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The business case for diversity: an impossible sell?

November 21, 2019
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A diverse workforce may not automatically equate to better business outcomes. Targeted diversity management is the missing puzzle piece to unleash the creative and innovative potential of difference.

A common argument in favour of promoting diverse and inclusive workplaces is the “business case”: hiring ethnically and gender diverse employees boost the bottom line. Several major consultancies have produced data apparently supporting the correlation. “Companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians,” writes McKensey’s 2018 Delivering through Diversity report.

We should always use rigorous evidence to support the push for inclusive work practices. Claims which don’t stand up to scrutiny can ultimately fuel the beliefs of detractors that there’s no good reason at all to promote the inclusive business practice. So does the business case for diversity hold up?

Diversity and business performance: the data

The business case for diversity is often based on the idea that diverse staff bring new ideas and approaches to problem-solving. In other words, diversity naturally promotes the creativity and innovation which drive businesses forward. In a widely cited study, Cedric Herring writes, “Diversity is related to business success because it allows companies to ‘think outside the box’ by bringing previously excluded groups inside the box.” Other arguments have it that diverse staff can be a source of expertise, networks and connections to target markets, audiences and clientele in a globalising world.

While the business case for diversity is attractive, it remains debated among experts because the data is less conclusive than meets the eye. Though a large volume of data correlates diverse workforces with higher profit margins, causation has yet to be established. Higher-performing businesses may simply have more resources to channel into diversity and inclusion schemes, for example. Some even argue that diverse workforces impede progress by promoting conflict and communication barriers.

There are a few reasons why diversity has varying and sometimes contradictory effects—and while they may not directly support the business case for diversity, they all strengthen the business case for diversity management.

Diversity management refers to strategies for getting the most out of the diversity that already exists in your workforce. It also aims to promote workplace diversity in ways that maximise positive benefits while minimising negative effects (rather than pretending these don’t exist at all). Diversity management can come in the form of tailored recruitment schemes, inclusion strategies or staff training.

First, the effects of diversity on business outcomes are context-dependent—they change according to the conditions in which a business is operating. Employing staff who speak several languages can directly benefit a company with a large pool of foreign clientele. But employing linguistically diverse staff may matter less for engaging clientele in a fairly homogenous community. The best diversity management takes into account the unique circumstances and challenges facing business and decides which initiatives will make the most difference.

Second, the creative and innovative benefits of diversity sometimes only emerge when certain conditions are in place—they have to be triggered or enabled in order to come to fruition. Consider this fairly common scenario. A firm’s overall workforce is fairly gender and ethnically diverse. However, a “glass” or “bamboo” ceiling means the demographics of those in leadership positions remain pretty homogenous, effectively excluding diverse voices from high-level strategic decisions. Pro-active consultation measures and strategies to investigate whether promotion practices are inclusive and meritocratic as they could be would be needed to tap into the creative and innovative potential of the wider workforce. As the Harvard academic, Todd L. Pittinsky concludes in an article, We’re Making the Wrong Case for Diversity in Silicon Valley, “Although diversity alone does not increase company profitability in the near term, there is a lot to be gained by investigating the conditions under which it does help.”

Last, under some conditions, diversity simply does negatively impact business outcomes. A theoretical workforce where every employee speaks a different language would have a hard time communicating indeed! But negative effects can exist alongside positive benefits. Greater levels of disagreement and debate during meetings might be precisely what contributes to new ideas and innovation in business, for example.

Invest in diversity management

So diversity doesn’t always lead to better business outcomes. But targeted diversity management strategies almost always stand to improve a business or organization, even when a workforce is already diverse. Diversity management is tailored to the specific context and challenges facing an organization, lays the conditions needed to unleash the benefits that come with a difference, and minimizes negative diversity effects.

There are also a plethora of reasons why businesses should consider diversity management beyond profit, such as equality of opportunity and staff wellbeing. There may not always be a business case for diversity, but diversity management is always a sound investment.

Diversity Atlas is a data-analysis tool for measuring diversity in your workforce. It’s designed to inform diversity management strategies for thriving in a globalizing world. Get in touch for consultation via [email protected]

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