Introduction

Due to the increasingly turbulent and unpredictable nature of the environment, organizations have been forced to boost their performance through constantly reviewing their strategies.  Strategy scholars postulate that sterling performance in any organization is dependent on more than one factor (Ogollah et al., 2011) among them having top managers with diverse characteristics ((Belderbos et al., 2022; Mkalama & Machuki, 2019).  Research on top managers continues to flourish because they are the strategy drivers in organizations.  Organizations must therefore employ capable and diverse leaders who can develop high quality strategies that increase profits and promote development (Gachugu et al., 2019).  

The application of diversity in selection of top managers has been used successfully as a tool to gain competitive advantage because diversity supports creativity and a capacity for innovation at the organizational level (Urbancova et al., 2020). Diversity enhances a team’s information processing capacity and improves strategic decision making resulting in positive financial performance (Ponamareva et al., 2022). Top managers in an organization influence the speed and scope of change within an organization. Since change is constant, it is imperative that organizations have managers that can manage change.

The insurance industry globally emerged due to the need to protect human lives and property from unexpected occurrences and major disasters (AKI. 2019). The process of globalization and intensified novel technologies has resulted in the occurrence of risks that were generally considered insignificant (Njegomir & Marovic, 2012). There has been manifestation of risks with significant economic consequences in countries that were stable due to changes in political environments. Insurance companies have a critical role as they are tasked with handling risks that can destroy livelihoods and organizations. They facilitate key financial services and support economic activities by taking care of risks (Tukur & Bilkisu, 2014). They provide indemnity which permit commercial transactions and offer economic benefits by contributing to the GDP of a country and providing employment opportunities(AKI report, 2019). Insurance enables entrepreneurs undertake high risk- high return investments hence promoting growth (Swalehe et al., 2015). The contribution of finance and insurance industries to the GDP in the U.S was estimated at 7.6%. In Kenya insurance company assets to GDP percentage was reported at 6.6396% in 2019 according to the World Bank collection of development indicators.

Despite the benefits provided by insurance,  Kenya’s insurance penetration stood at 2.37 percent in 2019 which was below the worldwide mean of 6.28 percent (IRA, 2019). This statistics confirm that insurance companies operate way below their potential. Insurance companies have great pressure to increase profits and maintain customer loyalty in competitive and dynamic environments (Njegomir & Marovic, 2012). Among the challenges affecting performance of  these companies  are unfair competition due to non-adherence of agreed premiums and apathy from consumers. AKI (2019) attributed apathy to insurance on erosion of the image of the industry over the years due to actual and perceived malpractices.  Studies have shown that the right image and a good reputation of an organization can be a strategic asset (Ladipo & Ganiyu, 2013) hence a source of competitive advantage. The study sought to interrogate whether insurance companies could boost their performance through having top managers with diversity in their characteristics. Diversity brings a mix of skills and expertise that can be beneficial to strategic decisions taken in an organization.

The study was founded on the upper echelon theory which postulates that the diverse characteristics of top managers has an influence on their strategic decisions and consequently firm performance (Hambrick & Mason, 1984). Studies on manager diversity in relation to firm outcomes have presented mixed results leaving this stream of research open to further interrogation. (Gachugu et al., 2019; Cambrea et al., 2017).  Even though some scholars highlight  positive effects of diversity (Rayburn et al., 2023; Mkalama & Machuki, 2019; Wasike et al., 2015;), some present its insignificant effects (Awino, 2013; Mutuku et al., 2013) and others negative effects of diversity on performance (Mwangi, 2018).

This study addressed conceptual gaps in research by testing  the influence of TMT diversity on competitive advantage,  a concept that has not been adequately addressed. Three indicators of competitive advantage were examined. The study variables were introduced and conceptual and contextual gaps highlighted following a review of literature. The study methodology was discussed, the findings presented and conclusions drawn from the findings. Finally, the implications of the study and areas for further research were suggested. The findings of the research could help insurance companies address challenges in   performance through selection of senior executives with  diverse qualities.

Literature Review  

Top managers in organizations are tasked with entire performance of firms because they give strategic direction to organizations (Papadakis & Barwise, 2002). They engage concerted expertise, integrate divergent effort and share responsibility for the success of an organization (Cohen & Bailey, 1997). This study was anchored on the upper echelon theory which proposes that organizational performance is a function of top management characteristics (Hambrick & Mason, 1984). It argues that the strategic decisions implemented in firms mirror the ideals and mental models of senior executives which  are reflected in their demographic qualities ( Carpenter et al., 2004). This theory has been adopted in many TMT studies to comprehend the influence of top manager characteristics on firm outcomes (Rayburn et al., 2023; Wasike & Owino, 2020; Gachugu et al., 2019; Tihanyi et al., 2000).

Diversity can be evident in qualities such as age, functional expertise, level of education and tenure in the organization (Machuki & Mkalama, 2019). It can also be with respect to culture (Ponomareva, 2022) ,  international experience and nationality (Belderbos et al., 2022). Despite mainstream research examining diversity with demographics,  strategy scholars argue that demographics do not necessarily represent  psychographics, that is, personality, beliefs, values and attitudes (Oketch et al., 2020; Kinuu, 2014; Hunt et al., 1990).  The study thus constructed manager diversity with both demographic and psychographic indicators and analyzed the influence of top management team diversity on competitive advantage.

Homberg and Bui (2013) acknowledged that whereas the upper echelon theory related observable qualities of executives to performance,  social psychology theories were important for  comprehending the relationship between  manager psychographics and firm performance. This study adopted two social psychology theories specifically, the information decision making perspective and the similarity-attraction perspective  (Homberg & Bui, 2013) to complement the upper echelon theory.

The resource advantage theory guided conceptualization of TMT diversity influence on competitive advantage in the research. It is applied to comprehend differences in organizational performance due to variation in resources possessed (Prem & Butler, 2001). It proposes that organizational inputs can be a source of competitive advantage if they are scarce, specialized and appropriable (Barney, 1991; Wernefelt, 1984). Such resources and capabilities are invaluable, unique, non-imitable with no strategic comparisons (Barney, 1991). Firms that have unique resources achieve superior performance compared to competitors, especially if the resources they possess are costly to imitate.  Newman et al. (2014)  equated human capital to knowledge and skills acquired through training, social capital to benefits that resulted from individuals having social networks and psychological capital  to employee attitudes and behavior that could influence performance.

Top Management Team Diversity

TMT diversity defines the extent that managers vary with respect to various characteristics (Hambrick et al., 1996).  These characteristics include demographic, psychographic and behavioral qualities (Wasike et al., 2015).  Hambrick (2007) observed that even though demographic qualities of managers were used as a representation of their psychographics, they did not fully represent them, hence the study defined TMT diversity with a composite of demographic and psychographic qualities.  Diversity in demographics  include diversity in age, level of education, tenure in the organization and functional specialization(Al Matari et al., 2023 ; Gachugu et al., 2019; Cambrea et al., 2017). Diversity in psychographics has been defined using variation of individuals with respect to levels of hope, optimism, resilience, self-efficacy (Kinuu, 2014), social capital and shared mindset (Rayburn et al., 2023).  

Age defines the number of years one has lived. People of similar age are likely to perceive situations in a cognate manner due to shared life experiences, similar ideals and beliefs (Mwangi, 2018; Cambrea et al., 2017). Older executives  are perceived to have reduced physical and mental stamina and thus limited ability to internalize novel concepts and adopt new behaviors (Mwangi, 2018). Younger executives conversely are more energetic, are risk takers and embrace modern governance styles (Aboramadan, 2021). Education acquired by top managers scrutinizes their highest level of education. Education reflects one’s knowledge base, reasoning capacity and expertise (Wiesema & Bantel, 1992). Managers with higher education have been shown to exhibit better performance (Rayburn et al., 2023).

Functional background represents a place in which a top manager has spent the greatest time with regards to tasks performed in an organization (Cohen & Bailey, 1997). It touches on practical skills and knowledge acquired over the years which will be beneficial to the task at hand (Qian, Cao, Takeuchi, 2013). Cannella et al. (2008) defined dominant functional background as a manager’s base of information, ideas, experience and expertise that improved decision effectiveness.

Tenure diversity denotes the extent to which senior managers have spent widely different periods of time serving in a given organization (Hambrick et al., 2015). It determines a manager’s relationship with coworkers (Mwangi, 2018). Long tenure is positively associated with specialized and organizational relevant knowledge (Cambrea et al., 2017) but conversely increases complacency and inability to embrace new ideas (Hambrick et al., 1996). Tenure homogeneity is argued to nurture similar perspectives, better communication and team consensus (Aboramadan, 2021; Knight et al., 1999; Bantel, 1993).

Manager psychographics reflect their cognitives, values and beliefs (Oketch et al., 2000; Kinuu, 2014). Peterson and Zhang (2011) classified psychographic characteristics as trait and state like. Trait - like characteristics were influenced by one’s genetic makeup hence were difficult to change. They included self-awareness and psychological well-being. State-like characteristics included task related self-efficacy, optimism and resilience. This study adopted indicators from Kinuu (2014) to analyze manager psychographics and these included hope, self-esteem, optimism, resilience and general self-efficacy.  

Competitive Advantage

Competitive advantage is an advantage gained through defending a market position or creating qualities that will enable an organization give superior performance compared to competitors (Awwad et al., 2013).  Cavulsgi and Zou (1994) defined it as a firm’s gain in market position relative to competing firms when it could deliver same benefits at a reduced price or deliver more benefits than competitors. The concept has drawn a lot of interest in discussions of business strategy because competitive advantage impacts enterprise performance (Dirisu et al., 2015).  From a theoretical perspective, it has attracted the interest of management scholars since most theories have performance implications. Empirically, studies use competitive advantage to analyze manager decisions and actions (Gliebner et al., 2013; Goksoy et al., 2013; Ferrier, 2001).

Competitive advantage can be eroded due to environmental dynamism (Ceglinski, 2016). Its unpredictable nature is reinforced by common occurrences in the environment for instance events of globalization, advancement of technology, changes in fashion trends and demographics of a population (Amit & Shoemaker, 1993). Faced with continual dynamism and aggressive competition, organizational strategy becomes more about generating rapid response and adjustment to create continuous temporary advantage and less about creating positions of sustained competitive advantages (Grant, 2010).

Competitive advantage is a multi-dimensional construct operationalized with varied indicators. Its operationalization is rooted in the resource advantage theory which fronts competitive advantage as a function of organizational resources (Wernefelt, 1984: Barney, 1991). Strategy literature presents similarities and differences in these indicators. One quality that was perceived to give an organization competitive advantage was its size. A big organization was capable of reducing cost of production through economies of scale.

Aggarwal and Ramaswami (1992) operationalized competitive advantage using company size, internationalization and ability to develop unique products.  Cavusgli and Zou (1994) presented both company characteristics and product qualities as indicators of competitive advantage. These company characteristics included size and resources possessed whereas the product characteristics were uniqueness and patent strength. Weerawardena (2003) presented competitive advantage as a function of product, process, marketing and management innovations. Moen (2002) presented it as a function of price, marketing and technological advantage. Gleibner et al. (2013) reviewed empirical studies and after acknowledging that competitive advantage was broadly constructed, they summarized the common indicators of competitive advantage as innovation strength, technological advantage and international experience. By using these three indicators, firms could achieve competitive advantage and market leadership through developing unique products, having advanced technology and exposure to global markets.

The traditional perspective towards gaining competitive advantage involved utilization of inbuilt resources and external opportunities and management of external threats and firm deficiencies (Barney, 1995). Top management international diversity conferred an organization competitive advantage through higher innovation performance (Belderbos et al., 2022). Two major perspectives that strategy scholars have taken to explain competitive advantage are the industry positioning perspective and the resource advantage perspective (Awwad et al., 2013). The industry positioning perspective attributes competitive advantage to advantages a firm will be exposed to when operating in specific industries (Porter, 1991). The resource advantage perspective conversely emphasizes that there is a definite connection between resources possessed by an entity and its position in the market (Dirisu et al., 2015; Prem & Butler, 2001). This study evaluated competitive advantage with respect to TMT diversity to uncover the fundamentals that nurture an entity’s competitiveness in the market. 

2.4 Top Management Team Diversity and Competitive Advantage

Strategy scholars postulate that for an organization to attain competitive advantage, there will be internal factors in the firm or external ones in the environment that favor its operations ((Barney, 1991: Porter, 1991). Among internal factors in an organization that influence performance are senior executives tasked with strategy formulation and implementation (Wasike & Owino, 2020).  Hambrick and Mason (1984) postulated  that because top management teams are composed of individuals with diverse qualities, managers will use individualized interpretations to analyze and implement strategic contexts that they encounter. Their interpretations will be based on their experiences, ideals and characters (Hambrick, 2007). 

Since there are no precise measures of cognitives, values and personalities of managers, demographic characteristics have been used to represent psychographics with scholars arguing that they have objectivity, parsimony, comprehensibility, logical tolerance and predictive power (Carpenter et al., 2004). Studies have shown positive correlations between diversity and enterprise outcomes (Rayburn et al., 2023; Belderbos et al., 2022; Mkalama & Machuki, 2019; Wasike et al., 2015). Diversity in top tier teams enhances creativity and innovation as it brings  a concoction of skills, opinions, cultures, ideas and experiences (Rayburn et al., 2023; Ponomareva, 2022; Qian, Cao & Takeuchi, 2013; Gachaga et al., 2019; Urbancova et al., 2020) that can confer superior outcomes.

Studies have shown that age will affect strategic decisions that involve risk taking such as internationalization (Cannella et al., 2008). As people age, they are likely to be less flexible and more rigid in their thinking. Older executives have reduced physical and mental stamina and thus limited ability to internalize novel concepts and adopt new behaviors (Mwangi, 2018). Younger executives conversely take more risks and embrace modern governance styles (Aboramadan, 2021).

Research has shown that managers with higher education levels perform better (Rayburn et al., 2023; Machuki & Mkalama, 2019), take more reasonable approaches in decision making and display more innovative solutions to challenges (Papadakis & Barwise, 2002).  They are also better at problem solving, scanning the environment and adjusting the strategies in a dynamic setting (Qian, Cao, Takeuchi, 2013). A broader knowledge base implies receptivity to innovation, open mindedness, better understanding of situations and willingness to change and try out new ideas ( Tihanyi et al., 2000). Bantel and Jackson (1989) demonstrated that managers with higher levels of education headed banks that were innovative.

With operating environments becoming more complex and unpredictable, it is crucial that TMTs are composed of managers with a variety of functional skills (Al Matari et al., 2023; Certo et al., 2006). Studies have reported that diverse functional skills endow firms with better responsiveness to uncertainties in the market (Qian et al.,  2013; Cannella et al.,2008). According to Hambrick et al. (1996) diverse functional specialization was beneficial on decisions taken and enhanced innovativeness which augured well with performance.

The amount of time a manager has worked in a specific organization determines their relationship with newcomers and with coworkers who joined at the same time. (Mwangi, 2018). Long tenure is positively associated with clarity of an organization’s procedures, policies and goals and has a positive impact on strategic and competitive response (Hambrick et al., 1996). Conversely, it is criticized for nurturing status quo and reluctance and resistance to change (Wiersma & Bantel, 1992). Tenure diversity affects strategic consensus due to its effect on communication level and social cohesion (Knight et al., 1999). When managers work in an organization for many years, there is a greater chance of complacency, structured thinking and inability to embrace new ideas (Hambrick et al., 1996).

Scholars have demonstrated that a heterogeneous TMT with respect to gender, international experience and educational background presented a competitive advantage and was beneficial for financial performance of firms (Rayburn et al., 2023; AlMatari et al., 2023).  Kinuu (2014)  examined  the relationship between diversity and performance using psychological capital constructs and concluded that TMT behavior  measured with psychographic characteristics of managers significantly impacted non-financial performance of firms. Wasike et al. (2015)  expanded diversity to include demographic, psychographic and behavioral diversity. While acknowledging the role played by demographics in influencing firm performance, they demonstrated that psychographic and behavioral characteristics were the two  most important components of TMT characteristics critical for firm performance. Oketch et al. (2020) similarly demonstrated that TMT diversity conceptualized with psychographics significantly and positively influenced performance of regulatory institutions.

Some scholars have presented negative or insignificant effects of heterogeneity on firm outcomes. Knight et al. (1999) examined TMT heterogeneity effect on group processes and strategic consensus using functional background, age, education and tenure. They reported that whereas education and functional background heterogeneity displayed negative effects on strategic consensus, age diversity was insignificant on strategic consensus. Awino (2013) and Mutuku et al. (2013) similarly reported inconsequential results of diversity on firm performance. Mutuku et al. (2013) studied diversity using age, gender, level of education, tenure and functional specialization and reported insignificant results of heterogeneity in TMT characteristics on firm outcomes. Their findings additionally revealed that quality of decisions intervened to affect the association between diversity and outcomes in banks.

Despite the robust studies on top manager diversity effects on firm outcomes, the findings remain ambiguous. There have been calls for research to shift to other dynamics that come into play to influence this relationship (Aboramadan, 2021; Awino & Bwire, 2018) and the process through which diversity affects firm outcomes  (Carpenter et al., 2004). Whereas researchers have demonstrated the positive association between TMT diversity and organizational outcomes, studies that directly link TMT diversity  to competitive advantage have been slow to accumulate (Rayburn et al., 2023). The study addressed this gap in upper echelon research by analyzing the influence of TMT diversity on competitive advantage.

Methodology

Study Design

The research was conducted using cross sectional descriptive survey after consideration of the research objectives. The method involved gathering data from firms in a particular industry during the same period and enabled the researcher to evaluate the magnitude and strength of relationships among the key study variables (Mugenda & Mugenda, 2003).  Structured questionnaires were disseminated physically or through electronic mail to the respondents to be filled at their own time. This enabled minimal intrusion into the respondents’ activities and company operations. Since data collected was done with no interference from the researcher, it was suitable and useful for the study. The design is commonly employed in social science research for deductive studies and was used successfully for theory testing by Mkalama and Machuki (2019) and Qian, Cao, Takeuchi (2013)

Population and Sample Design

The context of the research was insurance companies operating in Kenya during the period of study which stood at 54 as at February 2019 (IRA, 2019).  The population encompassed companies that are regulated by the Insurance Regulatory Authority(IRA) and recognized by the Association of Kenya Insurers as conforming to industry requirements. Following establishment of the IRA in 2006, insurance companies demerged into life and general insurance providers. Twenty eight companies were classified as general insurance providers, 16 as providers of life insurance and 10 as insurance firms providing both general and life insurance (IRA, 2019). Since the population targeted was small, the study employed a census survey  which covered the entire population and had the advantage of reducing sampling error (Kinuu, 2014). The research was conducted on 41 companies that availed a respondent. The target respondents included the chief executive officers of the companies and other senior executives that headed key departments in insurance companies such as human resource, marketing, finance, reinsurance and claims.

Data Collection

The study relied majorly on primary data but was supported by secondary data. The researcher made initial contact through physical visits to the insurance companies to introduce the purpose of the research. The research questionnaires were dispensed physically or through electronic mail to targeted respondents. Two weeks was given for the respondents to go through the questionnaire and complete it and thereafter they would be collected physically or emailed at a later date. Since the targeted respondents were TMT members, they understood the company operations and had the ability to fill the questionnaire within the required time.

Primary data for the research was gathered with questionnaires containing close ended questions. This ascertained that data gathered was current and could assist in establishing authentic trends. A five point Likert type scale that allowed an individual to provide the level to which they agreed with a statement was adopted and this minimized response discrepancy. The data collected provided general information about the insurance companies, their manager demographics and psychographics and strategies employed by the firms to gain competitive advantage. Secondary data was obtained from the insurance industry publications that included Association of Kenya Insurers and Insurance Regulatory Authority reports. Secondary data included the registered insurance companies, their  years of establishment  and sizes of the company with respect to employee count.

Operationalization of Study Variables

The independent variable was TMT diversity and  was constructed with a composite of  demographic (age, education level, functional background and tenure) and psychographic indicators (hope, self-esteem, optimism, resilience and general self-efficacy). These were adopted from empirical studies done using upper echelon and resource advantage theories (Mwangi, 2018; Kinuu, 2014). The raw score for all the indicators produced a composite score for TMT diversity. This operationalization addressed the gap highlighted on interrogation of the black box in TMT diversity studies. Competitive advantage was the dependent variable in the study and was constructed using indicators of innovation strength, technological advantage and international experience as advocated by (Gliebner et al., 2013). These indicators had been derived using modeling after summarizing common indicators of competitive advantage in many studies.  It addressed a gap in TMT studies that had previously operationalized competitive advantage with single indicators such as innovation (Qian et al., 2013) and global diversification (Tihanyi et al., 2000).

Analytical Model

Data analysis was done for both descriptive and inferential statistics using SPSS version 22. Reliability of the data was first tested using Cronbach’s Alpha Index that is accepted as a suitable measurement for reliability when Likert type scales are used (Whitley, 2002).  TMT diversity had a Cronbach alpha index  of 0.925 whereas  competitive advantage presented a score of 0.911.  Rosaroso (2015) stated that coefficients of reliability that presented a value of 0.8 or greater were satisfactory. The study conducted tests of validity both for content and construct. Construct validity was enhanced by using indicators from previous related studies. Descriptive analysis covered the demographic characteristics of the top managers and those ofthe insurance firms. The size of insurance companies was presented with respect to employee count and thereafter the top managers’ profiles discussed with respect to their age, education level, organizational tenure and functional specialization. Descriptive statistics evaluated the data with respect to mean, standard deviation, percentages and coefficients of variation. Inferential statistics examined the influence of top management team diversity on competitive advantage using simple and multiple regression models.

Findings and Discussion

The key objective of the research was to analyze the influence of TMT diversity on competitive advantage of insurance companies in Kenya. The population targeted for the research was insurance companies in Kenya that are regulated by IRA which were 54 in the AKI (2019) database. The study adopted a census survey due to the small nature of the population. Despite questionnaire submission to all 54 companies, 41 fully participated in the study by availing a respondent giving a response rate of 75.9%. This compared well with other census surveys conducted in related industries in Kenya (Kinuu, 2014), hence the sample was sufficient for addressing the research problem. Content and construct validity were tested through factor analysis using Kaiser-Meyer-Olkin (KMO) and Bartlett’s tests.

Top managers in the study were defined as chief executive officers of the insurance companies and other senior executives that headed key departments in insurance companies which included human resource, marketing, finance, reinsurance and claims.  The findings on organizational demographics were presented using graphs.

Organizational Size

Figure 1: Number of Employees in the Organization Click here to view Figure

Age Composition of Top Managers

Table 1: Age Distribution of Respondents

Source:  Primary Data (2021)

Education Level of Top Managers

 Table 2: Education Level of TMTs

Source:  Primary Data (2021)

Manager’s Tenure in the Organization

Figure 2: Years Served in the Current Organization Click here to view Figure

Functional Background of Top Managers

Table 3: Functional Background of TMTs

Source:  Primary Data (2021)

The research evaluated the size of the insurance companies in terms of employee count. It found that 3.3 percent of the insurance companies had over 1000 employees, 48.8 percent of the insurance companies had between 101 to 500 employees, with 11.4 percent having between 501 to 1000 employees. Majority of insurance companies could thus be classified as medium size enterprises. The findings revealed that managers in the category of 31-40 years were 46.3 percent while 29.3 percent of managers were aged between 41-50 years. Since the highest numbers of managers were aged between 31-40 years, top managers in insurance companies were relatively young. The findings revealed that the percentage of top executives who  had a Bachelor’s degree  stood at 53.7 percent while top managers who had acquired a Master’s degree represented 39.0 percent of the respondents. This implied that top managers in insurance companies were well educated.

From the findings, 52.8 percent of managers had spent less than 6 years in their organization’s while 30.9 percent had worked in the organization for 6 and 10 years.  Managers that had a tenancy in the organization of 11 to 15 years stood at 13.1 percent while 3.2 percent of managers had worked in the organization for greater than 16 years. The findings revealed that many top managers had spent less than 6 years in their companies. Given that insurance companies have relatively young well educated managers, and that they operate in highly competitive and dynamic environments, shorter tenures for their managers could  imply personal  growth. According to the statements presented to the respondents, tenure in the organization was least considered for making decisions.The findings revealed that top managers in insurance companies had diverse functional specialization with majority of respondents in the study being human resource managers at 26.8 percent. The mix in functional specialization of top managers in insurance companies was advantageous as it brought different expertise to decision making in the organization.

Responses on Top Management Team Diversity

TMT diversity was operationalized with a composite of demographic (age, education level, functional background and tenure) and psychographic indicators (hope, self-esteem, optimism, resilience and general self-efficacy) from conceptual and empirical studies that had been done using upper echelon theory ( Hambrick & Mason, 1984; Mwangi, 2018; Kinuu, 2014).  To ascertain the influence of TMT diversity on competitive advantage, the study outlined 13 descriptive statements with demographic and psychographic indicators. Demographic diversity focused on the importance of demographics when it came to  decision making in the organization while psychographic diversity focused on top manager’s perception on achieving goals and targets and their aggressiveness and responsiveness towards addressing emerging issues including perceived failure. The aim was to establish if TMT diversity influenced competitive advantage. The respondents rated the extent of significance of various diversity indicators on  a five-point Likert scale where “1= No Extent” to “5 = Very Great Extent”. The study findings were displayed in Table 4.

Source:  Primary Data (2021)

The findings revealed that the mean scores on the TMT diversity statements were above 2.5 on the Likert scale which corresponded to moderate extent. The respondents generally agreed that various aspects of demographic diversity were important for decision making. Therefore, age, level of education, tenure in the organization and functional skills of an individual were influencers of firm outcomes. Among demographic diversity statements, functional skills while recruiting presented the highest extent of consideration (mean = 3.20, SD = 1.201, CV = 66.7%), while tenure in the organization presented the lowest extent of consideration when making decisions (mean = 1.50, SD = 1.501, CV = 42.9%). A high variation in responses was observed in minimum professional requirement (CV = 71.2%) and a low variation in responses on age as a critical factor for recruitment of top managers (CV = 37.2%).

The mean scores for psychographic diversity had higher values on the scale compared to demographic diversity. The highest score was observed on the statement that top management believed that their organizations could achieve set goals (mean = 3.20, CV = 1.228, CV = 68.2%) and that top management encouraged achievement of set targets (mean = 3.20, SD = 1.389, CV = 77.2%). A high variation in responses was observed regarding top management encouraging achievement of set targets with a coefficient of variation of 77.2%. Least variation in the responses was observed on the statement that top management recovered quickly after failure with a coefficient of variation of 60.3%. Among demographic diversity statements, functional specialization presented the highest extent of consideration when it came to decision making. Level of education was also important while tenure served presented the lowest extent of consideration with respect to decision making. With respect to psychographic diversity statements, there was general consensus that top managers believed in and encouraged attainment of goals and targets, implying that their beliefs and optimism  would affect competitive advantage. Despite this, they took time to recover after failure indicating a low level of resilience.

Responses on Competitive Advantage of Firms

Competitive advantage was  operationalized using innovation strength, technological advantage and international experience (Gliebner et al., 2013). Ten descriptive statements were outlined to be rated on a 5 point Likert scale.  The respondents rated the extent that their companies adopted various indicators to gain competitive advantage. A five-point Likert scale of 1 = Less than 10%, 2 = 10% – 20%, 3 = 20% – 30%, 4 = 30% – 40%, and 5 = More than 40% was used.  This was adopted from ratings used for businesses in related industries. A summary of the responses on this study variable was presented in Table 5.

Source:  Primary Data (2021)

The  mean rating on the statements for competitive advantage was above average at 3.26. The highest mean rating of 4.19 was observed on the use of digitalized operating systems to gain competitive advantage. (mean = 4.19 SD = 1.043, CV = 24.9%).  A low CV for this statement implied that the respondents generally agreed with this statement. The lowest CV  was observed on the use of proficient communication and information systems to gain competitive advantage (mean = 4.11, SD = 1.01, CV = 24.6%). The lowest mean score of 1.84 was observed on the statement  that company’s placement of top managers in foreign markets enabled a gain in competitive advantage 1.84 (SD = 1.298) with a  high variation in the responses (CV = 70.9%). According to the statements presented, innovation strength and technological advantage rated higher than international experience as means by which insurance companies used to gain competitive advantage.

Top Management Team Diversity and Competitive Advantage

The objective of the study was to examine the influence of  TMT diversity on competitive advantage of insurance companies. This was evaluated by testing the null hypothesis H₁, TMT diversity has no significant effect on competitive advantage of  insurance companies in Kenya. The corresponding regression model was expressed as

Y = β₀ + β₁ X + ε                                                                                            (i)

Y = Competitive Advantage (Dependent variable)

X=Top management team diversity (Independent variable)  

ε = error term.

β₀ = constant term (intercept for the model)   β₁= regression coefficient for TMT diversity

Table 6: Direct Influence of Top Management Team Diversity on Competitive Advantage

Source: Primary Data, 2021

The findings from the regression model summary presented in Table 6 revealed  that competitive  advantage had a correlation index of 0.518 when regressed against TMT diversity, indicating a significant relationship between competitive advantage and TMT diversity. The coefficient of determination R² value was 0.268. This implied that TMT diversity accounted for 26.8% of the variation in competitive advantage of insurance companies. The ANOVA statistics indicated a  p value of 0.001 which was lower than 0.05 at 95% confidence level. The regression coefficients’ indicated that TMT diversity positively affected competitive advantage of insurance companies.The direct effect model representing the effect of TMT diversity on competitive advantage was expressed  with the equation 

Y = 0.886 + 3.842 X

Y= Competitive Advantage

X= TMT Diversity                

Impliedly, the more diverse the top managers  were, the more insurance companies gained competitive advantage as indicated by a positive beta value (β = 3.842, SE = 1.017). There was a gain in competitive advantage by 3.842 units when a company had diversity in its top management team. Thus the null hypothesis H₁ of no significant influence of top management team diversity on competitive advantage was rejected at 5% significance level.

These findings support those of scholars who have reported positive correlations between diversity and enterprise outcomes (Rayburn et al., 2023; Mkalama & Machuki, 2019; Wasike et al., 2015; Cambrea et al., 2017). TMT diversity on the overall displayed a beneficial influence on competitive advantage. The findings  consequently support  the upper echelon theory that TMT diversity has an influence  on firm outcomes. TMT diversity brings broader perspectives, varied mental capacities and enhanced problem solving skills that is beneficial for firm performance.

Diversity as composited with demographics and psychographics displayed a significant effect on competitive advantage hence backing the findings by Wasike et al. (2015) that the two aspects of diversity were important for firm performance. That psychographic diversity mattered also supported findings by Oketch et al. (2020) and Kinuu (2014) who reported that psychographic diversity of managers influenced firm outcomes.

Diversity can interfere with communication and cohesiveness in a team with the resultant effect being mistrust, difficulty in information sharing and hostility among team members (Mwangi, 2018).  Additionally, formation of cohorts in an organization based on age and tenure in the organization can be enhanced by diversity and when that happens it impacts performance negatively.  Despite this, the study reported a significant and positive impact of diversity on competitive advantage and hence contradicted findings of Mutuku et al. (2013) and Awino (2013) who reported insignificant effect of diversity on performance.

Conclusion

The study sought to establish the influence of top management team diversity on competitive advantage of insurance companies in Kenya.  Among the insurance companies, 28 companies were classified as general insurance providers, 10 companies as composite providers of insurance and 16 as long term insurance providers. Even though 54 companies were targeted, 41 availed a respondent and hence were used for the research.

The study operationalized TMT diversity with both demographic and psychographic indicators. The demographic indicators included age, education level, functional background and tenure according to Hambrick and Mason (1984) while psychographic indicators included hope, self-esteem, optimism, resilience and general self-efficacy according to Kinuu, (2014). The findings revealed that managers in the category of 31-40 years were 46.3 percent while 29.3 percent of managers were aged between 41-50 years. Since 75. 6% of managers in insurance companies were aged between 31-50 years, they were in their most productive years and could positively impact decisions taken and firm outcomes.

The findings revealed that top executives whose minimum level of education was  a Bachelor’s degree was 92.7 percent, implying that top managers in insurance companies were well educated and their knowledge base could impact competitive advantage positively.  The study revealed that 52.8 percent of managers had spent less than 6 years in their company accounting for more than those who had spent over six years in their organizations. The respondents however rated level of tenancy in the organization as least important when it came to making decisions. Top managers in insurance companies had diverse functional specialization with majority of respondents being human resource managers at 26.8 percent. The mix in functional specialization in top management teams of insurance companies accorded them varied expertise with respect to decisions taken and this augured well with performance.

The indicators of diversity composited with demographics and psychographics presented a statistically significant effect on competitive advantage of insurance companies.  Psychographic diversity indicators were important because levels of hope, optimism, resilience and self-efficacy impacted a manager’s efficiency and effectiveness and subsequently performance.  The study observed that insurance companies generally were not rigid on the indicators of competitive advantage that they employed but adopted a mix. This enabled them proactively anticipate and respond to changes in the environment for better performance. International experience was least used to gain competitive advantage whereas incorporation of technology and efficient information and communication systems were majorly adopted to gain competitive advantage.  Diversity in top tier teams brings a mix of skills, opinions, cultures, ideas and experiences (Ponomareva, 2022; Qian, Cao & Takeuchi, 2013; Muchemi et al., 2013; Hambrick, 2007; Carpenter et al., 2004) that impact strategic choices  in firms and consequently performance. This implied that insurance companies could benefit from having senior executives with diverse characteristics.

Hambrick and Mason (1984) in their upper echelon theory  proposed that demographic qualities of top executives impacted their thought processes and strategic decisions and these decisions consequently affected firm outcomes. Since the study findings revealed that TMT diversity significantly influenced competitive advantage, it supported the upper echelon proposition that diversity in top teams was important for firm performance.

Implications of the Study

The research interrogated manager diversity effect on competitive advantage of insurance companies in Kenya. The study was anchored on the upper echelon and resource advantage theories. The upper echelon theory proposes that when TMTs are composed of individuals with different characteristics, this accords an organization superior performance through diverse knowledge, skills and experiences possessed by the managers (Hambrick &Mason, 1984). The research established that diversity in top managers significantly and positively affected competitive advantage and therefore presented theoretical, policy and practical implications from the findings.

TMT diversity was analyzed with both demographic and psychographic indicators hence the study adopted two perspectives in social psychology theories to support the upper echelon theory. Social psychology theories recognize that demographics do not fully represent attitudes and behavior of managers and help to comprehend the role of manager psychographics in decision making and firm outcomes.  Since the study deduced that top managers’ diversity significantly influenced competitive advantage of insurance companies, it supported the upper echelon theory. By analyzing diversity using a composite of demographic and psychographic indicators, the study contributed to this stream of research by demonstrating that psychographic in addition to demographic diversity impacted positively and significantly on competitive advantage.

The resource advantage theory posits that firms can acquire superior positions in markets compared to competitors through possession of valuable resources or competences (Barney, 1991; Wernefelt, 1984). Resources possessed by enterprises are inclusive of all assets, capabilities, systems, information, knowledge and attributes within them that enable them develop and implement strategies that enhance their overall efficiency (Barney, 1991; Wernefelt, 1984). This theory acknowledges that organizations can identify sources of competitive advantage internally and organizations are dissimilar when reviewed according to their strategic resources. This study supported the resource advantage theory by demonstrating  that  the varied skills, knowledge and expertise possessed by managers in top teams  are resources that can accord competitive advantage to firms.

The study demonstrated the importance of diversification with respect to age, level of education, tenure and functional specialization on competitive advantage which implied that organizations could benefit from having policies that accommodate diversity when selecting and recruiting top tier managers. It thus recommended that human resource managers should ensure that diversity is taken into consideration during recruitment and selection of managers to leverage on managers’ diverse knowledge, skills and experience to boost performance.

Limitations and suggestions for further research

Similar to other studies targeting TMTs, the study exhibited some limitations. Among them included reluctance by companies to disclose information that they perceived would jeopardize their operations. They thus had policies for non-response to questionnaires and consequently 41 out of the targeted 54 enterprises availed a respondent. Since the research was conducted using cross sectional survey that involves data collection  in a particular industry within a given period, this presented limitations of comprehensibility that are not associated with longitudinal research. Researchers  could  thus conduct longitudinal studies in similar or different industries to isolate patterns and interrogate causal effects.

The study was conducted in insurance companies in Kenya which  operate in different internal environments  and have unique challenges compared to public sector enterprises. Despite the research adhering to expected standards, the findings may not be applicable in some industries. This presents limitations associated with generalization of the findings to other industries and government organizations. Research in future could focus on different industries for instance, the public sector where performance disclosure is mandatory  to bring out contextual differences.

The study variable that was used to predict competitive advantage in insurance companies was TMT diversity which did not fully account for the variations in competitive advantage. Future researchers thus could pick up from the findings to understand other variables or dynamics that impact this relationship. The study considered both demographic and psychographic measures in analyzing TMT diversity and thus addressed the black box issue highlighted in TMT studies. Nevertheless, future researchers could operationalize TMT diversity variable with different indicators to isolate differences in operationalization. Additionally, competitive advantage variable is affected by time and since it was operationalized with indicators drawn from composite measures, future researchers could conduct replication using different constructs.

Acknowledgements

The author would like to thank the University of Nairobi and the National Commission for Science and Technology and Innovation (NACOSTI). The two organizations authorized and facilitated the prerequisite requirements before the study was conducted in Nairobi County, capital city of Kenya. I acknowledge the co-authors, Professor Zachary Awino and Professor Kennedy Ogollah  for their invaluable support and insights in the research. I also acknowledge all the staff at the University of Nairobi, School of Business and Management Sciences for facilitating the process of research.

Funding Sources

The author(s) received no financial support for research, authorship and publication of the article..

Conflict of Interest

The author(s) declare no conflict of interest.

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