There is a common misperception among business leaders that “diversity initiatives” are synonymous with “affirmative action policies.” Some believe that companies looking to diversify their talent should prepare for a potential backlash. The problem is that this viewpoint only looks at one element of the issue: representation of traditionally underrepresented groups.
Our experience tells us that focusing exclusively on a representation-based approach without connecting the diversity initiatives to the strategic business plans and without working on creating a culture of inclusion — defined as leveraging similarities and differences to achieve a common goal — can indeed backfire. The 21st century work world demands more.
Organizations need leaders who have the skills and capabilities to manage and leverage all types of differences. They also need a broader talent pool to offer a myriad of perspectives that truly reflect the marketplace to improve their products and services and connect with the needs of their diverse customers. And they need the innovative thinking from high-performing and heterogeneous teams to be relevant globally and locally to penetrate new markets and be sustainable.
Diversity drives competitive performance.
Multiple research studies demonstrate that diverse teams with inclusion that are well managed outperform homogeneous teams or diverse teams who aren’t well managed. Consider these statistics:
- McKinsey’s 2012 “Women Matter” study found companies that have leveraged both inclusion and diversity for business impact have doubled their company valuation as well as their employee engagement and are 1.8 times more likely to innovate.
- In “How Diversity Can Drive Innovation,” Harvard Business Review states that teams with a member who shares a customer’s gender, culture or generation are 158 percent more likely to understand and build customer rapport. And leadership that understands, supports and values diversity and inclusion is 45 percent more likely to report market share growth and 70 percent more likely to report new market capture.
Backed by these findings and driven by business imperatives, many organizations now seem more comfortable having conversations about inclusion and engagement than they are talking about diversity. Diversity seems to be a term too much linked to the old paradigm of affirmative action. But business leaders and diversity practitioners need to be careful about “throwing out the baby with the bath water.” Diversity may not be as effective without a focus on inclusion, but that doesn’t mean that we don’t need to have a diversity strategy to better represent the marketplace.
As of November 2014, only 26 Fortune 500 companies had female CEOs and women occupied just 16.9 percent of Fortune 500 board seats. According to a U.S. Senate report in 2013, African Americans comprised between 8-9 percent on corporate boards, and only 4 percent on executive teams. Latinos made an unacceptable 4 percent of representation on boards and 3 percent in executive teams. This isn’t just about helping women or minority groups break the glass ceiling. Having a critical mass of leaders with diverse perspectives across an organization and at the top is proven to have a direct correlation to better financial return. McKinsey’s “Is there a payoff from top-team diversity?” study measured a 53 percent higher return on equity and 14 percent higher earnings before interest and taxes for global publicly traded companies that have the largest share of women and foreign nationals — the latter being a proxy for cultural diversity — on their executive committees.
But Doesn’t Merit Still Count?
Clearly, paying attention to diversity of talent does not mean only the recruiting and advancing underrepresented groups, but also widening the pool from which to recruit and advance those qualified yet traditionally underutilized. Of course, the notion of “best qualified/merit” always applies — it may just look different in today’s workplace. Companies need to rethink what is needed to be successful going forward. In our 21st century VUCA (Volatile, Uncertain, Complex and Ambiguous) world, it is proven that “what got them here won’t get them there” — an entirely different set of backgrounds, experiences and skills are needed.
“Merit” may look different now that the ability to work across differences and across cultures is becoming a key skill for success. And in order to counteract the perception of special treatment and lowered standards, managers need to be aware of and support those new skills, and be sure to be transparent about the reasons for hiring or promoting a woman or a minority over a traditional candidate. What about them “beat” the competition? Is it that new skill set? Is it the fact that in order to be innovative, a diverse set of ideas is needed on the team? And if so, managers need to be sure that this diverse set of ideas is actually being heard and leveraged so that employees understand that it’s not about having “one of each” on a team but that the company is serious about leveraging their diversity for business results. That’s the inclusion part in “D&I” initiatives.
While there are still misunderstandings and difficulties around how to effectively operationalize diversity initiatives in the workplace, there is no denying that doing so in a business context is more urgent and relevant than ever before. That is why it’s important not to underestimate the latest efforts of technology companies like Google, Facebook, LinkedIn, Twitter and others to continue to pay attention to the representation of their workforce from a more holistic and integrated perspective: by embracing a paradigm shift to build the next generation business-focused diversity and inclusion initiatives.
In our complex, competitive and globalized economy, organizations from all over the world are realizing that their success is inextricably linked to their ability to attract, advance and retain a diverse and agile talent pool that is encouraged to be innovative and culturally competent to bridge gaps and geographies. The key will be how well these organizations succeed in the “I” part of the D&I equation.