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Does Workplace Diversity Matter? A Survey Of Empirical Studies On Diversity And Firm Performance, 2000-09


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This study seeks to assess the state-of-the-art on the workplace diversity – firm performance relationship. Based on a review of academic research on workplace diversity and firm performance published in nine leading journals in the field of management during the period 2000-2009, it addresses the following research questions: a. How are diversity and firm performance constructs defined? b. What are the findings of research linking workplace diversity and firm performance? c. What factors mediate and/or moderate the diversity-performance relationship? Based on the findings of extant research, we develop a model to explain and interpret the diversity – firm performance relationship, and understand its implications.
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Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
Does Workplace Diversity Matter?
A Survey Of Empirical Studies On Diversity
And Firm Performance, 2000-09
Anne M. McMahon, Williamson College of Business Administration, USA
This study seeks to assess the state-of-the-art on the workplace diversity firm performance
relationship. Based on a review of academic research on workplace diversity and firm
performance published in nine leading journals in the field of management during the period
2000-2009, it addresses the following research questions: a. How are diversity and firm
performance constructs defined? b. What are the findings of research linking workplace diversity
and firm performance? c. What factors mediate and/or moderate the diversity-performance
relationship? Based on the findings of extant research, we develop a model to explain and
interpret the diversity firm performance relationship, and understand its implications.
Keywords: Diversity, Performance, Workplace
ssues relating to workplace diversity have become increasingly important in recent years. This is not
surprising considering the far reaching changes in the competitive landscape immediately before of the
advent of the new millennium that radically transformed the corporate workplace. Powerful political and
technological forces led to revolutionary changes in the global business environment in the final decade of the last
century. The dissolution of the erstwhile Soviet block symbolized by the fall of the Berlin Wall in 1989, the entry of
China as a major player facilitated by normalization of its relations with the West, and the opening up of the
emerging economies in Asia and Latin America spurred by policies of economic liberalization have not only opened
up new markets for the expansion of US multinationals but also led to a reverse flow of goods, people and ideas into
the US on an unprecedented scale. Both these trends were accentuated by technological innovation and the
convergence of video, voice and data brought about by the Internet. The race for markets and the race for the
future (Doz and Hamel, 1998) complemented each other in a symbiotic fashion to add cultural diversity to the
melting pot of gender and ethnic diversity and radically transform the US workplace in the 21
century. Not
surprisingly therefore, workplace diversity has attracted widespread attention of academics and businesses alike.
Realizing the importance of leveraging diversity to achieve a competitive advantage, companies have
incorporated diversity training in their employee orientation and development programs in the United States
(Holladay, Knight, Paige and Quinones 2003). About two-thirds of the employers provide diversity training (CBLO
2006). Diversity training has in recent years expanded from an emphasis on equal opportunity themes typical of
such training programs since the 1960‟s. Now-a-days, the training programs also emphasize acquisition of diversity
competencies necessary for effective business strategy and assessing their effects on performance outcomes
(Holladay et al. 2003). Diversity competence, both at organizational and individual levels, is now seen as critical to
remain competitive in an increasingly global marketplace and in diverse employee labor markets (De Anca and
Vazquez 2007). Academic researchers in the business fields for their part inter alia focused on modeling the nexus
between workplace diversity and firm performance, presumably to provide a rationale and suggest ways to improve
the practitioners‟ initiatives and thereby enhance the diversity competencies of their workforce.
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
An interesting and instructive research issue would therefore be to assess the state-of-the-art on the
workplace diversity firm performance relationship. In what ways and under what circumstances does diversity
contribute to firm performance? Is the relationship between the two necessarily linear and positive? What insights
could practitioners gain from empirical research studies that investigated this relationship thus far? With this
perspective, we formulated three research questions to explore by reviewing the academic research on workplace
diversity and firm performance published during the last decade, i.e., 2000-2009.
1. How are the diversity and firm performance constructs defined and measured?
2. What are the findings of research linking workplace diversity and firm performance?
3. What factors, if any, mediate and/or moderate the diversity-performance relationship?
In order address these questions we carried out a survey of empirical studies on workplace diversity and
firm performance during the period 2000 - 2009. A set of nine leading journals in the field of management were
identified and all the articles dealing with workplace diversity and firm performance published during this period
were reviewed in order to answer the research questions. The journals included in this survey were: Academy of
Management Journal, Human Resource Management, Journal of Management, Journal of Management Studies,
Management International Review, Management Science, Organization Science, Organizational Behavior & Human
Decision Processes and Strategic Management Journal. These journals were selected for the following reasons:
1. They are widely believed to be top journals as could be discerned from several lists of journal rankings in
the fields of management, strategy and human resources (Harzing, 2009; McWilliams, Siegel, and Van
Fleet, 2005);
2. They attract contributions from management scholars in general as well as scholars of strategy and HR;
3. Taken together, they employ a range of eclectic empirical methodologies in their studies quantitative and
qualitative, descriptive as well as prescriptive.
These journals represent visible, respected outlets for scholars and practitioners interested in a cross section
of diversity- firm performance issues. A search by word in the Business Source Complete database of business
periodicals, using multiple variations to refer to workplace diversity and firm performance resulted in a total of 50
hits. The subset of articles included in this survey was delimited after a careful perusal of the abstracts of all the
results of the search by word. All empirical studies relating diversity to firm performance published during the
period 2000 to 2009 were invariably included in the subset. Meta-analyses that summarized findings of earlier
research on this relationship but published during the captioned period were also included in the survey. Studies
with an essentially theoretical focus that do not use any empirical method were excluded from the list as being
outside the scope of this survey. Studies that related diversity to group effectiveness, cohesion, and similar outcomes
of group processes were excluded since the performance focus of our study is at the firm level. However, we made
an exception to studies relating diversity and top management team (TMT) effectiveness in light of the consensus in
extant research that TMT effectiveness is correlated with firm performance (Barrick,, 2007; Lin and Shih,
2008). Applying these criteria to the master list of search results yielded a total of 24 articles as detailed in Table 1.
Table 1: Workplace Diversity and Firm Performance - Distribution of Research Studies by Journal (2000-2009)
S. No.
Name of the Journal
Number of Articles Published
Academy of Management Journal
Human Resource Management
Journal of Management
Journal of Management Studies
Management International Review
Management Science
Organization Science
Organizational Behavior & Human Decision Processes
Strategic Management Journal
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
Race/Gender Diversity and Firm Performance
In a study of the U.S. banking industry, Richard (2000) explored the relationship between racial diversity of
the workforce and the firm‟s beliefs on diversity on the one hand, and financial performance on the other in a sample
of 63 banks. The banks were drawn from three states: California for its high racial diversity, Kentucky due to its low
racial diversity, and North Carolina for the banks‟ financial wealth and asset size. Blau‟s index of heterogeneity was
used to assess workforce diversity of the banks. Financial information was obtained from the Shesunoff Bank Search
database. The independent variable for this study was the racial background of bank employees (white, black,
Hispanic, Asian, and Native American). The dependent variables were: productivity, return on equity, and market
performance. Firm size, state differences, gender, mix of loan portfolio, geographic scope, and banks‟ attitude
towards racial diversity were controlled. Although the hypothesis that racial diversity would be positively linked to
firm performance was not supported, the firms‟ business strategy was found to moderate the relationship between
the two. Thus, when a firm pursued a strategy of growth there was a positive relationship between racial diversity
and firm performance while the relationship was negative when the strategy was one of downsizing.
In a related study, Richard, Barnett, Dwyer and Chadwick (2004) added gender and the degree of
entrepreneurial orientation of the firm to the racial diversity of manager and supervisor groups as variables, and
studied the responses from 535 bank presidents and human resource executives. Covin and Slevin (1989)‟s nine-
item entrepreneurial scale was used to measure three dimensions of entrepreneurial orientation: innovativeness, risk
taking, and proactiveness. Firm performance was measured by labor productivity (net income per employee) and the
average return on equity for the preceding two years. The proportions of whites and men (due to a large majority in
sample), firm size, and annualized percentage of asset growth were controlled. The hypothesized U-shaped
curvilinear relationship between cultural diversity in management and firm performance was not supported.
However, it was found that the curvilinear relationship would be positive and moderately strong in firms with an
innovative orientation, and moderately negative in firms with a risk taking orientation when the diversity is very
high or vey low. Proactive entrepreneurial orientation had no impact on the relationship.
Broadening their study beyond the U.S. banking industry to include a range of other industries, Richard,
Murthi, and Ismail (2007) investigated the impact of racial diversity on intermediate and long-term firm
performance and the moderating role of the environmental context. Using data from Fortune magazine‟s diversity
survey for the years 1997 through 2002, they estimated the models employing ordinary least squares regression
(OLS). Firm Performance was measured by labor productivity and Tobin‟s q (ratio of market value to asset
replacement value). Firm size, R&D, net income, and the cost of goods sold were controlled.
Racial diversity displayed a curvilinear positive relationship to intermediate firm performance at low or
high levels of diversity. Racial diversity also exhibited a positive correlation to long-term firm performance. The
type of industry was found to moderate the strength of the relationship between the two. Thus, the predicted U-
shaped relationship between racial diversity and firm performance would be more noticeable in service industries
than in manufacturing industries. The linear relationship between racial diversity and long-term performance would
be stronger in resource rich environments. Environmental instability would negatively moderate this relationship
i.e., the U-shaped relationship between firm performance and racial diversity would be stronger in stable
environments than in unstable environments.
Despite these important findings, it is recognized by scholars that diversity measured by single attributes
alone might not provide conclusive evidence of the impact of workplace diversity on firm performance. Lau and
Murnighan (2005) therefore investigated the effects of demographic faultlines on the interactions within groups and
subgroups. It was observed that intra-group and cross-subgroup communications affected demographic faultlines. If
members of a group fall into more than one non-overlapping subgroups based on demographic characteristics e.g.,
young Chinese women and old African men, a strong “faultline” is said to be present in the group. Faultlines could
explain better why the perceptions of team learning, psychological safety, satisfaction, and expected performance
vary than single attribute heterogeneity indexes. The faultline model used in this study suggested that when a group
is split into subgroups, people associate their identities more with their subgroups than with their entire groups.
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
It was found that members of strong faultline groups evaluate members of their subgroups more favorably
than do members of weak faultline groups. The identification of subgroups could accentuate members‟ awareness of
a subgroup‟s boundary and their feelings of belonging. When outcomes depend more on their subgroups‟ actions,
people tend to focus on subgroups rather than entire groups‟ actions. Group members are more likely to
communicate and share information within rather than across their subgroups when demographic faultlines are
strong. Groups with strong faultlines experience more intra-group conflict and poorer group outcomes (e.g., rating of
their task and relationship conflict, group learning, psychological safety, satisfaction and expected group
performance) than do groups with weak faultlines. The effects of cross-subgroup communications are moderated by
group faultlines.
Effective management of diversity is based on recognition of commonalities and awareness of differences.
Role modeling behaviors of those who readily accept the differences could help alter the organizational culture, and
thereby improve performance outcomes. Globalization and diversity have increased the need for investigation into
workplace attitudes towards diverse others. In a study of topical relevance, Strauss and Connerley (2003) explored
the relationships between race, gender, agreeableness, openness to experience, contact and cognitions, feelings &
behaviors. The Universal-Diverse Orientation (UDO) construct was employed as a measure of attitudes towards
diversity. This metric has three components: realistic appreciation (cognition), comfort with difference (feeling) and
diversity of contact (behavior).
Based on a survey of 252 undergraduate business students from two different institutions in the US, the
study found partial support for the hypothesis that women and non-Whites have more positive UDO attitudes.
Gender plays a role only as a first step. Persons who rate high on openness to experience would have more positive
UDO attitudes. Surprisingly, the findings did not support the view that people living in more heterogeneous
environments would have more positive UDO attitudes. Contact, gender and race would interact with openness and
agreeableness to predict UDO attitudes. Women had more favorable attitudes at high levels of openness than men.
The findings suggest that the cognitive and affective components of UDO attitudes were impacted by agreeableness
alone, and the behavioral component was significantly related to race, agreeableness, openness and contact when all
variables were included in the model. Agreeableness emerged as the most important predictor of attitudes.
Diversity in business helps in pooling the best talent, reduces the gap between increasingly diverse
customer bases, unleashes creativity, promotes innovation and thereby enhances the competitiveness of the
organization. Extending the concept of diversity from attributes like race, gender, age etc to the entire spectrum of
human differences Jayne and Dipboye (2004) proposed that crucial to changing the workforce are efforts to recruit,
retain and develop employees from under-represented groups as well as creating internal structures to sustain an
effective diversity program. Using behavioral interviews, biographical data inventories, assessment centers, work
samples etc to assess KSAOs (knowledge, skills, abilities, experiences and other characteristics), this study suggests
that effective diversity programs should strike a balance between identifying right KSAOs and enhancing them
through training. Employing a “relational demography” method, the study found that working with dissimilar others
often results in negative outcomes. Increased group level diversity does not necessarily lead to higher performance
and a diverse group is not always a better-performing group. Based on two surveys and a review of extant research,
the study found that benefits of diversity are contingent up on situational factors such as organizational culture,
strategies and the environmental context. Successful diversity programs should be based on specific goals and not
quotas for minority groups.
The study makes the important point that the success of diversity programs depends on how they are
framed. Rather than as threats to overcome, they should be framed as challenges and opportunities. Comparing the
relative efficacies alternative approaches to framing, the integration and learning perspective (rethinking primary
processes) is recommended as the most effective in sustained motivation of management and employees for long
term success. Having a diverse top management team is the most powerful way to signal the support for diversity.
Drawing up on social identity theory, the research suggested encouraging employees to know each other as
individuals so as to overcome stereotyping, prejudice and intergroup conflicts resulting from an in-group association
based on likeness to oneself.
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
Organizations can manage diversity effectively by building senior management commitment and
accountability with a thorough needs assessment of the people. Employee surveys, focus groups and exit interviews
could be useful in uncovering issues faced by the organization. Developing a well developed strategy to realize
realistic business goals also ensures diversity success. As noted earlier, the Richard (2000) study found a positive
relation between racial diversity and firm performance in organizations pursuing a growth strategy. Finally,
establishing metrics and evaluating the effectiveness contributes to success. Increasing diversity alone does not
guarantee immediate tangible improvements. Nevertheless creating a diverse workforce could yield huge benefits.
The “business case” for diversity – the view that more diversity would increase performance effectiveness -
is gaining momentum because of talent shortage and an increasingly diverse customer base. A report of the
Diversity Research Network (Kochan, et al., 2003) based on a large field based 5-year research project summarizes
the findings from the case studies of four large firms in the information processing, financial services, and retailing
industries on the relationship between race/gender diversity and business performance. The studies variously
measured performance, satisfaction and turnover and related them to cultural, demographic, technical and cognitive
diversities. They had also measured group processes of communication, conflict, cohesion, information and
creativity within the organizational context of culture, business strategy and HR policies. Qualitative data on
business unit cultures, HR and managerial practices, survey data based on quality of group processes and census
data on demographic composition of teams were used to interpret the results. The studies established few direct
effects of diversity on performance (positive or negative). The report looks beyond the existing business case by
adopting an analytical approach of linking HR practices to business performance. It supports experimentation and
evaluation and not simply sticking to the old frame of the business case. To inculcate a culture of mutual learning
and cooperation, organizations should implement appropriate management and HR policies in addition to training
programs for diversity management.
Recognizing the complex relationship between team diversity and team outcomes, the mixed nature of the
evidence and the moderating variables potentially affecting this relationship in extant research, Horwitz and Horwitz
(2007) carried out a meta-analytic review of studies published between 1985 and 2006 to provide quantitative
estimates of the relationship. A total of 78 correlations from 35 articles were included for the purpose. Correlation
coefficient on randomized experiments and post hoc analysis were used as tools to better understand the
hypothesized relationships. Based on a dichotomization of team diversity variable into task-related versus bio-
demographic diversity, they tested the hypothesis of synergistic performance resulting from diverse employee teams.
Although bio-demographic diversity was not significantly related to team performance, the positive impact of task-
related diversity on team performance was supported. Similarly, there is no discernible effect of team diversity on
social integration.
Employing the idiom of melting pot versus tossed salad, Bachmann (2006) explored what it takes to design
an effective multicultural team in the workplace. The study distinguishes between two types of coupling in
workgroups: structural and cultural. Structural coupling refers to the task-related domain, and cultural coupling
refers to non-task related social domain. The most effective multicultural groups tend to have a tight coupling in task
related structural domain and loose coupling in non-task cultural domain. While the former results in consensus,
cohesion, effectiveness and stability, the latter leads to diversity, accuracy, creativity and flexibility. Structural
coupling could be achieved by clarifying the group‟s objectives, dividing group tasks into interdependent subtasks,
assigning task roles, allocating responsibilities and authority and determining the norms of task related interactions.
The cultural coupling is accomplished by creating an atmosphere of mutual respect and acceptance, and signaling
approachability for smoothing differences. In short, an effective workgroup needs to be both a tossed salad and a
melting pot for the best possible outcomes.
Based on the premise that effective work groups tend to exchange and share knowledge with external
constituencies such as customers, organizational experts and others outside the group Cummings (2004), based on a
field study of 182 workgroups in a Fortune 500 telecom company, concluded that the value of external knowledge
sharing increases when such groups are structurally more diverse. Structural diversity is operationlized in terms of
member differences in geographic locations, functional assignments, reporting managers, and business units.
External knowledge sharing was measured using group member surveys and performance was estimated using
senior executive ratings. The study concluded that the interaction of external knowledge sharing and geographic
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
locations was significantly associated with the performance. The greater the external knowledge sharing, the better
the performance, when there were more geographic locations. It was also found that external knowledge sharing was
related to better performance when there were more functional assignments. The interaction of external knowledge
sharing and reporting managers was also significantly associated with performance. However, there was only partial
support for the effect of structural diversity based on the number of business units.
Based on a study of 437 teams in 46 units of a large US company, Joshi, Hui and Jackson (2006) concluded
that in-group/out-group dynamics of diverse workgroups might contribute to sales performance differences between
members of higher-status majorities and lower-status minorities. The study employed measures such as individual
demographic attributes, work team composition, management composition of work units, and sales performance.
The control variables were age and tenure of service to account for differences in human capital. It is possible that
all employees experience both in-group favoring and out-group discrimination. As the in-group size increases, the
members of the in-group enjoy benefits of in-group dynamics. On the other hand, as the in-group size decreases the
group suffers from costs arising from out-group discrimination. Status is also an important factor in the performance
implications of workplace diversity. It is frequently observed that men and whites typically enjoy higher status than
women and people of color. Because status is usually associated with skill and expertise, men and whites may be
valued and rewarded even when they are in a minority or token position.
Tmt Diversity And Firm Performance
Earlier research studies had typically explored the direct link between TMT demographic characteristics
and firm performance presumably due to ready availability of demographic data. The support for the relationship
was at best modest or the findings were mixed. In contrast, Certo, Lester, Dalton, and Dalton (2006) employed
confirmatory factor analysis to investigate the moderating influences in this relationship. TMT heterogeneity was
assessed using four measures: size, organizational tenure, functional, executive tenure and educational. Firm
performance was defined in terms of Return on Assets, 3 year average ROA, ROA growth, 3 year average Return on
Equity, and sales growth. The study concluded that TMT size and financial performance are partially correlated with
a positive and significant relationship between TMT size and sales growth but no evidence of the effect of TMT size
on ROA or ROE. There is also a partial positive relationship between TMT heterogeneity and firms‟ financial
Performance with functional heterogeneity and executive tenure heterogeneity being positively related with ROA.
The study also found that several TMT variables were significantly related to strategic variables such as
diversification, R&D expenditures and internationalization.
Applying the theoretical lenses derived from signaling theory and the behavioral theory of the firm, Miller
and del Carmen (2009) investigated how firm reputation and innovation mediated the board diversity-firm
performance relationship. The independent variables in the study were board diversity, innovation, and firm
reputation. Board diversity was assessed on the basis of race and gender. Innovation was measured by R&D
expenditures. Firm reputation was based on the 2004 Fortune Corporate Reputation Survey. Firm performance was
measured using the accounting based measures of ROI and ROS. Firm age, liquidity, size, product diversification,
international diversification, and industry were controlled. The study based on a sample of Fortune 500 firms, found
a positive relationship between board racial diversity and both firm reputation and innovation. Reputation and
innovation both partially mediated the relationship between board racial diversity and firm performance. Further
there was a positive relationship between board gender diversity and innovation.
Employing the MARKSTRAT simulation, which is widely used to study decision making, Kilduff,
Angelmar and Mehra (2000) investigated the role of cognitions in the TMT diversity-firm performance relationship.
The diversity variables included in the study were nationality, functional heterogeneity (computed using Blau‟s
index), age heterogeneity and cognitive diversity. Firm performance was measured by net contribution margin and
market share. The study conducted on a sample of 159 managers split into 35 teams revealed that the higher the
interpretive ambiguity of top management teams, greater the firm performance.
Earlier research studies had also paid scant attention to the nature of TMT team processes that interact with
TMT compositional diversity in influencing firm performance outcomes. Boone and Walter (2009) sought to
address this gap by investigating how team mechanisms such as collaborative behavior, accurate information
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
exchange, and decision-making decentralization moderate the impact of TMT diversity on financial performance of
33 information technology firms - 14 Belgian and 19 Dutch. All the firms operated in software services and products
industries. TMT diversity was defined in terms of functional-background (FB) and locus-of-control (LOC). While
the former could potentially enhance decision quality and organizational performance, the latter could lead to
relational conflict and thereby adversely impact firm performance. The study found that functional background
diversity is positively related to firm performance. A TMT's collaborative behavior and information exchange are
prerequisites to reap the performance benefits of FB diversity but avoids the negative effects of LOC diversity.
Further, decentralized decision making while enhancing the effectiveness of functionally diverse teams, also
reinforces the negative consequences of LOC diversity on firm performance.
Researchers generally tend to overlook the impact of nationality diversity within subsidiary TMTs on
subsidiary performance. Drawing up on theoretical insights from knowledge and legitimacy perspectives, Gong
(2006) enquired into this important dimension of diversity using a large sample of 370 subsidiary TMTs with a total
of 2290 top managers in 28 Japanese multinationals. Firm performance was measured using subsidiary labor
productivity. Industry, TMT size, number of years a subsidiary was in operation, capital investment and gross
national income per capita of the host country were controlled. The study concluded that there was a significant
positive correlation between nationality heterogeneity and subsidiary performance. Furthermore, as the number of
years the subsidiary was in operation increased, the effect of subsidiary TMT nationality heterogeneity became more
positive. Thus, national diversity becomes more important when it is more pertinent to a team‟s work.
Diversity-Firm Performance Relationship: The Role Of Context
Focusing on the moderating effects of internal and external contexts, Cannella, Park and Lee (2008)
investigated the effect of co-location of TMT members and environmental uncertainty on the TMT diversity-firm
performance relationship. Based on a study of 207 U.S. firms in 11 industries, the study concluded that the effects of
TMT functional diversity on firm performance would be more positive as the proportion of TMT members with
offices in the same location increases. The effects of intrapersonal functional diversity would also be more positive
as environmental uncertainty increases.
Summarizing the results from 39 studies, Joshi and Roh (2009) in a meta-analytic study explored the role
of contextual factors at multiple levels - industry, occupation and team, in influencing performance outcomes of
relations-oriented and task-oriented diversity. It was found that although the direct effects of contextual factors were
small yet they were significant. After accounting for industry, occupation, and team-level contextual moderators, the
effects doubled, and in some cases even tripled, in size. Moreover, occupation and industry-level moderators
explained significant variance in effect sizes across studies.
The hypothesized negative effect of gender and race/ethnicity diversity would be weaker in more gender
and ethnically balanced settings was confirmed. That the positive performance outcome of task-oriented diversity
would be stronger in more balanced occupational settings was disproved implying higher performance outcomes in
majority male and white settings. Results also showed that relations-oriented diversity had a positive effect on
performance in service industries but the support was weak for the moderating effects of the industry setting on the
performance outcome of task-oriented diversity. That the negative effects of relations-oriented diversity would be
strengthened in long-term teams was also strongly supported.
What emerges from the foregoing annotated review of recent research linking workplace diversity and firm
performance is a fascinating mosaic of insights and perspectives that enrich our understanding of both these
concepts as well as their interrelationship. Academic research on this topic has indeed made great strides and
attempts to dispel populist notions of the concept of diversity and how it could influence business performance.
Diversity is no longer conceptualized simply in demographic terms such as race, gender, education, and so on. Even
when it is expressed using these parameters, it is no longer uni-dimensional. Heterogeneity, even when such
demographic criteria are applied, needs to recognize the relevance of overlaps among these criteria while
considering workplace diversity i.e., “faultlines” (Lau and Murnighan, 2005), in order to derive meaningful
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
inferences about diversity and how it would affect business performance. While bio-demographic diversity might be
easy to recognize since it is apparent, task-related diversity and cognitive diversity are more important criteria to
take cognizance of while attempting to understand workplace diversity and its true implications for firm
performance. Thus, task related dimensions e.g., functional background, organizational tenure and experience, social
psychological characteristics e.g., agreeableness, openness to experience, contact and cognitions, feelings and
behaviors, and team interaction abilities e.g., attitudes towards others, acceptance of differences, etc are equally if
not more relevant to assess workplace diversity and explain its influence on performance outcomes.
Contemporary research has also expanded the concept of firm performance in exploring the effect of
workplace diversity. While financial performance continues to be used to estimate performance outcomes in the
short term e.g., various measures of firm profitability such as Return on Assets, Return on Sales, and Return on
Equity, and in the long term e.g., Tobin‟s q, market share, etc, there is a trend in academic research to look beyond
financials to assess the performance implications of diversity. Slowly but surely, scholars are incorporating metrics
such as quality of results, social integration, decision making, creativity and problem solving, and other outcomes
e.g., Knowledge, skills, abilities, experiences and other characteristics (KSAOs), task and relationship conflict to
measure performance. Thus, the concepts of both workplace diversity as well as firm performance are now infused
with new meaning and significance, as these should be, while exploring their interrelationship. A summary of
measures of diversity and firm performance as used in empirical studies on this topic during the captioned period is
presented in Table 2.
The impact of workforce diversity, in its richer connotation, on firm performance is no longer considered as
linear. For the present it is hypothesized to be curvilinear, U-shaped and having larger effects at high as well as low
degrees of diversity. Such effects appear to be stronger in stable rather than in unstable environments. The effects of
diversity also seem to be more pronounced in service industries than in manufacturing industries. This phenomenon
might be due to the greater degree of interpersonal interactions in service industries such as hospitality, commercial
airlines wherein personalized customer service is likely to influence firm performance. While contextual factors are
important, the relationship between workplace diversity and firm performance is neither direct nor definitive. This is
clear from the mixed results of empirical studies attempting to establish this nexus. Diversity by itself alone can not
account for differential performance among firms. Certain firm-specific factors such as resources, capabilities, and
core competencies are more likely to account for such performance outcomes. It is interesting to note that current
research on the performance implications of workplace diversity recognizes this reality and is thus in tune with the
findings of research in strategic management. Diversity that enhances firm resources, capabilities, and core
competencies is more likely to lead to superior firm performance. Thus, the mediating factors identified by
researchers in the area of diversity-performance include KSAOs - Knowledge, skills, abilities, experiences and other
characteristics, entrepreneurial orientation, firm reputation, innovation, knowledge sharing and so on. Thus, we see
an emerging convergence in the views of scholars of diversity and strategy on how diversity is an important factor to
understand and leverage for superior firm performance. Diversity research has also recognized the importance of
organizational culture in enabling firm performance. Moreover, this research stream realizes that the diversity
variable becomes more important when the business strategy is growth-oriented rather than one where there is
downsizing that could work against workplace diversity due to traditional biases. The workplace diversity -firm
performance relationship as it emerges from the survey of recent empirical research is modeled as captured in Figure
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
Table 2
Workplace Diversity and Firm Performance: Measures of Variables
Research Study
Measure(s) of Firm Performance
Bachmann (2006)
Group Effectiveness and Efficiency
Boone & Walter (2009)
Return on Sales
Cannella, Park & Lee (2008)
Return on Assets
Certo, Lester, Dalton, & Dalton
Return on Assets, 3 year average ROA, ROA growth, 3 year
average Return on Equity, and sales growth
Cummings (2004)
Problem Definition, Method Selection, Innovation, Result
Quality, Clarity of Presentation
Gong (2006)
Labor productivity
Horwitz & Horwitz (2007)
Quantity and Quality of Performance, Social Integration, Team
Cohesion, Decision Making, Creativity and Problem Solving
Jayne and Dipboye (2004)
KSAOs: Knowledge, skills, abilities, experiences & other
characteristics Individual reactions to work situations based on
„relational demography‟
Joshi & Roh (2009)
Joshi, Hui & Jackson (2006)
Sales revenue, Pay
Kilduff, Angelmar & Mehra (2000)
Net contribution margin
Market share
Kochan, et al., (2003)
Performance satisfaction, Turnover, Quality of group processes
Lau & Murnighan (2005)
Task and relationship conflict, group learning, psychological
safety, satisfaction and expected group performance
Miller & del Carmen (2009)
Financial performance: ROI, ROS
Firm innovation: R&D expenditure
Firm reputation
Richard (2000)
Productivity, ROE, and Market Performance
Richard, Barnett, Dwyer & Chadwick
Labor Productivity (Net income/employee)
Average ROE for the preceding two years
Richard, Murthi & Ismail (2007)
Labor productivity (Revenue/employee),
Tobin‟s q (Market value /Asset replacement value)
Strauss & Connerley (2003)
Universal Diverse Orientation: Measure of attitudes- realistic
appreciation, comfort with distance and diversity of contact
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
Figure 1
Workplace Diversity -Firm Performance Relationship: A Model
Journal of Diversity Management Second Quarter 2010 Volume 5, Number 2
The instrumental implications of workplace diversity are doubtless important to businesses, and therefore
diversity needs to be managed. In doing so, one could be “reactive” to deal with the phenomenon of diversity. A
better approach might be to be “proactive” in leveraging diversity to achieve superior business performance.
However, it is important to recognize that diversity is a fact of life in today‟s workplace. It is a reality as much as
sustainability and achieving energy efficiency are in the 21
century. The proper approach should therefore be
“interactive” and designed to work with all stakeholders to achieve their individual and organizational goals as well
as societal imperatives (Post, 1978). There is a need to adopt a “normative” rather than an “instrumental” approach
to workplace diversity because that is the right thing to do in terms of social justice, community engagement and
rationale based on globalization of the business environment.
Anne McMahon is Professor of Management in the Williamson College of Business Administration at Youngstown
State University where she teaches Organizational Behavior and Workplace Diversity. She has served several terms
on the national Workplace Diversity Panel of the Society for Human Resources Management. She organizes
community leaders in the Partners for Workplace Diversity, an alliance of over 30 organizations to develop diversity
initiatives for the Partnership and for the community at large (
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... Some studies suggest that a diverse workforce in certain contexts can be highly firm for firm creativity and performance (McMahon, 2011). A diverse workforce became a contemporary tool for organizations to survive in competitive markets (Oswal, 2020). ...
The objective of this chapter is to reveal the impact of workforce diversity on the innovation level of Lebanese family firms. Data for this research work was collected from different Lebanese sectors during the first quarter of 2021. Based on sample of 647 Lebanese family firms, the results of SEM model show that gender diversity has a positive impact marketing, organizational, and product innovation. In addition, the results indicate that the presence of youth in family firms enhances both marketing and process innovation. Finally, the results do not reveal any impact of gender diversity on process innovation and age diversity on organizational and product innovation.
... Some studies suggest that a diverse workforce in certain contexts can be highly firm for firm creativity and performance (McMahon, 2011). A diverse workforce became a contemporary tool for organizations to survive in competitive markets (Oswal, 2020). ...
Despite the international commitment to guarantee the rights of disabled people, including the rights at the workplace, evidence shows that legislations are faced with different barriers to achieving their expected inclusion goals. Even more, the literature reported some counter-effects to the implementation of international and national legislations. Diversity studies have argued that the successful implementation of organizational support strategies is more guaranteed when barriers are well understood. This chapter examines the perceptions of employers and individuals with disabilities, including those with mental disabilities, of the barriers that inhibit diversity management at the workplace. The authors suggest extending the diversity literature by examining other organizational factors that facilitate the employment and sustainability of disabled individuals.
... Four years before Katherine Phillips and her team published the report that has been useful for Carmen Medina and others, Anne M. McMahon of Williamson College of Business Administration surveyed the literature on diversity in the American workplace, evaluating 29 articles published in nine leading journals. 113 McMahon reported that several studies already had observed the correlations Phillips noted, but they also highlighted findings that both qualified the contributions of demographic diversity to business performance and found that demographically diverse groups are less effective in some situations. Among findings of note: diversity is more strongly correlated with the performance of service firms than with manufacturing companies, evidently reflecting the advantage of having customer-facing employees "connect with customers." ...
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Proponents of “diversity, equity, and inclusion” (DEI) in intelligence make two basic claims: (1) preferential hiring and promotions for minorities, women, LGBTQ+ people, and disabled persons is good, ethically and politically; and (2) the preferences improve the operational performance of intelligence agencies. This article addresses the second assertion, finds that DEI proponents have failed to provide evidence to support their position, and concludes that preferences for domestically-defined demographic groups cannot improve the performance of foreign-focused intelligence services. Such claims primarily reflect ideological views popular in government and the academy as well as the personal, parochial interests of persons from the favored groups. Instead, the traditional view of the value of diversity remains accurate: capable individual persons with different skills from all major demographic groups are primary drivers of excellent intelligence performance.
... Several studies have discussed the relationship between individual diversity of the workforce members and organizational performance (Yadav and Lenka, 2020). Diversity refers to any attribute that might lead individuals to perceive that another person is different (Chaurasia andShukla, 2012, Jehn et al., 1999;Mannix and Neale, 2005;McMahon, 2010). Diversity is a complex and multidimensional concept (Alc azar et al., 2013), that has mainly focused on gender, age, race, tenure, educational background and functional background (Armstrong et al., 2010;Choi et al., 2014;Jackson et al., 2003). ...
Purpose The purpose of this study is to propose and test a model on the impact of diversity over performance using a Portuguese national wide comprehensively matched employee–employer dataset of small businesses. Design/methodology/approach The study uses structural equation modeling to analyze the relationships between variables. The study addresses the impact of top managers and employees' diversity on firm performance considering two dimensions of diversity: knowledge diversity and social diversity. Findings The study provides a clear understanding of how workforce diversity affects performance differently at the two hierarchical levels. Both employees' diversities have stronger relations to performance than the diversity of top managers. Results point out to idiosyncratic aspects of services firms' dynamics that should be further explored. Research limitations/implications The study presents some limitations, since it uses data from a single country and the dataset provides limited variables. Practical implications The study offers evidence on the effects of diversity in small businesses alerting managers to acknowledge such influence when recruiting, selecting and training. With regard to services firms, managers should pay close attention to negative impacts of diversity over performance. Originality/value Never before to the authors' knowledge the managers' level diversity and employees' level diversity (considering two dimensions each) effect on performance have been addressed in a single national wide study.
... 1 Geschlechtersegregation, soziale Schließung und Diversität Dass eine geschlechtlich heterogene Zusammensetzung der Beschäftigtenstruktur für einen Betrieb in Hinblick auf den Umgangston, die Arbeitsatmosphäre und insgesamt die Qualität der Arbeitsergebnisse wünschenswert sein kann, geht z.B. aus Experteninterviews zum Thema Diversity Management hervor (Kapitel 4 und Szameitat 2016). Die gängigen betriebswirtschaftlichen Vorteile einer hohen Diversität der Beschäftigtenstruktur werden auch in Hinblick auf Gender als Diversitätsdimension diskutiert: höhere Kreativität bei Innovation und Problemlösungskompetenz, besseres Verständnis der Kundenstruktur und damit potenziell auch Erschließung neuer Zielgruppen sowie ein größerer Pool zur Auswahl neuer Mitarbeiter(Hearn/Collinson 2006, McMahon 2010, Simons/Rowland 2011, Buche et al. 2013, Salzbrunn 2014. Somit kann eine hohe Gender-Diversität für einen Betrieb theoretisch als rational gelten. ...
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Die Arbeit untersucht empirisch den Zusammenhang zwischen der Diversität von Beschäftigtenstrukturen und sozialer Schließung in Einstellungsprozessen. Den theoretischen Rahmen bildet die auf Max Weber zurückgehende Theorie sozialer Schließung. Zwei Kapitel widmen sich quantitativen Analysen mit Daten der IAB-Stellenerhebung und der Statistik der Bundesagentur für Arbeit. Sie zeigen einen statistischen Zusammenhang von Diversität und sozialer Schließung in den Diversitätsdimensionen Alter und Geschlecht. Das dritte empirische Kapitel wertet selbst konzipierte Experteninterviews mit Personalverantwortlichen zum Thema Diversity Management aus. Es identifiziert verschiedene Typen von Betrieben, die sich hinsichtlich ihres Motivs für ihren jeweiligen Umgang mit sozialer Vielfalt im Betrieb und des damit verbundenen Grades sozialer Schließung bei Stellenbesetzungen unterscheiden. In der Zusammenschau legen diese drei empirischen Studien nahe, dass eine erhöhte Diversität einer Beschäftigtenstruktur den Grad sozialer Schließung in Stellenbesetzungsprozessen verringert.
... Third, the educational relatedness and professional preparedness of hospitality students, due to their educational background, offers a diversified pool of potential candidates to successfully fulfil open vacancies in the hotel industry (H3, H4; Cox & Blake, 1991;Hoever et al., 2012;Menold & Jablokow, 2019). The findings from the study clearly reveal a positive impact of cognitive diversity style on service quality and organisational performance standards in seasonal hotels (Manoharan et al., 2019;McMahon, 2011;Menold & Jablokow, 2019;Singal, 2014). As a result, hospitality educational institutions and industry stakeholders should liaise to achieve a twofold purpose. ...
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This study examines the impact of hospitality students’ cognitive diversity style on service quality and performance standards in seasonal hotels. A survey research method approach was implemented through a quantitative examination of a purposeful sample, collected from three-, four-, and five-star seasonal hotels in Cyprus. The survey was administered face-to-face to 316 students and 93 managers. For hypotheses testing, the Cognitive Style Inventory was adapted. Study results reveal students’ educational preparedness, professional reliability, and the positive impact of their cognitive diversity style on service quality and organizational performance standards in seasonal hotels. While students offer a diversified pool of potential candidates to successfully fulfil qualified and skilful required vacancies, a twofold requirement emerges. First is the introversion requirement related to the curriculum design of hospitality educational institutions. Second is the extroversion requirement, which sees the responsibility of seasonal hotel managers, as future employers, to be linked and guided on students’ cognitive style development via an intuitive collaboration with local hospitality educational institutions.
L’objectif de ce travail est de mettre en exergue les imbrications entre la gestion de la diversité et la performance des ressources humaines. Il aide les dirigeants d’entreprises à intégrer les variantes de la diversité dans leur politique de gestion des ressources humaines afin de rendre la main-d’œuvre plus performante. A travers une méthodologie qualitative basée sur une étude de cas, les données proviennent de 34 entretiens semi-directifs menés au sein d’une entreprise de microfinance au Cameroun. A la suite d’une démarche interprétative des verbatims, les principaux résultats montrent que la performance des ressources humaines peut être améliorée grâce à une gestion de la diversité qui constitue non seulement un facteur de rémunération équitable et de motivation des employés, mais aussi un vecteur de renforcement de la cohésion sociale et un socle de la compétence collective.
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This article reports on research that endeavoured to determine the perceptions of management and senior staff concerning factors which influence diversity at Walter Sisulu University (WSU), a higher education institution (HEI). Diversity implies acknowledging and valuing differences among people. As such, diversity viewed from a positive perspective can create significant opportunities for a university to become a multicultural institution and to obtain a competitive advantage. Respondents at management or supervisory level was surveyed at Walter Sisulu University (WSU) in South Africa, using a self-administered questionnaire. Structural equation modelling (SEM), confirmed that four statistically significant relationships between the five variable investigated, were found; namely acculturation, structural integration, informal integration, intergroup conflict and diversity. It is argued that knowledge of the factors influencing diversity could provide insights to management regarding developing strategies by capitalising on diversity for competitive advantage within an HEI.
Conference Paper
Since the European Commission launched the Circular Economy Package in December 2015 named “Closing the loop: EU Action Plan for the Circular Economy”, many changes are expected both in European Union economy as well as in the Member States’ national economies. Due to new Package, a transposition of legislation is required as well as adjusting the business climate and citizens’ habits in order to fully implement the Package and experience the benefits of Circular Economy in Europe. The transition to a new economy pattern Commission perceived as essential due to new economic, global and environmental challenges. Assessing the waste management, the data showed that some member states already recycle almost 80 % of waste, while others are far away from achieving the Europe 2020 Strategy goals, including Croatia. The Circular Economy Package is nowadays part of EU Green Deal, one of the highest ranked strategic documents, which emphasizes the need for efficient use of resources by transition to the clean circular economy approach as well as to renew the biodiversity and to decrease the pollution. The authors analyse legislative framework and trends in green economy, with special attention on Croatia, and Primorje-Gorski Kotar county. This paper emphasizes the significance of the Circular Economy and its benefits and present the policy implementation capacities on the national and regional level to implement the circular approach to economic process.
We shed new light on the linkages between age diversity and technological innovation, and explore the moderating effect of human resource practices on such relationships. Based on a linked dataset that contains cross-sectional survey data and longitudinal employer–employee data from Luxembourg, we show that the effect of age diversity on innovation depends on the age distribution pattern of employees: positive for firms characterized by heterogeneous age groups (variety), negative for those dominated by polarized age groups (polarization). HR practices such as information sharing mitigate the adverse effects of age polarization on innovation. Practices enhancing development such as training are found to play a significant and negative role in moderating the relationship between age diversity and innovation. We illustrate how academics and practitioners may use HR practices within the context of a heterogeneous aging workforce and the age-related differences in values and abilities between generations.
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We investigated the effects of intragroup and cross-subgroup communications in an experimental field study on demographic faultlines. The results indicated that faultlines explained more variance in perceptions of team learning, psychological safety, satisfaction, and expected performance than single-attribute heterogeneity indexes. In addition, cross-subgroup work communications were effective for groups with weak faultlines but not for groups with strong faultlines. Overall, this study extends the original faultline model, documents the utility of the concept of faultlines, and identifies some of their effects on work group outcomes.
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Demography research rarely examines the black box within which the cognitive diversity of the top management team is assumed to affect firm performance. Using data from 35 simulated firms run by a total of 159 managers attending executive education programs, the current research tested several hypotheses concerned with (a) the relationship between demographic and cognitive team diversity and (b) the reciprocal effects of diversity and firm performance. Results showed that members of high-performing teams tended to preserve multiple interpretations early in the team's life cycle, but that they moved toward greater clarity near the end of the life cycle. These high-performing teams, therefore, exhibited both early interpretative ambiguity and late heedful interrelating. Cognitive diversity in teams affected and was affected by changes in firm performance. Surprisingly, there was no evidence of any effect of demographic diversity on measures of cognitive diversity.
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This study adopts the upper echelon and competitive dynamics perspectives to investigate the mechanisms by which strategic human resource management (SHRM) can create a competitive advantage for a firm. Top management team (TMT) social integration and action aggressiveness are identified as internal-oriented and external-oriented capabilities, respectively, for a teamwork-oriented executive SHRM system to support in enhancing firm performance. Structural equation modeling is performed to test hypothesized relationships. Statistical results demonstrate TMT social integration and action aggressiveness in sequence partially mediate the relationship of an executive SHRM system and firm performance. Action aggressiveness partially mediates the relationship of TMT social integration and firm performance. This study provides further insights into the SHRM, upper echelon, and competitive dynamics perspectives. The research findings also serve to remind top executives to remain alert in developing a set of teamwork-focused executive SHRM practices, building an integrated team, and proactively shaping competitive actions to outperform rivals.
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Drawing on social identity theory and status-based perspectives, we describe how in-group/out-group dynamics affect performance differences and earnings inequalities between members of higher-status majorities (whites, males) and lower-status minorities (people of color, women). Among sales employees on 437 teams in 46 units of a large company, team demographic composition and unit management composition moderated the relationship between individual demographic attributes and pay. Ethnicity-based earnings inequalities were smaller in teams with proportionately more people of color, and gender- and ethnicity-based inequalities were smaller in units with proportionately more women and people of color as managers. Partial mediation by performance was found.
Prior findings on the association between top management team (TMT) functional diversity and firm performance have been inconsistent. We consider the moderating effects of internal context (colocation of TMT members) and external context (environmental uncertainty) on the TMT diversity-firm performance relationship. Additionally, we consider both dominant and intrapersonal functional diversity. In our results from 207 U.S. firms in 11 industries, the effects of TMT functional diversity on firm performance become more positive as the proportion of TMT members with offices in the same location increases. The effects of intrapersonal functional diversity also become more positive as environmental uncertainty increases.
Integrating macro and micro theoretical perspectives, we conducted a meta-analysis examining the role of contextual factors in team diversity research. Using data from 8,757 teams in 39 studies conducted in organizational settings, we examined whether contextual factors at multiple levels, including industry, occupation, and team, influenced the performance outcomes of relations-oriented and task-oriented diversity. The direct effects were very small yet significant, and after we accounted for industry, occupation, and team-level contextual moderators, they doubled or tripled in size. Further, occupation- and industry-level moderators explained significant variance in effect sizes across studies.
Although "valuing diversity" has become a watchword, field research on the impact of a culturally diverse workforce on organizational performance has not been forthcoming. Invoking a resource-based framework, in this study I examined the relationships among cultural (racial) diversity, business strategy, and firm performance in the banking industry. Racial diversity interacted with business strategy in determining firm performance measured in three different ways, as productivity, return on equity, and market performance. The results demonstrate that cultural diversity does in fact add value and, within the proper context, contributes to firm competitive advantage.
Prior research evidence shows that within-team interdependence moderates the process-performance relationship in small groups. Data collected from 94 top management teams (TMTs) replicated and extended the small groups finding. Specifically, TMTs with high interdependence (i.e., real teams) had higher team and subsequent firm performance when the team was more cohesive and had more communication. However, teams with low interdependence (i.e., working groups) had higher performance when communication and cohesion were lower. This constructive replication provides the first examination of the moderating effect for team interdependence within TMTs on both team and firm performance.
Global diversity is a key issue facing all companies and organisations. This book embraces diversity and shows how this is a strength that can provide the tools needed to attain the values and characteristics increasing demanded by business corporations and environments. Diversity has enormous benefits and opportunities, but these need to be carefully understood and developed. This book provides a practical framework and approach