The interactive influence of human and social capital on capability development: the role of managerial diversity and ties in adaptive capability

Purpose How top management teams (TMTs) adapt and change to create and sustain competitive advantage is a fundamental challenge for human resource management studies. This paper examines the effects of TMT composition (human capital) and managerial ties (social capital) as factors that interactively explain managerial adaptive capability and organizational performance. Design/methodology/approach A unique survey dataset, derived through privileged access to organizational CEOs and CFOs of 101 Chinese organizations, was used to investigate a path between TMT functional diversity and organizational performance through adaptive managerial capability. Data were analysed using hierarchical multiple regression and Hayes (2012) PROCESS macro for SPSS. Findings Unexpectedly, the results show that functional diversity has no direct positive effect on firm performance; however when functionally-diverse TMTs are embedded in external networks, there is a significant positive impact on managerial adaptive capability and, through this, competitive advantage. Research limitations/implications By identifying TMT functional diversity as an important driver of adaptive managerial capability, contingent on managerial ties, this study addresses a significant research gap pertaining to how TMT characteristics potentially contribute to the development of a core organizational capability. Practical implications The authors' results highlight the importance of ensuring that recruitment into TMTs considers the complementarity of member functional background; however, benefit is only achieved when TMT members establish external ties with other organizations. Originality/value The authors' findings provide evidence of the interactive effect of human and social capital on adaptive capability development and, through this, organizational performance.