Journal of Business Research 59 (2006) 564 572

Diversity at the executive suite: A resource-based approach to the customer

orientationorganizational performance relationship
Seigyoung Auh a,1, Bulent Menguc b,*
b

a
Yonsei School of Business, Yonsei University, 134 Shinchon-dong, Seodaemun-gu, Seoul, 120-749, South Korea
Brock University, Faculty of Business, Department of Marketing, Intl Business, and Strategy, St. Catharines, Ontario, Canada, L2S3A1

Received 28 February 2005; accepted 14 October 2005

Abstract
Taking a resource-based approach and thereby arguing that top management team (TMT) diversity is a tacit knowledge, this paper addresses
how TMT experience diversity complements TMT functional diversity in explaining the effect of customer orientation on organizational
performance. It is argued that when TMT functional diversity is leveraged with TMT experience diversity, this bundled tacit knowledge operates
as a transformational capability, strengthening the relationship between customer orientation and organizational performance. Results from a
survey of top management executives at the SBU level support our prediction for a positive three-way interaction between customer orientation,
TMT functional diversity, and TMT experience diversity on organizational performance. Our findings suggest that the effect of customer
orientation on organizational performance increases when the level of both functional diversity and experience diversity increases. Implications for
TMT diversity and implementing customer orientation are discussed.
D 2005 Elsevier Inc. All rights reserved.
Keywords: Resource based view; Top management team functional diversity; Top management team experience diversity; Customer orientation

1. Introduction
Despite the accolades and undivided attention that customer
orientation has received in the marketing literature, little
empirical evidence exists to suggest that this construct leads
to higher organizational performance (e.g., Noble et al., 2002).
The few findings that do exist are mixed and equivocal. Several
scholars have acknowledged the role that a top management
team (TMT) plays in the formation and development of
customer orientation (e.g., Kohli and Jaworski, 1990). The
term top management team (TMT) is consistent with the upper
echelon concept advanced by Hambrick and Mason (1984) and
the dominant coalition construct proposed by Cyert and March
(1963). A TMT is typically comprised of senior executives such
as vice presidents and senior level managers that serve on the
board of directors in most firms (Finkelstein and Hambrick,
1990; Haleblian and Finkelstein, 1993).
* Corresponding author. Tel.: +1 905 688 5550x5704; fax: +1 905 984 4188.
E-mail addresses: sauh@yonsei.ac.kr (S. Auh), bmenguc@brocku.ca,
(B. Menguc).
1
Tel.: +82 2 2123 5452.
0148-2963/$ - see front matter D 2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2005.10.006

Drawing on the upper echelon perspective (Hambrick and

Mason, 1984), we believe that the inconsistency in explaining
the relationship between customer orientation and organizational performance rests on the moderating role of the nature
and characteristics of those that initiate and champion such a
customer orientation. In particular, we look at two critical types
of TMT diversity that we believe will provide important
contextual factors in shaping the relationship between customer
orientation and organizational performance. These two types of
diversity are TMT functional diversity and TMT experience (or
tenure) diversity. We argue that these two different dimensions
of diversity reflect intangible resources in an organization in
that they represent complementary tacit knowledge (Carpenter
et al., 2001). We contend that when these two dimensions of
diversity are bundled so that experience diversity complements
functional diversity, this interaction will contribute to a better
understanding of the conditions under which customer orientation will lead to greater organizational performance.
We argue that TMT functional diversity attenuates the effect
of customer orientation on organizational performance by
binding strategic consensus and impeding effective information
dissemination. When TMT functional diversity is complemen-

S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

ted by TMT experience diversity, however, the latter makes up

for what the former lacks, or reduces the costs associated with
the former and thereby jointly strengthens the effect of
customer orientation on organizational performance. The goal
of this research is to acknowledge the combination of TMT
functional and experience diversity as complementary human
capital resources, which explain the relationship between
customer orientation and organizational performance. We
believe that this research is unique and thereby contributes to
the literature in explaining the mixed and conflicting relationship between customer orientation and organizational performance by drawing on the resource-based view (RBV) as a
conceptual framework.
Our central thesis in the paper is that the effect of TMT
functional diversity on the customer orientation organizational
performance relationship increases as TMT experience diversity increases. In other words, we expect customer orientation
to have a negative effect on organizational performance when
functional diversity is not complemented by experience
diversity, but a positive effect when functional diversity is
complemented by experience diversity.
Our paper is organized as follows. We start by explaining
the theoretical background of our research. To this end, we
draw on the RBV to develop our arguments about the
shortcomings of functional diversity, and how experience
diversity, when bundled with functional diversity, can strengthen the customer orientation organizational performance relationship. Based on our conceptual framework, we develop our
contingency hypothesis of how the effect of customer
orientation on organizational performance is a function of the
combination of TMT functional diversity and TMT experience
diversity. This is followed by empirical results obtained from a
large survey of TMT executives in the manufacturing industry.
We conclude the paper with a discussion of the theoretical
contributions, managerial implications, limitations, and future
research directions.
2. Theoretical background and hypothesis development
According to the RBV, firm resources include all assets,
capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm
to conceive of and implement strategies that improve its
efficiency and effectiveness (Barney, 1991, p. 101). In line
with the above definition, resources that manifest value,
rareness, imperfect imitability (i.e., resources that are tacit
and less susceptible to being copied), and non-substitutability
through resource heterogeneity and immobility (i.e., nontransferability) contribute not only to competitive advantage
but also to a competitive position that can be sustained over
time (Barney, 1991). Broadly defined, resources come in two
forms: tangible and intangible (Hall, 1992, 1993; Madhavan
and Grover, 1998). Tangible resources are more observable and
less causally ambiguous compared to intangible resources. A
typical example of intangible resources is knowledge-based
resources (Miller and Shamsie, 1936). Knowledge-based
resources represent the stock of intangible assets from

565

possessing human, intellectual, and social capital (Nahapiet

and Ghoshal, 1998). In this respect, human capital, especially
in the form of TMT diversity, represents an intangible resource
that is expected to contribute to greater organizational
performance (Barney, 1991; Hitt et al., 2001). The notion of
diversity and not just the absolute level of human capital
(TMT) increases the tacitness and intangibility aspect of the
resource.
Consistent with the RBV, some researchers have argued that
firms are a bundle of knowledge-based resources, resources
that can be effectively applied to problem solving (Grant,
1996). Two types of knowledge have been the center of
attention in academia and practice, namely, explicit and tacit
(Polany, 1966). Explicit knowledge is consistent with tangible
resources while tacit knowledge is a trademark of intangible
resources. Our main focus is on tacit knowledge as we argue
that TMT functional diversity and experience diversity are a
reflection of such knowledge because possessing TMT
diversity enables firms to harness intellectual and social capital,
hallmarks of intangible resources, that creates barriers for
imitation and institutionalization. We define tacit knowledge as
knowledge that is not readily transferable and is difficult to
measure and articulate; it accumulates over time and is often
embedded in organizational and social contexts and human
interactions. All these defining characteristics make tacit
knowledge causally ambiguous, complex, and path dependent.
2.1. TMT functional diversity as intangible resources
We define TMT functional diversity as the functional
background in which a person has spent the greater part of
his or her professional career (Bunderson and Sutcliffe, 2002).
Thus, TMT functional diversity can be regarded as intangible
resources and more specifically tacit knowledge, as this is
work-related practical knowledge that has been accumulated on
the job (Polany, 1966). TMT functional diversity measures the
range of specialists (as opposed to generalists) the TMT
possesses.
Despite the advantages of functional diversity, which
mainly pertain to the rich and abundant cognitive resources
generated among diverse TMT members, the disadvantages of
functional diversity are also noteworthy. People prefer to
belong to groups with whom they can relate and identify, and
this is facilitated when members in the group show similarity
to each other on several demographic variables. Given that
functional diversity leads to task-related conflicts, it is also
expected to impede information sharing among members in
the TMT (Bunderson and Sutcliffe, 2002). Bunderson and
Sutcliffe (2002) revealed that dominant function diversity
(similar to our functional diversity) hampered information
sharing between team members.
Taken collectively, functional diversity can have mixed
effects on organizational performance depending on the extent
to which it causes conflict and discourages information sharing
(Williams and OReilly, 1998). This is clearly evident from the
equivocal empirical findings throughout the literature that range
from TMT functional diversity supporting organizational

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S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

performance to such diversity hampering organizational performance (Carpenter and Frederickson, 2001). The mixed and
ambiguous empirical findings have pushed scholars to examine
contingency conditions under which TMT functional diversity
would in fact lead to greater organizational performance.
2.2. TMT experience diversity as intangible resources
Experience diversity captures the breadth and variety of
experience that members of the TMT have with the organization. One of the most widely accepted tacit knowledge is
experience on the job (Polany, 1966). Tacit knowledge is
commonly defined as work-related practical knowledge learned
informally on the job (Polany, 1966). Experience diversity is
embedded in social contexts and interactions, making it context
dependent and firm specific. Work-related experience may not
simply carry over from one job to another, as the intricate and
idiosyncratic knowledge learned may be context specific and
path dependent. Also, because experience diversity is intangible and embedded, it is causally ambiguous. Consequently,
TMT experience diversity can also be regarded as an intangible
resource. In particular, it takes the form of tacit knowledge, in
that more experience with an organization should manifest
itself in greater social capital through increased interaction,
socialization, and networking with members outside of an
individuals expertise area. The work of Carpenter et al. (2001)
found that the effect of CEO international assignment
experience on firm performance was enhanced when this tacit
knowledge was bundled with another complementary tacit
knowledge, namely, TMT international assignment experience.
Our prediction is that if one type of tacit knowledge can
compensate for what is lacking in another type of tacit
knowledge, then this bundled resource can be used to improve
the customer orientation organizational performance relationship. We predict that when TMT functional diversity is
complemented with TMT experience diversity, this reconfiguration of intangible resources will increase the effect of
customer orientation on organizational performance (Teece et
al., 1997).
Although customer orientation is central to marketing from a
theoretical and practical perspective, the link between customer
orientation and organizational performance has been less than
satisfactory (e.g., Noble et al., 2002). Notwithstanding the
direct link between market orientation and organizational
performance, the disaggregate approach between customer
orientation and organizational performance has received less
attention and empirical support. Noble et al. (2002, p. 28)
provide the following rationale for studying customer orientation or market orientation at a disaggregate level: The
disaggregation of the market orientation construct can be
supported both methodologically and theoretically. In terms of
research design and implementation of findings, a disaggregation of the market orientation construct allows for better control
of error or Fnoise_ that may influence more holistic measurement attempts. Narver and Slaters (1990) framework has yet
to be completely and effectively studied in a disaggregate
manner.

We adopt the definition of customer orientation from Narver

and Slater (1990, p. 21). They define it as the sufficient
understanding of ones target buyers to be able to create
superior value for them continuously. Customer orientation
refers to the culture or business philosophy of companies to put
customers at the forefront of strategic and tactical planning and
decision making in the hope of providing superior value and
satisfaction (e.g., Desphande et al., 1993).
The impetus for crafting and formulating customer orientation rests more or less in the hands of the TMT. As stated
earlier, TMT was one of the most important and influential
factors fostering market orientation (Kohli and Jaworski,
1990). A similar argument was echoed by Webster (1988, p.
37) who maintained customer-oriented values and beliefs are
uniquely the responsibility of top management. Considering
the driving force behind the success or failure of a customer
orientation in affecting organizational performance, the elusive
relationship between the two constructs may be explained by
the characteristics of those trying to initiate it.
We argue that the effect of TMT functional diversity on the
customer orientation organizational performance relationship
is contingent on the level of TMT experience diversity. More
specifically, we posit that the impact of TMT functional
diversity on the customer orientation organizational performance relationship increases as TMT experience diversity
increases. When TMT experience diversity is low, implying a
predominance of either low or high levels of experience, as
functional diversity increases, this is expected to weaken the
relationship between customer orientation and organizational
performance. One of the most common threats of functional
diversity lies in the difficulty of inter-functional coordination
through creating inefficiencies and barriers to information
generation, dissemination, and responsiveness (e.g., Hambrick
et al., 1996). Other research has also shown that greater
functional diversity led to less consensus regarding the
strategies for a common orientation (Knight et al., 1999).
Our prediction is that the negative effect of functional diversity
on the customer orientation organizational performance relationship will be exacerbated when TMT members have little
experience, in the form of tacit knowledge, to make up for the
costs associated with greater functional diversity. Experience
can be expected to facilitate the interpretation and accommodation of personnel with different functional backgrounds, thus
alleviating the negative effect of functional diversity on the
customer orientation organizational performance relationship.
Lengthy tenure also produces problems. The cohesiveness
generated by TMT members with lengthy experience and
tenure means that they tend to shy away from change (e.g.,
Katz, 1982). In essence, they tend to ignore or isolate
themselves from the voice of the customer and the needs of
the market. New actions or initiatives require risk-taking,
sacrifice, and commitment on their part, which can potentially
hamper their current positions in the organization. Berman et
al. (2002) found that, due to cognitive rigidity, knowledge
ossification, and unwillingness to accept new rules and
challenges, the positive effect of shared team experience on
team performance decreased as shared team experience

S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

increased. A key implication is that for effective organizational

performance, a good balance between low and high levels of
experience is critical.
In summary, greater TMT experience diversity is expected
to attenuate the negative effect of TMT functional diversity on
the customer orientation organizational performance relationship by working as a catalyst for greater accommodation of
divergent views and values. On the contrary, lower TMT
experience diversity is expected to exacerbate the negative
effect of TMT functional diversity on the relationship between
customer orientation and organizational performance by
stimulating a competitive, as opposed to an accommodative,
attitude between functional areas within the TMT.
Consequently, we suggest a three-way interaction between
customer orientation, TMT functional diversity, and TMT
experience diversity in the following contingency hypothesis:
Hypothesis. The effect of customer orientation on organizational performance will be positive when TMT functional
diversity is complemented with TMT experience diversity
(high functional diversity and high experience diversity).
3. Methodology
3.1. Pre-test, sample, and data collection
A list of 750 SBUs operating in a variety of manufacturing
industries was first obtained from a national database containing names and addresses of senior executives. We selected
SBU senior executives as respondents because we believed that
they were both most knowledgeable about the context of our
study and natural members of TMTs.
We first contacted a random selection of 15 CEOs or senior
executives to conduct a pre-test, which was used to clarify any
ambiguous scale items. After excluding the 15 CEOs/senior
executives whom we contacted for the pre-test, we used the
remaining SBU executives (a total of 735 SBUs) for our final
data collection. Consistent with Dillmans (1978) Total Design
Method, the first mailing packet contained a personalized letter,
a questionnaire, and a postage-paid envelope with an individually typed return-address label. Four weeks after the first
mailing, we sent a follow-up letter and an additional copy of
the questionnaire to non-respondents. We obtained 242 usable
questionnaires with a response rate of 32.9%. Using the
extrapolation technique suggested by Armstrong and Overton
(1977), we found no evidence of non-response bias.
One major goal of the data collection was to ensure that the
key informants were either the CEO or people who held an
equal position in the company. Following a procedure
previously used in marketing research (e.g., Phillips, 1981),
one of the authors made a series of phone calls and confirmed
that the questionnaires were completed by managers who were
CEOs or by those with equal positions.
The average SBU size was 681 full-time employees. The
SBUs in our sample were operating in a variety of industries,
such as food, mining, automotive, construction materials, and
chemicals. The average TMT size was 6.38 members, with

567

functional backgrounds in the following areas: marketing

(10.8%); sales/customer service (11.5%); finance/accounting
(13.2%); general management (14.6%); human resources/
personnel (5.1%); information technology (3.2%); operations/
distribution/logistics (21.3%); R&D (4.6%); and administrative
support (15.7%). Eighty-eight percent of TMT members were
males and the average age was 45. The average experience of
TMT members with their employing organizations was 11
years. Fifty percent of TMTs had a team member representing
the marketing function.
3.2. Measures
We used well-established scales and single-item, openended questions to measure our studys constructs. A list of
scale items used in the study is presented in the Appendices
A and B. Note that functional and experience diversity in
particular were derived measures based on objective information as opposed to perceived measures (e.g., Sethi et al.,
2001).
We were particularly interested in two types of TMT
diversity: functional diversity and experience diversity. SBU
top executives provided numeric information on the functional
background and the level of experience (i.e., years) of each
TMT member. Given this information, functional diversity was
measured by a variation of the Herfindal Hirschman index.
This index has been widely used by previous researchers (e.g.,
Ancona and Caldwell, 1992). We calculated the following
mathematical equation for each TMT based on the information
obtained from SBUs:
X
H 1
p2i where i 1Ys and s 9
H
pi

functional diversity
the percentage of TMT members in each functional
area

Previous studies have captured TMT members functional

backgrounds in nine general categories (e.g., Simons et al., 1999).
We followed this categorization in order to be consistent with
previous studies and to be able to infer comparable results. We used
a similar categorization to identify nine functional backgrounds:
marketing; sales/customer service; finance/accounting; general
management; human resources/personnel; information technology;
operations/distribution/logistics; R&D; and administrative support.
We categorized TMT members functional background based on
the information we obtained from our respondents. If a function
was not represented (i = 0), its value was assigned 0. Using the
above equation, H can take on values ranging from 0 (low
diversity) to 1 (high diversity).
TMT experience diversity was measured by calculating the
coefficient of variation for total years of experience with the
SBU for each TMT (e.g., Smith et al., 1994). Based on the
information obtained from our respondents on the total years of
experience of each TMT member, we first computed the mean
value and the standard deviation of years of experience in a
given TMT. To reach the value of TMT experience diversity for

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S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

construct (i.e., environmental uncertainty and organizational

performance). For the construct of customer orientation, we
adopted the procedure recommended by Anderson and Gerbing
(1988) to check the internal validity and reliability of this
construct. We estimated a confirmatory factor analysis in
LISREL 8.3 (Joreskog and Sorbom, 1996). CFA revealed that
all factor loadings were higher than .40, normalized residuals
were less than 2.58, and modification indices were less than
3.84 (Anderson and Gerbing, 1988). There was no scale item to
be deleted in order to improve the model fit. The measurement
2
model provided a good fit to the data: (v (9)
= 15.8 ; GFI = .94;
TLI = .95; CFI = .96; RMSEA= .04). The factor loadings ranged
between .58 and .80. The reliability coefficients were as
follows: Cronbachs alpha = .84; Composite reliability = .86;
and average variance extracted (AVE) = .51. The validity of the
construct was supported because factor loadings were significant (t > 2.0) (Gerbing and Anderson, 1988) and the AVE was
higher than .50 (Bagozzi and Yi, 1988). Overall, these findings
support the internal validity and reliability of the reflective
construct of customer orientation.
Diamantopoulos and Winklhofer (2001) suggested that the
suitability of the index construction of a formative scale should
be assessed in terms of indicator collinearity and external
validity (i.e., how well the index relates to reflective variables).
We applied their suggestions to the formative scales of
environmental uncertainty and organizational performance,
using model specification criteria as suggested by Jarvis,
Mackenzie, and Podsakoff (2003). We found that the squared
intercorrelation for each pair of indicators is less than 1.0,
suggesting that multicollinearity is not a serious problem
(Cohen et al., 2003).
To test the external validity of a formative construct,
Diamantopoulos and Winklhofer (2001, p. 273) suggested
. . .validation, focusing on nomological aspects, involves
linking the index to other constructs with which it would be
expected to be linked (i.e., antecedents and/or consequences).
We chose customer orientation as the reflective construct that
was linked to environmental uncertainty and organizational
performance. The model that links environmental uncertainty
and customer orientation provided a good fit to the data:
2
(v (34)
= 75.6; GFI = .91; TLI = .93; CFI = .94; RMSEA= .06). The

a given TMT, we then divided the mean value by the standard

deviation (e.g., Smith et al., 1994). A score of zero indicates
perfect experience homogeneity among team members.
Customer orientation was measured with a six-item, fivepoint Likert scale (1 strongly disagree; 5 strongly agree)
taken from Narver and Slater (1990). We measured the SBUs
performance relative to their principal competitors over the last
3 years based on a nine-item, five-point scale (1 much worse;
3 same; 5 much better) taken from Li and Atuahene-Gima
(2001). We aggregated seven items to obtain a perceptual
measure of organizational performance.
3.2.1. Control variables
SBU size was measured by a log-transformation of the
number of full-time employees. We measured environmental
uncertainty with a five-item, five-point Likert scale (1 very
little; 3 moderate; 5 very much), adapted from Jaworski and
Kohli (1993). We also included TMT size (i.e., number of
functional managers in TMT), TMT educational-level diversity,
gender diversity, and age diversity. We asked respondents to
indicate each TMT members educational background (i.e.,
years of schooling), age (years) and gender (1 female; 5 male).
Then we computed TMT educational-level diversity, age
diversity, and gender diversity by calculating the coefficient of
variation. For example, for TMT educational diversity, we
computed the mean value and the standard deviation of years of
schooling in a given TMT. To reach the value of TMT
educational diversity for a given TMT, we divided the mean
value by standard deviation. This approach has been widely used
by previous researchers (e.g., Smith et al., 1994). A zero score
indicates perfect homogeneity among team members (e.g.,
Smith et al., 1994). We used the same type of computation to
derive the measures of TMT age diversity and gender diversity
as we did for TMT educational-level diversity.
4. Analysis and results
4.1. Construct validation
We employed the two categories of multi-item constructs:
reflective construct (i.e., customer orientation) and formative
Table 1
Correlation matrix (N = 242)
Variables

10

1. Firm size (log)

2. TMT size
3. Educational diversity
4. Gender diversity
5. Age diversity
6. Environmental uncertainty
7. Customer orientation
8. Experience diversity
9. Functional diversity
10. Org. Performance
Mean
Standard deviation

.32
.04
.04
.19
.02
.10
.03
.02
.01
2.34
.59

.04
.22
.05
.10
.10
.10
.06
.15
6.38
2.27

.07
.17
.04
.04
.04
.09
.18
.38
.23

.22
 .03
.07
.21
.08
 .04
.13
.13

.02
.04
.15
.18
.07
.17
.06

.19
.10
.01
.02
3.33
.70

.04
.02
.21
3.89
.69

.01
.12
.66
.28

.21
.73
.17

3.72
.67

Correlations above .14 are significant at p < .05.

S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

569

Table 2
Hierarchical moderated regression results (Dependent variable = Organizational performance)
Model 1

Control variables
Firm size (log)
Team size
Educational diversity
Gender diversity
Age diversity
Environmental uncertainty

Model 2

Model 3

Model 4

t-value

t-value

t-value

t-value

.12
.08
.78
.61
.83
.01

1.00
2.72*
2.71*
1.22
.71
.15

.18
.09
.87
.71
1.56
.06

 1.67
3.28**
 3.22**
 1.49
 1.41
 .70

.20
.08
.74
.81
 1.59
.07

1.86
2.83*
2.70*
1.68
1.44
.79

.20
.08
.67
.73
1.71
.06

1.87
2.92*
2.46***
1.50
1.56
.68

.23
.27
.10

3.69**
4.41**
 1.69

.23
.31
.09

3.72**
4.88**
1.54

.23
.31
.11

3.76**
5.02**
1.76

.01
.04
.09

.19
.73
1.51

Main effects
Customer orientation (1)
Functional diversity (2)
Experience diversity (3)
Two-way interactions
12
13
23

.01
.03
.13

Three-way interaction
123
R2
DR 2
F-model
DF

.16
.50
2.21***

.15
.07

.19
.12
6.14**
11.99**

2.82*

.21
.02
5.08**
1.72

2.37***
.23
.02
5.21**
5.63***

* p < .01.
** p < .001.
*** p < .05.

4.2. Hypotheses testing

We tested our hypotheses via moderated hierarchical
regression analysis. We mean-centered all variables to minimize the threat of multicollinearity in equations where we had
included interaction terms (Aiken and West, 1991). The
variance inflation factor ranged from 1.07 to 1.42, well below
the cut-off of 10 recommended by Neter et al. (1985).
The three-way interaction of customer orientation, TMT
functional diversity, and TMT experience diversity on organizational performance is positive and statistically significant
(t = 2.37; p < .05), supporting our hypothesis (Table 2). None of
the two-way interactions between customer orientation and
TMT diversities were significant. Such a finding reinforces our

Organizational
Performance

Organizational
Performance

path between environmental uncertainty and customer orientation was positive and statistically significant (b = .32; p < .001).
Similarly, the model that links organizational performance and
customer orientation provided a good fit to the data:
(v2(54) = 75.6; GFI = .91; TLI = .94; CFI = .95; RMSEA= .06).
The path between organizational performance and customer
orientation was positive and statistically significant (b = .27;
p < .001). In conclusion, there is enough evidence that the
formative constructs of environmental uncertainty and organizational performance are valid. For further steps of our analysis,
we formed a construct of environmental uncertainty and
organizational performance by aggregating the indicators.
Table 1 shows the means, standard deviations, and intercorrelations for the constructs.

3
2
1
0
low

high

Customer Orientation
High FD

Low FD

Fig. 1. The interaction effect of customer orientation and TMT functional

diversity on organizational performance when the level of TMT experience
diversity is low.

6
5
4
3
2
low

high

Customer Orientation
low FD

high FD

Fig. 2. The interaction effect of customer orientation and TMT functional

diversity on organizational performance when the level of TMT experience is
high.

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S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

argument that TMT experience diversity is a complement to

TMT functional diversity.
Following Aiken and West (1991), we plotted the interaction effect between customer orientation and TMT functional
diversity under high and low levels of TMT experience
diversity. When TMT experience diversity is high, the effect
of customer orientation on organizational performance
increases when TMT functional diversity is high (Fig. 2).
However, this is not the case as pictured in Fig. 1 when TMT
experience diversity is low. The impact of customer orientation
on organizational performance decreases when TMT functional
diversity is high but TMT experience diversity is low. Taking
into consideration Figs. 1 and 2, our hypothesis is supported.
Furthermore, TMT size (t = 2.92; p < .01) is positively and
significantly related to organizational performance whereas
educational-level diversity is significantly but negatively related
to organizational performance (t =  2.46; p < .05). Overall, the
model explained 23% of the variance in organizational
performance.
5. Discussion and implications
Our research extends previous work and sheds new light on
the role of TMT diversity in the strategic orientation
performance relationship by drawing on the resource-based
view (RBV) of the firm. Whereas past research has produced
mixed results regarding the impact of TMT functional diversity
on the strategy performance relationship, our study paints a
more complete picture of how this relationship operates, by
utilizing the interaction between the two types of diversity as a
bundled human capital resource. Consistent with the upper
echelon perspective (Hambrick and Mason, 1984), we have
argued that the characteristics of these human capitals may be
the contextual factor under which we may observe a positive
and significant relationship between customer orientation and
organizational performance.
Our central thesis was that TMT functional diversity on its
own would be insufficient due to the associated costs, and that
it would be necessary for functional diversity to be complemented with another type of TMT diversity. Thus, our
main hypothesis was that the effect of customer orientation on
organizational performance would increase as TMT functional
diversity is complemented with TMT experience diversity.
The results strongly supported our hypothesis; the effect of
customer orientation on organizational performance was
positive only when TMT functional diversity and TMT
experience diversity were both high. The effect of customer
orientation on organizational performance decreased when
high TMT functional diversity was not matched with high
TMT experience diversity.
Our theoretical argument was based on the fact that neither
form of TMT diversity would be sufficient to positively
moderate the effect of customer orientation on organizational
performance. Only when both types of TMT diversity are
bundled will the reconfigured tacit knowledge exert a positive
moderating role on the customer orientation organizational
performance relationship. This suggests that the two-way

interactions between both types of diversity and customer

orientation should be non-significant. Our findings supported
such expectations. None of the two-way interactions between
TMT functional diversity and experience diversity and
customer orientation were significant.
This research also has practical implications. Firms need
not only narrow specialists who are experts in their
respective fields, but also generalists that can wear multiple
hats and accommodate different and competing viewpoints.
Furthermore, from a recruiting and promotion perspective,
our results suggest the importance of striking a balance
between internal and external promotion and hiring. In order
to achieve experience diversity, it is necessary to promote
within the organization to utilize human capital, social
capital, and develop interpersonal networks that have already
been built up. At the same time, the organization should
practice external hiring to bring fresh blood into the
culture, which will disseminate a new perspective into the
organization. Our research underscores the multi-dimensional
task of finding the right mix or the adequate portfolio of
TMT members. This portfolio will guarantee TMTs that have
been with the organization long enough to have formed
social interactions and multiple viewpoints from different
functional areas and at the same time guarantee those with
less experience that are more likely to be risk takers and
receptive to change.
Our findings have important implications for managers
trying to take advantage of customer orientation practices to
improve their organizational performance. As part of their
broader overall TQM principles (Day, 1994), customeroriented practices are or have long been adopted by
organizations as best practices. Our research offers
considerable value in this respect by delineating how two
organizations that may, on the surface, be implementing
identical customer orientation practices can show drastic
differences in organizational performance levels. The key to
this intriguing link lies in the bundled and interwoven tacit
knowledge that is used to transform and reconfigure the
explicit best practice into extraordinary returns. Thus, the
road to sustainable competitive advantage for managers may
lie in composing the appropriate portfolio of various types of
TMT diversity.
6. Limitations and future research directions
This study is not without limitations. First, we collected
our data from manufacturing organizations that operated in a
variety of sectors. Hence, our findings may not be applied
generally to other types of organizations (i.e., services and
not-for-profit). In fact, there is a growing body of scholarly
interest in understanding the performance implications of
customer orientation and other types of strategic orientations
in service and not-for-profit organizations (e.g., Voss and
Voss, 2000). Consequently, future research is needed from
such organizations.
Second, we collected our data from CEOs or senior
executives, as previous researchers in the strategic marketing

S. Auh, B. Menguc / Journal of Business Research 59 (2006) 564 572

field have relied mostly on CEOs or senior executives as

most knowledgeable respondents (e.g., Jaworski and Kohli,
1993; Narver and Slater, 1994). The most desirable data
collection procedure, however, would have been one in
which data was collected using a design of multiple
respondents from TMTs. Future studies might consider such
a data collection procedure.
Third, our data are cross-sectional; therefore, we are unable
to detect the causality between customer orientation and
organizational performance. We believe that the time is ripe
for studies that employ longitudinal data to better understand
the causality between these two constructs.
Another worthwhile route for future research entails
creating an overall diversity index that includes experience,
education, gender, age, and functional diversity. We could
then use this index as a moderator to determine the customer
orientation organizational performance relationship. A related but different approach can be taken by building a
configuration model. Such a model could inform managers
about the ideal combination of diversities that would
maximize organizational performance or the relationship
between customer orientation and organizational performance
(Vorhies and Morgan, 2003).
Appendix A. Multi-item measures
Constructs
Customer orientation (source: Narver and Slater, 1990)
Our business objectives are driven by customer satisfaction
We closely monitor and assess our level of commitment in serving
customers needs
Our competitive advantage is based on understanding customers needs
Business strategies are driven by the goal of increasing customer value
We frequently measure customer satisfaction
We pay close attention to after-sale service
Environmental uncertainty (source: Jaworski and Kohli, 1993)
Extent of promotion wars
Similarity to competitors product offerings
Extent of price-based competition
Frequent changes in customer preferences
Impact of new technology on operations
Organizational performance (source: Li and Atuahene-Gima, 2001)
Return-on-investment
Return-on-sales
Profit growth
Return-on-assets
Overall efficiency of operations
Sales growth
Market share growth
Cash flow from market operations
Firms overall reputation

Appendix B. Format of the data collected on top

management team demographics
In this section, we attempt to measure the diversity of the
top management team. Please fill the following sections for

571

every manager who participates in the top management team of

your organization.

Manager

Manager
Manager
Manager
Manager
Manager
Manager
Manager
Manager
Manager
Manager

Functional Educational
area
background

Gender
(male/female)

Age
(years)

Experience
with the
company
(years)

1
2
3
4
5
6
7
8
9
10

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