Workforce gender diversity:

Is it a source of competitive advantage?

Muhammad Ali
University of Melbourne, Australia

Dr Isabel Metz
University of Melbourne, Australia

Professor Carol T. Kulik

University of South Australia, Australia

Paper presented at the 21st ANZAM conference, Sydney, Australia

Preferred Stream: Gender and Diversity in Organisations

 Workforce gender diversity: Is it a source of competitive advantage?
Research on workforce diversity at the organisational level gained momentum in the 1990s, because
of the growing trend in HR research to link HR practices with organisational performance. The new
parallel wave of research focused on the business case for diversity, in which diversity was linked to
organisational performance. However, the results of these studies, mainly focusing on linear diversity-
performance relationships, have been inconsistent. Based on contrasting theories, this paper proposes
three competing predictions of the gender diversity-performance relationship at the organisational
level: a positive linear relationship derived from the resource-based view of the firm, a negative linear
relationship derived from self-categorisation and social identity theories, and a U-shaped curvilinear
relationship derived from the integration of the resource-based view of the firm with self-
categorisation and social identity theories. The U-shaped relationship accounts for the inconsistent
findings in past research, because different proportions of men and women produce different social
dynamics that have different effects on organisational performance. Further, the proposed U-shaped
relationship can have different slopes in the manufacturing and services industries. The paper
contributes to the field of diversity by strengthening its weak theoretical foundations and by
highlighting the industry differences.

Keywords: workforce diversity, organisational performance, competing predictions

Workforce gender diversity is increasing at a rapid pace. In particular, developed countries are
experiencing unprecedented gender diversity in their workforces and this trend is likely to continue.
For example, womens representation in the Australian labour force has increased from 22.9 percent in
1954 (Commonwealth Bureau of Census and Statistics 1958) to 44.8 percent in 2004-2005 (Australian
Bureau of Statistics 2006). The increase in workforce gender diversity is attributed to a number of
factors. For instance, laws on equal employment opportunity in Australia and other parts of the world
have played a role in increasing workforce gender diversity. The Australian Equal Opportunity for
Women in the Workplace Act 1999 established workforce gender diversity as a legal responsibility.
Moreover, the human resources of an organisation are becoming an important source of competitive
advantage, because non-human resources such as technology and machinery can be imitated by
competitors (Pfeffer 1994).

The increase in workforce gender diversity has attracted the attention of both researchers and
practitioners. In particular, a question arises whether different gender compositions in an
organisations workforce will impact individual, group, or organisational level performance. In the
early 1990s, both scholars and practitioners were generally optimistic about the effects of workforce
diversity on performance. For example, Cox and Blake (1991) argued that diversity can be a source of
competitive advantage. However, theories and empirical research thus far suggest that diversity can
lead to either positive or negative outcomes. The resource-based view of the firm (Barney 1991)
suggests a positive diversity-performance relationship, whereas social identity theory (Tajfel 1978)
suggests a negative diversity-performance relationship. Further, empirical research has found
inconsistent results suggesting that diversity can be either good or bad for businesses (for reviews, see

1
Milliken & Martins 1996; Williams & O'Reilly 1998; Jackson, Joshi & Erhardt 2003; Svyantek & Bott
2004).

Svyantek and Bott (2004) reviewed nine diversity studies (published during 1989-2003) that
investigated the gender diversity-performance relationship. Out of nine studies, four studies found no
main effects, two studies found positive effects, two studies found negative effects, and one study
found a nonlinear effect. A closer examination of those studies further reveals that one study was
conducted at the dyad level (Tsui & O'Reilly 1989), five studies at the group level (Mayo, Pastor &
Meindl 1996; Knouse & Dansby 1999; Fenwick & Neal 2001; Howard & Brakefield 2001; Harrison,
Price, Gavin & Florey 2002), one study at the management level (Dwyer, Richard & Chadwick 2003),
one study at the board level (Siciliano 1996), and one study at the organisational level (Frink et al.
2003). Empirical research at the organisational level has considerably lagged behind the discussion of
diversity as a source of competitive advantage (Frink et al. 2003). This lack of research could be partly
attributed to the fact that few theories address the diversity-performance relationship at the
organisational level. Jackson et al. (2003) warned that a lack of theoretical models may hinder the
development of the field of diversity and recommended modifying existing theories to address
unresolved questions. For example, an integration of competing theories may identify nonlinear
relationships between diversity and performance (Jackson et al., 2003). Or, group-level theories may
be expanded to consider diversity effects at the organisational level.

The body of literature on diversity sends a confusing message to practitioners about whether gender
diversity is good for businesses. The mixed evidence suggests the value of focusing on competing
predictions (Armstrong, Brodie & Parsons 2001) including nonlinear predictions (Ho 2003), and
considering the impact of context on the diversity-performance relationship (Jackson et al. 2003).
Armstrong et al. (2001: 175) argued that competing predictions are useful when prior knowledge
leads to two or more reasonable explanations. Competing predictions provide comprehensiveness
because a group of hypotheses encompass the subject on all sides, the total outcome of means and of
methods is full and rich (Chamberlin 1890: 94). Jackson et al. (2003) advised scholars to describe
their studies contexts in detail to enable cross-study comparisons that might explain inconsistent
results. Context underscores the application of the research findings to real life organisational settings
(Johns 2006). Studying the moderating effect of context could help avoid wrong conclusions and
achieve a more precise and specific understanding of the main diversity-performance relationship
(Rosenburg 1968: 100).

This paper proposes three competing predictions of the gender-diversity performance relationship at
the organisational level: a positive linear prediction based on the resource-based view of the firm, a
negative linear prediction based on self-categorisation and social identity theories, and a U-shaped

2
curvilinear prediction based on the integration of the resource-based view of the firm with self-
categorisation and social identity theories (see Figure). In doing so, we demonstrate how the self-
categorisation and social identity theories developed to address a group-level phenomenon can be
expanded to the organisational level. This broadens the scope of those theories, and thus helps scholars
overcome the limitations associated with the scarcity of the organisational level diversity theories. The
three competing predictions proposed in this paper may stimulate further strategic level empirical
research explaining the impact of gender diversity on organisational performance. However, we
endorse the U-shaped prediction based on theoretical arguments that groups with different proportions
of men and women display different social behaviours (Blau 1977; Kanter 1977a; 1977b; Pfeffer
1991). These different social behaviours may have different impacts on organisational performance.
We also argue that because of certain HR related differences in the manufacturing and services
industries, diversity can have different dynamics in the two industries. Therefore, we propose that the
industry context (manufacturing vs. services) can impact the slope of the U-shaped gender diversity-
performance relationship (see Figure).

INDUSTRY TYPE (Manufacturing vs. Services)

The resource based view of the firm

+
ORGANISATIONAL ORGANISATIONAL
GENDER
DIVERSITY
Social identity and self-categorisation theories - PERFORMANCE

The resource based view + Social identity and self-categorisation U

Figure. Proposed Model of Direct and Interactive Effects between Organisational Gender Diversity and Performance

Positive Linear
According to the resource-based view, a firm can gain a sustained competitive advantage if it takes
advantage of its valuable, rare, inimitable, and non-substitutable (VRIN) resources (Barney 1991).
Workforce gender diversity is associated with resources that can provide a firm with a sustained
competitive advantage. These resources include market insight, creativity and innovation, and
improved problem-solving. Mens and womens different experiences (Nkomo & Cox 1996) may
provide insights into the different needs of male and female customers. Further, men and women may
have different cognitive abilities, such as mens proficiency in mathematics and womens proficiency
in verbal and interpersonal skills (Hoffman 1965; Maccoby & Jacklin 1974). A mix of cognitive
abilities in a gender diverse team may enhance the teams overall creativity and innovation. Moreover,
a gender diverse team produces high quality decisions (Rogelberg & Rumery 1996).

3
The resources of market insight, creativity and innovation, and improved problem-solving may be
considered VRIN. They are valuable, because they drive business growth (Robinson & Dechant 1997).
They may also be considered rare (Oetinger 2001). These resources cannot be easily accomplished or
copied by homogeneous organisations (Frink et al. 2003). Therefore, they are largely inimitable. It can
also be argued that there are no readily-available substitutes for these resources. In sum, it is
reasonable to conclude that workforce gender diversity in general can provide a firm with a sustained
competitive advantage.

Empirical research supports the argument that a gender diverse workforce is positively linked to an
organisations performance. McMillan-Capehart (2003) used the resource-based view of the firm to
argue that gender and racial diversity can provide a firm with a competitive advantage. Of the authors
12 predictions, the studys results supported only the prediction of a positive relationship between
organisational gender diversity and return on equity. Frink et al. (2003) conducted two organisational
level empirical studies to examine the gender diversity-performance relationship, measuring
performance differently in each study. The overall results supported Frink et al.s argument that an
organisations performance would be greatest when diversity is maximised. Thus, it is proposed:
Hypothesis 1: Organisational gender diversity will be positively related to organisational
performance.

Negative Linear
Self-categorisation theory suggests that people categorise themselves into various social and
psychological identity groups, such as intellectual, engineer, male, white, or Australian (Turner, Hogg,
Oakes, Reicher & Wetherell 1987). Tajfel (1978: 63) defined social identity as that part of an
individuals self-concept which derives from his knowledge of his membership of a social group (or
groups) together with the value and emotional significance attached to that membership. For instance,
a categorisation on the basis of sex would result in a psychological association with either the male
social group or the female one.

Messick and Mackie (1989) noted that categorisation based on race, gender, and age is common. A
gender diverse workgroup may produce the psychological groups of male group-members and female
group-members. Subsequently, the social comparison between male and female psychological groups
triggers in-group out-group dynamics. As a result, gender diversity may produce negative group
behaviour, such as decreased communication (Kravitz 2003), role expectations based on stereotypes
(Elsass & Graves 1997), a lack of cohesion (Triandis, Kurowski & Gelfand 1994) and cooperation
(Chatman & Flynn 2001), and increased conflict among group members (Pelled 1996).

4
Organisational research based on social identity theory is relatively new compared to the long history
of social identity theory research in social psychology (Kramer 1991; Nkomo & Cox 1996). However,
empirical research supports the argument that gender diversity produces the group behaviour predicted
by self-categorisation and social identity theories. For instance, based on social identity theory, Jehn,
Northcraft and Neale (1999) argued that workgroup social diversity in the form of sex and age would
be positively related to relationship conflict. The authors studied 92 workgroups from a household
goods moving firm in the United States. The results suggested a positive association between
workgroup social diversity and intra-group relationship conflict. Similarly, Alagna, Reddy and Collins
(1982) found that students in mixed sex groups, compared to students in all male groups, reported
more communication problems, greater unresolved interpersonal conflicts, more difficulty working
together, more frequent changes in group membership, lower perceived cooperation, and higher
perceived tension.

If a high level of gender diversity at the organisational level is reflected in gender-diverse workgroups
then in-group out-group dynamics may result. These in-group out-group dynamics may lead to more
relationship conflict (Jehn et al. 1999) and more communication problems and difficulty in working
together (Alagna et al. 1982) than would occur in less gender-diverse workgroups. Moreover, these
negative effects, suggested by social identity theory, should result in low individual and group
performance (Richard, McMillan, Chadwick & Dwyer 2003). Consequently, low individual and group
performance may aggregate to low organisational performance. Thus, it is proposed:
Hypothesis 2: Organisational gender diversity will be negatively related to organisational
performance.

U-shaped Curvilinear
The above two competing predictions describe linear relationships between gender diversity and
performance. The positive linear prediction suggests more diversity (high proportions of both genders)
is better than less. In contrast, the negative linear prediction suggests that less diversity (high
proportion of one gender) is better. The U-shaped relationship is derived from the integration of these
two predictions. The U-shaped prediction is based on the argument that different group compositions
are associated with different group dynamics (Blau 1977; Kanter 1977a, 1977b). Different levels of
workgroup gender diversity may lead to different group dynamics that have subsequent impacts on
psychological well-being, attitudes, and even job performance (Pfeffer 1983: 304).

Kanter (1977a, 1977b) categorises gender diverse groups based on the range of different proportions
of men and women. We use Kanters recommended ranges to differentiate low, moderate, and high
levels of workforce gender diversity. First, a homogeneous workforce that comprises either all men or
all women is referred to as a uniform workforce. Second, a workforce with gender composition within

5
a range from homogeneity to 15/85 (regardless of who is in majority) is referred to as a skewed
workforce. Such a workforce has a low level of gender diversity. Third, a workforce with gender
composition within a range of 20/80 to 35/65 (regardless of who is in majority) can be referred to as a
tilted workforce. The level of diversity in this workforce is moderate. Fourth, a workforce with gender
composition within a range of 40/60 to 50/50 is referred to as a gender balanced workforce. The level
of diversity in this workforce is high. Gender diversity is at its maximum when a workforce is equally
divided between men and women (50/50).

A gender homogeneous workgroup lacks the basis for categorisation into psychological gender
groups. However, as gender diversity reaches a low level resulting in a skewed group (for example,
seven men and one woman in a group of eight employees), the token woman will feel isolation and
assimilation pressures (Kanter 1977a, 1977b). With an increased representation of women, gender
diversity reaches a moderate level resulting in a tilted group (for example, six men and two women in
that group of eight employees). The members of such a group may begin to categorise themselves into
the psychological groups of male group-members and female group-members (Randel 2002). This
categorisation into psychological groups leads to in-group out-group dynamics that, in turn, may
produce undesirable group behaviour, such as decreased communication (Kravitz 2003) and increased
conflict (Pelled 1996). With even higher levels of gender diversity, the workgroup would divide into
male and female psychological groups of similar size (a balanced workgroup). This increases
opportunities for males and females to interact with one another. The increased contact may weaken
social identities and discourage the undesirable in-group out-group dynamics. Therefore, gender
balanced groups experience more job satisfaction than gender tilted groups (Fields & Blum 1997).
Moreover, positive group dynamics, such as improved problem-solving (Rogelberg & Rumery 1996),
would start to emerge.

The aggregated gender diversity-performance effects may result in a U-shaped organisational gender
diversity-performance relationship, if the different levels of gender diversity in organisations are
reflected in corresponding levels of gender-diverse workgroups. This means that a homogeneous and a
gender balanced workforce are both associated with high performance, whereas a tilted workforce is
associated with low performance. Unfortunately, there is a lack of research on the U-shaped diversity-
performance relationship at the organisational level. Richard, Barnett, Dwyer and Chadwick (2004)
studied U-shaped relationships between diversity (gender and racial) and performance at the
management level, but the results did not support the proposed main effect predictions. However, a U-
shaped relationship between gender diversity in management and performance was observed in highly
innovative organisations. Thus it is proposed:
Hypothesis 3: Organisational gender diversity will have a U-shaped relationship with
organisational performance.

6
Contingent Prediction
The theories used in the previous sections of this paper do not take into account contingencies that
might change the strength and/or the direction of the diversity-performance relationship. The
contextual variable of industry type (manufacturing vs. services) is proposed as a moderator.

Industry type: Jackson and Schuler (1995: 251) defined industry as a distinct group of
productive or profit-making enterprises. There are various types of industries, such as manufacturing,
services, and trading. However, the most fundamental differences in the nature of business lie between
firms in the services industry and firms in the manufacturing industry (Jackson, Schuler & Rivero
1989). Service firms are characterised by more involvement of customers in production and delivery
processes, and a closer connection between production and consumption, than in manufacturing firms
(Bowen & Schneider 1988). Differences between the two industries can affect various aspects of
organisations including their HR practices (Jackson & Schuler 1995). For instance, the relative
separation of operations in manufacturing firms results in manufacturing employees performing their
jobs more independently than services employees (Dean & Snell 1991). Because of the differences
between the manufacturing and services industries, workforce diversity may have different dynamics
in organisations operating in the two industries.

The U-shaped curvilinear diversity-performance relationship is based on the integration of the

resource-based view of the firm with self-categorisation and social identity theories. The resource-
based view suggests that a resource can provide a firm with a competitive advantage if it is VRIN. A
high level of gender diversity will produce the resources of market insight, creativity and innovation,
and improved problem-solving that can be considered VRIN. However, market insight carries more
value for services firms than for manufacturing firms. Irons (1997: 18) noted a view point of
marketing executives that marketing in a service is integral to the business or even is the business.
Therefore, a high level of diversity, being a source of market insight (Cox & Blake 1991; Robinson &
Dechant 1997), may have more potential for providing a sustained competitive advantage in services
firms than in manufacturing firms. While the U-shaped prediction suggests that gender balanced
groups will minimise the negative social dynamics and maximise group performance, we predict that
this effect will be stronger in service organisations than in manufacturing ones.

A moderate level of diversity is more likely to initiate the in-group out-group dynamics predicted by
self-categorisation and social identity theories (Lau & Murnighan 1998). Both manufacturing and
services firms may experience the negative effects of a moderate level of diversity. However, because
of the greater interaction among employees in services firms than in manufacturing firms (Frink et al.
2003), the in-group out-group dynamics in services firms are weaker. This is in line with Allports

7
(1954) contact hypothesis. Therefore, at moderate levels of organisational gender diversity, the
negative effects of diversity will be less noticeable in services firms than in manufacturing firms.

In sum, industry type may impact the shape of the U-shaped curvilinear relationship between gender
diversity and performance. Specifically, high gender diversity will have a greater positive effect on
performance in firms in the services industry than in firms in the manufacturing industry.
Alternatively, moderate gender diversity will have a smaller negative effect on performance in firms in
the services industry than in firms in the manufacturing industry. Thus, it is proposed:
Hypothesis 4: Industry type moderates the U-shaped relationship between organisational
gender diversity and performance such that the relationship will display an upward slope ( )
in firms in the services industry and a downward slope ( ) in firms in the manufacturing
industry.

DISCUSSION
Our review highlighted the conflicting findings in the literature resulting from a focus on positive and
negative linear gender diversity-performance relationships. The positive linear and negative linear
predictions argue that gender diversity per se is either good or bad for business. However, social
behaviours depend on the distribution of the individuals within a group (Pfeffer 1991). The level of
diversity enables one effect (e.g., positive) of diversity to dominate over the other (e.g., negative). We
present the U-shaped relationship between gender diversity and organisational performance as a way
of reconciling the conflicting findings. High levels of gender diversity are a source of competitive
advantage, while moderate levels of gender diversity provide a competitive disadvantage. These
diversity levels might have different impacts in the services and manufacturing industries resulting in
an upward slope in the services industry and a downward slope in the manufacturing industry.

The paper makes three major contributions. First, the proposed model contributes to the theoretical
foundations of the strategic diversity literature. The paper uses the group level social identity and self-
categorisation theories to predict the diversity-performance relationship at the organisational level. It
helps overcome the lack of organisational level diversity theories. It broadens the scope of those
theories and will stimulate more diversity research at the strategic level. In addition, the paper exhibits
how contrasting theories can be integrated to propose a non-linear relationship between a predictor and
an outcome variable. The paper thus encourages scholars to focus on nonlinear predictor-outcome
relationships especially when the results of past research focusing on linear relationships are
inconsistent.

We also bring a new perspective into the diversity literature by proposing that firms in services
industries might benefit more from gender diversity than firms in the manufacturing industries. There

8
is a lack of understanding of diversity dynamics across industries, because most diversity research is
conducted in the services industry (e.g., Ho 2003; Richard 1997, 2000; Richard et al. 2003). This
paper is novel because it argues for the different impact of gender diversity in the two industries that
diversity theories do not yet explain.

Second, the proposed competing predictions provide strong theoretical foundations for subsequent
empirical tests. The literature on gender diversity has generally asked a simple yes/no question: is
gender diversity a source of competitive advantage? The proposed U-shaped relationship expands
these questions to consider the specific levels of gender diversity that provide a competitive
advantage. Do different proportions of men and women in a gender diverse workforce have different
effects on performance? If yes, which proportion of men and women is ideal? Does it vary across
industries? Developments in the field of diversity have been constrained by a lack of theoretical
models explaining the diversity-performance relationship (Jackson et al. 2003). Thus, the model
presented may stimulate further empirical research on the gender diversity-performance relationship.
The findings of such research will advance our knowledge of gender diversity dynamics. Importantly,
theories used in this paper imply that diversity dynamics (e.g., creativity and innovation, in-group out-
group dynamics) may take some time before they start to impact organisational performance
(McMillan-Capehart 2003; Richard 1997). Therefore, longitudinal research designs are most
appropriate for testing these predictions (Huselid 1995; Wright, Gardner, Moynihan & Allen 2005).
Previous research has mainly relied on cross sectional research designs, and therefore that body of
research fails to provide strong evidence regarding the causal relationship between diversity and
performance.

Third, the paper provides Australian managers with some useful insights. The strategic focus of the
paper underscores the bottom line impact of organisational gender diversity. At the same time, it
explains that the distributions of men and women in teams/departments can have implications on the
processes and performance at both the team/department and organisational levels. The paper
encourages managers to go beyond initiatives designed to increase gender diversity and to instead
consider the desired levels of diversity in relation to Kanters (1977a,1977b) typology. Finally, the
paper underscores the need to recognise the different challenges that gender diversity brings to
managers in the services and manufacturing sectors. Manufacturing managers may need to create
opportunities for men and women to interact with each other so that the benefits of diversity can be
realised while reducing its negative effects. Alternatively, services managers may wish to focus on the
interaction between employees and customers to capitalise on the market insights that a gender diverse
workforce might deliver.

9
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