Cultural intelligence in diversity management

The purpose of this article is to demonstrate the importance of organizations, especially those engaged in global business, to develop and incorporate motivational Cultural Intelligence (CQ) programs in their Diversity Management (DM) policies within the context of Strategic Human Resource Management (SHRM). Globalization today adds an extra layer of complexity to SHRM, thus broadening the scope of firm’s operations worldwide in various locations requiring the use of multiple languages and engaging a wide variety of cultures subject to various employment laws (Briscoe et al. 2009). In fact, continued shifting demographics worldwide (Drucker 2002) are creating an increasingly diverse customer base as well as a workforce composition both domestically and internationally; therefore, organizations everywhere must consider the potential consequences of refraining from developing motivational CQ programs for employees within their ranks to enhance their DM practices in an era of global hypercompetition.

Earley and Ang (2003) described CQ as the capability which permits individuals to function effectively in culturally diverse situations: metacognitive, cognitive, motivational, and behavioral (Van Dyne et al. 2012). Empirical findings have demonstrated a positive relationship between CQ and cultural effectiveness (Ang et al. 2007). Therefore, this paper focuses on motivational CQ as other empirical research indicates that this aspect of CQ has a definite impact on the corporate financial “bottom line” (Chen et al. 2012). Synthesizing existing literature on motivational CQ, the growing global skills gap, suggested DM “Best Practices,” and Third Culture Individuals (TCIs) and connecting them to a suggested framework of human capital-based advantage for DM is covered in the Conclusion and Future Research Directions section.

Realities of contemporary globalism

Most business organizations today must successfully navigate in an environment which is constantly changing because of global hypercompetition to sustain prosperity over the long-term (Christiansen 2012; Ohmae 2005). This is especially important to many firms operating in the advanced economies of Europe and North America not only due to the realignment of the center of global economic activity from the Western world to Asia (Mohrman and Lawler 2012), but also due to six significant factors which are outside the influence of government control (IBM 2008): accelerating globalization, expanding impact of technology, changing demographics, rising environmental concerns, evolving society relationships, and threats to social stability and order. Additionally, there are five “Global Forces” that affect global business activity in this century (McKinsey Global Institute 2012):

  • The Great Rebalancing: The first half of the twenty-first century will be the first time in 200 years when emerging-market countries shall contribute more to growth than the developed ones.

  • The Global Grid: The global economy is growing ever more connected. This expanding grid is seeding new business models and accelerating the pace of innovation. It also makes destabilizing cycles of volatility more likely.

  • The Productivity Imperative: Developed-world economies will need to generate pronounced gains in productivity to power continued economic growth.

  • The Market State: The often contradictory demands of driving economic growth and providing the necessary safety nets to maintain social stability have put governments under extraordinary pressure.

  • Pricing the Planet: A collision is shaping up among the rising demand for resources, constrained supplies, and changing social attitudes toward environmental protection.

Rounding out these realities of today’s globalism, it is important to mention business and even governmental organizations will also need to consider the following factors which are highly relevant to future employee work skills (Institute for the Future for the University of Phoenix Research Institute 2011) and to future corporate performance:

  • Extreme Longevity: Increasing global lifespans means multiple careers will become commonplace, and occupational change will necessitate lifelong learning.

  • Rise of Smart Machines & Systems: Workplace automation will continue to nudge human workers out of rote, repetitive tasks and impact every domain of our lives.

  • Computational World: Massive increases in processing power will make the world a programmable system on a scale never possible before.

  • New Media Ecology: New communication tools will require new media literacies beyond text, and completely transform the way in which we communicate.

  • Superstructured Organizations: New social technologies will drive new forms of production and value creation beyond traditional organizational boundaries.

  • Globally Connected World: Increased global interconnectivity will place diversity and adaptability at the center of organizational operations.

All of the factors above link DM to the SHRM spectrum, thus requiring organizations to re-evaluate their DM practices and human resources compositions as people remain the most critical component of all organizations. This is especially true in Multinational Enterprises (MNEs) which have a major stake in successful workforce diversity practices due to the multiple cultures, languages, and nationalities usually contained within such organizations. Strategic management research still indicates that companies can obtain sustainable, competitive advantage (Porter 1996) by implementing strategies which exploit their internal strengths while neutralizing external threats and minimizing internal weaknesses (Barney 1991). This entails leveraging a variety of resources to produce new knowledge bases inside, and outside, firm boundaries to enhance firm competitiveness (Masciarelli 2011). Effective DM is a key player toward this goal.

Literature review

DM is a process intended to create and maintain a positive work environment in which the similarities and differences of the people involved are respected and valued (Patrick and Kumar 2012). Patrick (2010) discovered that DM determines the level of openness to dissimilarity characteristics among an organization’s culture, work groups, and members. Tatli (2011) developed a theoretical framework which conceptualizes DM in three constituents: diversity discourse, diversity practice, and diversity practitioners. Roberge et al. (2011) recommended five categories of strategic managerial practices to effectively manage diverse organizations: (1) Using symbolic management to value diversity, (2) Implementing training programs, (3) Implementing cross-functional teams, (4) Stimulating improved communication flow, and (5) Promoting fairness and justice in human resource practices. The composition of the modern workforce is much more varied than in the past (Simons and Rowland 2011); therefore, empirical studies such as those conducted by the researchers above take on more urgency than in previous years. This is particularly important when considering the growing global skills gap, a topic covered in detail in the Discussion section.

Cultural Intelligence (CQ) is still an emerging field (Gelfand et al. 2008) with four subdimensions as mentioned earlier: metacognitive, cognitive, motivational, and behavioral. Consistently being able to make oneself understood and being able to create a fruitful collaboration in situations where cultural differences play a role can make the difference between success and failure in global business interactions today. The motivational factor of CQ is highly relevant to this issue as contemporary globalization highly encourages mobility of labor across national and cultural boundaries (Templer et al. 2006). Operating successfully in a different culture is often a major challenge for people (Redmond 2000), so motivational CQ becomes a key factor toward achieving this goal. As people with higher motivational CQ are more motivated to engage in intercultural interactions whether they be in an organization’s home country or abroad, they proactively seek direct experiences in different cultures (Deci and Ryan 1985), a benefit to organizations which is self-evident.

The authors suggest connecting Third Culture Individuals (TCIs) to the CQ dimension as a practical solution for MNEs and other firms operating abroad. TCIs are those people who have spent a significant period of their formative years outside their land of birth (Pollock and Van Reken 2009). Research on TCIs is still growing even though the term (originally “Third Culture Kids”) was coined in the 1960s by then University of Michigan professor Dr. Ruth Useem. TCIs can be an important aspect of SHRM and DM strategy in that these individuals are uniquely capable to transcend various cultures present in MNEs and other organizations due to their experience operating in other cultures from an early age (Christiansen 2012, pp. 25, 44). TCIs and their potential, unique contributions are covered further in the Conclusion and Future Research Directions section.

Diversity management (DM)

DM developed as a philosophy in the late 1980s when Workforce 2000, a report indicating changing labor market demographics, was published in North America by the Hudson Institute (Johnston and Packer 1987). Özbilgin (2008) defines DM as “a management philosophy which proposes that recognizing and valuing heterogeneity can contribute to both organizational performance and the financial bottom line.” Today a diverse workforce is widely considered as a key business strategy (Marquis et al. 2008; Boxhall and Macky 2009) leading to long-term competitive advantage. A leading example today of an MNE with a solid workforce diversity policy is PriceWaterhouseCoopers. However, others include American Express, Coca-Cola, IBM, Johnson & Johnson, Mariott International, and Toyota—all firms which practice four key areas of DM: CEO Commitment to DM, Workforce Diversity and Human Capital, Corporate Communications, and Supplier Diversity (DiversityInc. 2012). Their continued success in their respective markets serves as strong evidence of their commitment to DM as part of a strong SHRM policy.

Workforce diversity has also become an important issue in developed countries, particularly those considered as multicultural in nature such as Australia, Belgium, Canada, India, the UK, and the USA. Due to major demographic changes such as the collapse of birthrates in developed nations (Drucker 2002), there is a tendency to focus directly on the demographic diversity compositions of the workforce. However, DM encompasses more than these aspects to include issues as disability, cultural values, social capital, skillsets, problem-solving abilities, creativity, personality, work teams, career commitment, and satisfaction with managers—all key factors as part of increased global competition which demands innovative work teams from diverse backgrounds (Tatli et al. 2006; Joshi and Roh 2009; Lauring and Selmer 2012; Shin et al. 2012).

DM has not only a legal or ethical reason to promote equality and diversity, but also an economic incentive (Riach 2009). Therefore, DM today must emphasize building specific skills, creating policies, and drafting practices which obtain the best efforts from every employee. DM assumes a coherent environment in organizations and aims for effectiveness, productivity, and ultimately competitive advantage (D’Netto and Sohal 1999). It is believed that through effective integration of DM principles in the key human resource functions of recruitment and selection, training and development, performance appraisal, and remuneration, an organization can effectively manage workforce diversity (Besler and Sezerel 2012). Organizations which fail to embrace diversity effectively and do not acquire a holistic approach (Thomas and Ely 1996) toward eliminating discrimination and injustice will discover that there is an adverse effect on employees and customers in the long-term.

The transcultural organization

Due to their very nature, MNEs generally are inherently multicultural, but this can include smaller organizations operating internationally as well. However, this does not necessarily mean that the groups involved are consistently capable of working well together toward common goals, particularly since communication can often be a major obstacle. MNEs and smaller organizations operating globally continue to find that the ability to manage effectively across languages and cultures is critical to sustained success (Funakawa 1997; Lauring and Selmer 2012). This requires understanding the hierarchy of terms broadly defining cultural relations to reach a transcultural level of interaction in the global organization (VanHook 2005):

  1. 1

    Monocultural: cultures are segregated into their own homogenous cultural group

  2. 2

    Multicultural: various cultures are gathered together in the same room

  3. 3

    Crosscultural: various gathered cultures are talking at one another

  4. 4

    Intercultural: various gathered cultures are communicating in understanding with one another

  5. 5

    Transcultural: various cultures have moved beyond their cultural variations into common ground, transcending cultural differences

Therefore, the goal of transcultural organizations is to develop an environment in which employees and managers alike from diverse backgrounds effectively operate as an integrated, focused team working toward common directions which are meaningful in contemporary globalism (Nye 2003). Developing and retaining managers who can effectively mold together these diverse organizational groups into sustainable, productive units must be a key aspiration of organizational boards and C-level executives. This requires CQ which is easily found in most TCIs; however, evidence shows that these groups remain largely ignored in many organizations (Christiansen 2012). Therefore, employing them more completely throughout the transcultural corporation should be a priority in human resource departments today, as should be CQ training for executives and the general rank-and-file who have insufficient exposure to different cultures. Much empirical research exists showing the “hidden costs” of hiring people with inappropriate backgrounds and engaging them in assignments which require finesse in multicultural settings (Dessler 2012; Christiansen et al. 2013).

It is important to understand that a transcultural organization is not truly a so-called “melting pot”; rather, it should be considered as a “creative pot” which acquires benefits for organizations from both social and financial profit perspectives. There must be a distinct connection between DM, CQ, and Organizational Goals in this “creative pot” to provide a sustainable competitive advantage in contemporary globalism.

Discussion

Since the late 1990s, workplace diversity has become one of the most frequently discussed topics among management personnel; however, academic interest in the actual analysis of such diversity has remained limited (Herrera 2008). As many employees around the world are more likely than ever before to accept assignments outside their home country, and those who remain at home are increasingly likely to work in culturally diverse groups (Black et al. 1991; Chen et al. 2012), training to improve CQ such as that by The Cultural Intelligence Center in Michigan, USA can provide one long-term competitive advantage to organizations as it assists in understanding the value of DM.

Attention to international language management within the transcultural organization is a pivotal aspect of successful DM as language has empirically been found to be one of the strongest indicators of group identity, and, therefore, a powerful element of group differential and ethnic conflicts (Giles and Johnson 1981). Failing to establish a common language or failing to be sensitive to those who are less proficient in that common language can lead to major comprehension problems, language-based power division, and feelings of isolation (Charles and Marschan-Piekkari 2002). All of these can and do affect corporate performance over the long-term (Christiansen 2012; Hitt et al. 2012).

It is assumed that a heterogeneous workforce may stimulate creativity and innovation capacity, but conflicts can develop if not managed well as discussed above in the section on Transcultural Organizations. Chatman et al. (1998) indicate that heterogeneous teams possess rich variety of ideas, approaches, and paradigms compared to homogoneus ones. However, Jayne and Dipboyle (2004) argue it is not certain a diverse group is (always) a better-performing one. Nonetheless, recruiting, retaining, and promoting diverse employees can promote an organization’s long-term success today (Christiansen 2012). While it is obvious there must be “buy-in” from top management regarding DM, it is also very important to include “buy-in” from middle management which can be a potential barrier to DM initiatives since such managers are mainly rewarded on maintaining current results (Canadian Manager 2008).

It is critical to highlight here that from an SHRM perspective there is a growing global competition for talent. Due to the retirement of the so-called “baby-boomer” generation that developed after World War II and a growing skills gap, critical talent is becoming increasingly scarce worldwide (Deloitte Development 2008; Turnbull et al. 2010). For example, in 2000 the US Department of Education estimated that approximately 60 % of all new jobs in the twenty-first century will require skills which only 20 % of the US workforce will possess. This statistic evidently still stands (McKinsey Global Institute 2012). Other related facts include (Deloitte Development LLC 2008; Australian Institute of Management 2009):

  • Australia: Over 51 % of the 2,000 respondents to a recent Australian Institute of Management survey said middle-managers had the largest skills gap, followed by senior managers.

  • Canada: Approximately 44 % of businesses report problems attracting qualified labor.

  • China: Fewer than 10 % of job candidates are suitable to work in a foreign company.

  • Europe: Over 60 % of the working age population will be over 60 years old by 2050.

  • India: This huge country already experiences a shortfall of 500,000 professionals needed to fulfill available positions.

  • USA: American colleges will graduate only 198,000 students to replace 2 million “Baby-boomers” retiring between 1998 and 2018.

Therefore, transcultural and other organizations will be engaged in a “war for talent” at least during the first half of the twenty-first century, a fact which compounds the effects of the other challenges outlined earlier which face all organizational types engaged in international operations. As such, it will be imperative for transcultural organizations in particular to recruit, retain, and promote diverse employees for sustainable success in the evolving marketplaces of the twenty-first century (Robinson et al. 2003).

Some “Best Practices” for DM can include the following (GAO 2005):

  • Top leadership commitment—a vision of diversity demonstrated and communicated throughout an organization by top-level management.

  • Diversity as part of an organization’s strategic plan—a diversity strategy and plan that are developed and aligned with the organization’s strategic plan.

  • Diversity linked to performance—the understanding that a more diverse and inclusive work environment can yield greater productivity and help improve individual and organizational performance.

  • Measurement—a set of quantitative and qualitative measures of the impact of various aspects of an overall diversity program.

  • Accountability—the means to ensure that leaders are responsible for diversity by linking their performance assessment and compensation to the progress of diversity initiatives.

  • Succession planning—an ongoing, strategic process for identifying and developing a diverse pool of talent for an organization’s potential future leaders.

  • Recruitment—the process of attracting a supply of qualified, diverse applicants for employment.

  • Diversity training—organizational efforts to inform and educate management and staff about diversity’s benefits to the organization.

The authors suggest that the following should be incorporated into this list:

  • Integration of Third Cuture Individuals more fully into the corporate ranks.

  • CQ training which includes language management.

  • Engage middle management in all DM initiatives.

  • Develop corporate programs for employees which will effectively address unavoidable future skills gaps.

Conclusion and future research directions

This article has covered a variety of issues ranging from motivational CQ and MNEs to TCIs and international language management. While there is certainly much authoritative literature available on DM such as that found in Özbilgin (2005, 2008, 2009; Özbilgin and Syed 2010) or Tatli (2011), the present article uniquely covers DM within the contexts of SHRM and motivational CQ to include the growing global skills gap, DM “Best Practices,” and TCIs within MNEs—today’s so-called “transcultural organization.” The academic world must conduct additional empirical and theoretical studies on DM and its analysis as they pertain to Human Capital Management Across Cultures, and CQ and Leadership (Center for Leadership and Cultural Intelligence 2012). Management scholars have also demanded additional research on CQ (Ng et al. 2012) since empirical studies provide circumstantial evidence of a strong relationship between CQ and cultural effectiveness (Chua et al. 2012).

The growing global skills shortage detailed above must be considered in cultural diversity training programs. Developing “Global People Skills” is a key to sustained success in MNEs and other organizations, particularly as the world economy develops further beyond contemporary globalization into the so-called “grobalization,” as coined by sociologist George Ritzer from the University of Maryland. Grobalization represents “the imperialistic ambitions of nations, corporations, organizations, and the like and their desire to impose themselves in various geographic areas” (Ritzer 2007, p. 15).

Campbell et al. (2012) have proposed a comprehensive framework of human capital-based advantage which can be considered in connection with DM as “many strategy scholars have suggested that resources and capabilities may take the form of knowledge and skill embedded in people.” While strategy scholars typically assume that general human capital cannot be a source of competitive advantage, strategic human resource management scholars have acknowledged that general skills may actually lead to firm-level performance (Campbell et al. 2012). Additional research into how DM and motivational CQ complement this framework should be undertaken.

Due to growing diversity in the global workforce and the globalization of business today, business leaders will increasingly manage workers with different cultural values (Kirkman et al. 2009). Effective DM practices which include employing TCIs throughout the organization (especially in upper-management ranks), providing motivational CQ training, implementing DM “Best Practices,” and developing “Global People Skills” in rank-and-file employees can greatly assist in achieving sustainable corporate performance in the transcultural organizations of twenty-first century grobalization.