Research Finds That When Top Executives Divide Responsibilities, Companies Fare Better

CEOs and other top executives can breathe a little easier now.

Contrary to popular belief, executive managers in small- to medium-sized firms don’t need to know every aspect of how the business operates, according to new research by UConn Management Professor Zeki Simsek and alumnus Ciaran Heavey ’09 Ph.D.

Especially in turbulent times, or in industries with constant change, it is advantageous to have a solid team with diverse expertise, among whom knowledge tasks are divided and leadership is truly shared.

“We discovered that you don’t have to know everything,” Simsek said. “Our research indicates that when executives are each able to focus on one or two areas of expertise, it is beneficial to the entire company.”

Simsek and Heavey’s research paper, “Transactive Memory Systems and Firm Performance: An Upper Echelons Perspective,” was recently published in Organization Science. Their study investigated 99 small- to mid-sized technology firms in the Northeast, mostly in Connecticut. The businesses, employing between 50 and 500 people, specialized in advanced materials, hardware and components, software, telecommunications or Internet.

Having different, but complementary, areas of expertise led to a high-performing corporation, Simsek said. “We found that a well-developed ‘transactive memory system’ provides a top management team with a means to integrate knowledge based on members’ specific areas of expertise in ways that increase its ability to improve company performance.”

While many studies have focused on executive teams and their interactions, this is the first large-scale look at the performance implications of delegating knowledge and learning responsibility among top executives, said Simsek, the Eversource Scholar at the UConn School of Business.

The study also sheds new light on how the influence of a top management team’s transactive memory is shaped by both the strength of managers’ social connections to the outside world and the degree of competition and adaptation required by an industry.

“‘Transactive memory’ is a system for the shared division of cognitive labor that encodes, stores and allows for the retrieval of knowledge from individual areas of expertise. It has been defined as contributing to the effective function and performance of teams by facilitating expertise sharing, problem solving, decision making and therefore reducing the need for extensive communication. Yet, its performance consequences among corporate leaders have not before been studied on a large scale, according to Simsek and Heavey, a Fulbright fellow at UConn, where he earned his doctorate, and is now a senior lecturer at the Lochlann Quinn School of Business at the University College Dublin.

“In particular, a focus on ‘transactive memory’ helps to address one of the cognitive ‘black boxes’ of research on top managers—the question of how they respond to strategic situations that exceed the collective abilities of individual team members,” the researchers wrote. “The question of how these teams organize, expand and harness their cognitive resources has remained elusive.”

“I think the lesson for start-ups and struggling companies may be to create behavioral contexts and systems in which transactive memory can emerge and fully operate,” Simsek said. “Not everyone has to be an expert on, let’s say, marketing or operations. Define who knows what, who will handle what and develop that coordination and trust.”

He added that he was surprised by how strong the evidence was that in a changing, dynamic environment, executives who micromanage each aspect of the business put themselves and their companies at a notable disadvantage. In that situation, with so much information to assess and scrutinize, it is imperative to be able to trust colleagues and divide tasks, he said.

One of the common mistakes of an overcommitted executive is to ignore what’s going on in the outside world, he said. Without external knowledge, the decision makers will grow increasingly insular and inward-looking, hindering the organization.

“Who you know on the ‘outside’ is important because it brings a fresh perspective to your team, whether it is contacts in government, other organizations, or your industry,” he noted.

“By facilitating a cooperative and extensive division of cognitive labor, together with routines for the exchange and integration of knowledge, a top management team’s ‘transactive memory’ can enable the team to handle complex demands and interdependency more efficiently,” the researchers said.