The Diversity Profit Equation

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Craig Clayton

Craig Clayton

A new way to determine the value proposition for diversity and inclusion
Today, as the U.S. economy pulls out of the recession, companies are putting a strong emphasis on productivity and regaining momentum in terms of profits. This environment has impacted diversity programs. One major question is, “What is the financial return on investment?” In this article, I present an analytic, business-based framework for measurement, showing companies how continued derailing behaviors and/or micro-inequities — including subtle forms of discrimination — can impact companies in terms
of lost work time and productivity.
For years, associations and best-practice groups have worked on solutions to the challenge of diversity return on investment — that is, how to measure the return on their diversity investment. Before the economy worsened during 2008–2010, many practitioners didn’t spend a lot of energy validating the ROI. Instead, their efforts were aimed at getting the organization to understand valuing diversity as “the right thing to do.”
Today, another approach is emerging. Companies are increasingly looking at more quantitative ways to link corporate diversity efforts to ROI. Taking this approach is the first step to positioning diversity management not as another cost center, but as a strategic initiative. This article explores the results of a study done by the University of Houston’s International Institute for Diversity and Cross Cultural Management and how it laid the groundwork for developing a useful measurement, diversity return on investment, or more specifically — diversity impact on earnings through the use of a Diversity Profit Equation.
Having a diverse workforce is not an accomplishment; it’s inevitable. Many organizations cite their increased level of diversity as though they have made great strides to achieve it. The numbers are quoted on their websites and in their corporate documents with a tremendous sense of pride. However, becoming diverse should not be thought of as a goal. In reality, it’s a train that has already left the station.
While diversity is inevitable, it does not automatically bring harmony, success and profitability. In fact, it can cause more problems if the differences in values, cultures and behaviors are not effectively managed. With the increasing importance of intellectual and human capital for organizational success, managing the increasing diversity of today’s global workforce is a critical requirement for all successful organizations.
The University of Houston’s International Institute for Diversity and Cross Cultural Management conducted a case study using 13 companies and more than 10,000 respondents to measure the degree to which derailing behaviors and corporate culture impact an organization’s ability to leverage the goal of increased numbers of high-performing work groups. This study provided a foundation for linking inclusion and equitable human capital management processes to the top line or revenue growth, bottom line or cost reductions and the pipeline or recruiting, retention and talent management. The official title of the study is “Quantitative Analysis of the Consequences of Derailing Behaviors on Employee Commitment and Productivity: Linking Discretionary Effort to Profitability and Providing a Process for Framing the R.O.I. for Human Capital Management and Diversity Programs.” The future of workforce and supplier diversity programs will require those administering the departments to be able to demonstrate a link to cost reductions, revenue increases or margin enhancement in order to justify the funding and support needed to survive. This link will not be an optional competency, but a business requirement. For a complete copy of the corporate white paper, please contact craig@craigclayton.com or visit www.thespartacusgroup.com.

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