December 29, 2014  |  Purdue University Global
December 29, 2014  |  Purdue University Global
Business Workplace Diversity

When Google recently announced its long-term initiative to increase the diversity of its workforce, one of the world’s most successful and innovative companies added spark to a long-running debate. All platitudes aside, can workplace diversity both improve corporate culture and lift the bottom line?

The first step to answering this question is to make certain we have a shared understanding of the definition of diversity, a heavily used word with varied interpretations. For our purposes, diversity refers to differences in race, religion, gender, disability, sexual orientation, age, and education, among other variables, and these cultural differences are characterized "by a history of intergroup prejudice, discrimination or oppression," per the work of Robin J. Ely and Laura Morgan Roberts (“Shifting Frames in Team-Diversity Research: From Difference to Relationship").

In the United States, according to the Census Bureau, the labor force has become more diverse since the mid-twentieth century. Women, in particular, have made great strides in workforce representation, rising from 30 million in 1970 to nearly 73 million in the years since. A report from the Center for American Progress also concluded that black, Asian, and Hispanic workers have similarly made gains, albeit incremental ones, as have gays and lesbians, according to a recent Catalyst study.

Workplace diversity initiatives urging employers to adopt more inclusive hiring practices have driven these gains. The National Urban League, National Council of La Raza, and other advocacy groups have also played a part, arguing that increasing employee diversity is the right thing to do and a boon for profits and innovation. Skeptics and even many proponents of diversity programs were reluctant to embrace such arguments, concerned about the lack of supporting data, until now.

Over the past two decades, as scholars have sought to quantify the economic effects of workplace diversity, a growing body of research has emerged. Collectively, it suggests that diverse work environments boost employee performance and a business’s bottom line.

A study conducted by Cedric Herring at the University of Illinois at Chicago, for example, concluded that “racial diversity is associated with increased sales revenue, more customers, greater market share, and greater relative profits.” The report determined, moreover, that “gender diversity is associated with increased sales revenue, more customers, and greater relative profits.” Published in 2009 in the American Sociological Review, Herring’s work also found that companies with the highest levels of racial diversity had sales revenue an average of 15 times higher than firms with the lowest levels of diversity.

A report out of Credit Suisse’s Research Institute further supports what Herring deems the “value-in-diversity” hypothesis. According to an analysis the banking giant released in 2012, corporations where women hold management board positions generated better investment returns than those where such positions were held exclusively by men. Studying a 6-year period, Credit Suisse researchers found that for large-cap stocks—identified as those with a market cap of more than $10 billion—firms with women board members outpaced their male-only counterparts by 26 percent. Likewise, small-to-mid cap stocks where women served as board members outperformed their all-male peers by 17 percent.

Diversity also appears to positively impact creativity and interpersonal communication skills, says Katherine W. Phillips, a professor at the Columbia University Business School. Citing research she has conducted over her decades-long career, Phillips writes in Scientific American that diversity enhances creativity, encourages learning, and fuels innovation. “Even simply being exposed to diversity can change the way you think,” she says. “This is not just wishful thinking: it is the conclusion I draw from decades of research from organizational scientists, psychologists, sociologists, economists and demographers.”

Results in the business world also confirm academics' findings. Among major American multinationals, IBM remains a trailblazer and the gold standard, having overseen one of the most successful diversity campaigns of the past few decades.

Led by then chief executive Lou Gerstner, IBM launched a company-wide initiative to identify ways it could enhance the diversity of its customer base and workforce, according to David A. Thomas, a professor at the Harvard Business School. To accomplish this, IBM linked its diversity goals with its business goals, he says, and ultimately expanded into additional markets.

Along with a sharp rise in the number of women, ethnic minorities, and gay, lesbian, bisexual, and transgender executives—representation among whom, Thomas notes, increased 370, 233, and 733 percent, respectively, from the program’s start to 2003—the company’s bottom line similarly benefited. Following a move to more actively target women and underrepresented markets, revenue in its Market Development division, he points out, skyrocketed between 1998 and 2003, increasing by hundreds of millions of dollars.

Promoting diversity is not, of course, a silver bullet. Increasing employee diversity cannot magically resuscitate a poorly run business or immediately spur disruptive innovation. To reap the long-term benefits, a company must adopt a systematic approach, continually cultivating diversity, from the hiring process to staffing to leadership training and more. Many companies may balk at the scope of commitment, but when they look at the now-established benefits to morale, culture, and the bottom line in an increasingly multicultural society—what choice do they have? Diversity, it turns out, does pay.

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