Understanding the Impact of Human Resource Diversity Practices on Firm Performance

Abstract

The recent business trends of globalization and increasing inter-group differences has turned scholarly attention to the management of demographic differences. According to Clinton's Initiative on Race, one of every three Americans in the overall United States population are nonwhite. Johnston and Packer (1987) identify the integration of women and minorities into the workforce as one of the greatest challenges facing American managers. For example, managing diversity is a long-run investment, and an organization faces a level of adaptation and transformation equivalent to that encountered during deregulation or a major technological change (McEnrue, 1993). However, despite these trends, research related to diversity practice's impact on organizational performance remains lacking. Workforce diversity has been depicted as a field absent a theoretical foundation (Ragins, 1995). To address theoretical abyss, this article explores the organizational attributes supporting diversity using Strategic Human Resource Management Theory (SHRM). SHRM theory explores the relationship between HR policies and practices and organizational outcomes. Practices such as the composition of the human capital resource pool are examined for their effectiveness against the backdrop of business strategy, human resource strategy, environmental certainty, and organizational outcomes (Wright and McMahon, 1992). Our desire is to develop a model that explicitly illustrates the complexities of diversity initiatives. More precisely, we argue that diversity depends upon human resource policies that are judged and evaluated by employees in a context dependent upon organizational justice perceptions. Further, based upon the environment, business, and human resource strategies we explain the intricacies that lead to diversity initiatives effectiveness and show that diversity may be more advantageous for some firms relative to others. This article will first describe strategic human resource management and configurational theory as the framework for examining diversity. We then introduce the concept of diversity orientation and its implications for diversity. From there, the diversity/performance relationship is explored in conjunction with internal and external contingencies. Finally, we conclude with implications for research and practice. THEORETICAL BACKGROUND In recent years, the field of Human Resource Management has moved to consider not only micro but also macro relationships (Butler et al., 1991). The micro focus, evolving from industrial psychology (Kaufman, 1993), emphasized human resource policies and their influence on individuals. This focus was concerned exclusively with such outcomes as job satisfaction and employee participation. The macro focus shifts the level of analysis from the individual to the organization. This macro orientation stresses how HR policies shape individual behavior that ultimately affects organizational-level outcomes such as profits, sales, quality, and growth. Wright and McMahan (1992) argue that this macro-orientation, Strategic Human Resource Management (SHRM), facilitates organizations in achieving their goals through human resources. Kamoche (1996) dubs this orientation as the matching school and argues that human resource policies and practices that fit with the business strategies of the firm enhance firm effectiveness. In other words, firms seek to align human resource strategy with business strategy. SHRM initially followed a simple contingency approach that examined the match of HR practices and strategy (Miles and Snow, 1984; Schuler and Jackson, 1987). This view examines only vertical fit, which refers to the congruence between a single HR policy and practice and other organizational characteristics (Delery and Doty, 1996). Recent work has extended the simple contingency view to a configurational perspective. This perspective contends that internally consistent policies and practices should result in even higher levels of performance than individual policies and practices when matched with business strategy (Dyer and Reeves, 1995; Delery and Doty, 1996). …

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