Uncertainty versus urgency: When top management team diversity hinders business model innovation

Firms' efforts to employ more diverse top management teams raise the question of whether diversity helps or hinders business model innovation (BMI) in response to two situations that managers frequently encounter: uncertainty (such as a turbulent, unpredictable environment) and urgency (such as poor financial performance). We contend that while a diverse top management team with a wide range of expertise and ideas to draw from may seem well equipped for BMI, whether it will succeed in promoting BMI depends on key contingencies. Thus, we argue that a diverse top management team will help innovate the business model under conditions of low financial performance as this instills a sense of urgency in the team, whereas environmental turbulence is likely to reinforce uncertainty and conflict among team members which deters innovation. Our analysis of Norwegian CEO-level survey data combined with national registry and accounting data corroborates our hypotheses. In sum, we find clear evidence of the importance of considering context-specific conditions when investigating the impact of top management diversity on BMI. Our study contributes to a more nuanced explanation of why firms, by virtue of their top management team compositions, may fail to innovate business models. For practitioners, our study can guide the purposeful composition of the top management team to match the requirements of firms' business environments. • The scope of business model innovation must match external and internal demands. • Diversity in top management teams positively affects business model innovation scope. • This effect is strengthened under conditions of urgency but not uncertainty. • Technological change exacerbates conflict among diverse teams, deterring innovation. • We offer practical guidance on top management team composition to foster innovation.