TMT task-related faultlines and firm innovation: Differential impacts on incremental and radical innovation

Abstract

Why do some firms drive radical innovation, while others only deliver incremental innovation? We argue that the answer may lie in the latent divisions within top management teams (TMTs). Drawing on the categorization–elaboration model, we propose that TMT task-related faultlines create a paradoxical effect: while they enhance incremental innovation by promoting within-subgroup cohesion, they simultaneously hinder radical innovation by stimulating between-subgroup fragmentation. Using a sample of Chinese listed manufacturing firms, we conduct empirical analysis which reveals that the strength of TMT task-related faultlines is positively associated with firms’ incremental innovation but negatively associated with radical innovation. Further analysis demonstrates that CEO functional diversity attenuates the negative relationship between TMT task-related faultlines and radical innovation. TMT ownership share weakens both the positive link between TMT task-related faultlines and incremental innovation and the negative link between TMT task-related faultlines and radical innovation. This research advances scholarly understanding of TMT composition, particularly TMT task-related faultlines and their dual effects on innovation typologies, contributing to the literature at the intersection of TMT composition and firm innovation, and offering actionable guidance for firms when making strategic choices about whether to prioritize incremental innovation or pursue radical innovation. Show more