Strategic Management of Diversity Costs: Why do good managers struggle to achieve diversity in the workplace?
Why is it so hard to achieve diversity in the workplace despite expensive policies on diversity and genuinely motivated managers that want to see more diversity in the workplace? The answer may lie in the economic pressures that make it difficult for most firms to leverage diversity to a competitive advantage.
Note: The opinions stated here are my own, not those of Google
By treating diversity management as a cost-benefit tradeoff that is dependent on the culture and history of each firm, we can see that the ability to achieve diversity at a strategic advantage is limited by institutional factors that make it difficult for managers to move away from. Achieving a strategy where diversity comes only with benefits and no costs is difficult and may not even be possible for most firms. These firms are then forced to operate at a disadvantage to companies that are able to achieve such a strategy.
So far, researchers have provided evidence for the benefits of diversity and provided frameworks for implementing diversity initiatives to achieve such benefit, but have not provided a harmonizing theory that can explain the trade-offs of cost and benefit of diversity in the workplace. This paper describes the transfer of various forms of capital between social groups as a transaction and seeks to explain the dynamics of diversity in the workplace using Transaction Cost Economics. Normative statements regarding the strategic management of these costs are also provided by applying the Resource Based View of the firm. The result is an explanation of the source of costs of increasing diversity in the firm, how those costs become a mechanism for the institutionalisation of discrimination and a fruitful comparison of the potential for various diversity strategies to achieve sustained competitive advantage. The theory explains how the strategic resource relevant to achieving a competitive advantage from diversity is not the level of diversity which can be attained, but the dynamic capabilities that achieve lowered costs of diversity. As a result, it is postulated that the disposition of the agents of the firm are of paramount importance to the strategic management of diversity to a competitive advantage and the use of empowerment through hierarchical controls cannot achieve strategic advantage in the presence of anti-diversity strategizing behaviour.
It is still unclear as to why companies have various levels of diversity with various levels of performance. Benefits of diversity in the workplace have been well explained and documented, and high performance has been proven possible with diverse workforces, but there is no clear evidence that high diversity directly translates to high performance. This result is intuitive because if diversity was a clear source of competitive advantage on its own, then over time, the companies with the highest diversity would triumph and diversity would become a competitive resource with observable patterns in the marketplace.
This paper seeks to explain this lack of connection between the benefits of diversity and the competitive performance of diverse workforces by presenting a theory that describes the costs and benefits of diversity in the workforce as competing factors which can result in net positive or negative impact on performance based on the circumstances unique to each firm.
The circumstances that can lead to the success or failure of attempts to increase diversity have been attributed to many factors including corporate culture, the importance of innovation, and the effectiveness of implementation plans (Von Bergen, Soper, and Parnell 2005; Pitts et al. 2010). Depending on these factors, strategies intended to increase diversity can fail to address fundamental barriers (Brayboy 2003; Sharp et al. 2012). Difficulties in increasing diversity have been also been attributed to inefficiencies of diverse groups related to communication and conflict (Jehn, Northcraft, and Neale 1999) as well as the performance disparity of in-group and out-group effects (Allen and Wilder 1975).
Ambiguity surrounding the performance outcomes of implementing a diversity strategy suggests that there is a complex balance between positive and negative factors, pointing to a hidden cost of diversity that competes against, and can sometimes overwhelm, the manifest benefits to an organization. As a result, the individual cost-benefit analysis of how much to invest in achieving equity in the workforce will be highly idiosyncratic, as reflected by the idiosyncrasy of the recommendations provided by existing frameworks, developed to help managers navigate the “myriad individual pieces” (Clayton-Pedersen and Musil 2005, 5) required to integrate diversity into the performance strategy.
Frameworks designed to help management evaluate the pressures, barriers and motivations for diversity in order to assess the strategic disposition of their firm towards diversity are intended to make recommendations for implementing diversity programs. For example, the Inclusive Excellence organizational change framework presented by Williams et al. (2005) integrates the multiple dimensions of organizational behaviour to help management identify diversity goals and Dass and Parker’s (1999) framework recommends appropriate levels of integration for diversity plans based on the level of resistance and the level of pressure for diversity. Cox and Blake (1991) present several internal and external costs and benefits to the strategic management of a diverse workforce to include diversity as an element of competitive strategy.
However, such frameworks do not attempt to provide a universal model for explaining the dynamics of diversity in an institutional context. For example, the economic framework provided by Cox and Blake (1991) identifies that the competition between costs and benefits of diversity can be managed to a competitive advantage, but does not seek to explain the sociological source of those costs. Von Bergen, Soper, and Parnell (2005) identify that some diversity friendly firms achieve significantly abnormal returns, but also clarify that this is not evidence of a causal relationship.
Without an explanation of the source of costs and benefits of diversity, it is unclear if equity in a diverse workplace is a resource that can contribute to competitive economic returns, or a cost that must be borne by institutions and justified by management. A theory that provides additional clarity on the cost mechanisms of equity in a diverse workplace could describe how certain firms are able to achieve higher levels of diversity than other firms and better determine whether such an achievement could constitute a source of sustainable competitive advantage.
It is the argument of this paper that Transaction Cost Economics (TCE) and Bourdieu’s theories of capital and symbolic violence can be used to provide a general explanation for the source of those hidden costs that can at least complement, if not supersede, more idiosyncratic explanations. More specifically, the costs and benefits of diversity can be understood as a function of transactional efficiency in the transfer of various forms of capital between social fields. A transfer that, in Bourdieusian terms, necessarily entails resistance. Consequently, this theory also explains the mechanism by which the normative application of transaction cost economics to diversity results in the institutionalization of discrimination.
Applying TCE to the Internal Structure of the Firm
Identifying the costs of diversity requires analysis of the transactions that are affected by a firm’s diversity. Since workplace diversity is an artifact of the internal structure, the internal transaction costs of the firm are highly relevant. The transactions between agents and between the firm and its agents are similar to transactions between the firm and external entities, however they are often more hidden due to the lack of explicit contracts.
The traditional contracting view of the firm recognises that hierarchies emerge in instances where the costs of using the market can be reduced by domesticating contracting under the mantle of a hierarchy. However, in addition to the resulting governance and agency costs (Jensen & Meckling, 1976), organisational theorists have also recognised that such hierarchies, by organising a set of internal contracts, both relocate and transform external transaction costs into internal costs, sometimes unintentionally, that can also be analysed through the lens of transaction cost economics (TCE). The cost of transactions between agents within a firm can affect the profits, stability, longevity, and competitive position of the firm.
Of particular interest when assessing the dynamics of diversity in the workplace are the monitoring costs of overseeing the effectiveness of diversity implementation strategies and the residual losses that are dependent on the motivations and dispositions of the agents.
Addressing Hidden Transaction Costs of Diversity
Beyond the clear costs of internal contracting that can be defined according to the straightforward logic of assigning property rights, it is also acknowledged that there are other costs within the firm that can also be understood as transactional in nature, since they involve exchange and reciprocity, and create problems of opportunism, small-numbers bargaining and non-compliance. These are the hidden costs of transactions within a company. In general, such transactions describe those for which monitoring is harder, oversight is less direct, and where internal culture or personal incentives or both are required to establish effective governance without the use of direct controls. Examples of hidden transactions include the cost of employees not working any more than they feel they have to, or the costs of inefficiencies caused by conflicts between departments who are trying to maximise what is best for their own advancement at the cost of the overall firm profits.
Hidden transaction costs are important for understanding the costs of diversity because the interaction of social fields are an important source of relationships that may involve many transactional behaviours which are too difficult to govern hierarchically and are instead left to the social and cultural dynamics of the organization to manage. These interactions between social fields in the workforce can be modeled as a transaction whereby equity can be viewed as the redistribution of various forms of capital from members of the majority to the minority, including economic, cultural, social, and symbolic capital. Since transferring capital between social fields to can be understood to constitute a transaction, it is likely that there are associated costs.
It is difficult to monitor hidden transactions because firms must manage them at a net cost benefit. If the cost of overseeing the relationship between two agents is more expensive than the cost of their conflict, then it is not efficient to implement the oversight. As a result, most hidden costs are difficult to oversee at net cost benefit and are left to the devices of the agents involved (Walsh and Seward 1990).
The costs associated with the transaction of various forms of capital can present itself in a myriad ways in an organization, and at different scales. They can happen between very small groups, such as between departments of a company, or between very large groups, such as between genders. Therefore, frameworks for implementing diversity programs must provide exhaustive and mutually exclusive lists of inputs and barriers in order to be comprehensive. As a result, previous attempts at developing frameworks have resulted in overlapping recommendations with different emphases.
For example, Williams et al. (2005) provide four sources of inputs from the external environment which include moral suasion, shifting demographics, and economic motivators in order to build a case for management to include diversity as a resource in their competitive strategy and then explains five relevant dimensions of organizational behaviour within which managers must “read and react” (19) to external forces. Cox and Blake (1991) provide seven spheres of activity relevant to the management of diversity and six arguments to reduce costs and develop diversity as a resource across them. Dass and Parker (1999) provide four levels of resistance to diversity and three levels of integration of diversity.
Examples of Diversity as a Transaction of Capital Between Social Fields
The transaction of capital can be viewed in two ways. Either the literal exchange of capital, such as with the transfer of currency, or by increasing the power of one group’s capital at the expense of another group’s. The four types of capital described by Bourdieu can serve as a useful model for identifying and categorizing such transactions as each type has its own difficulties associated with measuring and controlling transactions.
When a woman takes a job that was previously held by a man, the salary of the woman can be considered an economic transfer from the field of men to the field of women as the net total income of all women increases by the salary of the woman hired and the net total income of all men decreases by the former salary of the man. Also, when gender-specific benefits are granted, such as extended maternity leave, the result is a tangible and real transfer of economic capital from men to women. The simplest metric for ensuring equity in such a transaction is then to monitor the salaries of women in comparison with men in the organization, while gender-related benefits can be governed by codifying relevant company policy. Overseeing these types of transactions is facilitated by the required processes of accounting and tax records.
While transactions of economic capital can be easily measured by their direct transfer, other forms of capital, such as cultural capital can be more clearly understood by the transfer of its power. One representation of lower cultural capital can be having a degree from a school considered less prestigious than those revered by the mainstream, or speaking with an accent that is not considered to sound as intelligent. When a member of one field occupies a position in a firm regularly held by a member of another, there is an opportunity for that person to represent their culture and elevate the status of that culture, thus constituting a transfer of power from one field to another.
For example, if enough alumni from particular college occupy executive positions at fortune 500 companies, then that college will become more well-known and prestigious amongst the mainstream of those companies. This increase in prestige of the new employee’s alma mater will then increase competition with the alma maters of the mainstream, thus reducing their cultural capital. Measuring such a transfer of power would require identifying the fields and subfields that are formed around sources of cultural capital such as schools.
Social capital can be transacted directly by adding or reducing social connections for one field, or by transfer of power by increasing the power of one field’s social network at the expense of another. Social capital can be very individualistic in that one member of a culture or social field may possess far more or less than another. On the other hand, social capital may be very homogeneous across particular social or cultural groups. For example, membership in particular sports, clubs, religions, or cultural groups, may assure a certain level of social capital in each.
Members of fields with close ties, such as religious communities or secret societies, may be able to network easily with other members no matter their sector or geography and despite few direct connections, and members of a local sports club may engage in more out-of-office conversations than others. When social capital is associated with membership in a group or community, then the presence of members in positions of power increases the social power of all members in the group.
Symbolic capital can also be individualistic or homogeneous within a group. On one hand, awards and prestige bestowed upon one member of a group may have the effect of raising the symbolic capital of the whole group by association. On the other, increased awareness of the persecution of a minority could increase the symbolic capital homogeneously.
There may be additional forms of symbolic capital that may be more subtle. For example, the display of symbols in the workplace during Christmas but not during Chinese New Year provides symbolic capital to the Christian and western employees at the cost of the symbolic capital of the Chinese employees, which may also constitute a transaction.
The Costs of Monitoring and Controlling Diversity
Since any particular employee may be loyal to multiple groups in addition to his or her employer, the overlapping of fields and subfields within the social structure of the firm introduces various sources of agency costs. The principal-agent problem does not only exist between the firm and its employees, but also between the various sub-fields and their members. For example, alumni may work hard to recruit from their own alma maters, and members of minority groups may promote the status of their communities within the workforce. If these competing allegiances threaten to compete at the cost of the firm, then they must be monitored by appropriate governing systems.
The failure of the unassisted market and contracting tools for the transaction of various forms of capital between social fields is caused by the increased moral hazard of such divergent loyalties of agents to overlapping fields. These agency costs are compounded by the presence of utility maximizing behaviours that promote resistance to transferring capital to other social fields and consequently increases the costs of overseeing the transfer of capital from one field to another.
Applying TCE to the Forces of Equity and Meritocracy in a Diverse Workplace
Achieving equity in a meritocracy requires discovering a representative number of employees from social fields which have disproportionately low amounts of relevant capital. As a result, competition for talent may be higher in underrepresented fields which can lead to frustration from members of overrepresented fields who may feel the tradeoff of meritocracy for equity. On the other hand, if firms ignore the underrepresentation of social fields and perpetuate a lack of diversity for the sake of meritocracy, the members of the underrepresented field may become frustrated by the lack of opportunity due to the lower amount of relevant capital of their field.
Each of these frustrations represent the motivation for strategizing behaviour by each field to promote the capital of their respective subfields at the expense of the firm. As an unassisted market, the overrepresented field will prefer to continue to hire from the overrepresented fields because the costs of finding talent with the appropriate capital are lower. This behaviour aligns with their interests and prevents the transfer of capital to the underrepresented field. Since the underrepresented field has lower amounts of the relevant capital, they are not able to compete in the market and the lack of diversity persists.
If the level of diversity desired by the firm is higher than that generated by the unassisted market, there is an agency problem that exists as an unrelieved hazard. According to Williamson’s contracting schema (2002), the costs of the unrelieved hazard is best covered by credible contracting. Companies can implement social or formal contracts that ask employees to support diversity despite the market inefficiency. The success of this contracting is dependent on the willingness of the employees from the overrepresented fields to forgo the benefit that the unassisted market brought to their field. Contracting suggests that there are penalties to employees for not exhibiting the appropriate behaviour, however the hidden nature of the transaction costs can give employees the ability to circumvent such agreements.
If the agency problem of divergent loyalties persists despite contracts in place, then the normative application of TCE suggests that hierarchy is required to oversee the transaction of capital. Hierarchical controls for overseeing the transaction of capital in a diverse workforce take the form of policies for hiring, firing, promotion, and compensation as well as the institutionalised measures of the success of efforts to achieve diversity. The cost of these controls increases with the level of resistance to them by employees and managers.
In other words, the hidden nature of the transaction costs related to diversity make them difficult to monitor if the agents of the firm are not willing to cooperate and as a result, the firm has to escalate to more expensive forms of governance. Since this escalation is in direct response to the degree of cooperation of the agents, there is a strong relationship between the costs of governing the transaction of capital between social fields and the resistance to diversity of the agents of the firm.
Resistance to Diversity
With or without moral justification, power-seeking behaviour amongst agents incentivizes the prioritization of loyalties to social fields at the cost of the needs of the firm, which affects the success of diversity initiatives and internal transaction costs. This behaviour can be explained by the sociological theories of Bourdieu. The institutionalization of symbolic violence and the self-perpetuating domination of groups over each other caused by strategization create expensive resistance to the transfer of power. By studying these reactions as dynamic, rather than static, levels of resistance, it is clear that the costs of governing the transaction of various forms of capital under the mantle of hierarchy and policy, becomes increasingly expensive.
In other words, the level of resistance to diversity and the resulting costs can change in response to the firm’s actions. When this compounding effect of strategization and moral hazard compete with the benefits of diversity to the firm, both the maximum and optimal level of diversity can be illustrated and the benefits of reducing or eliminating such transaction costs can be better understood.
Dominance of Social Fields Within the Structures of the Firm
According to Bourdieu’s theory of habitus, social structures are powerful and difficult to change. The social structure of the firm is the set of relationships that defines and regulates acceptable behaviours of the members whose relationships make up the structure and are themselves subject to its rules.
Within a complex interaction of multiple fields, Jayawarna and Rouse (2009) identify two substructures of the firm which are helpful for illustrating the effect of symbolic violence and strategization. The first is the mainstream, which is the substructure of social fields and subfields that have power over the structure that governs the subject-agents, and the second is the fringe, which is the substructure of field and subfields which are still subject to the rules of the structure, but are powerless over it.
Social structures resist change because of the strategization of members of the mainstream and fringe to maintain power. Members of the mainstream seek to gain power within the dominant field, while members of the fringe seek to maximise their power within the rules of the structure. This counter-intuitive behaviour reinforces the division between the mainstream and the fringe as it is more beneficial to the individuals of the fringe to gain power within the conditions of the status quo than to seek to change the status quo, or structure, which defines the power relationship simply because that structure is so difficult for the fringe to change.
This complex behaviour is described by Bourdieu as the institutionalization of symbolic violence. In order for it to be applicable, it must be assumed that both the fringe and the mainstream acknowledge the legitimacy of the power held by the mainstream over the social structure. In the case of the firm, this implies that the capital held by the members of the mainstream is desired by the fringe, such as holding positions of high rank in the firm. If there was no desire by the fringe at all to occupy the positions held by the mainstream, then there would be no conflict and equity could be achieved by the pursuit of capital in fields outside the firm.
For illustration, the overt case of slavery makes it obvious how the structure of the system reinforces the dominance and subjugation of one field over another and how difficult it can be for the fringe to change the structure. It also illustrates how a slave may seek to be the best performing, and best treated, slave rather than try to overthrow the slave-owner. However, in less visible cases, such as with women in the modern workforce, the processes behind the symbolic violence may be more hidden and subtle, but no less powerful.
Escalating Costs of Implicit Strategization Between Social Fields
As discussed above, the divergent loyalties of agents to multiple fields creates a residual agency cost from the misalignment of incentives between the firm and its agents. This cost is compounded by the symbolic violence between the mainstream and the fringe as they strategize against each other. According to Bourdieu, this behaviour is very difficult to avoid as it predominates most of society.
However, there is still an optimistic viewpoint that appears intuitive yet not covered by the description of symbolic violence. It is common to describe diversity as a source of strength and value to an organization, which leaves the question open: can symbolic violence be managed to provide a net benefit rather than a net cost to the firm?
There are many possible permutations on the type of rhetoric which could be used by the mainstream to defend their position as the dominant field. In the explicit case, employees may speak out against policies that they feel are unfair or threatening to the status quo which normally works in their favour, or they may openly oppose instances where they believe that the policy is being used improperly. However, since opposing diversity may be difficult to discuss openly, it is more likely that agents will resist diversity implicitly.
Implicit strategization, which is purposefully carried out in avoidance of oversight, can be likened to the concept of implicit collusion. Implicit collusion is the phenomenon whereby agents of organizations are able to align their strategies without communicating directly about their plans. Since the ways in which people react to each other, the jokes people tell, and even the clothes people wear are ways members of a field regulate with each other, the complexity of social fields and the subtlety of social communication creates an ability for large groups to strategize without the need to communicate openly or at all within the social structure of the firm. In this way, agents may circumvent policies that threaten the capital of the mainstream using a process of hidden structural conditioning by invisible relationships which is thus well described in a Bourdieusian manner (Maton 2008).
If a policy states that employees should refrain from misogynistic comments, but male employees only tell misogynistic jokes when there are no women around, and perhaps when away from the office, then they are able to remind each other of the bond they share as men and the duty they have to perpetuate the status quo. These off-site reminders can help men strategize against women without planning together at work since they will retain these attitudes while conducting their jobs.
Using the example of an equal opportunity promotion policy, when a person of colour is hired over a white person, the white members may strategize implicitly to make sure that person does not do as well. Not only does this behaviour make a point of showing the difficulties in promoting someone from the fringe, but also discourages other members of the fringe from wanting to make the same career change, causing both the mainstream and the fringe to perpetuate the power structure.
The cost to the firm, in this case, arises as the transaction cost of diversity which increases as the newly promoted person is prevented from contributing to the organization as much as they are capable of. After time, the implicit strategization may become noticed and made explicit, after which new policies might be put in place to try to ensure that new promotions are given a fair chance. This may include the provision of employee satisfaction surveys, workplace assessments, and interventions. If these controls incite new reactions from the mainstream in defense, then the transaction costs will rise again under the effect of the double hermeneutic since implicit strategization allows members of the mainstream to easily hide their resistance to the policies that seek to oversee their behaviour.
Since there are many fields that overlap within the structure of the firm, there are many opportunities for symbolic violence to emerge as a firm attempts to achieve equity through corporate policies. Implicit strategization may even happen without the full understanding of the agents participating in it. People may feel that it is ok to laugh at misogynistic jokes when there are no women around, or only regulate with the field outside of the firm, say in the comfort of their own homes, in order to avoid breaking company rules. In this way, all members in the workforce may be strategizing alongside other employees without the need to speak to each other.
Implicit strategization may also occur in the fringe to perpetuate symbolic violence despite the presence of controls. For example, a firm that has an explicit affirmative action hiring policy may have a mainstream with a culture so strong that members of the fringe choose not to apply, despite the economic opportunity that might exist to them from the policy. Signals sent by the mainstream may be implicit, hidden, and difficult to monitor, but they can be strong enough to get the message across to other social fields without needing to break any company rules.
Costs as a Mechanism for Institutionalization of Discrimination
Since it is possible for agents of the firm to become aware of these hidden costs, it is also possible for them to attempt to avoid these costs as a way of representing the best interests of the firm. Since an agent that is attempting to reduce costs to the firm is by definition not incurring agency costs, the attempts to reduce the costs of diversity can be modeled under TCE as actions of the firm itself. In this way, the costs of diversity become a primary mechanism in the institutionalization of discrimination.
The institutionalization of discrimination allows agents to act in a morally defensible manner so that even agents who would never identify as racist, prejudiced, or otherwise intolerant of other social groups, may make comments such as the following:
- “We just don’t have time to train people from other countries”
- “Speaking perfect English is an absolute requirement for this job”
- “It’s just not realistic to find enough field workers that get along with muslims”
- “It’s too expensive to hire women that are married but don’t have kids yet”
Note: these quotes are hypothetical and not recorded from any particular source.
Such comments are focused on the costs associated with hiring diverse staff, and take the focus away from the power dynamics between subfields of the firm. In this way, once symbolic violence has become a norm, the need to reduce the associated costs may be an even stronger force for homogeneity than any negative predisposition of the members of the mainstream towards the fringe.
The Need for Cooperation of the Mainstream
The power that the mainstream has over the structure of the firm is represented by the capital that its agents carry. Conveniently for the mainstream, the power that this capital represents is defined by the social structure in which it is used, so it is straightforward for the mainstream to defend the position of dominance by reinforcing the status quo.
In order to upset the status quo and change the structure in a way that grants power to its own capital, the fringe has little recourse but to apply pressure to the structure by mass non-conformance or rebellion. Unions striking, civil rights movements, and public lobbying are all methods of applying such pressure. But, since, by definition, the capital possessed by the fringe is less powerful than that held by the mainstream within the social structure, the fringe still requires the cooperation of the mainstream in order to restructure the social structure. Therefore, in order to increase the power of the capital held by the fringe, the cooperation of the mainstream must be attained.
Since many agents within the firm may not be aware of the mechanisms which perpetuate the process of symbolic violence, the cooperation of the mainstream requires proactive consideration of institutionalised symbols in order to disempower them. Thus, we define here a pro-restructuring mainstream, in which the members have the power over the social structure of the firm, but pro-actively seek to transfer that power to the fringe.
Strategic Management of Diversity-Related Transaction Costs
The purpose of modeling the costs of diversity in the workplace is to seek a method by which these costs can be managed to a strategic advantage over other firms. As long as there exists some level of diversity which brings at least some benefit for competing firms, either due to moral suasion or economic reasons, there is then an opportunity to attain a strategic advantage over other firms by achieving diversity at consistently lower costs. If the costs of diversity are pervasive, and incurred by the majority of firms, then the ability to overcome these costs meets the condition of rarity.
The pervasiveness of inequity can be illustrated by the level of wage disparity in the United States where literacy and health show strong evidence of equality, but wage parity for equal work is at a ratio of only 65% for women (Global Gender Gap Report 2013). The imbalance of power between genders also represents a significant portion of the economy, in some estimates as high as 16% of global GDP (Jacobsen 2011). Assuming that the economic detriment of other forms of inequity are of similar scale, this disparity suggests that a large fraction of the world’s productivity is being consumed by the transaction costs of diversity.
One method of strategically managing the costs of diversity could be to eliminate diversity entirely, resulting in homogeneous firms that represent only one social field. If a firm is able to strategize against external pressures for diversity to achieve a homogeneous structure, then this homogeneity could be a source of competitive advantage by avoiding costs of diversity that other firms incur. However, since homogeneity does not achieve benefits of diversity, any firm that is able to increase diversity without incurring the costs of it can achieve competitive advantage over homogeneous firms.
A Heuristic for Illustrating the Costs and Benefits of Diversity
The escalation of strategizing behaviour in response to controls as described above is explained by the double hermeneutical effect of applying TCE, as described by Ghoshal and Moran (1996). The effect explains the tendency for agents to push back against the enforcement of controls which in turn causes the enforcement to be escalated as the behaviour and attitude recalibrate to the new norms created by the controls themselves.
In the case of symbolic violence, when one group is in a position of dominance over another, implicit strategization for members of the mainstream is inexpensive for the agents and expensive for the firm. Therefore, it is unlikely that increasing controls can outpace increasing strategization. This effect may explain why such controls have proved ineffectual. The behaviour they were designed to detect and control becomes quickly hidden due to implicit strategization and the reaction of the mainstream is to strategize against the controls of the firm. As a result, instead of achieving equity, hierarchical controls achieve an equilibrium between the cost of diversity and the cost of the controls that ensure diversity which results in a maximum diversity level that has zero net benefit.
Equilibrium Diversity of Hierarchical Controls
The business decision to manage diversity is a balance between the cost of achieving the desired level of diversity with its benefit. Using a heuristic, Figure 1 illustrates how an optimal level of diversity may arise within a firm that applies TCE. In the diagram, the transaction costs of symbolic violence in the workplace are added to the cost of overseeing those transactions. These costs of controls are shown as increasing exponentially due to the effect of the double hermeneutic on increasing strategization by members of the mainstream as they resist transfer of capital to the fringe. The benefit of diversity is represented as having diminishing returns in overall utility to the company.
Figure 1 — Heuristic of Transaction Cost Economics Showing Optimal and Maximum Diversity Level
This heuristic illustrates that for companies where the cost of diversity offsets the benefits, a fixed, equilibrium level of diversity exists, above which, increasing levels of diversity destroy value for the firm. For firms that achieve this maximum cost effective level of diversity, the moral impetus for diversity may be at least partially satiated, but the economic motivations may not be successful.
If there exists a minimum level of diversity required by law or upheld due to moral suasion, firms may operate at diversity levels above their maximum cost effective diversity level. Such firms will operate at a competitive disadvantage to firms which have higher maximum cost-effective diversity levels. Therefore, there exists an opportunity for firms to achieve a competitive advantage by reducing the costs of diversity to increase gains over other firms with similar minimum diversity levels.
It is important to clarify that, according to this theory, the level of diversity within a firm is not in itself a strategic resource. Instead, the dynamic capabilities that allow for lower costs of diversity meet the criteria of value and rarity of a strategic resource. However, in order to determine if this resource can be sustained, Barney’s (1991) criteria of inimitability and non-fungibility must also be met.
Application of the Resource Based View of the Firm
A firm with a pro-restructuring mainstream would present itself as a social structure wherein symbolic violence is actively resisted, or in other words, where the mainstream is willing to give away their own position of dominance. The process of transferring power within a social structure suggests that the definition of substructures and fields may become more fluid. In such a case, such a structure may not be stable as there may be an opportunity for new fields and substructures to emerge that could initiate power-seeking behaviour, beginning a new cycle of symbolic violence.
One method of avoiding the rise of symbolic violence is to use social, rather than hierarchical controls to reduce opportunistic behaviour. Creating an anti-strategization culture could develop a strong social memory and clan behaviour that will self-regulate against new sources of strategization. According to Ghoshal and Moran (1996), this type of management of transaction costs are more effective when behaviour and outcomes are difficult to measure precisely, which is fitting for the case of diversity.
Developing social controls to maintain a pro-restructuring mainstream in order to maintain a higher maximum cost effective diversity level is an important dynamic capability for managing diversity as a strategic resource. Applying a resource based view of the firm (RBV) helps describe how a pro-restructuring mainstream can be developed and maintained in a firm as a valuable, rare, inimitable, and non-fungible resource.
Self-Selecting Behavior as a Path Dependent Resource
Since power-seeking agents can strategize against efforts to reduce power seeking behaviour, it would be difficult, if not impossible, to eliminate symbolic violence once it has become prevalent in the social structure of a firm. However, if a firm were able to avoid its presence since its founding, or after a shock that allows the social structure to be significantly restructured, it may be possible to maintain a social structure free of symbolic violence with less effort than required to create it.
Once a firm has developed a culture which establishes pro-restructuring behaviour as a norm, the culture will be able to reinforce itself going forward. As the culture is perpetuated, there is a chance to develop aspects of a “clan” culture such as long term serial equity expectations and deep social history (Ghoshal and Moran 1996). If social controls are able to increase in effectiveness over time to regulate implicit strategization of fields within the firm, then the resulting reduced cost of diversity will be long-lasting and difficult to imitate due to the path dependent nature of its development.
Preventing Strategization as a Diversity Policy
Preventing agents from strategizing for power may seem audacious, however Ghoshal and Moran (1996) suggest that agents are capable of regulating opportunist behaviour with morality. Therefore, it is the morality of the mainstream which must come under the greatest scrutiny of the owners of the firm in order to develop the dynamic capabilities required to reduce the costs of diversity in the firm.
Morality is determined by the disposition of the agents which is determined by the long history of their lives, up to and including their time at the firm in question. Therefore, consideration of the habitus of employees by inspection of their life experience may then be the only method of purposefully generating a culture with moral social controls over strategizing behaviour.
In order to avoid escalation by power-seeking agents, any diversity strategy cannot be confrontational in nature and should not threaten social, cultural, economic, or symbolic capital of the mainstream. For example, capital transactions such as affirmative action policies or gender-based salary quotas may not be capable of establishing diversity without instigating the escalation of symbolic violence.
Instead, to avoid escalation, policies must focus entirely on discouraging strategizing behaviour of the mainstream, which may be possible by attracting and selecting only agents who are already aligned with the strategy of restructuring. If a firm is able to examine the disposition of its agents, it could be possible to screen out agents who do not value equity over personal power, or other indicators of a propensity for strategization.
Since the habitus of agents is difficult to monitor directly, evaluation of the disposition of agents requires examination of the agents’ lifecourse. Firms may be able to develop proprietary methods of relating historical experiences, psychological profiles, and behavioural responses to select agents with pro-restructuring values. From a resource based view, this takes the form of developing a socially complex resource by building a culture that supports and encourages individuals in the mainstream and the fringe to avoid implicit strategization and to actively neutralize the sources of inequity.
Hiring agents with a pro-restructuring disposition may occur from self-selection. If the pro-restructuring culture is effective and visible, it would likely repel potential employees who are prone to implicit strategization. On the other hand, employees who are made uncomfortable by symbolic violence and seeking an alternatives will be excited to find such a culture.
Alternatives to Representation as a Form of Equity
It has become a pervasive assumption that equity in the workplace can be achieved by creating a workforce that represents social fields equally. However, a workforce with proportional representation can still remain inequitable if the agents of the firm are resistant to restructuring and prevent the transfer of hidden forms of capital.
Policies that equate representation with equity are more likely to incur escalation of costs and destroy any competitive advantage if they do not also consider the dispositions of the agents towards diversity. On the other hand, policies that ignore representation and focus entirely on the disposition of agents may achieve equity through the valuation of the capital of social fields by the mainstream.
Women in the workforce is a special case of diversity that presents a useful illustration of the shortcomings of using representation as a proxy for equity. Using representation metrics to enforce diversity in the workforce suggests that equal representation denotes equality of the power of capital. While equal pay for equal work does denote some form of economic equity, there remains an ex-ante assumption that the presence of women in the workforce is preferable to other forms of labour which are highly represented by women such as childcare.
Increasing representation, and even pay, for women in the workforce without reducing systemic misogyny, may create the appearance of equity, but without establishing a pro-restructuring mainstream, the capital of women cannot be sufficiently valued independent of the level of representation. If a company of a million people only hires one woman, but that woman works without any fear of unfairly reduced opportunity, then the choice for that women to work or not becomes a fair choice that gives equal value to the alternatives.
As a firm selects agents which are less likely to strategize and are supportive of reducing their own power, the goal should be to reinforce the social behaviour that opposes strategization. As a result, culture policies must then target the internal structures of the agents of the firm as well as the external structures of the firm without incurring negative reactions to hierarchical controls.
Such policies could include top-down driven examples of acceptable and unacceptable behaviour during opportunities for the dominant field to regulate. For example, when only white men are on the golf course, the most senior may initiate conversation about the value of women in the workplace instead of the contrary, or a subordinate may be fired for making misogynistic remarks even when no women are present.
Other cultural policies could use the principle of positive reciprocity. A culture which openly rewards positive gestures between fields may promote more restructuring activity than rules against discrimination. This may include cultural sharing, supporting events that are exclusive to other fields, and positive efforts to cater to the minority.
Arbitrary examples of such policies could include the following:
- Actively celebrating a religious or cultural holiday of a minority group in the firm with more enthusiasm and budget than that of the majority
- Having the men prepare and host a women’s weekend for female managers
- Allowing meetings to be run in accordance with different ethnocentric protocols that might not be representative of the mainstream.
- Maternity sabbaticals wherein women would still be expected to contribute to the firm in ways that are both difficult to achieve during regular practice in the firm and appropriate to the circumstances of early motherhood.
Most importantly, is that no matter which form of policy is used to promote a pro-restructuring culture, the internal structures of the agents of the firm must be fully aligned with it. The firm must attract and retain employees that see the value in such a culture and enjoy participating in it. As soon as the policies become lip service, the opportunity for implicit strategization begins.
If such a culture can be bred, then the resource of a pro-restructuring mainstream can be exploited as a socially complex resource that may contribute to a competitive advantage of the firm which would be very difficult, if not impossible to copy. If there is no other way to reduce the costs of diversity, then the effect would be inimitable.
According to Jayawarna and Rouse (2009), the ability to hide the structure of a field behind inaction is a powerful source of division between the mainstream and the fringe. Both knowledge and feelings may cause an agent to not act, which is just as important as what causes the agent to act. They also explain that the opportunities not granted to the fringe are just as important in determining the power relations in the field as the opportunities they are given because they represent the internal structure of other agents in the field, such non-opportunities may be due to decisions repressed by the agent consciously or not, potentially due to structural power dynamics.
Since implicit strategization makes it possible to assert dominance and perpetuate symbolic violence by not doing anything, monitoring efforts must be capable of measuring the effects of such inaction and not only exist as enforcement of espoused values of the firm or reprimands for negative actions.
According to Tatli and Özbilgin (2012), one of the problems with categorizing social fields is that it creates unnecessary divisions and ignores the emergence of new categories of difference. When viewed in the context of the escalation of symbolic violence, it would seem that reinforcing these divisions would likely promote strategization and escalate the costs of diversity. Thus, policies that measure the representation and power of capital for various social fields within the firm may lead to the very cause of the conflict the policies were meant to avoid.
Also, once metrics exist they can be gamed. For example, if a firm establishes a quota for promoting women, then white male managers may resort to ensuring only white women are hired, conserving power for at least one overlapping social field. If the quota is extended to ethnicity, then geography, language, alma mater, or other source of distinction may be used. As described before, this escalation is expensive and dominant fields may not become obvious until symbolic violence has already begun the feedback loop of internal power struggles.
An alternative basis for policies that don’t lead to escalation may lie instead in the emic approach to monitoring field dynamics proposed by Tatli and Özbilgin (2012). Using such an approach in the design of strategies and policies may help avoid self-reinforcing ex-ante assumptions about the definition of fields, including boundaries of the mainstream and fringe.
Emic policies would monitor and promote behaviours based on the expected effects of implicit strategization and symbolic violence rather than the assumed causes. The emic process was laid out by Tatli and Özbilgin for the sake of framing academic study of social structures, but could be adapted to recommendations for policy design. The steps to evaluating diversity in an emic manner are as follows.
- Discover what forms of symbolic capital have power and who holds them
- Identify the sources of social and cultural capital held by those with power
- Understand the processes that give power to social and cultural capital
- Categorize sources of diversity based on group attributes
- Observe the development of diversity in relation to the social structures inside and outside the organization over time.
Competing Strategies: Heterogeneity and Homogeneity
As mentioned, a firm which has a social structure with no symbolic violence must either have no divisions of fields, or manages the division of fields without strategization against each other. However, without strategization between fields, the division between fields become negligible and potentially indiscernible. In this case, both heterogeneous and homogeneous firms become very similar.
To illustrate, imagine an all white, male firm that does not suffer from symbolic violence because they have achieved homogeneity. There may still be many sources of field divisions, such as geography, education level, or even appearance. However, if none of these sources of division result in costly symbolic violence, then the heterogeneity of the firm is negligible.
Now consider a firm with many fields divisions that would be expected to be a source of strategization in the broader cultural context. For example, a firm that hires employees of many skin colours, cultural backgrounds, educational backgrounds, sexual orientations, etc. If it is possible for this firm to create a culture that prevents strategization between these divisions, then the effect is the same as the homogeneous firm in reducing the cost of diversity, however the varied backgrounds and wider perspectives of the employees may be able to contribute more knowledge resources to the firm for greater overall benefit.
In other words, a diverse firm may not be best described as a socially heterogeneous firm, as that would suggest material field divisions, but rather as a united firm with diverse knowledge resources. This perspective makes it clear that the method by which a firm achieves homogeneity is arbitrary. Members can identify the divisions between fields for the sake of strategization based on simplistic differentiators, such as the color of skin, or they can identify the basis of the field to which they belong as the firm itself. Either by homogeneity or by unification, the effect is a single field that supercedes the divisions of any subdivision.
The Disadvantage of Empowerment
From this discussion, there appears to be three options available to firms when developing a diversity strategy. The first is an opposition to diversity through homogeneity, the second is the development of policies that seek to control the forces that oppose diversity in the form of empowerment policies, and the third is the achievement of unity in diversity through the development of a pro-restructuring culture.
The costs and benefits of the three strategies are compared in Table 1.
Table 1 — Comparison of Costs and Benefits Diversity Strategies
Analysing the cost benefit of these three approaches suggests that all firms should adopt a unification approach, however, the difficulty in achieving a pro-restructuring culture may prevent firms from changing their existing culture and as a result, may be choosing homogeneity over empowerment due to economic pressures despite a desire for a heterogeneous workforce.
Table 2 further compares the opportunities for developing each strategy as a source of competitive advantage using Barney’s (1991) framework. Surprisingly, empowerment provides the least advantage of the three strategies and since unification is not possible for all firms due to its path dependency described above, managers are likely further incentivized by systemic forces to prefer homogeneity in opposition to any policies regarding empowerment.
Table 2 — Comparison of Sources of Competitive Advantage
By using hierarchy to monitor and control the transfer of capital between groups in the firm, empowerment methods incur increasing strategization of agents who lose power through such transactions. The resulting costs may achieve an equilibrium level of diversity, but cannot do so as a sustained competitive advantage to the firm.
Eliminating empowerment as a competitive strategy leaves homogeneity and unification. The socially complex nature of the implicit strategization that allows firms to maintain homogeneity despite external pressures may be the most straightforward option for firms to adopt. The alternative of designing a pro-restructuring social structure, requires significant restructuring which may only be possible at specific time-dependent opportunities, or incur heavy switching costs.
Therefore, any firm that chooses to compete using empowerment strategies in an economic environment that sees competition with firms that have adopted unification or homogeneity strategies, will be operating at a disadvantage. This institutional pressure may be causing managers to perpetuate a homogeneous workplace in the day-to-day transaction costs despite their personal and professional desire for increased heterogeneity.
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