R&D team diversity and performance in hypercompetitive environments

• DOI: http://doi.org/10.1002/smj.2577
• Author: Karin Hoisl,Annamaria Conti,Marc Gruber
• Published date: 01 July 2017
• Date: 01 July 2017

Strategic Management Journal

Strat. Mgmt. J.,38: 1455–1477 (2017)

Published online EarlyView 26 October 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2577

Received 29 December 2012;Final revision received15 July 2016

R&D TEAM DIVERSITY AND PERFORMANCE IN

HYPERCOMPETITIVE ENVIRONMENTS

KARIN HOISL,1,2,3*MARC GRUBER,4and ANNAMARIA CONTI5

1Chair of Organization and Innovation, University of Mannheim, Mannheim,

Germany

2Department of Innovation and Organizational Economics, Copenhagen Business

School, Copenhagen, Denmark

3Max Planck Institute for Innovation and Competition, Munich, Germany

4College of Management of Technology, Ecole Polytechnique Fédérale de Lausanne,

Lausanne, Switzerland

5Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia,

U.S.A.

Research summary: This article examines the effects of an R&D team’s composition on its

performance outcomes in hypercompetition. The fundamental feature of rms inhypercompetitive

settings is that they are constantly challenged to improve their competitiveness in a relentless

race to outperform one another. Analyzing a unique data set from the Formula 1 motorsport

racing industry, we nd an inverse U-shaped relationship between team diversity in task-related

experience and performance an important result that diverges from well-established theories

developed in more stable environments. Fundamentally, we show that the role of R&D team

experience diversity varies dependingon the size of the organizationsin which R&D teams operate.

While we nd a moderating effect for rm age, this effect is not as robust as that of rm size.

Managerial summary: This article examines the relationship between R&D team composition

and performance in fast-moving environments. Firms in these environments are constantly

challenged to improve their competitiveness by outperforming one another. Analyzing a unique

data set from the Formula 1 motorsport racing industry, we nd that a team’s diversity in

job-related experience increasesits performance up to a certain extent. Once R&D teams become

too diverse, performance decreases because communication and coordination become more

difcult. We also show that the role of R&D team diversity varies depending on the size of

the organizations in which R&D teams operate. Overall, our ndings provide several novel

implications for the strategy, innovation, and team literatures. Copyright © 2016 John Wiley

& Sons, Ltd.

INTRODUCTION

Over the course of the past two decades, strategy

scholars have directed their attention to the hyper-

competitive nature of many business environments

(D’Aveni, 1994; McGrath, 2013; Sirmon etal.,

2010; Wiggins and Ruei, 2005), emphasizing

that it has become increasingly difcult for rms

Keywords: innovation; hypercompetition; R&D; teams;

experience diversity

*Correspondence to: Karin Hoisl, University of

Mannheim, L5, 4 68161 Mannheim, Germany. E-mail:

hoisl@bwl.uni-mannheim.de

Copyright © 2016 John Wiley & Sons, Ltd.

to remain competitive due to intense rivalry, rapid

technological change, and high rates of knowledge

obsolescence (Bettis and Hitt, 1995; D’Aveni,

Dagnino, and Smith, 2010; Eisenhardt, 1989).

Under such uncertain and volatile conditions, rms

are in an “incessant race to get or keep ahead of

one another” (Kirzner, 1973: 20).

As can easily be imagined, hypercompetitive

environments place critical demands on R&D

teams, given that they operate at the locus of rms’

inventive activity, and are thus one of the most

important inputs to the innovation process (Cardi-

nal, 2001; McGrath, 2013). These teams not only

1456 K. Hoisl, M. Gruber, and A. Conti

have to keep up with the rapid pace of technological

change, but they are also challenged to overtake

competitors’ inventive efforts in order to bolster

their performance (Lengnick-Hall and Wolff,

1999). Yet, not just any type of R&D team can

achieve the desired performance outcomes in these

extreme conditions. Indeed, research on teams oper-

ating in highly demanding, uncertain conditions

(e.g., re ghters, SWAT teams, c.f. Bechky and

Okhuysen, 2011; Klein et al., 2006; Weick, 1993;

Weick and Sutcliffe, 2001) has suggested that it is

not only the setup of a team (in particular, the cogni-

tive resources that a team has at its disposal) that is

critical to team performance, but also the preexist-

ing material, cognitive, and social resources that the

team can access in its organization (c.f. Baker and

Nelson, 2005; Miner, Bassof, and Moorman, 2001).

Regrettably, we know less than we should about

R&D teams operating in hypercompetition— either

in terms of how they should be optimally congured

to accomplish their challenging work, or in terms of

the teams’ organizational context that is most con-

ducive to their successful performance. However,

given that an increasing number of rms are con-

fronted with hypercompetition, it becomes essential

to go beyond merely assuming, or speculating, that

existing theories and insights derived from research

in more stable environments can be transposed to

such extreme settings (D’Aveni, 1994; McGrath,

2013). In fact, we have reason to believe that

current insights on R&D team performance may

not, or only to a limited extent, be applicable to

hypercompetitive settings. While a meta-analysis

of 35 published team studies indicates a positive

relationship between the task-related experience

diversity of teams and their performance (Horwitz

and Horwitz, 2007), it has to be acknowledged

that greater levels of diversity imply increasing

communication and coordination costs (Reagans

and Zuckerman, 2001). This could lead to a slow-

down of the R&D process— which is particularly

problematic in the fast-paced environment of

hypercompetition. These costs may at some point

become so large that they could outweigh any gains

from increased diversity, and team performance

may actually start to decrease— which suggests an

inverse U-shaped relationship instead of a positive

relationship. Moreover, the existing literature on

the team composition– performance relationship

is agnostic to the organizational context in which

teams are embedded (Joshi and Roh, 2009). Yet,

as the handful of qualitative studies investigating

teams in extreme settings indicate, the organiza-

tional context is a fundamental factor that shapes

team performance outcomes in hypercompetition.

Given these observations, the present study is

not only interested in better understanding how

teams should optimally be congured (in terms of

their diversity in task-related experience) to achieve

superior performance outcomes in hypercompeti-

tion, but also in how the organizational context

(in particular, the size and age of an organization)

affects the team diversity–performance relationship

in this extreme setting.

We test our set of hypotheses using data from

the Formula 1 (F1) motorsport industry. F1 data

have recently been used in management research

to examine market relationships (Castellucci and

Ertug, 2010), knowledge spillovers (Solitander and

Solitander, 2010), technology evolution (Jenkins

and Floyd, 2001), competitive balance (Mastro-

marco and Runkel, 2009) as well as agglomeration

and cluster effects (Pinch and Henry, 1999). The

F1 context is particularly well suited to the focal

interest of our research because it is a highly com-

petitive, fast-paced industry, characterized by the

fact that R&D teams’ performance depends on their

ability to continuously innovate and improve their

cars’ speed. In the truest sense, these constructors

are in an incessant race to beat the competition,

as Kirzner’s (1973) quote from our introductory

paragraph suggests.

Our unique data set covers the upper echelons

of 88 F1 R&D teams that built a total of 141 race

cars during the period 1993– 2008. For these cars,

we observe 2,359 qualifying outcomes in F1 World

Championship Grand Prix races and can draw on

precise and objective R&D team performance data

over the entire sample period. The ne-grained

nature of our data is essential to research seeking to

understand the drivers of R&D team performance

in hypercompetition, as important relationships

could be masked when only coarse-grained data is

available (D’Aveni et al., 2010).

THEORETICAL BACKGROUND

Hypercompetition and the limited sustainability

of competitive advantage

Hypercompetition is the result of strategic maneu-

vering among competing rms (Markides, 1999). In

his seminal contribution, D’Aveni(1994: 217 –218)

Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 1455–1477 (2017)

DOI: 10.1002/smj