Diversity And Inclusivity - Factors For Sustaining Business Excellence

Published by MBA Skool Team, Published on May 03, 2014

Globalisation has aided and eased the mobility of people across geographies seeking better opportunities. UNO reports that 232 million people in 2013 were international migrants of which 38 million were Asians . Migration is just one of the many dimensions contributing to diversity of any geography and to be precise in any organisation. It has become inevitable for organisations to not just focus on specialist-skilled people but also the diversity they bring along in terms of ethnicity, culture and gender among others. This article identifies some such challenges faced by organisations worldwide with some possible solutions. Overall, the attempt is to emphasise on how organisations can embrace diversity by adopting the ‘inclusion’ approach and benefit from it.

Image Courtesy: freedigitalphotos.net, renjith krishnan

Organisational Challenges:

Most organisations face challenges in executing its growth plan. Some of these basic challenges in relation to diversity include how to:

• Access the insights of people who closely understand the needs of emerging demographic groups to break into new markets?

• Understand our customer base better so that we can better customise our products, services, and marketing efforts?

• Leverage diverse perspectives and ideas to foster creativity and new product and service innovation?

• Facilitate knowledge transfer between baby boomers and younger generations to ensure retention of critical knowledge?

• Ensure the engagement, productivity and retention of employees who are becoming increasing diverse?

• Develop a reputation as having a culture where the best people want to work?

Finding Answers:

Some leading organisations around the world are finding the answers to these questions in developing and implementing best practice Diversity and Inclusion (D&I) Strategies and are reporting benefits of:

Improved Innovation and creativity:

A diverse team has a far better chance of generating unlikely idea combinations that can be truly ground breaking because people from different cultures and backgrounds approach any given challenge from different perspectives. A study of 28 teams found those that were heterogeneous solved complex tasks better than the homogeneous teams. They noted the diverse teams exhibited a higher level of creativity and a broader thought process . Being willing to embrace new ideas and jettison traditional approaches and norms allows us to imagine what may be possible. Companies that drive innovation by leveraging employee ideas and knowledge meet product revenue targets 46 percent more often and product launch dates 47 percent more often than industry peers .

New market penetration and customer loyalty:

When the workforce is diverse and representative of target customers and partners there is an inherent understanding of the unique requirements of different markets. It has been found that “more than half of all international joint ventures fail within two or three years, due to a lack of cultural competency versus technical or professional expertise.” Communities seek out organizations they can identify with or feel supported by. For example, in 2008, when the estimated spending power of the LGBT community was £81 billion in the United Kingdom and $712 billion in the United States , it was also estimated that 78 percent of the LGBT community and their friends and relatives would switch brands to companies known to be LGBT-friendly .

Employee engagement and productivity:

Studies show that when employees are engaged, productivity goes up. Diverse work teams properly managed and trained produced results that were six-times higher than homogenous teams. Companies with high employee engagement had a 19 percent increase in operating income and almost 28 percent growth in earnings per share.

Recruitment and retention of top talent:

Using a Strategic Review model, a diversity and inclusion expert in each business unit of Cisco presents the findings to their own business leaders in a way that is relevant and impactful for them. To do this consistently and cost-effectively, it became important to operationalize this process with database. As a result, they began to focus less on trying to just get the data and more on actually using it to stimulate change. The team reached a new level of metrics maturity when they developed forward-looking demographic projections that allowed them to model different speeds of company growth or stasis. This allowed them to uncover potential issues that weren’t necessarily apparent. While a leader or staffing department might assume hiring or retention practices are fine, and that non-ideal numbers would fix themselves with company growth alone, Cisco’s projection model could conclude just the opposite. Over a three-year period, region leaders instituted training around diversity and inclusion issues, new hiring practices and policies, and succession planning, among other things. Employees noted a marked difference in the work environment over this time and saw acceleration in the progression of women in the workplace.

Brand reputation:

By drawing on the concept of stakeholder engagement deriving from CSR, it is possible to construct brand messages that take diversity into consideration. This would allow organisations to create employer brands that fulfil the important predicament of being inclusive. Inclusive employer brands are potentially much more effective in ensuring employee engagement and participation. The very least an employer brand has to do, is to avoid any messages that can be read as fostering non-diversity.

Financial growth:

When individuals are valued and empowered to be their best selves, tangible results can be seen in the bottom line. In a study of 506 U.S.-based businesses, each 1 percent increase in the rate of gender diversity resulted in an approximately 3 percent increase in sales revenues, up to the rate represented in the relevant population. Top-listed European companies with gender diversity in management achieved higher than average stock performance—64 percent versus 47 percent.

Dimensions of Diversity:

There are two kinds of diversity: inherent (traits one in born with, such as gender, ethnicity) and acquired (traits you gain from experience, such as working with/in other countries and cultures will enable us to appreciate the differences). Employees of firms with 2-D diversity are 45% likelier to report a growth in market share over the previous year and 70% likelier to report that the firm captured a new market .

Following are some global diversity dimensions that should be measured and analysed through a regional lens in order to determine the best interventions:


Looking specifically at the role of gender diversity on boards, McKinsey (2007) found that European companies with the highest levels outperform their sector in a number of key business indicators, including return on equity (11.4% vs 10.3%); EBIT (11.1% vs 5.8%); and growth in stock price over three years (64% vs 47%). Companies like PepsiCo have gained market share in key demographics by leveraging relationships with suppliers who have roots in those communities .


Companies should assess the make-up of their leadership teams in each country in which they operate. The following questions should be asked regarding representation:

• Who is represented in leadership?

• Is the leadership team dominated by a particular nationality?

• Is it too heavily expat American?

• Is local talent being developed?

Gary Hamel (1998) found that diverse teams were better at generating new ideas and problem solving. More specifically, this diversity results in bringing a diverse set of voices into the strategy dialogue, creating opportunities for conversations about opportunities in un-served markets, focusing on passions that lie outside of the normal firm repertoire, developing new perspectives on both capabilities and customer needs and launching low risk market experiments.

More diverse senior management teams produce superior outcomes to homogeneous teams particularly where tasks are complex, interdependent, and involve creative thinking or problem solving (Cordero et al, 1996; Dwyer et al, 2003; Dalton & Dalton, 2005). Quite simply, diverse teams are more likely to have access to a wide variety of information sources and experiences that are necessary for complex problem solving (Leonard, Levine & Joshi, 2004) .

Race, Culture and Ethnicity:

Organisations that have been recognised by Diversity Inc for excellence in Diversity and Inclusion (based on CEO commitment, workforce diversity, organisational structures, and supplier diversity) as well as excellence in other categories associated with cultures of inclusion such as the Top 50 best companies to work for and the top 50 most innovative companies, include Microsoft, Coca-Cola, AT&T, IBM, Procter & Gamble, Accenture, Colgate-Palmolive, Verizon Communications, Monsanto and Toyota . Slater et al (2008) also compared Diversity Inc’s Top 50 companies with companies in the same industry and similar market capitalisation and found that the Diversity Inc’s Top 50 companies exhibit an average 2.7% higher net profit margin and 2.5-6.0% higher return on equity than comparable companies .

Workforce diversity is also linked to a better understanding of different segments of the market, and therefore improved capacity to satisfy consumer preferences and less costly outreach to those segments (McCuiston, et al, 2004). A culturally diverse workforce that ‘gets’ its customers also leads to increased market share, partly driven by increased sales to minority ethnicities (Fernandez, 1991; Cox and Blake, 1993), but also through improved understanding of consumer preferences (Slater et al, 2008) .

Other factors:

Capital markets and investors are increasingly attentive to business diversity measures. Some investment funds (e.g. Calpers in US or Amazone in Europe) include diversity measures in their investment criteria and others are increasing their investments in socially responsible firms (Roberson and Park, 2006).

Likewise, some rating agencies are developing tools to measure gender diversity (McKinsey, 2007). A study by the European Commission found that diversity programs had a positive impact on brand image for approximately 70% of companies surveyed (McKinsey, 2007) .

Guidelines for Measurement and Improvement:

With these propositions and dimensions, following three guidelines can be used to shape an organization’s global measurement strategy:

Principle #1: Assessment need not be based on U.S. standards

Principle #2: Not all ratios of diversity need to be equal

Principle #3: Personalise the D&I approach based on the organisation factors

Maturity models

There are several useful maturity models that can be used as a framework to guide the development of the Diversity and Inclusion Strategy. These models are designed to help organisations assess their current state and to plan action to take them to the next level of maturity.

We can take a cue from DiverseNZ inc (2013) which recommends starting the journey with an assessment of where we are in the following model . The corporate intent at each of the levels is described as:

0: Identify internal champions, make the business case and build leadership understanding through conversations with respected peers.

1: Create a fully considered strategy spanning all business areas, ensuring buy-in and relevance across the business.

2: Engage business unit leaders completely; overcome resistance to cultural change.

3: A focus on innovation and maximum engagement through a culture of inclusion. Capture and disseminate novel practices developed internally and connect with international peers, as there are fewer local organisations at this level.

Successful investors are smart. Given the research summarised above, it is not surprising that there is a positive relationship between diversity reputation and book-to-market equity. This suggests “that being recognised as one of the top companies for diversity and diversity management may serve as an effective signal to investors about a firm’s future earnings prospects” (Roberson and Park, 2006).

This article has been authored by MK Pasha from IIM Indore

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