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

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

Organization Science, 2021, vol. 32, issue 5, 1193-1209

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.

Keywords: behavioral strategy; diversity; behavioral failures; strategic opportunities; CSRL limits to arbitrage (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:32:y:2021:i:5:p:1193-1209

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