Is there a business case for diversity?

Despite the mounting anecdotal evidence from organisations that taking action on managing diversity makes an important contribution to business performance, there remains ongoing debate as to whether there is any discernible business benefit.

Stephen Overell’s article, Dealing with hard reality (Personnel Today, 1 March), points out that diversity is complicated, and the research to support the business case is limited. This article brings different pieces of research together, suggesting that business and moral cases are actually inter-related, and moral arguments influence the ability of employers to get the best from their staff.

Against this backdrop, the Chartered Institute of Personnel and Development (CIPD) has carried out research over a number of years to explore the evidence and resolve this conundrum. It continues to fuel two camps of thought on the subject: those for, and those against. It also continues to confuse those who are working to drive progress.

The evidence we have used to draw our conclusions includes organisational case study testimonies, academic studies on diversity, and other key areas related to employment, such as the psychological contract. This is important because it investigates employee attitudes to work, and relationships with managers and colleagues.

In 2003, the CIPD published a major literature review of academic work by Anderson and Metcalfe, which found that while there were claimed benefits for managing diversity, there were also disadvantages. This outcome came as no surprise – managing diversity can bring pluses as well as minuses.

The key for organisations is to learn how to manage these tensions, including those that exist between different kinds of diversity. However, we are only in the early stages of understanding them, and employing measures to prevent them. For example, there are many more kinds of diversity than the social category differences that inform anti-discrimination law. These include informational diversity categories, and value-based diversity categories.

A diverse workforce includes different types of diversity:

– Social diversity: demographic differences such as age, race, ethics and gender

– Value diversity: psychological differences in personality and attitudes.

– Informational diversity: organisational differences such as education, tenure and function.

Conflict can easily arise between people when working together, especially when they are not like-minded, with different ideas, views, experiences and perspectives.

This is a major reason why organisations need to address all kinds of harassment and bullying policies to ensure employees develop personal behaviours based on a culture of respect for individuality. This will also help to set ground rules for getting on with colleagues, and encourage successful team working. Only then is the organisation likely to benefit from the creativity and innovation that a diversity of perspectives could deliver.

These are the very things that could give organisations a competitive edge in the market. But equally, they need to be careful that the company culture does not force people to fit in by denying who they really are. This too will compromise individuality and the advantages it can bring.

Anderson and Metcalfe concluded that the lack of robust academic evidence prevented positive affirmation of discernible business benefits of diversity on a cause and effect basis. Nevertheless, the evidence did not preclude this either.

The CIPD’s vision of diversity is based on valuing difference, and recognising that everyone is unique.

But definitions of diversity are almost as diverse as the subject itself. This, of course, creates another layer of complexity for academics in their search for empirical evidence of its business case.

The CIPD has identified a number of important elements to the business case for diversity. These include:

– Improving customer care and marketplace competition

– Enhancing corporate image and reputation by maintaining ethics and values

– Becoming an employer of choice to attract and retain talent by improving people management and development and being aware of labour market factors

– Complying with legislation

– Recognising corporate social responsibility to improve relationships with communities, make economic activity more inclusive, and improve business markets.

Managing diversity is a dynamic process that needs to influence business strategy and support business goals.

The business case for diversity will be unique for all organisations, made up of different drivers for action, and will produce different outcomes. Some will be driven more by legal compliance, some by being seen to be fair or ethical, and others by reputation management, or a combination of factors.

It is important to remember that treating people fairly is a key factor that needs to be incorporated within a diversity strategy. It links directly to the delivery of the psychological contract, and is about being valued, which has an impact on business performance.

Treating people fairly is becoming more important as competition between organisations increases. The distinguishing feature of today’s successful organisations is the quality of the people they employ – they are the single most sustainable source of competitive advantage. This creates the core of the business case for the HR profession to address diversity.

The big challenge organisations face when demonstrating the business case is knowing how to show that what has been done has made a difference. Hard evidence in terms of facts and figures is important, but forms of evaluation are not always sophisticated – or even coherent.

The CIPD’s report, Managing diversity: linking theory and practice to business performance, points out that poor diversity management is bad for business. It recommends that measurement is the way forward, to accumulate the evidence we need to make the business case for diversity more robust.

In fact, the CIPD suggests a diversity-balanced scorecard could be the answer to help organisations show how diversity supports business strategy, and the impact it has on business performance. The research undertaken for this report makes a number of propositions, some negative and some positive, which support the use of this technique.

The positive propositions include:

– Diversity in employment promotes cost-effective employment relations: employers have more choice from a greater skills base, improved employee satisfaction, reduced internal disputes, greater workplace harmony, improved retention and more effective and fairer promotion of talent

– Diversity enhances customer relations: matching internal employee diversity to population diversity can provide performance benefits, which enhance awareness of consumer needs

– Diversity enhances creativity, flexibility and innovation in organisations: the flexibility, creativity and ability to innovate are enhanced by the existence of dissimilar mindsets

– Diversity promotes sustainable development and business advantage: for example, external recruitment of diverse top-team talent to inject new ideas and challenge the organisational mindsets and ways of doing things that can hinder change and organisational progress.

Managing diversity well provides greater opportunities for organisations. Businesses experience better performance, and greater market awareness, which enables them to be more innovative and responsive. The financial performance is a consequence of good business practice and market conditions. There is growing evidence linking cost reductions, efficiency improvements and a more effective business philosophy to the management of diversity.

So if businesses can point to the importance of managing diversity, why should we get hung up on the need for robust academic evidence to reassure us that we are on the right track?

The more evidence we can collect to prove its business case, the better. We need to continue to be curious about the way differences influence what we do, and how we expect to improve our ability to manage it.

Employers will not benefit from the diverse talent within their organisations if it is cloned into the existing culture – this will erode the benefits that the diversity can offer. We must also be aware that simply ensuring that you have a diverse organisation is not enough – that is just the beginning.

Difference is fundamental to the world we live in, and as things are changing more rapidly all the time, we need to become much smarter at dealing with it. Ignoring it because it is too difficult would be corporate suicide. It is time to face up to the challenges of our new global environment, if we are to grow and survive.

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