The Effects of Cultural Diversity on Entrepreneurial Strategy: Emotional and Cognitive Perspectives

Abstract

What drives differences in strategic choices in entrepreneurial ventures? The entrepreneurship literature has shown that technology ventures often rely on information they acquire from sources such as mentors and investors to make strategic decisions about new products or ideas. While the entrepreneurship research has found much theoretical and empirical support for the importance of collecting information for venture strategies, research is largely silent on how ventures process information for strategic choices. After gathering information, ventures vary in how they make sense of information, which can be carried out through coordination and cooperation among their members, in order to reach decisions on their strategies collectively. To shed light on this process, I examine whether the diversity of emotional and cognitive organizational culture in the formative years of a venture drives differences in information processing for its strategic choices of exploration and exploitation. I test these ideas by applying natural language processing tools to the employee review and news release data on young technology ventures. Results reveal that ventures with a higher level of diversity in emotional culture in the founding stage of the venture tend to choose more explorative strategies. In contrast, ventures with a higher level of diversity in cognitive culture are likely to pursue more ambidexterity by balancing exploration and exploitation. I discuss implications for this research on entrepreneurial strategy and organizational culture.