On Learning Benefits of Homophily in Firms

Practitioners and scholars have often warned against the negative social consequences of homophily. We consider the implications of homophily for the efficacy of organizational learning. In doing so, we highlight conditions under which homophily may enhance, rather than undermine, a firm’s ability to recombine and exploit individuals’ diverse knowledge. Employing a computational model, we identify two distinct pathways via which homophily influences the interactions between individuals in the organization, which we call the segregating and integrating effects of homophily. While homophily segregates individuals into homophilous social clusters, it also integrates individuals across a firm’s structural units (e.g., teams, divisions, departments). These two competing effects of homophily adjust the firm’s formal structure to drive effective recombination and diffusion of knowledge within the firm. We discuss why this positive role of homophily is more likely to exist in firms than in other social contexts.