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In the past where diversity management has been viewed as merely a legal requirement, increasingly it is being adopted by organisations to play to a competitive advantage and to fully access the potential of employees. Recognition of patriarchal leadership in business has already proven valuable, and studies show closing the gender pay gap alone could add $12 trillion to global growth by 2025 (McKinsey & Company, 2015). Diversity in business no longer exists for moral or legal obligation, but as a necessity for business survival.
This essay establishes that a business case for diversity exists in 2 parts: first the benefits of diversity management in terms of its financial and intangible assets such as employee satisfaction and motivation, and secondly the common criticisms of these.
‘Diversity’ itself can have many interpretations. Global Diversity Practice (2019) define it as any dimension that can be used to differentiate groups and people from one another. Generally, diversity aims to create an inclusive culture that values and uses the talents of all would-be members (Herring, 2009). It may also be described as dichotomous in nature or “Two-dimensional” (Center for Talent Innovation, 2013). “Inherent diversity” encompassing gender, race and other aspects of our innate identity, and “acquired diversity” such as experience, cultural fluency and language skills.
The argument for the business case of diversity is an intuitive one. Page (2007) suggests that “A range of perspectives outperforms groups of like-minded individuals”. The best way to describe this would be looking at a problem with fresh eyes; a completely different background, experience and culture brings new insight to a project.
There is hard evidence for the business case of diversity in terms of financial benefits. Advocates argue that a diverse workforce in place of a homogenous one, creates financial value as homogeneity stifles innovation and productivity. There is a multitude of studies to support financial gain from inherent diversity. Most recently, a study from McKinsey & Company (2018) confirms the statistical significance of the correlation of both gender and race-based diversity and increased financial performance and value creation. Drawing on a data set of over 1000 companies covering 12 countries, it shows ethnic and cultural diversity alone create a 33% outperformance on EBIT margin. These findings support research by Herring (2009) in that racial and gender diversity is associated with increased sales revenue, more customers, greater market share and greater relative profits.
With acquired diversity, from data of 44 management teams in a Fortune 100 consumer products company, Bunderson and Sutcliffe (2002) find a positive relationship between performance and intrapersonal functional diversity (the aggregate functional breadth of team members). When compared with dominant function diversity (the diversity of functional experts on a team), teams with intrapersonal functional diversity perform higher and are more well-suited to overcoming communication barriers. This supports Page (2007) in that the aggregate experience of a diverse team of individuals is more effective than a team of like-minded experts.
Essentially, this ‘value in diversity’ (Cox, 1993) view suggests managing and valuing diversity leads to effective people management which improve productivity, financial results and contribute to the strategic equality objectives of human resource management.
Diversity = productivity (Cox, 1993)
Managing cultural diversity can be used as a strategic advantage to differentiate a particular company through customer orientation. Diversity management can improve customer service through assigning the correct employee who is able to build a strong rapport with the clientele, for example, speaking the client’s native language. Furthermore, Sen and Bhattacharya (2001) find that the consumer prefers to buy from companies with a clear CSR initiative on diversity. A diverse team is also more representative of the customer base. In diverse teams where discomfort exists, Sen and Bhattacharya (2001) argue that it creates smarter and more innovative teams; these differences make us question biases and process decisions more rigorously. McLeod and Lobel (1992) further support this ‘paradoxical view’ in that conflict caused by diversity creates improved performance; a team that can successfully overcome communication barriers, has a distinct advantage over the market.
There are also intangible benefits to diversity management, such as employee satisfaction and attracting top talent (Hunt, et al., 2018). Diversity is not just about equality, but empowering people by respecting and appreciating what makes them different. A prominent study from Deloitte (2013) on the experiences of 1,550 employees in 3 large Australian businesses identifies an 80% improvement in business performance when levels of diversity and inclusion were high. However, top performance was only seen when employers practiced inclusive leadership, paying equal attention to diversity and inclusion.
Diversity + inclusion = improved business performance (Deloitte, 2013)
The 2 factors are interdependent and equally important. The feelings of inclusion are driven by perceptions of fairness, respect, value and belonging. When an employee feels as if they are seen as a whole person with a life both within and outside of the workplace, increased levels of employee satisfaction and loyalty are seen, thus leading to a more productive work force. (Deloitte, 2013) Additionally, schemes such as creating flexible working hours targeted at the minority, benefit all employees. (Deloitte, 2011).
Strong diversity initiatives make firms more attractive to top talents pools. More than ever, millennials are accepting and embracing diversity. This goes hand in hand with millennials expectations for the organisations they work for (Deloitte, 2018). The 2018 Deloitte Millennial Survey shows that 74% of these individuals believe their organisation is more innovative when it has a ‘culture of inclusion’ and 47% of millennials are ‘actively looking for diversity and inclusion when sizing up potential employers’. Additionally, good pay and positive cultures are most likely to attract both millennials and generation Z (1990-2000 babies). By the year 2025, 75% of the global workforce will be made up of millennials and this group will occupy the majority of leadership roles (Deloitte, 2013). Therefore, if businesses are looking to hire and sustain a millennial workforce, diversity must be a key part of the company culture.
Whilst diversity appears to reap many benefits, there are also challenges created by it.
These arguments are based heavily on new social sciences research attempting to measure the effects of diversity on team performance. While this evidence seems conclusive, others highlight that ‘diversity’ is a broad term and the lack of research on intersectionality – the fact that we have multiple identities which overlap (CIPD, 2018). This makes diversity hard to quantify, especially in direct relation to profitability and productivity. The majority of studies focus on a small number of characteristics (race, gender) and discrete outcomes, such as team performance (CIPD, 2018).
Diversity management itself is a complex practice which requires significant experience to successfully control. Organisations without proper managerial or cultural understanding of diversity can end up with heightened conflict and reduced productivity (Pike, 2013). A study by Stephenson and Lewin (1996) indicates that poorly integrated heterogeneous groups can be as damaging to the organisation as overly integrated homogeneous groups. Often managers expedite team formation by choosing members with a similar global perspective (Stephenson & Lewin, 1996), resulting in an unintentional lack of diversity within a team in the same organisation.
Authors such as Skerry (2002) and Tsui (1992) argue that diversity undermines cohesiveness. Racial, gender, cultural and even age differences can create emotional conflict between co-workers and create intense competition among peer rivals, undermining organizational cohesiveness (Skerry, 2002). They also found that teams of diverse individuals can take longer to perform effectively in comparison with like-minded individuals due to communication issues and lack of a common understanding. This ‘diversity as a process’ view (Neale, et al., 1999) implicates that conflict leads to a negative effect on organisation process through communication issues and high staff turnover due to low employee morale and satisfaction.
At the same time, one could argue the irrelevance of the conversation in the modern-day society. The financial benefit of diversity is arguably proven; it is no longer a question of whether to implement diversity initiatives, more how to successfully manage them. Diversity initiatives are not a short-term solution, rather a long-term process, and the adoption rate depends almost entirely on the views of key business leaders and the influence of political and cultural climates within the workplace. Whilst there is significant research supporting diversity, whether these initiatives are being put into action is another case.
In using consequentialist arguments for diversity, it can go both ways. If evidence should surface showing a harmful heterogenous workforce, should the organisation then attempt to homogenise it? Furthermore, there are concerns as to how far diversity initiatives should be taken. Race, gender and age are a given, but are protected characteristics such as sexuality, disability and religion included? At what point does positive action in recruiting become positive discrimination whereby the employer is only recruiting a candidate for a relevant protected characteristic. Whilst it is unquestionable that all cultures should be accepted and valued, is it morally just to actively recruit for them?
Although there is substantial evidence supporting the business case for diversity, such as financial value and improved performance, it is not conclusive. For every benefit there is potential for equal damage to the organisation if handled badly, namely conflict and reduced productivity. Therefore, managers must apply diversity initiatives to their practices carefully and be mindful of the fact that there are both positive and negative outcomes.
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