Discuss how the managerial labor market (CEO succession) and the top management team composition interact to affect strategy

Internal labor markets represent the opportunities for managerial positions (including the position of CEO) within a firm. The external labor market is the collection of career opportunities for managers in firms outside of the one for which they currently work. CEOs may be selected from internal or external candidates. Internal CEO selection is preferred by employees, and external CEO succession is considered a sign that the board of directors wants change. Internal CEOs are less likely to seek change in the firm's strategy than external CEOs. It is important to note that the CEOs selection from the internal or external labor market and the top management team's composition interact and affect the likelihood of strategic change. If a firm hires a new internal CEO and has a homogeneous top management team, it is unlikely that the firm's strategy will change. If the firm employs a new internal CEO but has a heterogeneous top management team, it will maintain a stable strategy but will pursue it with innovation. If the top management team is homogeneous but an external CEO is chosen, the situation will be ambiguous. Finally, if the top management team is heterogeneous and an external CEO is chosen, strategic change is likely.