How to Better Use Diversity ROI Analytics to Show Payoff

Organizations depend on their diverse employees to grow their bottom line and achieve the aggressive goals needed to win in today’s global, fast-paced economy. They know the marketplace is full of a diverse group of customers, yet they do not always effectively utilize their diverse workforce members to create innovative, paradigm-shifting solutions.

This guide is designed to help you build your diversity ROI business case to demonstrate value-added by aligning with key business goals and objectives:

1.      Market share improvement.

2.      Improving global leadership and management capability.

3.      Lowering costs and increasing productivity.

4.      Developing new revenue sources.

Why should you concern yourself with effective diversity ROI measurement and management?  In the past, many managers answered this question out of a sense of the “right thing to do,” because they were seeing more and more people who didn’t look like them in the workforce, or because they felt they had to meet the organization’s requirement for working with diverse groups. However, today’s managers know that without effective diversity management capability, organizational effectiveness is in jeopardy. Being effective at managing a diverse workforce helps to lift morale, improve processes, bring access to new segments of the marketplace and enhance productivity of the organization. In essence, it is good for business.

In profit-making organizations, maximizing the difference between revenue and cost improves performance. This same goal exists in many non-profit organizations, except the result is called surplus. So the question is: “How are workforce diversity and its management related to revenues, costs or both?” We can explore several concepts and strategies illustrating the effect of diversity on business performance. These concepts and strategies include items such as marketing strategies, problem-solving strategies, creativity and innovation that can be viewed as important factors in revenue generation.

Marketing Strategies and Market Share Improvement
We live in an increasingly diverse global world. Whether your business includes marketing financial services, computers, telecommunications products, social services, health care equipment, manufacturing processes or engineering expertise, addressing a diverse customer market (business-consumer archetype) will be essential to your success. For example, an automobile manufacturer in Japan cannot afford to ignore that nearly half of all new car buyers in the United States are women. This is true regardless of the gender makeup of car buyers in Japan. Likewise, no reasonable person in the consumer-goods industry can afford to ignore that about a quarter of the world’s population is Chinese, and that immigration to the U.S. from mostly Asian and Latin American countries is occurring at a rate of more than 1 million people per year.

We know that in the U.S., Asians, African Americans and Hispanics combined now collectively represent more than $1 trillion annually in consumer spending. The Selig Center for Economic Growth at the University of Georgia Terry School of Management estimates projections of buying power for minorities — African Americans, Asians, Native Americans and Hispanics — definitely share in driving business success and together wield formidable economic clout. As these groups increase in number and purchasing power, their growing shares of the U.S. consumer market draw avid attention from producers, retailers and service providers.

The buying power data and differences in spending by race and/or ethnicity suggest one general advertisement, product or service geared for all consumers increasingly misses many potentially profitable market opportunities. As the U.S. consumer market becomes more diverse, advertising, products and media must be tailored to each market segment. New entrepreneurs, established businesses, marketing specialists, economic development organizations and chambers of commerce now seek buying power estimates of the nation’s major racial and ethnic minority groups.

In a business-consumer archetype, your diversity measurement strategies and analytics must be relationship/brand focused. They must measure your organization’s ability to build customer intimacy knowledge and use it in measurable ways to generate outcome-based results that add revenue and other value to the bottom-line. Sample diversity measurement strategies must focus on cultural competence, market share, brand, and relationship/service-based outcomes.

Sample metrics may include:

  • Percentage of market share.
  • Share of wallet by demographic group.
  • Diversity competent leaders/managers by demographic group.
  • Number of new products generated.
  • Improvement in average speed of problem resolution using suggestions
  • Favorable response on diverse customer satisfaction surveys

In a business-business archetype on the other hand, your diversity measurement strategies and diversity analytics must be relationship, product and process focused. Sample diversity measurement strategies must focus innovation, creativity, process improvement and  relationship or service-based outcomes.

Sample metrics may include:

  • Consultative selling and culture style match.
  • Customer relations effectiveness using diverse workforce suggestions.
  • Creativity (competitive edge generation) using the number of patents generated by demographic group.
  • Innovation (diverse work team).
  • Cycle-time reduction – process the speed to market.
  • Solution set match-to-problem (improvements generated by diverse team).
  • Cost reduction (strategic diversity).

Research to prove the value of diversity and inclusion must clearly demonstrate a causal chain of effect, working through seven levels of analysis as well as isolating diversity and inclusion’s contribution from other possible contributors. These processes and sciences are embedded in in the Hubbard Diversity ROI Methodology and the Diversity High Impact Mapping process.

Improving Global Leadership and Management Capability
An organization must be capable of effectively utilizing its diverse workforce in key strategic ways when it comes to selling and distributing goods and services. For instance, it is important to be viewed as a company known for managing and utilizing its diverse workforce assets well. There are a number of well-publicized ratings —“The Best Company for Working Women and Working Mothers,” “The Most Admired Company” and the “The Top 50 Companies for Women and Minorities” — fueling the workforce talent and consumers to make choices about the organizations they would work for and buy from. This line of thinking is also supported by a study of stock price responses to publicity that changed an organization’s ability to manage diversity. Many studies have found announcements of awards for exemplary efforts resulted in significant positive stock price changes, while announcements of discrimination suits resulted in significant negative stock price changes.

In addition, organizations can gain a lot from the insights of its diverse workforce when understanding the cultural effects of buying decisions and mapping response strategies. Depending on the product or service, many employees may also represent part of the firm’s customer base. A good reputation inside the organization can help product and service sales outside the organization. Another key marketing strategy includes tapping employee network or resource groups. They can be an excellent resource for focus groups, feedback and ideas.

Lowering Costs and Increasing Productivity
Revenue increases can also show up through improvements in diverse work team problem solving and decision-making. Diverse work teams have a broader and richer base of experience to draw on because the presence of minority views creates higher levels of critical analysis of assumptions and implications. It also generates an increase in the number of alternatives to choose from. Problem solving benefits do not happen by simply mixing people together who are culturally different. The improved outcomes heavily depend on a diversity-competent manager “utilizing” key diverse insights and experiences of the total group.

In one study, researchers found properly managed and trained diverse work teams produced scores six times higher than homogeneous teams. Researchers also found that it is important how a diverse team uses its diversity. For example, those diverse teams that recognized and utilized their diversity had higher productivity. Even when the team was diverse, if that diversity is not used effectively, it can cause process problems that result in lower team productivity. The essential variable is a leader’s or manager’s ability to “effectively manage and utilize the team’s diversity.”

Developing New Revenue Sources
Creativity and innovation can be vital to an organization’s ability to perform. New product introductions, advertising, process re-engineering, quality improvements and the like are examples where these skills are required. Diverse work teams have also been found to promote improved creativity and innovation that generates revenue. In her book “The Change Masters,” Rosabeth Moss Kanter notes that highly innovative companies have done a better job of eradicating racism, sexism and classism; tend to have workforces that are more race and gender diverse; and take deliberate steps to create heterogeneous work teams with the objective of bringing that diversity to bear on organizational problems and issues. Many organizations — such as PepsiCo Inc. with the introduction of guacamole chips — created a plethora of new product stock keeping units generated by utilizing their diverse employee resource and business resource groups.

As the buying power of diverse consumer segments — women, Hispanics, African Americans, and the lesbian, gay, bisexual and transgender community — continue to grow, these segments represent a marketplace opportunity too big for retailers and consumer product manufacturers to ignore, according to Bersin by Deloitte’s "The Changing Consumer and the Workforce Imperative" report. "This report focuses on how the retail and consumer products industry can unleash our multicultural workforces to achieve results that benefit our employees, our communities and our companies," said Michelle Gloeckler, executive vice president of consumables at Wal-Mart Stores Inc and former Network of Executive Women, or NEW, board member. "Research for this project began at last year's NEW Multicultural Workforce Conference, and the results were previewed at this year's conference in March. The Network believes that diversity and inclusion is critical to the future of our business."

The report, based in part on one-on-one interviews with more than two-dozen leading U.S. consumer goods and retail executives, explores the correlation between workforce diversity and the ability of the consumer goods and retail industries to engage the changing U.S. consumer. 

"Cultural connections are critical to understanding what drives purchasing decisions and brand loyalty across different market segments," said Alison Paul, past president of NEW and vice chairman and U.S. retail and distribution leader at Deloitte. "Making these connections rely on retailers' and manufacturers' ability to not only become more culturally aware — which are increasingly table stakes — but harness and value diverse perspectives as a source of innovation."

Consumer insights most often come from those who share a consumer's cultural experience, the report concludes. As such, recruiting, retaining and advancing a diverse workforce are integral to creating a brand/consumer connection, as consumers feel most comfortable doing business with companies whose employees mirror their communities.

According to the report, consumer product manufacturers and retailers may be able to achieve an inclusive culture by first understanding the bottom-line business opportunity, then making a commitment to diversity that touches all company departments. Top management should view workforce diversity not as a stand-alone program, but as an essential element for business survival. Achieving cultural competency involves leadership commitment and communication, employee accountability, strong talent recruiting and retention programs, progressive succession planning, diverse supplier relationships, and effective ROI measurement and analysis processes that capture effect and results.

Appealing to a carefully segmented, diverse market is no longer only a niche opportunity for adventurous store managers and edgy entrepreneurs: Multiculturalism is fast becoming a retail and consumer goods industry opportunity too big to ignore. The same is true for the business-business archetype organizations. A diverse workforce serving a broadened customer base is a critical success factor because, as market research further demonstrates, a diverse workforce improves service outcomes and enhances financial performance regardless of the specific archetype.

Embracing diversity as a way of thinking is the most effective response for business leaders and an important driver of an organization’s innovative engine. This means diversity and inclusion, and the archetypes that drive its constant performance, need to be brought to the forefront and ingrained in the organization’s cultural DNA. It must become a branded component of how you do business. When an authentic, inclusive culture is at work, a diverse workforce becomes capable of producing a broad range of original and engaging ideas not possible among homogenous employee populations. At the top of the organization, this can translate into more apt and financially rewarding decision-making.

The diversity ROI business case can be made by utilizing diversity ROI processes and practices. From a diversity ROI standpoint, diversity measures and analytics must capture the outcomes and effect of these strategies in a way that demonstrates compelling evidence of diversity’s contribution to the organization’s objectives and results.

By using tools such as the Diversity ROI 7-Level Chain-of-Impact, the Hubbard Diversity ROI Methodology, the Diversity High Impact Map and a ROI-based Diversity Scorecard, a strong business diversity ROI business case can be made in dollars and sense that clearly shows diversity and inclusion as great for business.