Four Tips to Link Diversity to Financial Performance

Some organizational leaders often ask themselves whether diversity and its management affect the bottom-line performance of their companies, and if there is any concrete evidence that a relationship exists. Diversity professionals can make this link clear by designing initiatives to positively affect their organizations’ financial performance.

Firms are seeing the need to hire a workforce that reflects today’s diverse society. A major competitive factor for organizations is the ability to attract and retain the best talent that reflects current demographic trends.

It is estimated that organizations spend $300 million annually on diversity. However, some critics are questioning whether this expenditure is worthwhile. Some scholars state that simply having a diverse workforce does not necessarily produce the positive outcomes that are often claimed by more optimistic advocates.

Some research also revealed findings that showed that increased diversity does not necessarily improve the talent pool, it does not necessarily build commitment, improve motivation and reduce conflict, and does not necessarily lead to better group performance. Diversity critics tend to look at these results and use them as a rationale to not pursue initiatives that promote diversity. However, that approach is premature because they are not looking at the entire picture.

To silence the critics, companies should strive to ensure that the diversity initiatives they are implementing lead to improved financial performance. Here are four tips HR professionals can use to introduce diversity initiatives that positively impact their bottom line:

Assess the diversity climate via a needs assessment: The culture audit proposed by diversity scholar and practitioner Taylor Cox is one of the most widely recommended methods for needs assessment before diversity training. This audit involves a comprehensive assessment of organizational culture and human resource systems, including recruitment and selection, training and development, performance appraisal and compensation. The objectives of the audit are to uncover subtle sources of bias and identify ways in which organizational culture is inconsistent with diversity goals.

Design the diversity initiative/training based on the needs assessment: HR professionals should be skeptical of one-size-fits-all diversity training programs that are prevalent in the market. The needs assessment/culture audit should inform the practitioner about what modules should be covered in the diversity training/initiative. Also, the information from the needs assessment may uncover diversity inadequacies and identify ways in which the organization can improve the diversity climate and better meet the needs of a diverse workforce.

Align the diversity initiative/training with the organizational mission and vision: It is essential that the business case for diversity is clearly communicated to all stakeholders and that the diversity program is directly aligned with the organization’s mission and vision, and is in sync with the overall strategy of the firm. In this way, diversity initiatives will be implemented that allow the organization to better accomplish its short-term and long-term goals, fulfill its purpose and realize its vision for the future.

Evaluate the diversity initiative/training: To ensure that the diversity program is a success, there must be an ongoing evaluation process. Diversity programs should not be regarded as feel-good endeavors but as valid business initiatives, and thus they should undergo the same scrutiny as other business initiatives. They should be monitored, assessed and adapted as needs arise. This will also send a signal to the employees that the organization is serious about diversity and is looking at it from a strategic viewpoint.

When organizations understand how diverse workplaces can give them a competitive advantage, they may be more encouraged to ensure that diversity is reflected throughout the firm, including in key positions. Companies should also keep in mind that some studies have showed that a positive diversity reputation can influence financial performance, and therefore it is vital that companies pay very close attention to their image, which can impact the gain or loss of loyal customers.

Diversity initiatives and training can be a useful tool in developing a workforce that is creative, skilled at problem solving and focused on fiscal success. However, there must be some form of analysis to audit the organization’s culture and climate and to determine the type of diversity initiative or training needed. One size does not fit all when it comes to diversity training.

Simone T. A. Phipps is an assistant professor of management at Middle Georgia State College. Leon C. Prieto is an assistant professor of management at Clayton State University. They can be reached at