Cultural diversity in top management teams: A multigroup study on leadership and performance

Abstract

Orientation: In Indonesia’s highly competitive and culturally diverse business environment, leadership and top management team (TMT) dynamics play a crucial role in shaping firm performance (FP), especially in sales and marketing sectors.

Research purpose: This study investigates the influence of leadership style (LS), business model innovation (BMI) and TMT multiculturalism on FP, while examining the moderating role of ethnic differences in TMTs.

Motivation for the study: Despite Indonesia’s vast ethnic diversity, limited research has explored how managerial ethnic backgrounds influence leadership effectiveness and organisational outcomes, particularly in dynamic market contexts.

Research approach/design and method: Using a quantitative approach with a survey design, data were collected from 500 top managers across Indonesia’s five largest ethnic groups (Batak, Bugis, Javanese, Madurese, and Sundanese). Stratified random sampling ensured proportional representation. Data analysis employed partial least squares structural equation modelling and multigroup analysis (MGA) to examine variable relationships and ethnic-based moderations.

Main findings: The study finds that LS, BMI and TMT multiculturalism significantly influence FP. However, MGA reveals no significant differences across ethnic groups, suggesting that leadership effectiveness is driven more by managerial competence and experience than by ethnic background.

Practical/managerial implications: These findings emphasise the need for firms to focus on competency-based leadership development while fostering inclusive management practices, regardless of ethnic background.

Contribution/value-add: The study contributes to leadership and diversity literature by affirming the universal aspects of leadership effectiveness and providing empirical evidence on the limited role of ethnicity in moderating leadership influence on FP in Indonesia.