Cultural Diversity as a Mechanism for Innovation: Workplace Diversity and the Absorptive Capacity Framework

INTRODUCTIONInnovation cannot exist in the absence of creativity (Basset-Jones, 2005). Furthermore, creative behavior may be considered a subset of innovative behavior (Yuan & Woodman, 2010), as innovation involves both generating and implementing new ideas (Woodman, Sawyer, & Griffin, 1993). Although there is theoretical support (Cox & Blake, 1991; Jackson, 1992) and empirical evidence demonstrating that cultural diversity impacts organizational creativity (McLeod, Lobel, & Cox, 1996) and performance (Dezso & Ross, 2012; Richard, 2000; Richard, McMillan, Chadwick, & Dwyer, 2003), there are inconclusive results linking diversity with firm innovation (Horwitz & Horwitz, 2007). Knowing from prior research that diversity relates to creativity (McLeod et al., 1996; Watson, Kumar, & Michaelsen, 1993), a subset of innovation, it should logically follow that diversity plays a role in how firms become innovative. However, there is a dearth of empirical evidence and theoretical grounding to support this claim.Although prior research demonstrates a relationship between organizational diversity and firm performance (Richard, 2000; Richard et al., 2003), there lacks a comprehensive framework that describes how and why organizational diversity impacts firm performance. In fact, the few empirical results investigating the relationship between diversity and organizational outcomes have only been significant when the firm engages in a growth (Richard, 2000) or innovation strategy (Richard et al., 2003). Additionally, other variables have been identified in past research that offer further explanation as to why many of the relationships between diversity and other outcomes exist (Lawrence, 1997). This limited understanding of the diversity "black box" (Lawrence, 1997) may explain why prior research has produced mixed results concerning the relationship between diversity and either group (Horwitz & Horwitz, 2007; Knippenberg & Schippers, 2007) or firm outcomes.A firm's perspective towards diversity can govern the ability of its employees to communicate effectively and reap sustained benefits from diversity. Ely and Thomas (2001) identified three perspectives under which cultural diversity could either improve or harm work group functioning. The fairness-and-discrimination perspective explains how organizations comply with the law, but do not necessarily benefit from diversity at work. The access-andlegitimacy perspective explains how racial minorities may benefit with access to the workforce, but the organization itself does not derive much benefit from its diversity practices. The integration-and-learning perspective suggests that organizations and its employees can benefit from a diverse workforce when it is managed properly. The authors suggest that these perspectives may influence the climate or culture of an organization. However, the relationship between these perspectives, diversity and innovation has not been examined.Absorptive capacity (ACAP) of a firm is related to the effectiveness of its deployed innovation strategies. ACAP is defined as the ability of an organization to acquire, assimilate, and exploit information to commercial ends (Cohen & Levinthal, 1990). The innovative capability of an organization is a result of its level of absorptive capacity (ACAP) which has been linked to firm performance. There is limited research concerning how firm capabilities for innovation are derived from organizational learning and employees' knowledge. Prior research suggests that environmental conditions must be met in order for knowledge creation or transfer to occur (Cohen & Leventhal, 1990; Grant, 1996; Szulanski, 1996). The characteristics of the environment, as described among researchers (Cohen & Leventhal, 1990; Grant, 1996; Spender, 1996; Szulanski, 1996) both differ and overlap ranging from the responsibility of the firm to remove barriers to knowledge transfer (Szulanksi, 1996) to the amount of exposure, practice, and frequency that firms allow its employees to have with new information and knowledge (Cohen & Levinthal, 1990; Lindsay & Norman, 1977). …