Crisil Young Thought Leader- 2015

Is Cultural Diversity Synergistic

For a Global Corporation?

Submitted By: Nishiggandha Kerure,

PGDM (2015-17), IIM Shillong

Contents

Executive Summary ................................................................................................................. 03

Towards Culturally Embedded Organizations ......................................................................... 04
Benefits of Cultural Diversity: A Call for All Global Corporations........................................ 05
Ramifications of Cultural Insensitivity .................................................................................... 06
Primary Research ..................................................................................................................... 08
Harnessing Cultural Diversity for Competitive Advantage ..................................................... 09
Conclusion ............................................................................................................................... 10
References .............................................................................................................................. 101
About the Author ................................................................................................................... 101

Executive Summary:
The economies of the world today are interconnected. And with the increasing dependence on other nations
for goods, services and labour, organizations are extending their operations to the global level in search of
economies of scale and other financial benefits. This geographical expansion and the changing demographics
make it almost impossible for any global corporation to abstain from incorporating cultural diversity in its
structure. Embracing cultural diversity is not only employing local workers in the organizations multinational
locations but also becoming a true melting pot for all the cultures that are brought in by various groups of
employees through inclusion.
Till the time organizations do not adopt a Glocal (Global+ Local) identity in each of their markets by justly
understanding the respective culture, custom and context; their primary motive for business would remain
monetary gains for the original entity in their domestic country. Such a policy would make those
organizations practices nothing short of a modern-day edition of colonialism.
In the light of its growing significance, this paper examines the benefits brought by diversity and pluralism at
work, the ramifications of being culturally insensitive today and how global organizations can effectively
harness the cultural diversity for competitive advantage. An argument is also attempted to highlight why all
corporations need to look beyond managing cultural diversity and rebuild themselves to get embedded in the
host context for mutual sustenance.

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Date: 14-02-2016
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Towards Culturally Embedded Organizations:

"Culture is the whole complex of distinctive spiritual, material, intellectual and emotional features that
characterizes a society or a group. It includes creative expressions, community practices and material or built
forms."
Our Creative Diversity: Report of the World Commission on Culture and Development
There are two kinds of characteristics that differentiate individuals: the ones that we have considerable control
over and the ones that we have almost no control over. Our values, beliefs, motives, location and education
amongst others are the aspects that we can modify whereas there is very little that we can do about our age,
sex, race, physical traits and family and community that we are born into. Together, these two sets contribute
and define our culture which governs the way we perceive the world and conduct ourselves in both our
personal as well as professional lives.
Organizations are essentially contrived social systems, existing due to plurality of human thought and feelings.
People with diverse experiences and understandings together share a common idea of what the organizations
stands for and how that would be achieved. As organizations, especially corporate ones, continue to explore
new territories worldwide for more and more economical sourcing of raw material, capital and labour and
enter new markets to increase their consumer base, geographic reach and aggregate market share; the
increasing diversity in todays workforce is unavoidable for any global organization, regardless of whether it
is for-profit or non-profit. And the fact that in 2015, as high as 3.3% of the world population (244 million
people)1 lived outside their country of origin corroborates that the rising migration escalates the existing
cultural diversity at workplace. Unsurprisingly, the U.S. Census Bureau projects a nation with no ethnic
majority by 2050, with 54% population being people of colour.2
Even though the inevitable economic interdependency, shifting demographics and in the case of some
countries, legal frameworks encourage the rising cultural diversity; the same is hardly observed at present in
businesses, even in the ones as large as the Fortune 500.

Fortune 500 CEOs by Race

and Ethnicity

Non-Hispanic white

Hispanic

African American

Asian

Fortune 500 CEOs by

Gender

Women

Men

Clearly, elements internal to organizations working such as conflict between heterogeneous employees, preconceived notions and biases, rigidity to change etc. come in between effective implementation of diversity
integrating measures. After all, it is a natural human tendency to actively seek out those who are similar to us
in one or more ways; as is the discovery that identification with a culturally diverse group is lower than that
with a homogenous group. Such cultural inertia not only prevents organizations from gaining sustainable
competitive advantage that comes from utilizing the complete continuum of capabilities of diverse personnel
but can also provide undesirable setbacks, while facilitating the advancement of your competitors who do
understand the array of benefits brought by the non-traditional employees.

1
2

Official Website of the United Nations Population Fund

A Better, More Diverse Senior Executive Service in 2050 by The Center for American Progress (September, 2011)

Benefits of Cultural Diversity: A Call for All Global Corporations

1. Creativity:
Roy Chua, measured the cultural diversity in 72 media professionals networks considering the variables of
past multicultural experiences, network size, work experience etc. and proved that having a multicultural
network increases creativity in the tasks that draw on cultural-knowledge resources. Another study asked its
participants to form maximum possible from 10 given letters and other similar tasks, wherein they concluded
that the groups exposed to minority views were more creative than the more-homogenous, majority ones.
Indisputably, Individuals with different nationality, race, age, gender and social groups grow up with different
values, beliefs, attitudes and motives. Their wide-ranging experiences lead to different perspectives and foster
creativity that would be incredibly valuable for any global corporation.

2. Innovation:
While creativity is the ability to produce new ideas, innovation is the actual development and implementation
of such ideas, products, services and processes. In a culturally diverse organization, its employees diverse
thought processes, skills and aptitudes increase the probability of innovation at work. Rosabeth Kanters study
also concluded that the most innovative companies consciously form heterogeneous teams, often employing
more women and ethnic minority individuals than their less innovative counterparts. Global organizations
catering to customers from varied backgrounds do need to keep in mind their increasing demands, the everchanging business environment and upcoming technological advancements and respond accordingly by
constantly innovating; where the cultural diversity has proven to be a boon.

3. Motivation:
Frederick Herzberg demonstrated that people value interesting work and challenges the most as motivations
to work and cultural diversity at workplace helps the cause. Diverse individuals, when made to work together,
are bound to have their differences in opinions and in all probability, conflicts. The challenge lies in putting
aside these differences and working in harmony to achieve the organizational goals along with accomplishing
the individual objectives of growth. Not to forget the incentive of an experience enriched with peer learning,
the primary reason why the finest universities worldwide prefer to have diverse candidates in their class.
Following figures show the cultural diversity included by Harvard Business School in its class of 2016:

Nationalities

North America
Asia
Europe
Central/South America
Africa
Oceania

Gender

Race

International
US Ethnic Minorities
Male

Female

Source: Official Website of Harvard Business School

Rest

4. Reputation:
Every employee wants to be treated fairly, to be valued for who he is and appreciated for his contributions.
Those employers who create an environment where every culture and its own set of values are welcome will
earn better reputation than others in the talent market. Going this extra mile would be rewarded with favourable
recognition from customers as well, a finding supported by the primary research conducted.

5. Organizations Performance:
A diverse firm would most likely outperform a firm that has little or no diversity. As per Anne McMohans
research on the interrelationship between diversity at workplace and firms performance, social and
psychological characteristics such as openness to experience, agreeableness, feelings and cognition etc. have
considerable implications on the organizational performance. McKinsey & Companys study of 366
corporations also confirms the statistical connection between gender diversity, ethnic diversity and financial
performance; signifying that companies promoting diverse leadership are more successful.

Likelihood of financial performance above

national industry median, by diversity quartile %
70%
60%
50%
40%
30%
20%
10%
0%
Gender Diversity
1st Quartile

Ethnic Diversity
4th Quartile

Source: McKinsey & Company

Ramifications of Cultural Insensitivity:

1. Cultural Blunders:
Any organization that has global ambitions but does not embrace cultural diversity in its workforce risks
committing culturally insensitive gaffes. Employees understand their local markets, cultures and customers
well. Without their inputs, it cannot accurately interpret what is permissible, what is not and how differently
things can be construed in different places. A mere hiring of workers from the place of operations is not
sufficient but a thorough understanding of their cultures, customs and context; otherwise businesses have time
and again suffered phenomena like Starbucks inside the Forbidden City.

2. Regulatory Compliance:
Employers have been forced by law to accelerate the hiring of a more diverse workforce and to remove the
barriers to employment progress for previously disadvantaged groups3. Be it UK Equality Act or South
Africas Employment Equity Act.
3

CDE Exam Study Guide by the Institute of Diversity Certification

The Canada Multiculturalism Act aims to preserve and enhance multiculturalism in the country, along with
the ministry of multiculturalism. SEBI has mandated listed Indian companies to at least have one woman
director on their boards. Organizations hoping for a multinational presence but not incorporating diversity
have the possible threat of legal disputes by way of non-compliance with the law of the land. Corporates can
also explore the possibility of promoting cultural diversity and eradicating biases as CSR activities on which
it is mandatory for them to spend certain share of profits.

3. Corporate Colonialism:
Organizations branching out geographically purely for low-cost sourcing of inputs to production, economies
of scale or for increased financial gains through additional sales are modern-day practitioners of colonialism,
i.e. one territory exploiting another in pursuit of self-interest. Without adopting relevant socio-cultural
identities through its people and practices in host communities and becoming a melting pot for diversity;
corporations will be following in the footstep of the British East India Company that capitalized on Indian
resources with the sole goal of profits. Not only would such an image put a firm at disadvantage over its
competitors in the race of higher market-share but with increasing vigilantism in both public and media, it
could lead to substantial uproar.

4. Talent Retention Challenge:

When diversity at work is a fact of life, not being an inclusive organization sends a negative message to the
employees belonging to minority, the repercussion of which can be higher absenteeism and attrition rate. If
employers have more affinity towards certain cultures or prejudice against certain others, they might develop
better relations with specific employees. Even if managers build great rapport with only the best employees,
such inconsistent quality of relationships of leaders in demographically diverse groups leads to high turnover:

Source: Center for Advanced Human Resource Studies, ILR School, Cornell University

5. Talent Shortage Challenge:

When there are millions of people looking for work, how can a talent shortage exist? But a survey of 41,700
hiring managers across 42 countries shows that about 38% employers4 have difficulty in filling jobs, a barrier
steadily rising in the last few years.

2015 Talent Shortage Survey by the ManpowerGroup

Source: Official Website of the ManpowerGroup

Knowledge, and skills do not exist randomly but have considerable geographical distribution. Organizations
that wish to go global but refrain from containing a culturally diverse labour pool will continue to face the
talent shortage crisis in the demographically narrow workforce that they have.

Primary Research:
A primary research was conducted by floating a questionnaire and responses were collected from 240
individuals from over 35 academic institutions:

Do you belong to a
minority?

Gender of
Respondents

Male

Female

No

Would you prefer to work for an

employer who values diversity?

Yes

No

Neutral

Is cultural diversity at
work important to you?

Yes

Yes

No

Neutral

Would you prefer to buy from a

company who values diversity?

Yes

No

Neutral

Describe Cultural Diversity at work in one word:

Progressive

Learning-Hub

Confluence

Reservation

Optional

Candour

Ideation

Females

Growth-Escalator Unity

Representative

Free

Must

Exposure

Languages

Findings: Most of the respondents were males, not belonging to minority groups and yet, looked forward to
cultural diversity at their jobs after education. As high as 45% would themselves prefer to purchase a brand
that values diversity in its organizational structure. Also, only 2.91% felt that their organization had a great
deal of diversity denoting the fact that even with our numerous cultures in one country, presently we lack
diversity at work and have a long way to go.

Harnessing Cultural Diversity for Competitive Advantage:

1. Cost advantage:
After scrutinizing prevailing statistics and mind-sets, Diversity management of both traditional and nontraditional employees through initiatives such as increased interaction among peers, open-door policy with
senior executives, career planning; equal access to challenging work, higher responsibilities and promotions
would ensure job satisfaction for all. What gets measured, matters. Thus metrics such as decrease in pay
disparity, number of discrimination grievances, representation of minority at all levels in the firm etc. should
be developed and tracked. The commitment of top management to inclusion of diversity, both in words and
in action, would lead to reduced employee turnover rate and a cost advantage over those organizations who
do not perform well in terms of integrating diverse workers into their jobs.

2. Human Resource advantage:

Those employers who establish themselves as the ones genuinely valuing impact and identities of each of
their employees would succeed in acquiring the best talent across geographies. Employer rating agencies
such as Great Place to Work and others give sizeable weightage to employers orientation towards diversity
inclusion and diversity management. With the supply of traditional employees dwindling, the favourable
recognition of an organization as the employer of choice among non-traditional job-seekers would deliver it
with a sustainable competitive edge that is skilful human resources.

3. Marketing advantage:
The total income of all the women in the world is forecasted to touch US$ 18 trillion by 2018. Women make
or influence 70-80% of all the purchasing decisions, making it impossible for any consumer goods company
to ignore this power that they hold.5 While marketing your products and services to women and any other
customer segment, it becomes imperative to gain relevant insights. A global yet homogenous organization
cannot understand the psychology of diverse consumer groups, their needs, demands, lifestyle, and financial
constraints and will lag behind others who tap into the insights of heterogeneous employees.

Top 10 Things Everyone Should Know About Women Consumers by Bridget Brennan for www.forbes.com

4. Flexibility advantage:
An organization that encompasses culturally heterogeneous workforce in its structure, in short-run they might
face difficulties due to disputes but in the long-run, the organizations culture itself becomes more open to
change, less rigid. Such elasticity can be utilized to be proactively responsive to todays dynamic world. The
organizations that anticipate changes in both macro and micro environments and counter will get an
advantage over those who stay sheer spectators to the changing tides.

5. Problem-solving advantage:
The increased creativity and innovation of a diverse workforce helps an organization be better at problemsolving. Lu Hong and Scott Page proved through their mathematical theorems and experiments that when
selecting a problem-solving team from a diverse population of intelligent agents, a team of randomly selected
agents outperforms a team comprised of the best-performing agents. Diverse employees abilities to improve
the collective decision through their individual contribution win over those of the homogeneous employees
and the same principle can be applied to develop better solutions to the organizations internal issues and to
its clients problems by way of think tanks.

Conclusion:
Managing diversity is at the core of organizing and cultural diversity is only a point of departure for present
day global organizations. How these corporations attract, manage and retain demographically diverse
personnel along with their existing workforce will determine their market position, relative to their competitors
worldwide. Becoming culturally embedded in the host community can also be used to cultivate viable
competitive advantages through improved cost-structure, relevant marketing, valuable talent-acquisition,
enhanced organizational flexibility and superior problem-solving besides being able to develop a Glocal
identity everywhere as opposed to a singular image. Through both primary and secondary research and by
reviewing current corporate practices, this paper has focused on the pertinence of cultural diversity at work
and recommended indicative ways of harnessing it.

References:

Cultural Diversity in Organizations: Enhancing Identification by Valuing Differences by Kyra

Luijters, Karen I. van der Zee and Sabine Otten (2008)

Innovating at the Worlds Crossroads: How Multicultural Networks Promote Creativity by Roy Y.J.
Chua (2011)

Creative Problem Solving as a Result of Majority Vs Minority Influence by Charlan Jeanne Nemeth
and Joel Wachtler (1983)

The

Change Masters: Innovation for Productivity in the American Corporation by Rosabeth M.

Kanter (1983)

The Motivation to Work by Frederick Herzberg, Bernard Mausner and Barbara Bloch Snyderman
(1959)

Does Workplace Diversity Matter? A Survey of Empirical Studies on Diversity and Firm
Performance, 2000-09 by Anne M. M McMahon (2010)

Paving the Path to Performance: Inclusive Leadership Reduces Turnover in Diverse Work Groups
by Center for Advanced Human Resource Studies, ILR School, Cornell University (2010)

Hard-Wiring Diversity into Your Business by the Boston Consulting Group and European
Association for People Management (2011)

Diversity Matters by Vivian Hunt, Dennis Layton and Sara Prince for McKinsey & Company
(November, 2014)

Groups of Diverse Problem Solvers can outperform groups of high-ability problem solvers by Lu
Hong and Scott E. Page (2004)

About the Author:

Nishiggandha is currently pursuing her 1st year of Post Graduate Diploma in
Management at IIM Shillong and was selected as an Aditya Birla Group
Scholar (Batch of 2015). She has one year of work experience with DBS Bank,
after completing her graduation in management studies from R. A. Podar
College of Commerce and Economics, Mumbai.

+91-9833827489
kerure15@iimshillong.in
https://in.linkedin.com/in/nishiggandha