Human Resources

Making the Connection: Diversity & Profits

By Sarah AlexanderJuly 25, 2017

Having a robust diversity & inclusion (D&I) program at your company is no longer a nice to have. It is a must: the business case for diversity has become undeniable, as company after company discovers that improved D&I is directly correlated with better business performance.

The Stats

Research conducted by McKinsey & Company found that when it comes to the bottom line, diversity matters. Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians. Companies in the top quartile for ethnic diversity perform even better, with financial returns 35% above industry medians. Similarly, a 2015 study conducted by Bersin by Deloitte showed that diverse companies had 2.3 times higher cash flow per employee over a three-year period than non-diverse companies did.

Researchers aren’t the only ones banging this drum. L’Oreal is applying its D&I efforts across its organization. A.G. Lafley, CEO of Procter & Gamble, has declared, “A diverse organization will out-think and out-perform a homogeneous organization every single time.” Marc Doyle, an Executive Vice President at DuPont, built upon this sentiment, saying, “Diversity and inclusion is not a ‘nice to have’ feature in an organization. It is absolutely critical in healthy, high-performing organizations with a future focus.”

Correlation or Causation?

As McKinsey & Company pointed out, correlation does not necessarily mean causation. However, “The correlation does indicate that when companies commit themselves to diverse leadership, they are more successful.” The conclusion continues to say, “more diverse companies, we believe are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing return.”

Diversity of Thought for Better Decision Making

MIT economist Sara Ellison concurred with McKinsey’s theory that the relationship between D&I and financial results is more than just correlation: “Having a more diverse set of employees means you have a more diverse set of skills, [which] could result in an office that functions better.” Her team’s research found that shifting from an all-male or all-female office to one split evenly among gender lines could increase revenue by 41%.

Another study at Harvard Kennedy School randomly assigned 550 business students into 45 groups to start a new venture. Teams with an equal gender mix performed better than male-dominated teams in terms of sales and profits. What’s more, the profits increased steadily as the share of women on the team inched up to 50 percent, but then flattened out for teams with more women than men. This finding supports the theory that truly innovative companies rely on “creative abrasion” – generating ideas through discourse and debate – to ultimately combine ideas that might have at first seemed mutually exclusive. Naturally, this process relies on people having varying thoughts and opinions, which can come as a result of diverse backgrounds.

Top Talent Company of Choice

In today’s competitive talent market, top recruits are looking at more than just salary when choosing their employer. Simone Strydom, senior manager of corporate communications at Clorox, observed on the corporate blog, “If you cannot answer the diversity question clearly and favorably when it is asked in the recruiting process, young people are going to choose to work elsewhere.”

American Express, a leader in D&I efforts, has come to the same conclusion. Valerie Grillo, Chief Diversity Officer, observed that their commitment to D&I “helps with our retention, because our general employee base likes knowing they work for a company that has an inclusive workforce that supports equality.”

Enhanced Customer Relationship

As Angela Naef, senior vice president at DuPont, stated, “A commitment to diversity and inclusion makes you more able to know who you are innovating for and why – that translates into differentiation in the marketplace.” There are many ways in which this can happen. In one example, after communicating its supportive stance on LGBT issues through various strategies, American Express saw double-digit growth in the gay-friendly enclave of Provincetown.

As another example, L’Oréal USA has been able to leverage its diverse workforce in order to create products that address a multitude of consumer concerns. Balanda Atis, a group leader in the company’s research and innovation team, worked on a project designed to develop better foundation for non-Caucasian women. She points out, “As a woman with darker skin, I have always had a difficult time trying to find a shade of foundation that was appropriate for my skin tone. I know that this is a concern for consumers.” Atis’ team was able to demonstrate that women of color have specific needs and apply that lesson in to improve L’Oreal’s make-up products.

All this said, it is important to remember that D&I for the sake of D&I is not the goal. As Valerie Grillo, Chief Diversity Officer at American Express, points out, “You can have as many diverse employees as possible, but if we don’t have a culture where employees feel that they can speak up and their voices are heard, you’re not going to really take advantage of that.” Stay tuned for our follow up post on how to foster inclusion in your company for lasting and meaningful change.

Sarah Alexander

Sarah Alexander

Author & Contributor

About the Author

Sarah is an elite triathlete and independent strategy consultant with an MBA from Chicago Booth. She is passionate about empowering others to achieve excellence.

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