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Why Do Firms Fail to Engage Diversity? A Behavioral Strategy Perspective

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  • Chengwei Liu

    (European School of Management and Technology Berlin, 10178 Berlin, Germany)

Abstract

The persistent failure of organizations to engage diversity—to employ a diverse workforce and fully realize its potential—is puzzling, as it creates labor-market inefficiencies and untapped opportunities. Addressing this puzzle from a behavioral strategy as arbitrage perspective, this paper argues that attractive opportunities tend to be protected by strong behavioral and social limits to arbitrage. I outline four limits—cognizing, searching, reconfiguring, and legitimizing (CSRL)—that deter firms from sensing, seizing, integrating, and justifying valuable diversity. The case of Moneyball is used to illustrate how these CSRL limits prevented mispriced human resources from being arbitraged away sooner, with implications for engaging cognitive diversity that go beyond sports. This perspective describes why behavioral failures as arbitrage opportunities can persist and prescribes strategists, as contrarian theorists, a framework for formulating relevant behavioral and social problems to solve in order to search for and exploit these untapped opportunities.

Suggested Citation

  • Chengwei Liu, 2021. "Why Do Firms Fail to Engage Diversity? A Behavioral Strategy Perspective," Organization Science, INFORMS, vol. 32(5), pages 1193-1209, September.
    • Handle: RePEc:inm:ororsc:v:32:y:2021:i:5:p:1193-1209
    DOI: 10.1287/orsc.2020.1425
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