Workforce Diversity And Competitive Advantage Commerce Essay

The purpose of this paper is to study the trend of leadership style over the relationship between organization’s workforce diversity and its competitive advantage with mission and vision statements as intervening variable which shows the concern of organization leadership towards the diversity management. Most organizations are adopting “diversity” into their policies and procedures to embrace its benefits and there is a growing recognition that it makes business sense to take diversity seriously. The demographics of working population has changed in last two decades with more mature workforce remaining in the workplace and at the same time more female employees are seen in higher positions while having variation in their cultural backgrounds. Therefore, it seems beneficial for organizations to hire diverse workforce to meet the demands of customer expectations. Organizations that are flexible and responsive to a demanding marketplace require the service of multi-skilled and adaptable workforce. One clear “competitive advantage” for organizations having diverse workforce is that it provides an environment that values differences among employees and encourages them for different ways of thinking and behaving during work to fully contribute to organizational aims and objectives. Employers providing such an environment get the support of their employees and develop a positive public image. It must be understood that each member of diverse workforce holds his differences and similarities; hence, valuing and managing diversity is about recognizing the unique contribution each employee can make to the organization. It is about creating an environment in which everyone feels valued, welcomed, and able to make an important contribution toward the attainment of corporate objectives. Additionally, companies facing challenges in competing global marketplace for market share can use diversity as “competitive advantage” in a multicultural environment with a diverse pool of talented and experienced individuals who can bring innovation and creativity to the organization. (U. Yozgat and F. Oben, 2009) studied the effects of leadership style on creativity which leads to the competitive advantage in organizations. This paper is to identify the organizational attitude towards the workforce diversity globally and comparing to Pakistan based organizations. The results showed the great concern of US and UK based organizations towards diversity management and no concern in Pakistan based organizations.

Literature Review

In this section, literature of workforce diversity is reviewed in correspondence with competitive advantage. Further, different types of leadership are discussed from the literature and then the role of leadership to achieve competitive advantage is reviewed.

Workforce Diversity

Diversity is not only associated to limited attributes that can be observed but also to those invisible characteristics such as differences in educational background, creativity, understanding, learning style, and problem-solving ability (Nafukho et al., 2011).So organizational performances and processes can be influenced by an individual or a group representing different categories of diversity within a workplace. (van Knippenberg and Schippers, 2007). Diversity is defined as “any dimension that can be used to differentiate groups and people from one another” (Giovannini, 2004, p. 22). Hence, diversity affects the organizations’ effectiveness and performance in terms of competitive advantage. (Joshi and Roh, 2009; Klein et al., 2011). This presumes that performance has a relation with organization’s ability to achieve goals with respect to its mission or vision (Devine and Philips, 2001). In other words, performance is deemed as an outcome which is a result of some purposeful activity to achieve competitive advantage as mentioned in mission or vision statements of an organization (Swanson and Holton, 2009). As the organization strives to achieve its goals or objectives, conflict may arise within the diverse groups to cope up the challenges of differences among them which keep them from achieving organizational performance (Østergaard et al., 2011). Since, Human Resource Department (HRD) deals primarily with performance of individuals, groups and organization at large to achieve competitive advantage, so diverse workforce demands the attention of HRD scholars and practitioners on the issues that arise in organization basing on the differences. It can be observed in modern trends for companies to use diverse workforce for completing special tasks which help achieve competitive advantage (Garrison et al., 2010) and there is always potential for the occurrence of conflict among such diverse groups which can derail the organization from achieving effectiveness. Hence, it becomes the responsibility of HRD to address such conflicts in advance and use the knowledge of how to build the high performing and productive teams of diverse workforce who can to the overall competitive advantage of organization (Klein et al., 2011).

In the past two decades several academic researchers have conducted research on various issues relating diversity. Richard (2000) examined the impact of diversity on organization and its productivity while Jackson (1993) found the positive relationship between diversity and creativity. Diversity research has also addressed the factors involved in assimilating new employees into an organization’s culture (Berry and Sam, 1997). However, some argue that by its fundamental nature, assimilating new employees to obtain greater fit between the person and organization is achieved at the expense of diversity (Powell, 1998). In other research, Tsui et al. (1992) showed that race and gender has negative relationship with diversity as compared to age. Other studies have also consistently found that observable attributes have negative effects on outcomes such as identification with the group and job satisfaction at both the individual and group level of analysis (Milliken and Martins, 1996). Further, Milliken and Martins (1996) supported the argument of Tsui et al. (1992) that racial and gender diversity can have negative influence on individual and team outcomes in some cases regardless of age. As an example, they referred to those groups members who differ from the larger group tend to show less commitment, more turnover and absenteeism while at the same time this results in additional costs, such as, group coordination cost, communication cost and training and development cost. So, according to them, diversity results in increase in coordination and control costs.

Workforce Diversity and Competitive Advantage:

Most companies find diversity as a way to gain “competitive advantage” by increasing business competency, improving net income, building the effectiveness to compete in global markets, improving business performance, achieving higher employee satisfaction, enhancing corporate governance, attracting diverse talents and skills and retaining the workforce that maintains the customer base (McCuiston et al., 2004). Moreover, culturally diverse workforce brings benefits to business economy (Ferley et al., 2003) and leads to better performance of the business (Richard, 2000). According to Adler (1997), a company with a diverse workforce has greater chances for building an innovative working environment. This statement is beautifully expressed in the words of White (1999), who states that creativity thrives on diversity. These benefits can be derived from the proper implementation of diversity-promoting policies (Jamrog, 2002). Many firms today seem to be increasingly embracing racial, ethnic and gender workforce balance, not for legal or ethical obligations, but as a matter of taking a progressive perspective on economic self-interest (Coil and Rice, 1993).

It has been recognized recently that increasing diverse workforce has presented both opportunities and challenges for organizations which are striving for efficiency, innovativeness and global “competitive advantage” (Barak, 1999). As the global markets are getting more complex, utilization of organization’s knowledge, skills and abilities is getting even more crucial in this rapidly increasing competition where organizations want to be more creative and innovative (Ng and Tung, 1998). In order to manage the growing diversity of the work force, organizations need to implement such systems and practices so that the potential advantages of diversity are maximized and the potential disadvantages are minimized (Cox, 1994). Managers in the organizations prove to be ineffective when dealing with a diverse workforce and language is reported as main hurdle when communication fails between the different nationals in employment Dadfar and Gustavsson (1992). However this negativity of the diverse workforce can be handled successfully by taking effective and rational decisions Watson et al. (1993).

Those who decide to have diversity as a source of creativity and innovation, this proves to be much challenging to manage a diversified workforce. Many businesses experience failure when attempt to employ the diversity in its full picture to see its results on operations of the organizations (Farrer, 2004), as it demands the much energy and attention to manage the diversity. Effective diversity management have to cope with many of challenges like work ethics, authority, work relations, culture and ethical standards (McCuiston et al., 2004).

Leadership

In the literature, many authors which have interest in studying topic of leadership, offered definitions of leadership and defined this concept as a complex process by which a person influences others, applying his/her leadership attributes like belief, values, ethics, character, knowledge and skills, to accomplish a mission, task or objective and directs the organization in a way that makes it more cohesive and coherent (Greenberg & Baron, 2000). In addition to, it is seen that there are differences in connection with the types of leadership. Burns (1978) was one of the firsts to identify two types of leadership styles, transformational and transactional.

Leadership remained the single most important issue in annual surveys for identifying top management issues during all times (HRI, 2002a). To manage a diverse workforce, organizations need visionary leaders but availability of them is scarce. According to the study by Diversity Inc. (2002), it is forecasted that many top management of several leading companies will lose one in five top managers due to retirement. Let alone, US companies will lose 40 percent or more of their top executives till 2015 (Wellins and Byham, 2001). One solution offered to this scarcity is to develop leaders at every level and in every function in an organization (Hesselbein, 2002). For this solution, Kappa Omicron Nu Honor Society (2002) advised the most effective leadership components to manage diversity, which are:

Sensitivity and awareness about diverse workforce.

Resources to strengthen and improve the quality of diverse individuals

Inter-communication skills to solve mutual differences

Strategies to maximize the effectiveness of diverse workforce.

The goal should be to develop cross-cultural leaders and generate a new crop of multicultural professionals (Yukl, 2002). These leaders are provided with the required resources and authorities to manage workforce. The focus should be to enhance their listening, learning, networking, communication, and experimenting skills to manage a diverse workforce (Melymuka, 2001). Finally an effective strategy must be developed to include diversity at all levels of management, and there must be commitment to diversity at senior levels where it is strategically more important (Conklin, 2001). This strategy must be evident in organization’s mission and vision statement and should involve a systemic, results-oriented, business-based approach (Fitzpatrick, 1997). Yet companies do not seek diversity unless this business competency results in increased profit and metrics that substantiate the necessity to expand the emphasis on diversity (Diversity Inc., 2002). Irrefutable measurable benefits can be derived from properly implemented policies to promote diversity (Jamrog, 2002). The most evident measurable benefits are improved bottom line, “competitive advantage”, superior business performance, employee satisfaction and loyalty, strengthened relationship with multicultural communities, and attracting the best and the brightest candidates. Competitive advantage defined in diversity as, “Recruiting and retaining people of diverse backgrounds who can share a common set of values. . .and approach to business – is a priority for today’s competitive organization” (McCormack, 2002, p. 1).

Jamrog (2002) suggested three-point approach to enhance effectiveness of leadership to manage diverse workforce: premise, guidelines and actions. There are three premises that leaders need to value diversity: (1) One size doesn’t fit all – leaders need to use different approaches for solving problems and developing workers as all situations and individuals are not the same, (2) Not everyone can be a leader – organizational should focus only on individuals who have the ingredients of becoming a good leader, and (3) Leaders can be at any level or function – anyone who can inspire, influence and guide others in the organization is a leader regardless of position. The five guidelines that leaders need to value diversity are: (1) Communicate, communicate, and communicate – share freely your ideas, suggestions, opinions; listen to ideas of others with interest, (2) Build contact into your daily actions and duties – Plan your actions, meetings, and duties so as to maximize contact with multiple people in the organization. (3) Manage and lead by walking around – Be outside the office frequently and interact informally with others of different levels, functions, backgrounds and experience, (4) Champion diversity – Bring in the contribution of everyone to increase commitment, innovation and creativity, and (5) Sponsor diversity – Defend the decisions, actions and interactions while supporting everyone in the organization. Lastly, the five actions that leaders need to value diversity are: (1) Assessment of leadership potential within the organizations, (2) Provision of training and tools, (3) Inclusion of diversity at all levels, (4) measuring and rewarding efforts, and (5) encouraging the organization to be patient. (Daniel Goleman, 2000) explored different leadership styles to affect the organizations in successful manner. (Malini Janakiraman,2011) identified the concern of the business leaders in treating the diversity management as a source of attaining and sustaining the competitive advantage. Organizational vision and mission is strongly related with leadership styles (John J.& Sandi L., 2007), which includes the mentioning of competitive advantage explicitly. (John A. Pearce II Fred David, 1987) identified the competitive advantage as a major component in the organization’s mission statement.

Conceptual Framework:

The literature reviewed thus far indicates that there is a positive relationship between workforce diversity and the benefits derived by organizations in the form of competitive advantage (McCuiston et al., 2004). Mission statement should mention the competitive advantages ( John A. Pearce II, Fred David, 1987) so that the goals and objectives can be aligned to attain or sustain the competitive advantage of the organization. Organizations using the diversity management as a competitive advantage or basis for then the organization are to mention the diversity in their mission statement. This study goes around finding the different country based organizations dealing the diversity management as a competitive advantage and the countries not taking it as strength to capitalize for competitive advantages.

Data Collection:

The data in this paper is based on top 100 companies of Forbes Global 2000 (2012). The mission, vision and strategy statements of these 100 companies are studied carefully. The website links of these statements are provided at the end of this paper in Appendix I. During the study, two of these companies are omitted from the list because both were in Portuguese language and further two are added to complete the list. Moreover, 50 companies of Pakistan from KSE-100 Index (2012) are also studied. The website links of the mission, vision and strategy statements reviewed are also provided in Appendix II of this paper. During the data collection, it was made sure that a company from every sector with revenue over Rs.1 billion is included. Those multinational companies that are working in Pakistan and listed at KSE-100 index were omitted to avoid double entry. The date is shown in following table.

Region

Diversity

No Diversity

America

30

8

Europe

25

12

Asia

10

15

Pakistan

1

49

Overall

66

84

Source: http://www.forbes.com/global2000/list/

The criterion set to study these statements is to find the exact word “diversity” in the mission, vision or strategy statements of these companies. The data collected is shown in following graph. The American region comprising North and West Continents seems to have more awareness about workforce diversity, as shown in the table. While there is no surprise that only one company (KAPCO) in Pakistan mentions diversity in its vision statement.

Findings and Conclusion:

The results depict that those companies which are multinational require a clear vision and strategy about workforce diversity. North and South American countries including USA, Canada, Brazil, and Chile have more awareness of workforce diversity while European countries are also inclined towards it. Findings also indicate that Asian companies are not as diverse as rest of global players because most of these are located in China, Japan and South Korea. Moreover, companies’ leadership plays a considerable role in inclusion of diversity because usually the top brass establishes the vision, mission and strategy of the company. So, the role of top leadership may not be ignored here.

This paper began with the review of diversity and its role in achieving competitive advantage. Further going through the literature it linked to leadership because to include diversity for achieving competitive advantage, managerial leadership needs to have better vision. This evidence in literature was also shown that leadership moderates the affect of diversity to achieve competitive advantage. The requirements of becoming a visionary leader are further discussed which can influence the mission, vision and strategy of the organization.

The limitation in this study was the time-frame due to which the exact leadership style could not be established. In future research, a leadership survey can be conducted to determine the style of leadership which can be beneficial for diversity inclusion.