Diversity Pays

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Your reputation precedes you. Word travels fast in today’s hyper-connected world, and your adventure park’s reputation as a good (or bad) employer has an impact on your ability to deliver on the brand promise guests expect. Increasingly, employees want to join companies that not only give them work experience to advance their careers, but also a workplace experience that allows them to express their full identity at work.

This is where leaders often get nervous. They sometimes see business success and workplace culture as separate, competing commitments. Plus, it’s uncomfortable for most leaders to engage in a conversation about “diversity.”

Senior leaders and CEOs have huge demands on their time, and therefore need a good reason to dedicate any of their highly-coveted brainspace to a topic. Therefore, a strong and compelling business case is the best way for senior leadership teams to engage in a strategic discussion and make decisions that positively impact their business. This is the business case for creating an equitable workplace for all.

Equitable Workplaces Drive Revenue

There are a number of reasons to focus on creating an equitable workplace. It is a responsible and strategic business decision that will drive revenue, increase innovation capabilities, and enable you to attract and retain exceptional talent. Building an equitable workplace may or may not be “the right thing to do,” in your opinion, but it is a practical business decision worth considering.

Academic and business research has concluded time and time again that teams made up of a variety of perspectives outperform more homogeneous teams. It’s common sense, really, that a broader perspective leads to a broader customer appeal. But it’s nice to know that research reaffirms this.

The Impact of Women

A recent example: McKinsey’s 2018 report Delivering Through Diversity found a statistically-significant correlation between greater diversity in company leadership and greater-than-average intra-industry profitability. With respect to gender diversity, companies with executive teams in the top quartile for gender diversity over the course of 2011-2015 were 21 percent more likely to experience above-average profitability with regard to EBIT (earnings before interest and taxes) margin, and 27 percent more likely to have longer term value creation with regard to economic profit margin. Moreover, the connection between gender diversity, profitability, and longer-term value creation is strongest when women are on executive teams.

Similarly, companies with executive teams in the top quartile for ethnic/cultural diversity were 33 percent more likely to experience above-average profitability. At the board level, this increases to 43 percent.

Diverse employees = diverse ideas and solutions. Photo: 7Roots Creative

Credit Suisse Research Institute, in its 2016 report The CS Gender 3000: The Reward for Change, an investigation of nearly 3,400 companies, found “clear evidence that companies with a higher proportion of women in decision-making roles continue to generate higher returns on equity, while running more conservative balance sheets. In fact, where women account for the majority in the top management, the businesses show superior sales growth, high cash flow returns on investments, and lower leverage.” More specifically, the compound increased returns per year for companies with at least one female director were at 3.5 percent per year from 2005 to 2016.

Cultural and Ethnic Diversity Pay Off

Cultural and ethnic diversity lead to similar gains. Boston Consulting Group noted in its 2018 survey of 1,700 companies, The Mix that Matters: Innovation through Diversity, that companies with diverse leadership “reported better overall financial performance: EBIT margins that were nine percentage points higher than those of companies with below-average diversity on their management teams.”

This is not new news. RAND Corporation’s 2008 study, Managing Diversity in Corporate America, suggested that “by developing a diverse workforce that mirrors its consumer market, a firm can increase its customer base and appeal. Corporations can boost market share by having a workforce similar to their target clientele. Minority employees might be better able to communicate with and understand the needs of minority consumers, thereby increasing the quality of customer service and relations.”

Equitable Workplaces = Innovation

In today’s competitive economy, companies that can keep pace by innovating new ideas and solutions, as well as new ways of reaching customers, are in a much better position to win. Catalyst Inc.’s Inclusive Leadership: The View from Six Countries report links employees’ feelings of inclusion to innovation and teamwork. In the U.S., “employee perceptions of inclusion accounted for 19-22 percent of innovation.” Inclusion, in this case, is the sense of “belongingness,” which allows individuals to be themselves.

An article published in The Harvard Business Review, “How Diversity Can Drive Innovation,” found that “without diverse leadership, women are 20 percent less likely than straight white men to win endorsement for their ideas; people of color are 24 percent less likely; and LGBTs are 21 percent less likely.”

Innovation and teamwork link to employees’ feeling of inclusion. Photo: 7Roots Creative

The authors’ conclusion: “This costs their companies crucial market opportunities, because inherently diverse contributors understand the unmet needs in under-leveraged markets. We’ve found that when at least one member of a team has traits in common with the end user, the entire team better understands that user. A team with a member who shares a client’s ethnicity is 152 percent likelier than another team to understand that client.”

The Mix That Matters further found a positive, statistically significant relationship between diversity and innovation that is linked specifically to industry background, country of origin (foreign-born or first-generation local), career path (managers who have worked at other companies), and gender. This is particularly true in large or complex companies, but it applies to smaller companies as well.

Different Viewpoints, Different Solutions

Another Boston Consulting Group paper, How Diverse Leadership Teams Boost Innovation, states this situation a little differently. It says those “with different backgrounds and experiences often see the same problem in different ways and come up with different solutions, increasing the odds that one of those solutions will be a hit.”

The authors found another “strong and statistically significant correlation between the diversity of management teams and overall innovation,” and that “nearly half of the revenue of companies with more diverse leadership comes from products and services launched in the last three years.” This innovation suggests that such organizations can more rapidly make changes to meet changing customer demands.

Employees Want Equitable Culture

Finally, current and prospective employees are becoming more selective about where they choose to work. They have a high regard for their time, and they want to spend it in places that fit their vision of a modern workplace. And when they find it, they want to stay there because they realize it’s not commonplace.

Along these lines, McKinsey’s Delivering Through Diversity reports, “A diverse and inclusive workplace is central to a company’s ability to attract, develop, and retain the talent it needs to compete.” It adds, “[Inclusion and diversity in] management improves employee satisfaction and also reduces conflict between groups, improving collaboration and loyalty. This can create an environment that is more attractive to high performers.”

Deloitte Global’s 2018 Deloitte Millennial Survey found that young workers will quickly leave a company for what they perceive to be a better workplace elsewhere. Better, to them, is a more diverse and inclusive company culture. In companies with a diverse senior management team, 56 percent of respondents said they would stay more than five years, versus 40 percent in companies without.

Despite this, most companies are not pursuing diversity. In a 2017 Salesforce survey, only 36 percent of professionals said their company is working toward increasing diversity. Companies that make visible strides to address their commitment to diversity, then, might have a better chance than most of attracting, satisfying, and retaining employees.

Equity Is the Answer 

Companies that have no workplace equity strategy might soon be—or are already being—outpaced by competitors that do.

One of the first steps a company can take is to acknowledge the need to make strides in this area. A public commitment puts a stake in the ground and gets the senior leadership team to integrate the commitment into its annual operating plans. Diversity and equity don’t happen on their own.

A level of accountability is critical, as it signals to prospective employees that your organization is serious about change. But it also lets your current employees know that you value a range of perspectives (including theirs) as a way to continuously evolve for the better. Inclusion is a gift that keeps on giving.

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About Author

Paul Thallner is CEO and Founder of High Peaks Group, a U.S.-based consulting firm that helps leaders and organizations tackle the tough people challenges in order to accelerate business performance.

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