UC Berkeley

How does cultural heterogeneity in an organization relate to its underlying capacity for execution and innovation? Cultural diversity is commonly thought to present a tradeoff between task coordination and creative problem solving, with diversity arising primarily through cultural differences between individuals. In contrast, we propose that diversity can also exist within persons when individuals hold multiple cultural beliefs about the organization. We refer to these different forms as interpersonal and intrapersonal cultural heterogeneity. 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 computational linguistics 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, suggesting the need to rethink the performance tradeoffs of cultural heterogeneity: it may be possible to reap the creativity benefits of higher intrapersonal heterogeneity and, at the same time, the efficiency benefits of lower interpersonal heterogeneity.