Essays on cultural heterogeneity and firm performance

This dissertation is composed of three essays with the following abstracts. "Weakening Cultural Strength: Firm Performance Volatility's Impact on Norm Consensus": Cultural strength, or the extent to which there is consensus among employees about the most important norms that guide work in an organization, is thought to increase firm performance. Yet, why cultural strength might change over time in organizations is not well understood, largely due to a lack of longitudinal data on organizational culture for a large, diverse sample of firms. This paper applies a language-based model of organizational culture to employee reviews on the website Glassdoor.com in order to measure cultural strength over time for a diverse sample of nearly 500 publicly-traded firms. The measure is used to test a seminal prediction about the determinants of cultural strength: that firm performance volatility, or highly variable performance over time, inhibits consensus among employees about the most important norms guiding work in the organization. The paper proposes a number of reasons why performance volatility should ultimately decrease cultural strength by reducing norm consensus among employees. Evidence of this relationship is found. While prior work only considers how cultural strength drives firm performance, these results suggest that performance can also drive changes in cultural strength, affirming prior speculation of a cyclical relationship between these constructs. The implications for managers and employees are discussed. "Cumulative Cultural Advantage: Early Success Promotes the Development of Performance-Enhancing Norms in Founding Teams": The norms that emerge among founding team members can have long-lasting influence on behavior inside organizations as they grow. But why do some founding teams develop stronger norms than others? While strong norms can enhance performance, this paper argues that strong norms can also emerge in response to performance outcomes themselves -- feedback indicating high performance leads to the development of stronger norms, such that norm strength and performance are self-reinforcing. Using longitudinal data from founding teams participating in a graduate-level "startup bootcamp" course, I find that early feedback perceived by team members as indicating high performance is associated with the subsequent emergence of stronger team norms. An important implication is that success early in an organization's life may lock-in strong norms, which in turn enhance performance, amounting to a process of cumulative advantage that drives performance differentials across firms. "Duality in Diversity: Cultural Heterogeneity, Language, and Firm Performance, " coauthored with Amir Goldberg, Associate Professor of Organizational Behavior at Stanford Graduate School of Business, and Sameer Srivastava, Assistant Professor of Management of Organizations at Haas School of Business, UC Berkeley, asks: How does cultural heterogeneity in an organization relate to its underlying capacity for execution and innovation? Existing literature often understands cultural diversity as presenting a trade-off between task coordination and creative problem-solving. This work assumes that diversity arises primarily through cultural differences between individuals. In contrast, we propose that diversity can also exist within persons such that cultural heterogeneity can be unpacked into two distinct forms: interpersonal and intrapersonal. We argue that the former tends to undermine coordination and portends worsening firm profitability, while the latter facilitates creativity and supports greater patenting success and more positive market valuations. To evaluate these propositions, we use unsupervised learning to identify cultural content in employee reviews of nearly 500 publicly traded firms on a leading company review website and then develop novel, time-varying measures of cultural heterogeneity. Our empirical results lend support for our two core propositions, demonstrating that a diversity of cultural beliefs in an organization does not necessarily impose a trade-off between operational efficiency and creativity.

Keywords: Business.
Advisor: Goldberg Amir 
Sorensen Jesper B.
Hannan Michael T.