Diversity Metrics: A Tough Pill to Swallow

On June 6, 2011, Deerfield, Ill.-based drugstore chain Walgreen Co. named Steve Pemberton its first chief diversity officer and divisional vice president of diversity and inclusion. While the role is new for Walgreens, which operates more than 7,700 drugstores in all 50 states, Washington, D.C., and Puerto Rico, it isn’t new for Pemberton, who spent the previous seven years at Monster.com, most recently in the CDO role.

Thanks to today’s business climate Pemberton said his job at Walgreens isn’t likely to be the same as it was at Monster. Building a sustainable diversity and inclusion vision, one that brings financial heft to the business, demands a new standard in a changeable global economy. It requires not only a focus on the more traditional diversity facets — human resources, staffing and compliance — but on ways to aid business’ profitability.?

Pemberton and others working in the industry agree that diversity can be a serious financial driver, and its status as a moneymaker continues to grow. Yet the ways in which diversity’s financial footprint impacts bottom-line business goals are transitive. Certain methods to account for its specific contribution to profits have yet to go mainstream. ?

Much of its work lies in hiring and demographics; diversity is increasingly used as an intelligence driver for business growth in emerging markets. It also can be a tool to increase employee engagement and talent retention and as a marketing arm to glean consumer insights and facilitate research and product development, all of which contribute to the profitability of different business units within an organization.?

Pemberton said it’s too early in his tenure to tell if his work has had any financial impact on Walgreens’ bottom line. However, the company’s customer group demographics continue to evolve — for example, numbers of Hispanic customers are growing — and he said his role will carry greater weight and impact on business success.

“I think we’re seeing the convergence of the historical tenets upon which diversity has been built — equality, access and opportunity — with some newer, emerging tenets,” Pemberton said. “Those are specifically related to the business impact of diversity — demography, purchasing power, consumer penetration into a specific target market, the localizing of diversity.”

A Business Resource

This blending of business tenets is part of the reason the CDO role has expanded in recent years, Pemberton said. Executives with backgrounds in finance and business strategy are emerging as top diversity officers at a variety of organizations.

This was the case for Shaun Hawkins, who stepped into the chief diversity officer role at Eli Lilly & Co. about two years ago. Hawkins has been with the Indianapolis-based pharmaceutical company for nearly 11 years, many of which were spent in the company’s deal making and private-equity business. Hawkins said since he’s been CDO, every project or initiative not only has carried the weight of positive social justice and inclusion, but also has aligned with “benefiting our patients and benefiting the bottom line of our business.”

Hawkins said one way Eli Lilly’s diversity office helps the company reap profitable returns is by driving an inclusive culture that promotes engagement and retention of top talent. Having a more engaged employee population promotes creativity, innovation and productivity, all of which influence organizational performance. ?

“I know if I have that engagement I’m going to get that creativity that gets me to innovation,” Hawkins said. “And I’ll get that productivity that helps the bottom line because now I don’t have so many people with one foot out the door. I don’t have them working 30 hours a week instead of 40, and 10 of those they’re playing fantasy football.”

Eli Lilly drives employees’ engagement through resource groups designed to harness and promote a diverse and inclusive culture, Hawkins said. Each of the 10 groups — which include African-American, veterans, LGBT, Middle Eastern, Indian, Chinese and women’s groups — is funded out of Hawkins’ office, and each is tapped for consumer intelligence and insights for the company’s clinical drug testing trials. The diversity of race, gender, cultural competency and thought the groups bring enables better business decision making.

Setting up formal employee resource groups that serve greater business needs was one of the first items on Pemberton’s agenda when he first arrived at Walgreens. His said his vision is to turn what were loosely affiliated employee networking groups into resources Walgreens can use for insights into consumer behavior and product research for diverse markets. ?

The ‘Africa Project’

A standard for how employee resource groups have been used to drive bottom-line success stems from General Electric Co. Former Chairman Jack Welch created the CDO office about 16 years ago when its African-American affinity network challenged him to enhance diversity and inclusion efforts, according to the company’s current CDO, Deborah Elam.

Elam said GE’s affinity networks not only helped launch diversity to the C-suite but played a vital role in influencing Jeff Immelt, GE’s CEO, to begin a major profit-driving initiative in Africa in the early 2000s.?

Initially named the “Africa Project,” in 2003 GE asked its African-American executives to investigate methods to increase GE’s involvement across the continent, according to Elam and a Harvard Business School (HBS) review of the project published in May 2011.

What began mainly as a philanthropic effort — it started in 2004 with a five-year, $20 million GE products donation to improve health care — turned out to be a boon to business. “Immelt and others pointed to numerous benefits and influences” the project had on GE’s “commercial aspirations in Africa,” according to the HBS paper.

Since the project’s inception, GE’s revenues in Africa have increased from $500 million to $3.5 billion. Company executives project that number could grow to $20 billion during the next decade.

Starting in Ghana, the Africa Project was extended to four other African countries. The project model, renamed “Developing Health Globally,” has since been adapted by other GE affinity networks for similar initiatives in markets such as Asia and Latin America.

“[The Africa Project’s] genesis is really from our diversity play,” Elam said of the initiative’s roots. “Well, if XYZ country feels like ‘Boy, GE is great, they’ve been great to work with, they have truly helped us,’ guess who they are going to want to do business with?”

ROI Measurement

Diversity had a positive bottom-line impact on GE, but many organizations haven’t adopted measurement models to evaluate its precise return on investment (ROI) value.

“I don’t think we’ve ever said we want to be able to justify ROI on diversity from that perspective,” said Linda Jimenez, chief diversity officer and staff vice president at health benefits company WellPoint Inc. “The fact that we look at diversity through a very broad lens — whether it be from a supplier diversity perspective, a health equities perspective or a marketing or sales perspective — that it’s truly embedded in the natural operations of those units is the business driver.”

When asked if Eli Lilly had metrics or measurement models that look at diversity’s precise ROI value, Hawkins said: “We haven’t looked to see if it’s causative … or even that there’s any correlation there. By and large, I have not had to justify.”?

Pemberton said part of the reason Walgreens hasn’t adopted ROI diversity metrics is in line with why it hasn’t launched other complex initiatives during his short tenure: to avoid the false starts that come with quickly and aggressively pushing diversity’s influence on an organization where the role is new.?

The other part is that his goal is not necessarily to make diversity and inclusion into its own function, but to embed it into the profit and loss statements of every unit in the company. “We want to formalize mainstream diversity and inclusion into everything that we do,” he said. “I don’t want to create a diversity and inclusion program as a side car.”?

Some believe precise diversity ROI metrics should be a focal point for CDOs, however.

Edward Hubbard, president and CEO of human performance consultancy Hubbard & Hubbard Inc., began analyzing diversity ROI some 30 years ago — long before diversity was considered the business driver it is today.

With a doctorate in business administration and roots as a behavioral scientist, Hubbard’s contention is that diversity ought to be viewed as not just a theory but a science — much like marketing, sales or finance — and should therefore demand an ROI metric to show its specific bottom-line value, instead of assuming correlation to a unit’s revenue or profits. ?

“I’ve created 8,000 formulas in terms of being able to take apart an entire business and look at it with diversity and inclusion lenses,” he said (see sidebar).

Hubbard said many organizations haven’t wholly adopted this mindset because “people find this to be a lot of work.” He said some have begun to take aspects of the measurement model into account, however.?

Still, GE’s Elam said neither she nor the company’s executive leadership has any doubt of diversity’s financial impact on the company’s growth and bottom-line success, even in the absence of precise ROI metrics.?

“I’m a connector,” she said. “I connect people and resources and initiatives on behalf of the General Electric Co. — that’s what I do. And the resources could be diverse people [or] diverse business opportunities.?

“But if you were to really ask me what it is that I do day-to-day that has an impact on GE’s profitability, it would be the ability to really connect people, resources, strategic plays, with the initiatives that the company is trying to push forward.”

Eli Lilly’s Hawkins said something similar. “We’re a catalyst for change,” he said. “We really want to leverage and harness the differences and the unique experiences of our employees, of our customers, our vendors, to benefit patients and our bottom line.”?

Frank Kalman is associate editor of Diversity Executive magazine. He can be reached at fkalman@Diversity-Executive.com.