Link Between Diversity and Firm Performance in HRM

This essay critically discusses the link between diversity and firm performance in human resource management (HRM). It explores the definition of diversity in academic literature and its implications for HRM. The essay also highlights the importance of diversity management strategies and their impact on organizational performance.

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[Course title]
Human Resource Management
Student Name

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How is diversity defined in the academic literature? Critically discuss the link between
diversity and firm performance. Briefly discuss HRM implications.
Increasing cultural diversity seen among contemporary organisations poses one of the
most significant implications within human resource management and firms’ performance.
Many business practitioners and academicians have sought to comprehend the implication of
both diversity management and cultural diversity and how they impact organisational
performances. (Bedi, Lakra, & Gupta, 2014, p. 102) states that, "Diversity Management" is a
strategy to promote the perception, acknowledgement and implementation of diversity in
organizations”. Diversity is considered as a term that describes workforce differences and
similarities such as ethnic, gender, physical abilities and disabilities, age, sexual orientation
and race of the employees present in the organisation. In 21st century workplaces, workforce
diversity has become an essential concern for businesses as employees proves to be greatest
asset for any firm that can be held responsible for success or failure of organisational goals.
Furthermore, diversity can provide organisations with multiple benefits as it is exclusively
said in literature that diverse employees can understand global marketplace more efficiently
thereby affecting firm’s performance in positive way. On this note, this essay will critically
discuss and analyse link between diversity and firm performance along with its implication
over HRM functions along with defining diversity as per current literature
According to (Jonsen, Maznevski, & Schneider, 2011), the definition of diversity in
most of the academic articles lack explicit clarity or have used various terms interchangeably.
Where some of them defines diversity as distribution of differences within firms’ members
with regards to common attribute, others mention ethnicity, tenure and conscientiousness as
potential attributes. Diversity scholars like (Akobo & Damisah, 2018) and (Yang & Konrad,
2011) argues that a broader definition of diversity encompass every process through which
employees can differ from each other. (Kuen, Gee , & Zainudin, 2017) study reflected the
idea behind diversity concept as perceived difference within people such as profession, age,
sexual preference, lifestyle, geographic origin or position within any firm. Another
conceptual definition of diversity is from (Jonsen, Maznevski, & Schneider, 2011), where
diversity means representation of people in a social system which consists of distinctly
different team affiliations that are culturally significant. (Jayne & Dipboye, 2004) states that
the definition of diversity have moved from its focus on legally affected attributes like

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gender, race and age to a much wider definition which includes entire spectrum present in
individual differences. Moreover, it is been seen in present literature that every statement or
definition embraces every employee under one umbrella of diversity. This has been further
proven after a research conducted by (Jayne & Dipboye, 2004) of Human Resources Institute
report findings from 2001 to 2003 after surveying Fortune 1000 companies. The authors find
that over 96% respondents stated that they were provided with diversity training regarding
race, 65% on age, 88% on gender, 64% on disability and 85% on ethnicity including few
others. The inclusion if diversity strategies to embrace and leverage every employees’
differences signifies that today’s organisations have become more concerned towards
diversity initiatives.
(Aydin & Rahman, 2017) puts forward different concept behind diversity and says
that it brings in firms a multi-ethnic, multi-cultural and multi-racial perspective as the
diversity concept creates an awareness among diversified populations present in firms and
commercial markets. Increase diversity seen among firms are due to the result of developing
and retaining members who belongs to disadvantaged or stigmatized groups. (Jonsen,
Maznevski, & Schneider, 2011) documented that employee turnover rates among members
belonging to minority groups decreases when there are increased number of human resources
representatives in higher levels of the firms. Therefore, minority members work with others
belonging to one’s own races or other minority members which improves retention among
them. Furthermore, (Ramarajan & Thomas , 2010) highlighted the facts that diversity from
within both outside and inside of firms do have positive effects on enhancing the
representation of firm’s members, however, measuring such representation alone may not
provide with complete scenario of intergroup qualities. Organisational scholars of diversity
like (Capar & Kotabe, 2003) have also constructed the terms that extensively denotes
presence of effective outcomes due to enhanced relationship between diversified members.
The most commonly asked question among contemporary studies about diversity is
whether is can be linked with firm’s performance or not. In particular, most of the firms
remains unaware about how diversity is been managed concerning recruitment, training and
promoting of underrepresented groups within corporate individuals. In practice, few of the
organisations promotes active diversified workforce while other view diversity initiatives to
be an expensive procedure. (Chari , Devaraj , & David, 2007) claims that diversity seen in top
management may bring probable costs to the firms like communication gaps and
interpersonal conflicts. However, it can also be said that diversity brings additional advantage

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also like wider perspective in firm’s decision making, innovation and enhanced creativity to
carry organisational activities successfully. (Kuen, Gee , & Zainudin, 2017) demonstrates
different arguments concerning relationship between gender diversity and competitive
advantage of firms. nevertheless, most of the scholars argues in support of the proposition
that increased diversity can bring various advantages to the firms due to several reasons. For
instance, cognitive style in women makes them feel more harmonious and are able to
facilitate distribution of critical information.
Discourse analysis made by (Jonsen, Maznevski, & Schneider, 2011) shows that
variety of responses among different nations reveals that diversity is been legitimised.
German organisations legitimised diversity approach through a link that provided
performance related rationales as an instrumental perspective while French companies looked
diversity as more holistic and normative approach. Nevertheless, whether the goal behind
managing workforce is accomplished or not, it further depends largely upon employee’s
perspective towards diversity management and how they are been undertaken by firms’
human resources. Although many firms utilise performance booster techniques like rewards
and incentives, employees further need to perceive positively with diversity support within
organisation. As firm’s performance largely depends upon attitude and perception of its
employees towards various diversity related issues, it becomes significant and fundamental
component of the firms to achieve strategic changes in its HRM. Considering resource-based
view theory, firm’s diversity can become a source of sustainable competitive advantage also
as diversified workforce proves to be rare, valuable and non-sustainable. Investing in
organisational diversity is therefore acknowledged by many global firms worldwide (Richard,
2000). However, (Kundu & Mor, 2015) argues that increasing diversity or diversity
management alone do not provide effective measures since they might lead or may not
provide higher or positive outcomes concerning firm’s performance. Thus, the author
pinpoints that both human resource management and diversity management needs to be
valued combinedly by every employee to harvest true profits of diversity. Furthermore, if
firms manage employee’s diversity in a positive manner, it can provide workplace with great
source of learning, growth and intuition that ultimately increases firm’s performance. (Denis,
Denis, & Yost, 2002) further supports this argument and reflects that diversity effects are
positive when both firms and employees share favourable and common views about attitude
towards diversity.

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In an organisational level, human resource management considers diversity as a
valuable component that potentially yields enhanced organisational performance along with
firm’s competitiveness. The utilisation of work-life-balance further supports positive
outcomes of managed gender diversity as compared to poor work portfolio and improper
work-life-balancing management which creates negative influences on the financial returns of
the firms. This shows that diverse workforce management has become a significant norm
within contemporary workplaces and to capitalise on potential workforce benefits, firms need
to understand the cause behind effective diversity management to support diversity related
initiatives. Strategic human resource management (SHRM) are expected to formulate firm’s
strategies by critically evaluating positive impacts of workforce diversity along with acting as
a catalyst that can leverage diversity through development of organisational culture,
supporting diversity at strategic, tactical and operational levels. The present literature also
reveals that HR diversity management related strategies like diversity training programs,
support groups, flexible work-timings, diversity audits and work-life balance act as
connectors between firm performance and workforce diversity (Bedi, Lakra, & Gupta, 2014).
Various research and study pertaining diversity in workplace have been made in
literature which are primarily based upon inductive research methodologies. Many scholars
are developing existing theories that can potentially impact workplace diversity outcomes in
which diversity management function of SHRM have been posited as chief moderator in
bringing effective relationship between firm’s performance and diversity in workplace. (Yang
& Konrad, 2011) extended present theories by drawing from resource-based view and
institutional theories to identify both outcomes and antecedents of diversity management
practices of firms’ HRM. Institutional theory emphasises more upon normative context in
which firms exist to understand organisational structures and activities which cannot be
separated from undertaking social environment perspectives. In current view, this research
implies on diversity practices that includes both qualitative and quantitative research made by
authors. As compared to previous studies, current view not only addresses consequences of
diversity management practices, but also provides HR with theoretical foundations to
organise research made by antecedents and implementation of such theories and practices.
Moreover, (Aydin & Rahman, 2017) suggests that diversity management can benefit from the
insight of resource-based and institutional theories. In diversity management practices, where
institutional theory provides with an approach to comprehend normative and social factors

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that effects diversity adaptation practices, resource-based view suggest to adopt diversity for
formulating competitive SHRM practices.
Another view of extant research made by (Wiersema & Bowen, 2008) on diversity
management indicates that research area focuses more on practices related to employees,
however, practices among organisation’s top management for putting in place for diversity
can effectively connect every stakeholders groups effectively. These connections can likely
generate more innovation-based and learning capabilities that serves as rare and inimitable
asset which have capability to provide competitive position of the firms. Therefore,
organisational behaviour scholars advanced previous research by including diversity
measurement practices beyond HRM for reaching across various organisational functions. A
study conducted by (Akobo & Damisah, 2018) contributes to diversity and HRM literature
from another perspective revealing that demographic diversity moderates HRM performance
relationship positively. The findings made by the author implies that increased aged diversity
strengthens human resource performance relationships as implementation of the same can
foster team autonomy along with cooperation and effective communication among
organisational members. Furthermore, organisations with diverse culture along with different
age groups can attract diversified consumer groups that enhances firm’s attractiveness and
recognition. However, the moderating impacts of diversified age groups can further affect
professional tenure diversity along with expertise diversity that again makes such diversified
workforce insignificant for many firms. (Simons & Rowland, 2011) claims that diversity
therefore becomes complicated issue for SHRM within organisation, however, can become
pivotal by strengthening core human resources strategies.
Effective HRM can directly linked with business successes as per current literature.
Many authors and scientific researchers’ emphasis on human resource policies like human
resource flow, employee influence, work systems and rewarding that can be designed for
promoting developed and flexible work environment comprising highly committed and
adaptable employees. However, from diversity and equality perspectives, it can be said that
policies which requires to be integrated must consider organisational objectives before
integrating them with SHRM. (Jayne & Dipboye, 2004) pinpoints a long-term implication
that HRM can have for society and individuals and thus suggest that human resource
managers must keep a track of long-term workforce trends present in marketplace that can
potentially indicate future opportunities and issues in acquiring skilled workforce. Being a
part of equality diversity, human resource managers can even take an account of women

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participation along with other ethnic and minority groups present in labour workforce.
Additionally, the author recognised significance behind managers recognition of changing
aspirations and values of employees through training and education that make them more
resistant to arbitrary authority. While primacy of the managers remains clear about the
conception of HRM, it can further recognise importance behind diversified stakeholders’
interests, thereby potentially providing sufficient space for increase in diversity issues.
Putting succinctly, the HRM needs mobilising and supporting diversified stakeholders,
including government, employees, unions, community groups and customers. Additionally,
diversity approaches for equality implies HRM to discover personal management by
integrating diversity approach echo, notably strategic integration of individuals after valuing
growth within workforce diversity as significant contribution to organisational success (Shen,
Chanda, Netto, & Monga, 2009).
Diversity has been majorly defined as differences seen in individual attributes or
characteristics which shows that other people are different from oneself. Diversity in firms
acknowledges reality that employees differ in various ways that may or may not be visible,
mainly regarding gender, age, sex, marriage, social stratus, religion, ethnicity, personality and
disability. However, predominant diversity implications within every research paper shows
that no comprehensive model is available that can examine overall aspect of diversity and
how its benefits can be measured for bringing success to the firms. The above paper also
discussed link between diversity and firm’s performance along with its implications on HRM.
The above essay examined conceptual frameworks and analysis that are presented in
literature review section of scholarly articles concerning diversity practices in HRM area. The
essay finds that diverse groups comprises multitude of understandings, beliefs, values and
ways through which world is been viewed differently. The rapid globalisation and
internationalisation have enhanced significance behind diversified workforce among which
multicultural and cross-cultural workforce is been recognised as most common thread not
only among western organisation, but also corporations that are spread globally. However,
few issues seen within diverse groups in some of the organisations reveals that the attitude of
organisations ranges from tolerant to intolerant in nature along with others who appreciates
diversity. The key to the diversity hinges on people centred policies and strategic thinking
and thus SHRM function is the only way that can fulfil the overlapping gaps that revolves
around diversified employees.

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References
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African Journal of Business Management, 12(13), 396-405.
Aydin, E., & Rahman, M. (2017). Theoretical Perspectives to Diversity in Management
Research. Journal of Management Research, 9(02), 160-170.
Bedi, P., Lakra, P., & Gupta, E. (2014). Workforce Diversity Management: Biggest
Challenge Or Opportunity For 21st Century Organizations. Journal of Business and
Management, 16(04), 102-107.
Capar, N., & Kotabe, M. (2003). The Relationship Between International Diversification and
Performance in Service Firms. Journal of International Business Studies, 34, 345-355.
Chari , M. D., Devaraj , S., & David, P. (2007). International diversification and firm
performance: Role of information technology investments. Journal of World
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Richard, O. C. (2000). Racial Diversity, Business Strategy, and Firm Performance: A
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