In today's increasingly globalized world, the phrase 'diversity in the workplace' tends to pop up everywhere. The main reason being that modern technological advances in transportation have shrunk the globe to such an extent that it is no longer a problem to move to any part of the world be it for entertainment, studies and especially work. This paper explicitly focuses on literature that relates to cultural diversity in an organization and its implications on employee performance and the performance of a corporation as a whole. It will also take a look at cultural diversity from either side of the mirror, that is, the positive as well as the negative aspects and how to manage such an employee base. Please also note that, while there has been some debate on whether race and culture should be thought as the same thing, this paper regards them as inter-usable so as to avoid confusion.

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So what exactly is cultural diversity? It has been described as "the composition of work units (work group, organization, occupation, establishment or firm) in terms of the cultural or demographic characteristics that are salient and symbolically meaningful in the relationships among group members" (DiTomaso, Post, & Parks-Yancy, 2007) .The time has gone by when you expect an employee from a different cultural background to just "blend in" and start producing results (Amaram, 2007). Organizations have realized that a multi-cultural workforce can prove to be a great asset especially if the business is to be expanded to international markets. So the focus has somewhat shifted to come up with strategies to handle such an employee base and how to sustain that program.

In his assessment of the value of a multi-cultural workforce, (Konrad, 2003) states three reasons why companies are changing their attitudes and strategies regarding recruitment of employees with different backgrounds. Firstly, the best talent is not always local; you need to look globally to recruit the best minds in the business. Secondly, he talks about market share, that is, a culturally diverse workforce can better cater to an increasingly diverse customer base, hence increased market share. The insight that a local can provide into the workings of the local market and also of the mindset of the local consumer is invaluable. Finally, he states that each culturally different individual brings with him something different to the table, and when you combine all these different attributes, it results in making the organization more competitive. In a non-business related argument, (Jayne & Dipboye, 2004) suggest that increasing workforce diversity is the ethically right thing to do and also that it is a better way to address race and gender issues. This argument may seem insignificant considering that the current competitive environment means companies care more about capital than the 'right thing to do'. But (Amaram, 2007) brings up a very interesting argument about why corporations are moving to diversity programs. In addition to ethical and social responsibilities, he says that these programs have become necessary to avoid legal problems namely due to civil rights laws. Furthermore he states that to gain competitive advantage corporations have been forced to bring forward new strategies to bring out the best from a diverse workgroup and avoid conflicts.

Even at the Govt. level it has been realized that effectively managing cultural diversity is vital to economic success. One example is the Australia Govt. policy, where diversity management is governed by a state policy namely, "Productive Diversity". The aim of this policy is to make full use of the experiences and skills of people raised overseas, therefore gaining priceless Intel on international markets. (Leveson, Joiner, & Bakalis, 2009)

However what has been discussed above is based on theories and rhetoric. Is there any solid evidence that cultural diversity leads to a prosperous organization? The answer is a big "maybe". Countless research and studies have looked at this issue from many different angles, each with their own differing conclusions. After reviewing various researches on this issue Jayne & Dipboye (2004) came up with four conclusions regarding the relationship between cultural diversity and organizational performance.

"Increased diversity does not necessarily improve the talent pool"

"Increased diversity does not necessarily build commitment, improve motivation, and reduce conflict"

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"Increased group-level diversity does not necessarily lead to higher group performance".

"Diversity does not necessarily improve organizational performance"

A study (Choi & Rainey, 2009) suggests that it all comes down to the type of diversity i-e race, gender, religion etc. The findings were consistent with previous research (Milliken and Martins, 1996; Williams and O'Reilly, 1998) that suggest that racial diversity is inversely proportional to organizational performance due to less cohesion within the group and more conflict. It should be noted however that this study was specifically based on US federal agencies so it cannot be considered to represent the global business environment trend or even the national business environment of the US as a whole.

Various other studies on the subject matter provide some very interesting results. McMahon (2010) in her article surveys the more recent studies on diversity. Here I would like to talk about two of them. First, (Richard, 2000) carried out a research on the US banking industry. He chose 63 banks from 3 states based on 3 different factors: California (high racial diversity), Kentucky (low racial diversity) and North Carolina (financial wealth). The study showed that there was no direct relationship between diversity and performance instead it depended more on the firms' business strategies. When the strategy was more focused on growth there was a positive relation between diversity and performance but the result was opposite when the strategy shifted towards downsizing.

Again, the above study, even though regarded as valuable information, only included the US banking industry so it cannot be said to depict the complete picture, (Richard, Murthi, & Ismail, 2007) therefore widened the scope to other industries and studied the relationship between racial diversity and intermediate as well as long term firm performance and the role that environmental context plays in this. The results showed that at high as well as low levels of racial diversity, there was a curvilinear positive relation between racial diversity and intermediate firm performance. The result also showed a positive correlation between racial diversity and long term firm performance. But these results were dependent on the type of industry and environmental stability, meaning that the U-shaped relationship between racial diversity and firm performance would be weaker in unstable environments compared to a stable one.

Till now I have reviewed how cultural diversity affects businesses and also related the theoretical assumptions to actual studies done on this very important issue. In the next portion I will try to review literature that primarily focuses on the best practices for managing diversity.

"Effective management of diversity is based on recognition of commonalities and awareness of differences" (McMahon, 2010). Managing cultural diversity involves identifying the best practices. A best practice is a technique, method, process, activity, incentive, or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance (Wikipedia, 2010). So what are these best practices that I referred to? Amaram (2007) gives a few suggestions about them. He gives particular importance to diversity training programs, giving managers diversity related goals and making sure they are met and finally, giving respect to people of all races, that is, making room for religious holidays, diet preferences etc., because sometimes it's the little things that matter the most.

Jayne & Dipboye (2004) suggest "conducting a thorough needs assessment" so that the diversity initiatives are "tailored to the situation". Another suggestion is to develop a strategy keeping in mind the environmental context of the organization thereby echoing the results of the research carried out by Richard, Murthi and Ismail (2007). One more point that they touched in their paper was the need for inventing a system to evaluate the effects of diversity management strategies developed by organizations so that new and improved strategies can evolve by learning the mistakes from previous ones.


The increasingly diverse workplace is consistently posing newer challenges for an organization. Therefore there is a need for organizations to realize the importance of devising diversity management strategies. These strategies require thorough planning and looking at all aspects as well as the resulting consequences that will arise from a particular strategy because a good strategy can do wonders for an organization. At the same time these strategies could backfire if there is a lack of planning or research before implementation. After reviewing the above mentioned literature, one can see that cultural diversity is a complex phenomenon. Its role in improving organizational performance depends on various factors, for example, the environmental context, the type of industry, organizational strategies, etc. Furthermore cultural diversity alone does not guarantee immediate, tangible improvements in organizational, group, or individual performance. Nevertheless, achieving a culturally diverse workforce and effectively managing this workforce can yield huge benefits.

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