Measuring the Financial Impact of Diversity in the Workplace

Every business leader strives to validate the effectiveness of programs they champion, and specifically, any effect on profit and loss. Although that can be difficult in the case of diversity programs, carefully selecting the kinds of efforts to undertake, as well as how to roll out those efforts, can ease measurement and help you make better decisions.

How do you evaluate your diversity programs?

Getting a handle on how your diversity programs are working will help you fine-tune them, as well as help you make a better case for further endeavors. Most corporate diversity programs include not only equal opportunity hiring practices, but also outreach efforts to underrepresented groups, including such things as relations with university groups, scholarships, and special focus groups within the company.

 

In addition, it includes efforts to make all workers feel equally a part of the organization by means of such things as flexible holiday scheduling. Some experts also put efforts to leverage their staff to provide cross-cultural services such as foreign language product support under the diversity umbrella.

Defining success

Generally, diverse teams have been shown to be more productive than homogeneous teams. Diversity on executive teams tends to correlate with stronger returns on equity and sales performance, according to a study by McKinsey & Co. A similar study by Catalyst Inc. showed that companies whose boards of directors included more women performed better than those with all-male boards.

Looking beyond the top levels, researchers say that teams with more diverse makeups are more creative due to the different perspectives the members bring from their varied experiences. So companies are embracing diversity on their product development, engineering and marketing teams.

Diversity results won’t be immediate

That doesn’t necessarily mean that all efforts are going to be equally effective in producing results. Part of the problem is it can take a while for the results to show up.

“You can’t measure the impact of diversity over six months,” said Colleen Tralongo, chief talent officer at Athena Tech Academy in San Jose, California. “It’s going to take at least a year, and that’s if you make some really compelling changes to your head count.”

It’s likely that you’ll need long-term studies to truly get at whether your company’s diversity and inclusion efforts are reaping a return on your investment.

“You can look at stock price and do longitudinal studies when they didn’t have women at the top,” said Shirley Davis, president and CEO of SDS Global Enterprises and former vice president of diversity and inclusion at the Society of Human Resources Management, referring to gender diversity efforts.

The other issue is that diversity efforts don’t easily translate to line items on a financial report. The issues are subtle, and it’s often difficult to tie together cause and effect.

Nevertheless, according to Davis, some programs have effects that can be more easily measured. They include affinity groups and mentoring programs.

Affinity groups

Affinity groups are associations based on commonality such as gender or ethnicity. There are even interfaith affinity groups, according to Davis. Originally, fraternal groups aimed to promote camaraderie and outreach among underrepresented groups.

“They started focused inward years ago. It was about helping to recruit more people. I’ve launched nine of them myself,” Davis said. “They provide a way for people to feel some level of inclusion.”

Now, these groups continue to focus on outreach and commonality, but also serve as resources within their companies to develop new ideas of how to better serve customers from their core constituencies.

Revenue can be tied directly to inclusion efforts:

  • The Hispanic Resource Group at Frito-Lay came up with the idea of guacamole-flavored chips.
  • A women’s group at Campbell’s Soup suggested a low-fat, low-calorie line.

Mentoring

Just as some affinity group activity can be directly tied to revenue items, the results of mentoring programs can be measured, although it does not usually appear as revenue. The impact is reflected in employee retention, satisfaction, and promotion. Retention leads to lower training and outplacement costs.

If a mentoring program is effective, members of underrepresented groups will not only be promoted, but will also succeed as they move up the corporate ladder, Davis said.

“With mentoring and sponsoring, are we seeing more women and minorities promoted into positions of authority, and are they able to perform successfully in those positions?” she asked rhetorically.

Those mentoring relationships will help to establish the kinds of networks that men traditionally have used for advancement.

“White guys are coached and mentored, and they have mentors who speak for them when they’re not in the room,” she explained.

When diversity efforts don’t make a difference

Conversely, the attrition and lack of advancement can be the result of groups feeling alienated and not included. But that’s not always the cause.

For example, women and minorities could leave a company because of bad overall management or to pursue better opportunities with competitors.  The only way to pinpoint the cause would be through an employee survey, and even then, it would have to be carefully constructed.

“If people are honest, that could come out in a 360-degree survey in which people from the lowest levels can evaluate corporate culture, if you make it in a safe enough environment where people feel comfortable,” Tralongo.

In the courts

Finally, one surefire way to tell whether your diversity programs are working is whether you’re seeing fewer complaints and lawsuits, Davis said. “Many of the companies that we consider best in class started in the courts.”

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