People and Process, Suits and Innovators: The Role of Individuals in Firm Performance

Abstract

Performance differences between firms are generally attributed to organizational factors – such as routines, knowledge, and strategy – rather than to differences among the individuals who make up firms. As a result, little is known about the part that individual firm members play in explaining the variance in performance among firms. The absence of evidence at the individual level of analysis also prevents a thorough understanding of which roles beyond those of top managers contribute most to firm performance. This paper employs a Multiple Membership Cross-Classified Multilevel Model (MMCC) of 854 computer games which account for over $4 billion in revenue to test the degree to which organizational or individual factors explain firm performance. The analysis also examines whether individual differences among middle managers or innovators best explain firm performance variation. The results indicate that variation among individuals matter far more in organizational performance than is generally assumed. Further, I find that variation among middle managers has a particularly large impact on firm performance, much larger than that of those individuals who are assigned innovative roles. These results demonstrate the importance of individual factors in explaining firm performance. The results also show that middle managers are necessary to facilitate firm performance in creative, innovative, and knowledge-intensive industries.

Keywords: firm performance, economic sociology, video games,individuals, strategy