Module MT140

Upper Echelons Approach

 

Module author

Meir Shemla

Rotterdam School of Management
Erasmus University
The Netherlands

Learning objectives

After you studied this module, you will be able to

  • define upper echelons.
  • explain what the upper echelons approach is about and what it tries to explain.
  • explain why it is relevant to know about this concept in today's economic environment and management practice.
Workload units 1
Reading extract Upper Echelons Approach

 

Why Open School of Management believes that knowing the upper echelons approach is helpful

One's company is a reflection of oneself. In other words, the CEO and other top executives of a company shape the way a company acts. If a company adheres to traditional values, it is because its key players do. And if a company decides to go in a different direction, it is because it had a change in top executives (and thusly their values). There are many theories out there about top management teams of a company, and one such theory that brings to light why organizations act the way they do is the Upper Echelons Approach.

The Upper Echelons Approach states that an organization is a reflection of its top executives. The people in charge of an organization view opportunities, threats and alternatives through their own highly personalized lenses, because of their own past experiences, values, and overall personalities. Thusly, any strategic choice a company makes is made because of the characteristics of their top executives. In other words, strategic leadership decisions that affect a company are a direct result of one individual or a small handful of individuals, who, naturally, make their decisions based on their own experiences and values.

There are several ways that the Upper Echelons Approach can be helpful in today's business world. One can use this approach to better predict a company's outcomes based on who their top executives are. If top management changes, so will the company. Or if a different company had a top management team that appeared to be implementing the same values, that can also be used to predict what will happen with one's own company.

A company can benefit from this approach as well, by using it to elect its own top executives. For instance, a new CEO who is younger may take the company in a different direction from one who is older, because their values will be drastically different. Therefore, if a company needs help in a certain area, the people in charge of that company will evaluate what direction the company needs to go, and appoint a new top executive who will take the company in that direction, whether that new top executive is appointed because of their background or age or previous industry or all of the above.
It can also be used by companies competing against each other, to analyze each other's moves by examining the key players and what industry they came from, how these key players would respond to new implementations and in what direction they will attempt to steer the company. For instance, a competitor can see that a newly appointed top executive brought in from a different industry may make changes to the company.

Though the Upper Echelons Approach is somewhat ambiguous, and some argue that it is "stretched too far" with how much it is used to explain, companies can benefit from it. It can be used to analyze one's own company whether one is within the top management team or not, as well as to analyze competing companies in the same industry.

 

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