Strategic Organizational Diversity: A Model?

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Organizations pursuing workforce diversity are more likely to be successful than ones that do not (Cox & Blake, 1991; Marquez, 2005). Managing diversity well can actually drive business growth (Robinson & Dechant, 1997).
A possible tool for managing diversity well is Franco Modigliani’s theory of diversity in investments, which differentiates systematic and unsystematic risks. Systematic (market) risk affects all securities. Unsystematic risk is organizationally unique and can be eliminated by diversifying the portfolio. Thus, systematic risk and unsystematic risk are referred to as non-diversifiable and diversifiable risk, respectively (Fabozzi &Modigliani, 1992, pp. 154-55). Modigliani uses this difference to discuss reducing or removing risk. Unsystematic risk is reduced by mixing the security with others in a diversified portfolio, hopefully leaving only systematic (market) risk (p. 135).
In a parallel to securities, employees are assets to manage (not a cost to minimize) to reduce unsystematic (non-market) risks unique to the workforce. Greater diversity lowers the organization’s controllable risk and should increase higher financial returns.
The only sustainable competitive edge that can be unique to an organization is its workforce (Pfeffer, 1995). Workforce diversity enables an organization to control, minimize, or eliminate unsystematic (non-market) risk. This is a theoretical base for workforce diversity.
A strong, diverse organizational culture should buffer against non-systematic risks. All the cultural variables surrounding the organization must be adequately represented within that organization. Recruiting, selecting, hiring, promoting, training, and compensating must all serve the drive for diversity. Not doing so leaves the organization vulnerable to unsystematic risks. Managing workforce diversity well reduces unsystematic risk in a factor that is controllable and has the most potential for competitive advantage, that is, its human resources.


Keywords: Diversity, Risk, Risk Management, Human Resources
Stream: Organisations
Presentation Type: Virtual Presentation in English
Paper: Strategic Organizational Diversity


Frederick Tesch

Professor of Management, Management Department
Ancell School of Business, Western Connecticut State University

Danbury, Connecticut, USA


Frederick Maidment

Professor of Management, Management Department
Ancell School of Business, Western Connecticut State University

Danbury, Connecticut, USA


Ref: D08P0395