this study revealed that each time the four parameters were modified in a related way, companies shared a series of specific alterations in both strategy (aspects linked to the company’s growth and innovation) and structure (the firm’s organization chart and subsidiary grouping criteria). The reorganization is needed to strategic change takes place. The new use of knowledge and capabilities of TMT allows strategic reorientation. The new experiences which managers face in their new roles increase their human capital. In other words, as managers access new posts, the differences in the human capital that they bring with them and those that they acquire at work (Adner and Helfalt, 2003) become evident. La reorganización de roles permite a los top managers tener una visión más amplia de la empresa uniendo la experiencia adquirida en the prior role a los retos que demanda su nuevo rol. Esto puede facilitar el descubrimiento de nuevas oportunidades de innovación por ejemplo, innovación en los procesos al transferir maneras de operar de un departamento a otro. Todo el capital humano es transferible cuando top managers permanecen en la misma empresa (Harris and Helfat, 1997). Strategic change gives managers an opportunity to move organizations into strategic areas in which they can exercise their expertise and talents (Greve & Mitsuhashi, 2007). Por otro lado, las capacidades específicas de la firma permiten detectar sinergias de los conocimientos y capacidades adquiridos en el trabajo de ambos roles facilitando el descubrimiento de nuevas oportunidades de crecimiento menos arriesgadas o menos costosas. This situation may facilitate that firm approves this growth. The appointment of managers to positions that best suit their potential puede facilitar el ajuste entre empresa y entorno (Bigley & Wiersema, 2002; Brauer, 2009; Gordon et al.,2000; Greve & Mitsuhashi, 2007; Jarzabkowski, 2003). By matching business domains with their own MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 19 knowledge through strategic change, managers can justify their presence and enhance their ability to survive in a firm (Greve & Mitsuhashi, 2007). Asimismo, reorganization of TMT let us explain the importance of outliner changes in structure. The assumption of new roles or responsibilities by the current TMT will necessarily lead to changes in the organigram or to business unit reorganization. La reorganization may implicar la creación de new subsidiary units which need a top manager as responsable. En este mismo sentido, la reorganización puede unir bajo la responsabilidad de un mismo directivo different subsidiary units o bien provocar la separación de la responsabilidad de subsidiary lines en dos new roles, en función de la importancia que se le quiera dar a las different business en el futuro de la empresa. Some authors have included the creation or the elimination of senior management positions as structural changes (Tushman & Rosenkopf, 1996). According to these arguments the identification of these specific modifications in strategy and structure apoyan the intrinsic link between TMT reorganization and strategic change. Consequently, these specifics alterations in strategy and structure appear necessary for us to consider that strategic change has taken place. It would be interesting to construct an indicator of strategic change that considers these major modifications, segregating them from other less significant adjustments to strategy and structure. In this regard, Lant et al. (1992) considered that all the variables inside the strategy and structure parameters are of the same relevance. The present study shows that the changes in strategy linked to growth or innovation in the company are sufficiently more important and one of them must necessarily be present when a firm makes a strategic change. Besides, the structural changes linked to the company organization chart and subsidiary grouping criteria or business unit reorganization might also be present when a firm makes a strategic change. In formal terms, this proposition can be stated as follows: Proposition 2: Strategic change which follows to TMT reorganization implicate modifications (as necessary evidence) of both its strategy (growth and/or innovation) and its structure (an organizational chart and/or subsidiary grouping criteria and/or MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 20 business units that are reorganized), which must be accompanied by a change in both its power distribution and its control systems (sufficient condition). -------------------------------------------- Insert Table 8 about here -------------------------------------------- If we group the types of change that occurred by the competitive business environment of the firms (Table 8), we see that the firms used TMT reorganization in an isolated way (6 times) or combined with turnover and/or CEO (13 periods in total), in a stable environment. On the contrary, turnover was used more often in uncertain business environments, where one type of change takes place (4 times), nevertheless, it is too small this number to generalize. Moreover, in general, the changes in top management are positive for performance, if uncertainty exists in the business environment. On the contrary, if the environment is stable, the changes to top management are usually negative for ROA, with the exception of the reorganization of TMT, when it is the only managerial change that is used. Our analysis shows that managerial change precedes strategic change. Therefore, we may say that the strategic change that is solely initiated through the reorganization of the management team always has a positive effect on ROA. It is striking that ROA subsequently diminishes in stable environments, if the reorganization is used in combination with CEO succession to initiate strategic change. However, if the environment is uncertain, the combination of CEO succession and reorganization to initiate strategic change subsequently improves ROA. It seems that in stable business environments, firms that exclusively use the reorganization of TMT to initiate strategic change show improvements in their performance. Meanwhile, in turbulent business environments, it seems that firms that use both reorganization or CEO succession and reorganization to initiate strategic change show improvements in their MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 21 performance. In this sense, some studies have pointed out that CEO succession (and subsequent modifications to the management team) led to a considerable improvement in the company’s business performance (Castanias & Helfat, 2001; Gong & Wu, 2011; Kesner & Dalton, 1994; Wiersema & Bantel, 1993). From the point of view of the resource-and-capability-based theory, TMT reorganization helps to exploit all managerial capital, because all the capabilities are transferable within the same firm (Harris and Helfat, 1997). This can explain our results that show better performance after reorganization, both in stable environments and in more dynamic environments if accompanied by CEO succession. However, it is needed more evidence about this issues. Therefore, it would be interesting to developed them as future lines of investigation -------------------------------------------- Insert Figure 1 about here -------------------------------------------- Other possible future avenues of research is relating to board. Changes in the management team were apparently related to turnover in the board of directors in the present study, which coincides with the findings of previous studies (Aivazian, Ge & Qiu., 2005; Westphal & Fredrickson, 2001). The board of directors can play an important role in prompting better strategic adjustment of the firm, contributing diverse knowledge and expanding its absorptive capacity (Zahra & Filatotchev, 2004). New managers are often appointed by boards of directors with a view to instigating change in firms. This suggests that the board of directors may be a decisive factor in strategic decision-making (Zhang, 2010). Future research might therefore also examine the influence of the board on strategy formulation, to determine whether strategy is either a function of the board alone or a function of the board and management acting together (Castro et al, 2009). Our study has contributed to the development of the theory, because it has highlighted that when the firm seeks to adjust itself better to the business environment, it might need to draw on the MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 22 entire set of resources and capabilities within the TMT, including firm-specific skills; an implicit but as yet underdeveloped hypothesis in the literature (Bailey and Helfat, 2003). As Miller (2003) indicated, firms can obtain competitive advantage from the resources and the skills that they already possess. Human capabilities of reflection and reinterpretation allow the reconfiguration of their behaviour to adapt to new situations and experiences (Tsoukas and Chia, 2002), which favours strategic change. In addition, this work highlights the importance of the development of human capital when the TMT faces new experiences of roles. It is no sufficient to have rare and valuable resources, it is necessary to develop new ways of combining the actual set of resources and capabilities, to adjust itself better to the environment, in such a way that market opportunities may be exploited and competitive threats neutralized (Newbert, 2008). The demographic composition of the TMT might be less important for change (Dalton et al., 1998) than the appointment of managers to positions that best suit their potential (Bigley & Wiersema, 2002; Brauer, 2009; Gordon et al.,2000; Greve & Mitsuhashi, 2007). Therefore, it is possible to match each person’s behaviour and experience to the role that suits them best (Jarzabkowski, 2003) without changing the composition of the TMT. This study has some limitations. Change is not usually caused by any one factor; even though there may be a dominant factor (such as the vision of the managerial team), most strategic change occurs for a number of significant reasons (Grouard & Meston, 1995; Tsoukas and Chia, 2002). As Langley (1999) pointed out, the synthetic strategy of qualitative analysis implies a sparser level of detail in process tracing for each case and has the advantage of producing relatively simple theoretical formulations. It contributes a generalization of the moderated data that only makes sense if dealing with a number of cases that should be over five. Although ten firms were analysed in this study, in-depth case studies and empirical analyses should be undertaken with a view to verifying the relations that we have observed in this study. Conclusions MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 23 Following the arguments of the resource-and-capability-based theory, it has been shown that the managers as depositories of capabilities, knowledge and background can orient their decisions to initiate strategic change. However, is it necessary to incorporate new knowledge and capabilities in TMT to initiate strategic change? In our investigation, we have found that it is not so, because the reorganization of roles between the members of the team permits the renewal of the capabilities and knowledge of the top managers. This study has affirmed that strategic change may be initiated by exploiting the actual set of resources and skills of the TMT, if these resources and knowledge are focused on other management roles through its reorganization, which permits new ways of combining those resources and capabilities, to obtain a better adjustment to their business environment. So, it is sufficient to initiate strategic change in stable business environments through the reorganization of the TMT to improve firm performance, without it being necessary to change the composition of the TMT. In second place, we contribute to knowledge in this field, because analysis of the content of the changes has enabled us to identify key modifications within the strategy and the structures that are always present when a strategic change takes place, which improves our knowledge of the theoretical construct of strategic change. Besides, identification of the sequence between top management change and strategic change may mean that we can accelerate the implementation of change in the present business environment, in which the speed of response is itself a competitive advantage. The findings of this paper have numerous implications in this field. First, this study clarifies the temporal sequence of TMT change and strategic change. In particular, the study demonstrates that TMT reorganization is a sufficient condition for strategic change. Practitioners need to know that strategic change can be achieved without members of the TMT having to be dismissed. It may be more profitable to exploit the entire set of resources and capabilities within the TMT, including firm-specific skills when strategic change is initiated. This MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 24 situation underlines the importance of seeking the best fit between the knowledge and the experience of the TMT and the nature of their role in the firm. Secondly, the analysis of strategic change indicates that the periods without change are scarce or inexistent, which supports the thesis that change is immanent in organizations (Tsoukas and Chia, 2002). This work helps to distinguish the momentum of strategic change within that process of continual change. The findings enable the identification of the variables that bring about strategic change. The study has defined strategic change in a firm in terms of specific modifications of its strategy (growth or innovation) and structure (organization chart or subsidiary grouping criteria), which must be accompanied by changes in both its distribution of power in the firm and in its control systems. This, in turn, facilitates construction of relevant indicators to measure the level or degree of change that is achieved. Thirdly, CEO succession was not the main determining factor of strategic change, because subsequent TMT reorganization and TMT turnover were observed in most cases of CEO succession. This might reflect that the CEO needs TMT collaboration to develop strategic change. In stable business environments, it is better to initiate strategic change through the reorganization of TMT without CEO succession to improve the performance of the firm. 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Journal of Management Studies, 41(5), 885-897 MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 34 TABLE 1 Authors Sample Principal Contributions Barker et al.,2001 Declining firms attempting turnarounds Extent of TMT replacement positively influences both business level strategic change and change in structure and control but had no relationship with domain change activity. There may be reciprocal causality between the extent of TMT replacement and business-level strategy change Barker y Duhaine,1997 Successful firm turnarounds Greater level of strategic change(change in strategy) if CEO is replaced Boeker, 1997a 67 firms in the semiconductor industry TMT turnover from other semiconductor firms is positively related to strategic change (new product –market) Gordon et al., 2000 Furniture and computer software firms CEO changes positively influence with strategic change TMT turnover decreased likelihood of strategic change TMT Heterogeneity is not related to strategic change Greve and Mitsuhashi, 2007 Newly hired CEO is not related to strategic change % TMT entries are negatively related to strategic change % TMT exits are not related to strategic change Lant et al., 1992 Furniture and computer software firms CEO changes positively influence with strategic change TMT turnover is not related to strategic change TMT Heterogeneity is positively related to strategic change Miller, 1993 36 medium or large-sized firms from mature industries CEO succession is positively related to changes in organizational dimensions Pitcher et al., 2000 Case study All CEO succession were followed by strategic and structural change regardless of CEO origin, prior performance, etc. Simons 1994 10 newly appointed CEO CEOs use control system to promote strategic change Tushman and Rosenkopf, 1994 Firms of cement industry CEO change have a relative impact on the firm Discrimination between the effects of TMT turnover and CEO change The combination of CEO change and TMT turnover depends of the turbulence of environment. Virany et al., 1992 38 minicomputer firms High performing firms initiate reorientation and TMT turnover without CEO succession Internally promoted CEO initiates widespread changes in TMT and throughout the firm improving firm performance Wiersema and Bantel 1992 87 of the 500 largest manufacturing firms Average tenure of TMT is positively related to strategic change Tenure heterogeneity of TMT is not related to strategic change Zhang and Rajagopalan, 2010 176 publicly-traded manufacturing firms The origin of the CEOs affects their ability to formulate and to implement strategic changes MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 35 TABLE 2 Managerial change Company Environment Sector Fundamental characteristics Succession-TMT turnover Firm 1 stable Hotels, restaurants and cafés Very fast expansion and growth Multiplied 20-fold its nº of outlets in the period Firm 2 incertainty Production and assembly of equipment Unfavourable economic situation in the sector Ambitious investment plan Forced succession (year one) and succession due to retirement (year eight) Firm 3 incertainty Electricity Public enterprise New legal environment to liberalize the sector. Firm 4 stable Banking Large geographic expansion Succession-no TMT turnover Firm 5 stable Foodstuffs Considerable growth through acquisitions. Firm 6 stable Drinks and tobacco Unfavourable economic situation in the sector nationwide International growth (acquisitions, alliances, joint ventures) Quality Assurance policy (specified place of origin for wines) No succession-TMT turnover Firm 7 incertainty Equipment production and assembly Commitment to quality. Placed as head of the group. Highest degree of TMT turnover: executive vice president Firm 8 stable Foodstuffs Top management main shareholders Senior managers with severance protection clauses No change Firm 9 stable Foodstuffs Products innovated through acquisitions The growth does not result in reorientation, the former policy seems to continue in force Firm 10 incertainty Other consumer goods Focus strategy: A subsidiary as head of the group MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 36 TABLE 3 Type* Share Board CEO TMT Change** Strategy Structure Control Size ROA Firm 1 stable Year 1 1 X X 3,5 18,19 Year 2 Reorganization Expansion Organization chart 3,8 15,56 Year 3 Innovations New plants oppening X 4,0 22,64 Year 4 2 X Turnover New plants oppening 5,1 26,61 Year 5 4 X X Turnover Internet distribution 5,2 25,45 Year 6 Reorganization Diversification business unit reorganized X 5,4 22,03 Year 7 4 X X X Turnover Internet distribution New business unit 5,5 16,97 Year 8 X X Reorganization 1 st diversification not related Organization chart X 5,5 9,89 Firm 2 incertainty Year 1 4 X 6,5 1,95 Year 2 X X Reorganization New services and products Grouping criteria X 6,6 2,42 Year 3 2 Outsourcing 6,5 2,60 Year 4 Turnover Quality assurance business unit size 6,6 2,89 Year 5 0 6,7 2,81 Year 6 2 X Turnover Distribution Autonomous plants closing 6,8 3,38 Year 7 business unit size 6,9 3,50 Year 8 4 X X Reorganization R&D Organization chart X 6,9 3,66 Firm 3 Incertainty Year 1 0 5,5 0,06 Year 2 1 X Reorganization Diversifications and exports business unit reorganized X 5,5 0,05 Year 3 2 Turnover Exports 5,7 0,06 Year 4 X business unit size 5,7 0,05 Year 5 4 X X Turnover 5,6 0,05 Year 6 Reorganization Internationalization New business lines X 5,7 0,07 Year 7 2 X New products 5,7 0,08 Year 8 X Turnover New plants oppening 5,8 0,37 Firm 4 stable Year 1 0 X New products 4,7 0,83 Year 2 X X 4,5 0,06 Year 3 3 X Business unit size 4,6 0,30 Year 4 X Both Growth and quality Grouping criteria X 4,8 0,67 Year 5 3 X X Distribution business unit size 4,7 0,85 Year 6 X Both Focus business unit reorganized X 4,6 1,07 Year 7 4 X X X Reorganization Innovations and low prices Organization chart 4,6 1,03 Year 8 X Reorganization business unit size X 4,6 0,39 MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 37 TABLE 3 (continue) Type* Share Board CEO TMT Change** Strategy Structure Control Size ROA Firm 5 stable Year 1 0 Expansion 4,6 0,83 Year 2 Low prices 4,5 0,55 Year 3 4 X New subsidiaries 4,9 0,81 Year 4 X X Reorganization Internationalization Organization chart X 4,9 0,77 Year 5 0 New products 4,9 0,72 Year 6 Quality products business unit size 5,0 0,79 Year 7 1 X 5,0 0,66 Year 8 Reorganization Diversifications and advertising business unit reorganized X 5,3 0,65 Firm 6 stable Year 1 0 X Quality wines 5,2 0,96 Year 2 X X Business unit size 5,2 0,86 Year 3 1 X Reorganization Business unit size 5,3 0,89 Year 4 Diversifications New plants X 5,3 0,91 Year 5 4 X X Reorganization Direct foreign investment business unit reorganized 5,3 1,04 Year 6 X X Reorganization Market share Business unit size X 5,3 0,98 Year 7 1 X X Reorganization Innovations and quality X 5,3 0,74 Year 8 X Reorganization Growth Organization chart 5,3 0,62 *TMT Changes Typologies: 1 Reorganization, 2 Turnover, 3 Turnover+Reorganization, 4 CEO+Reorganization, 5 CEO+Turnover, 0 No TMT changes. **Both: Reorganization and turnover MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 38 TABLE 4 Type* Share Board CEO TMT Change** Strategy Structure Control Size ROA Firm 7 incertainty Year 1 0 Quality 5,5 0,22 Year 2 3 X Both New products business unit reorganized X 5,5 0,223 Year 3 0 X New products Business unit size 5,5 0,188 Year 4 Focus on service Business units size 5,5 1,15 Year 5 0 Business unit size 5,6 1,09 Year 6 New plants 5,6 1,13 Year 7 3 X Reorganization Business units reorganized 5,6 1,07 Year 8 X Turnover New services X 5,7 1,1 Firm 8 stable Year 1 2 X Quality 5,2 10,52 Year 2 X Business unit size 5,3 8,19 Year 3 X X Turnover Internationalization 5,3 3,71 Year 4 5 X X 5,3 3,3 Year 5 X Turnover New outlets 5,3 1,71 Year 6 New products Business unit size 5,4 7,28 Year 7 0 5,4 6,44 Year 8 0 X Quality and distribution 5,4 6,12 Firm 9 stable Year 1 0 Growth Business unit size 5,5 0,95 Year 2 1 X 5,5 0,91 Year 3 Reorganization New products business unit reorganized X 5,6 0,82 Year 4 0 X Quality 5,6 0,89 Year 5 X X Delivery lead-times New plants 5,6 0,83 Year 6 X 5,6 0,94 Year 7 1 X 5,7 0,98 Year 8 X Reorganization International growth business unit reorganized X 5,9 1,18 Firm 10 incertainty Year 1 0 X business unit sale business unit size 4,5 0,11 Year 2 X X plants closing 4,5 0,3 Year 3 X X 4,6 0,35 Year 4 0 Innovations 4,6 0,34 Year 5 0 X 4,6 0,39 Year 6 X X New patents 4,7 0,39 Year 7 1 X Reorganization Focus on pharmamar 4,8 0,38 Year 8 X New products Organization chart X 4,9 0,16 *TMT Changes Typologies: 1 Reorganization, 2 Turnover, 3 Turnover+Reorganization, 4 CEO+Reorganization, 5 CEO+Turnover, 0 No TMT changes. ** Both: Reorganization and turnover MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 39 TABLE 5 News Strategy Structure Power Control The firm has opened a new branch to diversify its activities Innovation B U Size In July 2014, the firm opened the first shop in Belgium, the first non-Mediterranean country in the EU where the firm has set up activities. Sales turnover Plants opening or closure The chairman of the firm has created a General Manager position in order to discharge some of the management responsibilities that he had exclusively exercised up until now. Before, the organisation chart was distributed to different area managers who were directly supervised by the chairman Organization chart A banking entity has signed the agreement to buy 18% of the capital of the firm Share Capital The firm has invested 400 million in One World Software to adapt the economic and financial information to a new currency (Euro) Information system The firm has opened the first establishment in Morocco where its group has had a factory since 1999. Plants opening or closure The firm has bought 767.7 million pesetas, 84.75% of the capital of its supplier Luxor. This operation is to reduce cost, as the product of Luxor is what increases the cost of the pizzas Structural growth B U size Budgets The firm has redefined the strategic position to compete in prices with its competitors The firm has begun to commercialise its products on internet Distribution The firm has signed a contract to develop and introduce the use of fire resistant materials, in order to offer additional safety to the user. Quality product The firm has introduced the SGMA (an environmental management system) to obtain ISO 14001 certification. To do so, the firm has an environmental assessment team at each of its regional branches in charge of centralizing the information used to set up the system and to establish controls over the whole process. Quality process Information system The firm has advanced with its integration process through the presentation of its new corporate identity which merges the two company logos. Advertising The firm has developed a new international purchasing system to centralize all the offers from its Spanish, Portuguese and American suppliers. Stock control MANAGERIAL CHANGE AND STRATEGIC CHANGE: THE TEMPORAL SEQUENCE 40 TABLE 6 Type* Share Board Strategy Structure Control Strategic Change 1 X X yes Expansion Organization chart Innovations New plants oppening X 1 X Diversifications and exports Business unit reorganized X yes 1 X yes Diversifications and advertising Business unit reorganized X 1 X Business unit size yes Diversifications New plants X 1 X X Innovations and quality X yes X Growth Organization chart 1 X yes New products Business unit reorganized X 1 X yes X International growth Business unit reorganized X 1 X Focus on pharmamar yes X New products Organization chart X X Business unit size X X Internationalization 3 X Business unit size yes X Growth and quality Grouping criteria X 3 X X Distribution Business unit size yes X Focus Business unit reorganized X 3 X New products Business unit reorganized X yes 3 X Business units reorganized yes X New services X 4 X Internet distribution yes Diversification Business unit reorganized X 4 X X Internet distribution New business unit yes X X 1 st diversification not related Organization chart X 4 X yes X New services and products Grouping criteria X 4 X R&D Organization chart X yes 4 X yes Internationalization New business lines X 4 X X Innovations and low prices Organization chart yes X Business unit size X 4 X New subsidiaries yes X Internationalization Organization chart X 4 X Direct foreign investment Business unit reorganized yes X X Market share Business unit size X *TMT Changes Typologies: 1 Reorganization, 3 Turnover+Reorganization, 4 CEO+Reorganization, 5 CEO+Turnover,