The Effects of CEO-TMT Shared Cognition on Radical Technological Innovation

Lohmar, David; Sabel, Christopher Albert; Nüesch, Stephan

Abstract

Incumbent firms’ approaches towards radical innovation are important for their sustained competitive advantage. Recently, studies focused on the cognition of chief executive officers (CEOs) and top management team (TMT) members to explain incumbents’ innovativeness. However, less attention has been paid to the shared cognition at the CEO-TMT interface, even though, the entire top management is essential in implementing radical strategic initiatives. Relying on a social-interactionism view of the CEO-TMT interface, we study the effects of CEO-TMT shared cognition on incumbents’ attainment of radical technological innovation. We test our hypothesis on 411 S&P500 firms between 2006 and 2017. We hypothesize and find that CEO-TMT shared cognition positively affects incumbents’ pursuit of radical innovation, up to a certain point, at which shared cognition negatively affects incumbents’ pursuit of radical innovation. We posit that the positive effect persists due to increasing CEO-TMT cohesion and concomitant confidence in pursuing high-risk business endeavors such as radical innovation. After a certain point, these positive effects become outweighed by the negative effect of groupthink, which limits divergent thinking and creativity, which are paramount for radical innovation. Our study develops the understanding of radical innovation within incumbent firms and contributes to the literature on shared leadership at the CEO-TMT interface.