Matchmaking: community and business unit racial/ethnic diversity and business unit performance

Abstract

Past studies examining how the match between organization and community racial/ethnic proportions influences performance have relied on the social categorization perspective on diversity, but have not offered strong significant results. However, the information and decision-making perspective on diversity suggests that organizational diversity fit based on variety, rather than a match of demographic proportions, leads to greater performance. This study considered both perspectives to test how both racial/ethnic proportions matching and diversity fit influence business unit financial performance. This was tested on a sample of 51 business units of a restaurant chain in the USA. The results show that business unit diversity was associated with higher performance in diverse communities but not in homogeneous communities. This suggests that racial/ethnic diversity is a valuable human resource conducive to greater performance but this is contingent upon community diversity. Implications for organizational diversity research and human resource management are discussed.

Keywords::

• community diversity
• diversity
• employee effectiveness
• financial performance
• race/ethnicity

Notes

^1. An anonymous reviewer suggested this distinction.

^2. Another measure of demographic representativeness was computed as 1 – (|proportion in unit of group 1 – proportion in target population of group 1| …+ proportion in unit of group j – proportion in target population of group j)/2 (Avery et al. 2012). This measure of demographic representativeness had a 0.82 correlation with 1 −  D₂. A regression model using this alternative measure presented similar results.

^3.Post hoc regression models omitting business unit and community diversity presented similar results.

^4.Post hoc regression models omitting demographic representativeness presented similar results for return on profit and for employee effectiveness in diverse communities. However, community diversity was negatively related to employee effectiveness in homogeneous communities. This result would also be consistent with Hypothesis 2.