Cultural diversity as a mechanism for innovation: workplace diversity and the absorptive capacity framework.

Author:Lambert, Jason
Position::Report
 
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INTRODUCTION

Innovation cannot exist in the absence of creativity (Basset-Jones, 2005). Furthermore, creative behavior may be considered a subset of innovative behavior (Yuan & Woodman, 2010), as innovation involves both generating and implementing new ideas (Woodman, Sawyer, & Griffin, 1993). Although there is theoretical support (Cox & Blake, 1991; Jackson, 1992) and empirical evidence demonstrating that cultural diversity impacts organizational creativity (McLeod, Lobel, & Cox, 1996) and performance (Dezso & Ross, 2012; Richard, 2000; Richard, McMillan, Chadwick, & Dwyer, 2003), there are inconclusive results linking diversity with firm innovation (Horwitz & Horwitz, 2007). Knowing from prior research that diversity relates to creativity (McLeod et al., 1996; Watson, Kumar, & Michaelsen, 1993), a subset of innovation, it should logically follow that diversity plays a role in how firms become innovative. However, there is a dearth of empirical evidence and theoretical grounding to support this claim.

Although prior research demonstrates a relationship between organizational diversity and firm performance (Richard, 2000; Richard et al., 2003), there lacks a comprehensive framework that describes how and why organizational diversity impacts firm performance. In fact, the few empirical results investigating the relationship between diversity and organizational outcomes have only been significant when the firm engages in a growth (Richard, 2000) or innovation strategy (Richard et al., 2003). Additionally, other variables have been identified in past research that offer further explanation as to why many of the relationships between diversity and other outcomes exist (Lawrence, 1997). This limited understanding of the diversity "black box" (Lawrence, 1997) may explain why prior research has produced mixed results concerning the relationship between diversity and either group (Horwitz & Horwitz, 2007; Knippenberg & Schippers, 2007) or firm outcomes.

A firm's perspective towards diversity can govern the ability of its employees to communicate effectively and reap sustained benefits from diversity. Ely and Thomas (2001) identified three perspectives under which cultural diversity could either improve or harm work group functioning. The fairness-and-discrimination perspective explains how organizations comply with the law, but do not necessarily benefit from diversity at work. The access-and-legitimacy perspective explains how racial minorities may benefit with access to the workforce, but the organization itself does not derive much benefit from its diversity practices. The integration-and-learning perspective suggests that organizations and its employees can benefit from a diverse workforce when it is managed properly. The authors suggest that these perspectives may influence the climate or culture of an organization. However, the relationship between these perspectives, diversity and innovation has not been examined.

Absorptive capacity (ACAP) of a firm is related to the effectiveness of its deployed innovation strategies. ACAP is defined as the ability of an organization to acquire, assimilate, and exploit information to commercial ends (Cohen & Levinthal, 1990). The innovative capability of an organization is a result of its level of absorptive capacity (ACAP) which has been linked to firm performance. There is limited research concerning how firm capabilities for innovation are derived from organizational learning and employees' knowledge. Prior research suggests that environmental conditions must be met in order for knowledge creation or transfer to occur (Cohen & Leventhal, 1990; Grant, 1996; Szulanski, 1996). The characteristics of the environment, as described among researchers (Cohen & Leventhal, 1990; Grant, 1996; Spender, 1996; Szulanski, 1996) both differ and overlap ranging from the responsibility of the firm to remove barriers to knowledge transfer (Szulanksi, 1996) to the amount of exposure, practice, and frequency that firms allow its employees to have with new information and knowledge (Cohen & Levinthal, 1990; Lindsay & Norman, 1977). However, there is no explicit mention of how cultural diversity ties into a framework for explaining how firms become innovative. Although the structure and policies of the firm play a role in producing innovation, it is important to recognize that firms can be conceptualized as being comprised of social actors, each with potentially strategic added value to the firm (Branco & Rodrigues, 2006). Organizational actors may include top management teams, the CEO, or even employees at the lower levels of the firm governed by control mechanisms which may include policies, procedures, and differing organizational climates. Individuals play a prominent role in knowledge creation (Grant, 1996; Nonaka, 1994) that affects firm innovation.

The primary purpose of this paper is to extend previous research on the impact of organizational diversity on firm outcomes by (1) conceptualizing how the diversity--creativity relationship can be used by firms to harness innovation, (2) examining the role that best management practices play regarding the diversity-creativity relationship to affect innovation, and (3) developing a comprehensive theoretical framework for future research that describes the relationship between diversity management practices and firm-level innovation. I propose that the implementation of programs and policy structures that support organizational diversity and organizational actors enhance the ACAP of firms allowing them to perform innovatively. Using a multi-level perspective, I propose a framework that integrates workplace diversity research from the individual-, group-, and firm- level regarding the relationship between diversity and creativity with the process of absorptive capacity and innovation. Using the three-perspective diversity framework (Ely & Thomas, 2001), I propose that the governance and management of diversity policies and practices creates an environment where absorptive capacity may flourish to impact the effect of diversity-creativity linkages on firm innovation. Throughout the paper diversity is defined as being cultural, racial, or sex-based and distinctions between the different types are made for clarity when necessary.

THE CASE FOR THE DIVERSITY--CREATIVITY--INNOVATION RELATIONSHIP

Scholars have found that heterogeneity of teams leads to more effective outcomes given the broader knowledge scope (e.g., Cox & Blake, 1991; Eisenhardt & Schoonhoven, 1990; Keck, 1997). However, greater levels of skills and cognitive diversity do not always yield a positive influence on outcomes. For example, when examined at the team level Horwitz and Horwitz (2007) found no relationship between bio-demographic diversity and the quality of team performance. Others have found negative relationships between diversity and problem-solving processes (e.g., Tsui & O'Reilly, 1989). One explanation for the variation in results may be lack of consideration for the time a team of individuals spends together. Watson and colleagues (1993) found that over time, heterogeneous groups outperformed homogeneous groups while working on tasks. Time that employees spend with one another also allows for them to share more information, whereby their deep-level traits such as work attitudes become more important in their relationships than surface-level...

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