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Journal of Business Research 56 (2003) 1009 – 1019

Gender diversity in management and firm performance: the influence of growth orientation and organizational culture$ Sean Dwyera,*, Orlando C. Richardb, Ken Chadwickc a

Department of Management and Marketing, College of Administration and Business, Louisiana Tech University, P.O. Box 10318, Ruston, LA 71272, USA b Department of Management, School of Management and Administration, University of Texas-Dallas, Dallas, TX, USA c Department of Management and Marketing, College of Business Administration, Nicholls State University, Thibodaux, LA, USA Received 7 August 2000; accepted 6 September 2001

Abstract This study examines the influence of gender diversity in management on firm performance. The management group examined was composed of all firm members considered to be managers and officials, a broader level of analysis than past management-level diversity research that has primarily focused on groups composed of top management team (TMT) members. Adopting contingency and configurational approaches, gender diversity’s interactions with two key organizational variables—organizational culture and growth orientation—were evaluated against organizational-level performance measures. Supporting contingency theory and configurational theory, the results suggest that gender diversity’s effects at the management level is conditional on, that is, moderated by, the firm’s strategic orientation, the organizational culture in which it resides, and/or the multivariate interaction among these variables. These findings help reconcile conflicting results of past diversity – performance research by suggesting that an appropriately configured and supportive organizational environment may need to be in place before the beneficial aspects of gender diversity can be fully realized. D 2003 Elsevier Science Inc. All rights reserved. Keywords: Diversity; Gender diversity; Strategy; Organizational culture; Culture; Growth orientation; Management; Performance

1. Introduction Considerable progress has been made with respect to gender diversity in management as women increasingly move into the managerial ranks (Elsass and Graves, 1997). Yet, gender diversity in management has received insufficient attention in the research literature. Strategic management researchers have studied diversity primarily in terms of tenure, education, and functional background. The domain of work force diversity, however, encompasses a broader demographic perspective (Cox, 1994). Furthermore, scholars have recently noted that different types of diversity have divergent effects within organizations (Pelled, 1996; Pelled et al., 1999). In particular, Pelled (1996) argues that nonvisible attributes have quite different effects on performance than do visible attributes. Thus, knowledge of one type of diversity’s impact on the firm may provide little, if any, insight into another type’s influence. $

The first two authors contributed equally to this article. * Corresponding author. Tel.: +1-318-257-3584; fax: +1-318-257-4253. E-mail addresses: [email protected] (S. Dwyer), curtae69@ aol.com (O.C. Richard), [email protected] (K. Chadwick).

In addition, past top management group research has generally limited its examination of group diversity effects to the top management team (TMT) (Finkelstein and Hambrick, 1996). Yet, studies have shown that middle managers play a key role in influencing strategic decision-making and implementation (e.g., Burgelman, 1994; Floyd and Wooldridge, 1992; Kanter, 1982). We seek to extend this research and more fully examine gender diversity’s effect at the managerial level. We do so by broadening our examination of the management group to include not only senior executives who set corporate strategy and policies but also those managers who implement these policies—middle management, department managers, and salaried supervisors. Empirical support for the diversity – performance link has, in general, been mixed (Williams and O’Reilly, 1998). This suggests that the influence of diversity on firm performance may, at least in part, depend on the organizational context. That is, the effect of diversity on performance may lie in the interaction of diversity with contextual variables. However, little empirical research has been completed in this regard. Consistent with a growing body of organizational demography research adopting a contingency approach (e.g., Hambrick et al., 1996; Neale et al., 1999;

0148-2963/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved. doi:10.1016/S0148-2963(01)00329-0

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Pelled et al., 1999; Richard, 2000; Smith et al., 1994) and strategic human resource management research espousing a configurational approach (e.g., Baker and Cullen, 1993; Delery and Doty, 1996; Dess et al., 1993), we position diversity within a broader set of interrelated strategic and organizational variables. Overall, this study attempts to answer the following research question: In what context does gender diversity in management impact firm performance? In doing so, we focus on two key contextual variables—growth orientation and organizational culture.

2. Conceptual background and hypotheses 2.1. Gender diversity in managerial ranks According to upper-echelons theory, senior-level managers (i.e., the TMT) have a critical impact on firm performance given the significant organizational decisions they are empowered to make (Finkelstein and Hambrick, 1996). However, research focused at the TMT level of analysis has reported conflicting results with regard to the relationship between diversity and performance. Some researchers report a negative relationship between TMT heterogeneity and firm performance. They conclude that diverse TMTs are more difficult and costly to coordinate and control than homogeneous teams and that the added costs impede performance (Ancona and Caldwell, 1992; Murray, 1989). Other studies, however, have found a positive association between TMT diversity and performance, indicating that diversity may enhance the breath of perspectives, cognitive resources, and overall problemsolving capacity of the team (Bantel and Jackson, 1989; Hambrick et al., 1996; Smith et al., 1994). In an attempt to explain these contradictory results, we explore whether diversity’s influence on firm performance is more fully realized when the management group’s level of analysis is broadened to include middle managers and other midlevel officials and supervisors along with TMT members. Past TMT studies have generally not taken into account the perspective that the strategy process involves multiple levels of management (Burgelman, 1994; Floyd and Wooldridge, 1992). For example, Kraut and Pedigo (1986) found that while top-level managers monitored the environment, middle managers coordinated departments and/or groups, and lower-level managers supervised subordinates. Furthermore, although top-level managers are responsible for defining the overall strategic context, middle management’s contribution to the strategy process is also crucial because they are often first to identify strategic problems and opportunities (Burgelman, 1994; Wooldridge and Floyd, 1990), serving as an important source of strategic alternatives (Burgelman, 1994; Van Der Velde et al., 1999). In addition, TMT strategic initiatives and directives are ineffectual without lower-level managers directing their staffs’ activities to implement the strategy (Burgelman,

1994; Kanter, 1982). Studies of mid-management’s influence on the strategic management process have shown, in fact, a positive relationship between their involvement in strategy and firm performance (Schilit, 1987; Wooldridge and Floyd, 1990). Indeed, as Floyd and Wooldridge (1992, p. 155) noted, ‘‘Implementation of top management’s strategy is often considered the key strategic role of middle-level managers.’’ Firms’ strategic performance thus relies not only on top managers but the entire pool of managers and officials (Floyd and Wooldridge, 1994, 1997). In sum, it may be that the benefits of diversity in general, and gender diversity in particular, are more fully realized when the breadth of perspectives imbued in a diverse management group benefit not only the TMT-led strategic decision-making process but also the strategic implementation phase in which middle managers are primarily involved. We address this potentially significant gap in the literature by integrating upper echelons and middle management perspectives as they relate to gender diversity and firm performance. 2.2. Contingency approach Some researchers investigating the impact of diversity on performance have taken a contingency approach by examining factors that interact with diversity (Neale et al., 1999; Richard and Johnson, 1999). Jackson (1992) proposes that heterogeneity is beneficial for unstructured, novel tasks but not for routine tasks. Richard and Johnson (1999) posit that diversity’s beneficial effects are more likely to be realized when firms’ business strategies and organizational cultures are compatible. Richard (2000) found that firm-level racial diversity benefited firms pursuing growth strategies but was detrimental to downsizing firms. The breadth of perspectives and creativity provided by a diverse work force thus appear favorable in certain contexts. Similarly, in the appropriate setting, gender diversity in the management ranks may contribute to performance gains (Williams and O’Reilly, 1998). Next, we explore the role that firm growth and organizational culture may play in the gender diversity – performance relationship. 2.2.1. Growth orientation Organizations pursuing growth seek to gain economies of scope by spreading risks over a broader base and gaining the benefits of skill transfer such as technical expertise or managerial know-how (Pearce, 1982). Growth is thus best pursued when a firm has appropriate and sufficient human capital to manage an expanding organization. Cultural diversity can provide the breadth of experience and knowledge (McLeod et al., 1996) that is likely to benefit a firm pursuing such growth. A growth-oriented, culturally diverse organization benefits from employees who are flexible in their thinking and who are less likely to be concerned about departing from the norm (Richard, 2000; Schuler and Jackson, 1987). Furthermore, if an organization overcomes

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resistance to change with regard to accepting diversity, it should be well positioned to handle other types of change as well (Iles and Hayers, 1997), including expansion. Growth can be achieved by selling current products or services in new markets through geographic expansion and/ or through mergers and acquisitions (Suresh and Orna, 1989). Growth through geographic expansion requires creativity, knowledge, and a variety of experience and insights to design the appropriate expansion path. Growth through mergers and acquisition also requires these assets in order to effectively integrate organizational activities on a postacquisition basis. In either case, gender diversity can offer market-related advantages. As companies enter new markets or acquire firms in new markets, women, particularly at the managerial level, may bring added knowledge, experience, and flexibility as well as cultural insight, understanding, and sensitivity critical to serving the needs of new market segments (Cox, 1994). In the banking industry, the setting for the current study, rapid growth, particularly through mergers and acquisitions, has resulted in less efficient operations that, for many firms, has negatively affected performance (Bird, 1991; Hopkins and Hopkins, 1997). Firms seeking growth must draw upon additional resources to compensate for initial operational inefficiencies. Human capital, including the array of skills, knowledge, and abilities of its employees, represents a resource that growth-oriented firms can potentially exploit. In particular, the creativity and flexibility provided by diversity may be beneficial to firms pursuing growth (Richard, 2000). In contrast, a firm pursuing a downsizing strategy seeks operational efficiencies. Although diversity in human resources may contribute to, among other things, the quality of ideas, it can also create additional costs stemming from the need for increased coordination and control required for a more heterogeneous group (Jehn, 1995). The additional costs associated with diversity may be a potentially significant disadvantage for downsizing firms. For example, Richard (2000) found that the relationship between firmlevel racial diversity and firm performance was moderated by a growth strategy. Racially diverse firms that pursued growth experienced performance gains while those pursuing a downsizing strategy experienced losses. Gender diversity has been posited to have similar effects as other visible diversity attributes such as race (Pelled, 1996) and thus its relationship with firm performance should be similarly influenced by growth. Furthermore, it is plausible that this relationship will intensify at the management level where critical firm-wide decisions are both formulated and implemented. As such, the following hypothesis is offered: Hypothesis 1: Gender diversity in management and a firm’s growth orientation will influence firm performance through their interaction effect. Gender diverse firms pursuing high growth will have higher performance compared to gender diverse firms pursuing low growth.

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2.2.2. Organizational culture An organization’s culture can be viewed as a pattern of shared values and beliefs that help its members understand organizational functioning and provides them norms for behavior in the organization. Organizational culture, by providing a framework through which employees internalize expectations about corporate roles and behaviors, serves to a large extent as an organizational control mechanism (Deshpande´ and Webster, 1989). It is in this manner that organizational culture may influence diversity’s impact on firm performance. For example, Williams and O’Reilly (1998), in their extensive literature review on the effects of diversity, suggest that organizational culture may be an effective way for managers to encourage solidarity. A widely accepted conceptualization of organizational culture is the Competing Values Framework based on the work of Quinn and his colleagues (see Cameron and Quinn, 1999, for references). This framework assumes that organization’s cultures can be differentiated by their dominant organizational attributes, bonding mechanisms, leadership styles, and overall strategic emphases (Cameron and Freeman, 1991; Cameron and Quinn, 1999; Deshpande´ et al., 1993). The framework is operationalized across two dimensions, the first of which is formal – informal organizational processes. The extremes of this continuum reflect the competing demands of flexibility and spontaneity versus stability, control, and order. The second dimension reflects the conflicting demands of the internal organization and the external environment. One end of this continuum represents a focus on internal integration, organizational processes, and structural stability and control; the other end is anchored by an emphasis on competition, interaction with the environment, and a focus on outcomes. The resulting four culture types—clan, hierarchy, market, and adhocracy—represent aspects of firms’ underlying assumptions about motivation, leadership, and effectiveness. Although a firm’s culture will be composed of values found in each of the four culture types, a dominant culture type will typically emerge to form an identifiable corporate culture (Cameron and Freeman, 1991; Cameron and Quinn, 1999). A brief description of each culture type follows (Cameron and Quinn, 1999; Denison and Spreitzer, 1991; Zammuto and Krakower, 1991). Clan culture type: The clan culture type is internally oriented, emphasizes informal governance, and is in general a friendly place to work. The organization is held together through employee loyalty, morale, and commitment. The development of human resources and employee participation in decision-making are highly valued. Emphasis is placed on teamwork and cohesiveness. Adhocracy culture type: The adhocracy culture type combines informal governance with an external

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orientation. It is a dynamic and creative place to work where firm members take risks. Individual initiative and spontaneity are valued. Individuals are motivated by the ideological appeal of growth, flexibility, and variety. Effectiveness criteria revolve around new market development and resource acquisition. Hierarchy culture type: The hierarchy culture type adopts an internal orientation and an emphasis on mechanistic governance such that formal rules and policies are closely followed. It focuses on stability and smooth-running operations. Firm members are motivated by security and rewards for accomplishments. Effectiveness is defined by permanence and achieving clearly defined goals. Market culture type: The market culture type has a formal governance structure and an external orientation. Members are goal-oriented and concerned with getting the job done. This culture is achievementfocused and emphasizes planning, performance, and efficiency. Individuals are motivated by competition and in achieving market share.

Zammuto and Krakower, 1991) would serve to further support a diverse work group. As such, the following hypothesis is offered:

Several studies indicate the potential influence that firms’ organizational culture may have on the diversity – performance relationship. Gaertner et al. (1990) note that when cooperation and teamwork are introduced to the larger group, intergroup bias across dimensions such as race and gender can be reduced. In fact, Chatman and Barsade (1995) discuss how organizational cultures may be created to foster cooperation and commitment. Using a business simulation, Chatman et al. (1997) found that organizational culture moderated the effects of diversity such that conflict arising from group heterogeneity was seen as more beneficial for groups with a collectivist organizational culture. More recently, O’Reilly et al. (1997) found that an organizational culture supporting racial diversity improved firm performance. These studies suggest that a diverse workforce will have greater potential to thrive in certain organizational cultures than in others. For example, work force diversity has been found to provide varied opinions that have the potential to improve the quality of decisions (McLeod et al., 1996). There is also evidence that diversity has the potential to introduce creativity and problem-solving abilities (Cox, 1994; Cox and Blake, 1991). Thus, a diverse work force will likely be more effective in informal organizational cultures characterized by flexibility, spontaneity, and individuality—general characteristics of the clan and adhocracy culture types. It seems reasonable that the clan culture type’s dominant attributes of cohesiveness, participation, and teamwork would provide an environment conducive to a diverse work group. Its employee-focused orientation with an emphasis on satisfaction and consensual problem-solving and decision-making (Denison and Spreitzer, 1991;

Hypothesis 3: Gender diversity in management and an adhocracy organizational culture type emphasis will influence firm performance through their interaction effect. Gender diverse firms with an adhocracy emphasis will have higher performance compared to gender diverse firms with little or no adhocracy emphasis.

Hypothesis 2: Gender diversity in management and a clan organizational culture type emphasis will influence firm performance through their interaction effect. Gender diverse firms with a clan emphasis will have higher performance compared to gender diverse firms with little or no clan emphasis. Like the...