Diversity - The Bottom Line
By Lauren Gatt
Workplace diversity management can often be seen as a compliance issue and becomes little more than a tick-the-box exercise. Many employees do not feel they their workplace is inclusive and reflective of diversity. There is no doubt that organisations with ineffective diversity strategies leave themselves open to lengthy, and often costly, conciliation processes and reputational damage (the Australian Human Rights Commission Annual Report 2014-2015, cites employment as the main area of complaint under the Sex, Age and Racial Discrimination Acts).
But more progressive and strategic organisations are embracing diversity for another reason: they are embracing it because they understand the bottom line benefits that a more diverse workforce can bring. For example, studies show that a higher proportion of female directors on Boards significantly correlates with organisations’ financial performance. With data consistently suggesting that there is a link between diversity and business success, researchers are now focusing more on understanding how and why this is the case. The answer? There are many pathways by which diversity can impact the bottom line.
Diversity in the workforce can provide:
Diversity Of Thought - Linear Thinking Isn’t Profitable
Stronger Risk Management
An Ability To Reach More Customer Groups
A Larger Talent Pool
Stronger Engagement & Wellbeing
*Based on a 2013 study conducted by hays of 239 employers and 348 candidates
^Gender question asked whether respondents felt their organisation was gender diverse
The Benefits Of Diversity
Diversity Of Thought - Linear Thinking Isn’t Profitable
Employing the same type of person over and over can lead to the same way of thinking and approaching problems. Linear thinking can become so pervasive in organisations that new ideas, opportunities, and solutions to problems are missed.
When you don’t have a healthy level of challenge and disruption within an organisation, the consequences can range between not good and potentially devastating. Different genders, cultures, and generations come at problems and see the world in different ways, which can help to foster this culture of healthy disruption that is necessary for organisations to thrive, innovate, and in many cases survive.
Stronger Risk Management
Different groups of individuals also tend to see risk differently, so you are more likely to get a balanced perspective of the risks to the organisation when you have a diverse workforce. Irene Van Staveren in the ‘Lehman Sisters Hypothesis’ even goes as far as to suggest that the global financial crisis could have been prevented if there was a larger proportion of females in leadership positions in the financial sector at the time.
An Ability To Reach More Customer Groups
Having a more diverse workforce naturally leads to a greater variety of people bringing their unique understanding of a particular market segment to the table. They can help organisations understand where products or services might be successful, fall down, or be used within a specific part of the market. This can help the organisation strengthen their relationships with diverse communities, and enhance the appeal of products and services to these communities.
A Larger Talent Pool
Some argue passionately that diversity quotas and policies lead to organisations hiring someone because of who they are, and not because they are the best person for the job. However, the opposite actually tends to happen. When organisations embrace diversity in the true sense of the word, they are not selecting the best person from a limited or homogeneous pool, they are selecting the best person from a much larger and diverse pool. In addition, a diverse workforce is likely to have a more diverse set of skills within that workforce. So, rather than diversity having a negative impact on talent within an organisation, it’s likely to widen the talent pool and broaden the skills base of the organisation.
Further, research shows a positive relationship between diversity and employee job satisfaction and tenure, so these talented individuals are more likely to want to stay working with the organisation. As a result of this, diversity is becoming an increasingly important part of an organisation’s recruitment, talent management, and retention strategy.
Stronger Engagement & Wellbeing
A recent study of over 4000 health sector employees by Downey and colleagues at the University of Georgia found that employees who perceived their company as endorsing more diversity practices were more likely to report that their organisation had a “high trust” climate. This trust climate was in turn directly related to employee engagement and wellbeing. This is consistent with Voice Project research in 46 Australian health and community service teams, which showed that diversity practices were one of the characteristics of a positive voice climate driving employee engagement, wellbeing and performance.
The Bottom Line?
All of this evidence suggests diversity can help the organisation’s bottom line by allowing it to connect with a larger customer base, manage risk effectively, develop more innovative ideas, support employee engagement and attract and retain talent within the organisation. Given these benefits, the conversation surrounding diversity seemingly needs to shift from being a “tick-the-box” exercise to being an ongoing discussion about how organisations can best realise the bottom line benefits that diversity can offer.
Further References
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial review, 38(1), 33-53.
Downey, S. N., Werff, L., Thomas, K. M., & Plaut, V. C. (2015). The role of diversity practices and inclusion in promoting trust and employee engagement. Journal of Applied Social Psychology, 45(1), 35-44.
Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate governance: An international review, 11(2), 102-111.
Hays. The balancing act: Creating a diverse workforce. Published 2016.
McCuiston, V. E., Ross Wooldridge, B., & Pierce, C. K. (2004). Leading the diverse workforce: Profit, prospects and progress. Leadership & Organization Development Journal, 25(1), 73-92.
Parkes, L.P. (2015). Encouraging employees to speak up: The characteristics and impact of voice climate in organisations. Presented at the 11th APS Industrial and Organisational Psychology Conference, Melbourne.
Pitts, D. (2009). Diversity management, job satisfaction, and performance: Evidence from US federal agencies. Public Administration Review, 69(2), 328-338.
Robinson, G., & Dechant, K. (1997). Building a business case for diversity. The Academy of Management Executive, 11(3), 21-31.
Stahl, G. K., Maznevski, M. L., Voigt, A., & Jonsen, K. (2010). Unravelling the effects of cultural diversity in teams: A meta-analysis of research on multicultural work groups. Journal of international business studies, 41(4), 690-709.
Van Staveren, I. (2014). The lehman sisters hypothesis. Cambridge Journal of Economics, beu010.