Strategic thinking and its impact on performance: An upper echelons perspective

Abstract

We elucidate the relationship between strategic thinking (distinct from strategic planning) and firm performance, grounded on the upper echelons perspective. The upper echelons theory argues that strategizing is best studied not only at the individual level but at the level of top management teams (Hambrick & Mason, 1984). We explore the effects of two cognitive process – cognitive diversity and team facilitation, in the relationship between strategic thinking and performance. We tested our hypotheses from data collected from Indian executives and students, using structured instruments and a short business simulation exercise. We found a negative relationship between strategic thinking competence and long term firm performance, positive relationship between strategic thinking and short term firm performance. Team processes in decision making also has a significant impact on strategic thinking and firm performance; whereas we found no support for cognitive diversity as an independent construct affecting firm performance, whereas cognitive diversity negatively impacted strategic thinking.