How does diversity influence productivity of digital service firms? An analysis based on cultural dimensions

Purpose: Digitalization has expanded firms' global reach, fostering trade and reducing barriers. However, it also amplifies challenges due to cultural diversity, affecting organizational productivity. This study aims to use Hofstede's cultural dimensions to create six diversity indices for service firms, identifying which aspects of cultural diversity should be emphasized or limited to enhance productivity.Design/methodology/approachTo evaluate how cultural diversity impacts on the firms' productivity, a regression analysis was conducted, using total factor productivity as the dependent variable, diversity indices as explanatory variables and firm age and size as control variables. The analysis was performed on firms related to digital services (NACE codes 62 and 63), with parent companies located in Europe and data on added value, total production value, tangible assets and number of employees available for at least a 10-year period.FindingsThe study finds that cultural diversity significantly impacts firms' productivity. High diversity in motivation toward achievement and success negatively affects productivity by reducing social cohesion. Contrarily, diversity in uncertainty avoidance and power distance allows firms to improve productivity by fostering innovation and resilience. Additionally, firm age contributes moderately to productivity, with experienced companies benefiting from accumulated knowledge, even though they may face adaptation challenges in rapidly evolving digital environmentsOriginality/valueThe study's originality lies in quantifying diversity impact on firms' economic outcomes, bridging social and economic dimensions to highlight how cultural factors influence organizational performance, either driving or hindering productivity.