Leveraging the Power of Difference for Competitive Advantage

2005 Research Quarterly

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

By Nancy R. Lockwood, SPHR, GPHR HR Content Expert

Research

2005 SHRM ‘̂ Research Quarterly

Abstract Workplace diversity has taken on a new face. Today, workplace diversity is no longer just about anti-discrimina- tion compliance. Workplace diversity now focuses on inclusion and the impact on the bottom line. Leveraging workplace diversity is increasingly seen as a vital strategic resource for competitive advantage. More companies are linking workplace diversity to their strategic goals and objectives—and holding management accountable for results. Thus, HR plays a key role in diversity management and leadership to create and empower an organiza- tional culture that fosters a respectful, inclusive, knowledge^ased environment where each employee has the opportuni^ to learn, grow and meaningfully contribute to the organization’s success.

‘Diversity represents a company’s fundamental atti- tude that it not only respects and values the individ- uality of its employees but also understands how to tap the potentially significant contributions inherent in diversity.”‘

Alexandra Groess Allianz Group’s Intemational Diversity Project

Workplace Diversity—An Evolution

Fram compliance to inclusion, the concept of work- place diversity is evolving. Coming from an organiza- tional viewpoint, this article explores the changing per- ception of workplace diversity, elements of an inclusive corporate culture, the business case and HR’s leader- ship role to maximize the benefits of a diverse work- force in a changing marketplace. While a broad range of issues is covered, it should be noted that “one size does not fit all,” as organizations are in different stages of development regarding workplace diversity. In addition, workplace diversity is not strictly a U.S. con- cept: a brief discussion on the drivers of workplace diversity in the European Union is presented.

Diversity Defined Today

As predicted in the landmark study Workforce 2020. rapid technological change, globalization, the demand for skills and education, an aging workforce and greater ethnic diversification in the labor market have forever changed the employment landscape.̂ The definition of diversity extends well beyond the traditional view Itiat once focused primarily on gender and race and reflects the broader perspective of workplace diversity today.

Murray. S. (2003). Diversify tnakes a difference. Retrieved February 22. 2005. from www.alli3nigroup.com.

Judy, R. W,, & D’AmiCO, C. (1997). Workforce 2020: Work and workers in the 21sl century. Indianapolis, IN: Hudson Institute.

‘ SHRM Glossary of Human Resource Terms, www.5hrm.org /hrresources/hrglossary_published/d.asp.

‘ Jayne. M. E, A., & Dipboye, R. L (2004, Winter). Leveraging diversity to Improve business performance: Research findings and recommenda- tions for organizations. Human Resource Management. 43, 4, 409-424.

‘A broad definition of diversity ranges from person- ality and work style to all of the visible dimensions such as race. age. ethnicity or gender, to secondary influences such as religion, socioeconomics and education, to work diversities such as management and union, functional level and classification or proximity/distance to headquarters.”‘

Integration and Learning: A New Paradigm for Managing Diversity

Diversity in the United States has evolved since the 1960s. As illustrated in Rgure 1, diversity v̂ gs first based on the assimilation approach, with everyone being part of the “melting pot.” Compliance (e.g., affir- mative action, equal employment opportunity) is important in diversity, and key legislation has been an effective tool for change {e.g.. Title VII of the Civil Rights Act of 1964, Age Discrimination In Employment Act of 1967, Americans with Disabilities Act of 1990). Today, however, the impetus behind workplace diversi- ty is that of inclusion and the business case: embrac- ing and leveraging differences for the benefit of the organization. The collaboration of cultures, ideas and different perspectives is now considered an organiza- tional asset—bringing forth greater creativity and inno- vation—with the result that many companies are increasingly focusing on corporate diversity initiatives to improve organizational performance.’

Diversity initiatives do not always meet expectations. The traditional schools of thought behind many diver- sity interventions are: 1) assimilation, based on the idea that “we’re all the same” (promoting equal opportunity); and 2) differentiation, from the philoso- phy “we celebrate differences.” Today, groundbreaking research goes beyond the historical framework of workplace diversity. The emerging paradigm is inte- gration and learning. That is, companies promote equal opportunity and value cultural differences, using the talents of all employees to gain diverse

Figure 1 Evoiution of Approaclies to Workpiace Diversity

Approach: assimilation

Basis: melting pot myth

legal *

EEO/AA *

valuing diversity *

differences as assets *

managing diversity

multicultural corporate cultures

Source.’ Cair-Ruffino. N. (1999). Dlversi^ success strategies. Boston: Butterworth-Heinemann.

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

2005 SHRM” Research Quarterly

work perspectives. To achieve this level of diversity management, however, organizational leaders must have a clear understanding of how t h ^ define diversi- ty as weli as what exactly the organization does with the experiences of being a diverse workforce.^

An Inclusive Corporate Culture

The concept of inclusion is increasingly important in the discussion of workplace diversity. In many ways, this evolution reflects societal values in the work- place. For example, two beliefs commonly held by Americans are that everyone deserves a chance (equal opportunity, sometimes referred to as the “level playing field”) and that all people should be treated with dignity and respect.^ The values of equal- ity, respect and opportunity for all represent the cor- nerstone of workplace diversity. Inclusiveness is thus a win-win dynamic: it generates opportunities for growth, fiexibility and adaptation in the marketplace for both the employee and the organization.

The Business Case for Workplace Diversity

Increasingly, the case for workplace diversi^ as a business imperative is gaining recognition by leaders in the business worid. At a symposium sponsored by The Conference Board regarding diversity in the work- place, for example, 400 executives agreed that “diversity programs help to ensure the creation, man- agement, valuing and leveraging of a diverse work- force that will iead to organizational effectiveness and sustained competitiveness.”‘

One ofthe major drivers behind the business case is the demographic changes that directly affect the labor pool and available talent {see Figure 2). These changes are significant In an oi^anization, human capital and workforce relationships are the backbone of success. The fiow of information between col- leagues, work teams, customers and suppliers, for example, depends on the quality of relationships and talent in the workplace.^ Consequently, workplace diversity is increasingly viewed as an essential suc- cess factor to be competitive in today’s marketplace.

Advantages

Six Key reasons to tie workplace diversily to organiza-

tional strategic goals and objectives are: 1) greater adaptability and fiexibility in a rapidly changing mar- ketplace; 2) attracting and retaining the best talent; 3) reducing costs associated with turnover, absen- teeism and low productivity; 4) return on investment (ROI) from various initiatives, policies and practices; 5) gaining and keeping greater/new market share {locally and globally) with an expanded diverse cus- tomer base; and 6) increased sales and profits.

Workplace diversity can be viev/ed as having both direct and indirect links to the bottom line. In busi- ness, the preferred equation for success is a single action that directly impacts financial performance. Workplace diversity, however, is a complex phenome- non. Consequently, the link of workplace diversity to financial success is not always immediately apparent, nor is it always linear. Two examples below illustrate scenarios with direct and indirect links of workplace diversi^ to organizational performance.”

• Direct link: Organizations that expand their customer base most effectively do sc with a workforce that is reflective of their clients. DuPont, for example, con- siders diversity a business imperative vital to ongo- ing renewal and competitiveness in the 21st century. This philosophy was illustrated when the company learned how one small change cculd directly trans- late into significant profits. At DuPont Merck, the sales of an anticoagulant drug in the Hispanic mar- kets were low. When a Hispanic manager noticed that the drug was only labeled in English and conse- quently translated the instructions into Spanish. sales improved significantly Now, educational materi-

‘ Thomas. D. A.. & Ely. R. J. (2002). Making differences matter: A new paradigm for managing diversity. Retrieved March 15. 2005, from

Harvard Business Online, www.bbsp.harvard.edu.

• Gardenswartz. L., Rowe. A.. Digh. D.. & Bennett. M. F. (2003). The glol al diversity desk reference: Managing an internationai workforce. Sen Francisco: John Wiley & Sons. Inc. Hart. M. A. (1997). Managing diversity for sustained competitiveness. New York; The Conference Board.

‘ Carr-Ruffino. N. (1999). Diversity success Strategies. Boston: Butterworth-Heinemann.

‘ Hart. M. A. 11997). Managing diversity for sustained competitiveness. New York: The Conference Board.

Figure 2 Demographic Trends Transforming the Workforce

• Greater diversity in the iabor pool: By 2008. women and minorities will represent 70% of the new labor force entrants, and by 2010, 34% of the U.S. workforce will be non-Caucasian.

– An aging workforce: By 2010. the U.S. workforce will have an increase of 29% in the 45-64 age group, a 14% increase in the 65+ age group and a 1% decline in the 18-44 age group.

• Gioiiailzatlon: In the next decade. 75% of new workers will likely be from Asia, while North America and Europe will have 3% of the world’s new labor force.

; Hewia Associates. (2004, February). Preparir^ the workforce of tomorrow. Retrieved March 21,2005. from www.tiewitt.com.

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

2005 SHRM- Research Quarterly •

als for the drug are translated into 15 languages and bring in millions of dollars in new business.̂ ”

• hdirect link: Having access to and retaining talent from a worlcfwide diverse iabor pool is key to gain- ing a competitive edge in the global marketplace. To expand and keep their market share, Nortel views lost revenue due to turnover as a reason to support diversity. With the cost of replacing an employee at $55,000 and turnover at 7% (com- pared to 17% in the information technology indus- try), the overall turnover cost is stiil quite high. For example, 7% attrition for 80,000 employees trans- lates to replacing 5,600 people. Thus, when 5,600 (people) is multipiied by $55,000 (the cost of replacing one employee), turnover cost is $30.8 million! Thus, at Nortel, attracting and keeping tal- ent^a key aspect of vi/orkplace diversity—has a significant impact on the bottom line.”

Firms are inoreasingly aware of the impact of diver- sity initiatives on organizational effectiveness. For example, factors that affect organizational profits are highlighted in a study by the Society for Human Resource Management on the impact of diversity on the bottom line. HR professionals from companies on Fortune’s list of Top 100 Companies to Work For state that diversity initiatives provide organizations with a competitive advantage by positive improve- ments in corporate culture, employee morale, reten- tion and recruitment (Figure 3). For example, 40% of companies ensure ieadership development pro- grams are available to all employees, 34% increase innovation by tapping talent of employees of all backgrounds, and 31% utilize diverse experiences for special projects and assignments.”

The importance of positive community relations also illustrates the link between workplace diversity and

‘ Ibid.

Martino, J. (1999). Diversity.’ An imperative for business success. New Yofk: The Conference Board.

Society for Human Resource Management. (2001}. Impact of diversity initiatives on the bottom line. Alexandria, VA: Author.

Richard. 0. C . & Johnson. N. B. (2001. Summer). Understanding the impact of human resource diversity practices on firm performance. Journai of Managerial issues. 13, 2. 177-196.

Lockwood, N, R. (2004. Oecember), Corporate social responsibility: HR’s leadership role. SHRM Research Quarterly. 4.

Cole. y. (2004, June/July). Top 10 companies fof diversity. Diversityinc Top. 3. 3. 56-96.

Humphreys, J. M. (2004, August}. The multicultural economy 2004: America’s minority buying power. Georgia Business and Economic Conditions. 63. 3, 1-12.

Cole. Y. (2004, June/Juty). Top 10 companies for diversity. Oversitylnc Top. 3. 3. 56-96.

Martino, J. (1999), Diversity: An Imperative for business success. New York; The Conference Board.

Schramm. J. (2004). SHRM 2004-2005 workplace forecast: A strate- gft: outlook. Alexandria, VA: Society for Human Resource Management,

the business case. When organizations develop exter- nal partnerships with minority communities and sup- pliers, for exampie, this can lead to good will and a reputation as an “employer of choice.”^^ When employees are proud of their organization for its con- tributions and connections to the community, they are more loyai to their employer and more iikely to boast about their company to family and friends. The result is lower tumover and a positive employer brand that better attracts the best talent in the marketplace.” A prime example of diversity partnerships is that of Pitney Bowes, the No. 1 company on the 2004 Diversityinc Top 50 Companies for Diversity iist, with recruitment initiatives and partnerships deveioped with organizations such as the National Urban League and the National Society of Hispanic MBAs. Another example is that of Ford Motor Co., the No. 1 company on the 2003 Diversityinc Top 50 list, that made community reiatlons a priority: Ford spent 6% of its total procurement budget ($3.2 billion) with its first-tier diversity suppiiers.”

Money Talks

The shift in purchasing power in the United States pro- vides further evidence for the business case for work- place diversity. According to the Selig Center for Economic Grovrth, the purchasing power of minorities in the United States wili quickly outpace that of whites in the next five years, in 2009, for example, the con> bined buying power of African-Americans, Hispanics, Asian-Americans and Native Americans is expected to exceed $1.5 triliion, more than triple the 1990 level by a gain of $1.1 trillion or 242%. In contrast, the buy- ing power of whites wiii increase by 140%.̂ ^

Thus, in order to ensure that the company’s sales and marketing teams reach the minority groups with funds to purchase its products and services, one of the most effective avenues is to utiiize the knowledge of minori^ employees who can relate to different groups in the marketplace. Verizon Communications, for exampie, utilizes its African-American spokespeo- ple, such as the actor James Eari Jones, to attract African-American consumers.” Fannie Mae, a leading mortgage iending firm, wanted to reach the many minorities who did not yet own homes; in the United States, only 46% of African-Americans and Hispanics own homes, compared with 72% of whites. The com- pany utilized diversity training as a strategic business initiative to reach a segment of the population that could profit from their service.’*

Rnally. the SHRM 2004-2005 Workplace Forecast notes that one ofthe top economic trends is expan- sion into the global marketplace.’^ Organizations can better capture, keep and serve their internationai cus- tomer base when their own workforce—such as

A Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

2005 SHRM^ Research Quarterly

sales, marketing and customer service—understands the needs of other cultural and ethnic groups.

Metrics—the ROI of Diversity

As with all business initiatives, measuring the retum on investment of diversity makes good business sense. Measurement of diversity management can be consid- ered in a number of areas, such as organizational cul- ture, demographics, accountability, productivity, growth and profitability. For example, measuring diversity lead- ership commitment may involve many individual fac- tors, such as the development of diversity vision/mis- sion statements by a specific date, the number of times diversity is mentioned as a strategy in executive presentations, the percentage of board representation by group, the percentage of diverse employees who were promoted due to mentorship and the percentage of diversity strategy plans implemented.”

To determine the retum on investment, hard and soft data must tie converted to monetary values. There are five basic steps: 1) identify a unit of measure that rep- resents a unit of improvement; 2} determine the vaiue of each unit; 3) calculate the change in performance data; 4) determine an annual amount for the change; and 5) calculate the total value ofthe improvement. ‘̂

The diversi^ retum on investment (DROI) is calculat- ed by using the diversity initiative cost and benefits to get the benefit/cost ratio {BCR). BCR = diversity

initiative benefits -i- diversity initiative costs. This ratio is also referred to as a cost-to-benefit ratio. Specifically, the DROI calculation is the net benefit of the diversity initiative divided by the initiative costs: DROI% = (net diversity initiative benefits -=- initiative costs) X 100. This formula is the same basic formula used to evaluate other investments in which the ROI is reported as earnings divided by the investment.’^

Fbr example, the initiai cost of a diversi^ awareness program may be $50,000. The measurable value of the program is determined to be three years. During a three-year period, the program will have a net sav- ings of $30,000 ($10,000 per year). Since the aver- age book value is approximately half the cost, the average investment in this case is $25,000 ($50,000 -r 2). The average ROI = annual savings ^ average investment: $10,000 -;- $25,000 = 40%.

Short- or Long-Term Investment

The business advantage for workplace diversity is clear. Yet companies often expect short-term resuits. The challenge is to demonstrate measurable impact on financial success as well as realistically manage expectations. Rather than a quick fix, the business

‘ Htjbbartl, E. E. (2004). The diversity scorecarti: Evaluating the impact of diversity on organizationai performance. Burlington, MA: Eisevier Butte rwortli-H ei nemann.

Ibid.

‘ Ibid.

Figure 3 Diversity and Competitive Advantage

In what ways does your organization actively leverage the diversity of employees for the purpose of increasing com- petitive advantage? {Number of Respondents = 310}

By ensuring leadership development programs reach all employees

By meeting ttie needs of diverse coslomers (bi-iinguai. etc.)

Sy inlegraiing diversiiy in organization’s business strategy

By increasing Innovation by lapping employees of all backgrounds By utilizing diverse espenence

levels on orojects/assign men is By using diverse employees

to recruit new employees

By improving the performance of teams

8y attfactifig customers of a particular market or demographic

By using diverse employees as mentors lo help employees imprnve thair personal performance

By iiicreasmg productivity wrth motivation technlQues that apply to a variety of employees

By conducting culture audits to tsenchmatk diversity progress against competitors

Not applicable: rny organization doesn’t actively leverage workforce dlversrty 30%

0% 10% 20% 30% 40%

Sou/te; Society for Human Resource Management. (2004. August 3)- SHRM/Fortune Diversify Weekly Survey. Retrieved March 25.2005. from wmt.atwm.oai.

a* I-:-

Workplace Diversity; Leveraging the Power of Difference for Competitive Advantage

2005 SHRM” Research Quarterly

case for workplace diversity is a long-term investment and offers sustainabiii^ in a competitive marketplace.

Senior Management’s Role

Visibility, communication and accountability are key to achieving a competitive diverse workforce. A recent study on what makes and breaks diversity initiatives found three critical points of leadership: 1) accountabil- ity; 2) a passion for diversi^; and 3} sustained involve- ment. Visible commitment throughout the organization is important: adding diversity on the agenda at execu- tive meetings and company conferences, appointing diversity candidates to top positions, and assigning clear roles and responsibilities to the senior manage- ment team regarding diversity management. Account- ability creates sustained involvement—that is, holding managers accountable to deliver diversity results. Participation in diversity councils is recommended as a

• development path for senior leadership.̂ ^

However, simply placing women and/or minorities in high-profile positions, for example, is insufficient. Rather, the more effective approach is to hold man- agement accountable for results. Consequently, to get middle nnanagement and employee buy-in, top man- agement must establish clear implementation and reporting requirements. At DuPont. for example, senior management ensures accountability for diversity man- agement by integrating diversity into the overall busi- ness perfonnance evaluation process, including devel- oping cost and profit objectives as vi«ll as how com- pensation is determined. The connpany also uses tar- geted career development initiatives to help diverse people fill key work assignments, thus supporting advancement and addressing glass ceiling issues. The Quaker Oats Company aims to keep diversity management simple by using two key tools: 1) the diversity progress menu; and 2) the diversity account- ability guidelines. The connpany’s goal is to supply managers with a best practices list that offers flexibili- ty tied to individual business cultures as well as per- formance.” Nine of the top 50 companies on the

” Matton. J. N., & Hernandez, C, M. {2004, August). A new study identi- ties the “makes and breaks'” of diversity initiatives. Journal of Organizational Exceilence. 23. 4, 47-58.

” Hart. M. A, (1997). Managing diversity for sustained competitiveness. New York: The Conference Board,

” Coie. Y. (2004, June/July). Top 10 companies for diversity. Diversityinc Top, 3. 3. 56-96,

» Carr-Ruffino. N, (1999), Diversity success strategies. Boston: Butterworth-Heinemann,

” Business for Social Responsibility. Board diversity. Rotriaved March 4, 2005, from www.bsr.org,

” Catalyst, (2003), 2003 Catalyst census of women board of directors. Retrieved March 7. 2005, from www.cataIystwomen.orf knowledge/ tities/fi les/fact/Snapsriot%202004.pdf.

” The Conference Boana. (1999). Board diversity In U.S. corporations. New York: Author.

” Richard. 0. C . & Johnson, N. 8. (2001, Summer). Understanding the impact of human resource diversity practices on firm perTormance. Journal of Managerial Issues. 13. 2.177-196.

2004 Diversityinc Top 50 Companies for Diversity list tie diversity to managers’ compensation. Fbr example, CitiGroup measures its managers’ attempts to attract talent and develop a diverse workforce. At Verizon Communications, 5% of bonuses for directors and above are related to diversity.’̂ Simple daily actions also communicate commitment to workplace diversity: the CEO greets employees in their native language, and the supervisor takes time to understand direct reports with different cultural values and viewpoints.^

Diversity Management and the Board of Directors

Increasingly, the business case for diversity focus- es on the board of directors. The impetus to change the board composition is a direct result of the trend toward corporate governance and diversi- ty of the workforce, customer base and other stakeholders. Organizations want a wider range of leadership skills, work styles, perspectives and expertise, as well as increased representation of women and minorities among board directors.^’ There is positive evidence of change. For example, in the Fortune 500 in 2003. women held 14% of board seats (up from 10% in 1995), and 54 com- panies had 25% or more women on boards of directors (up from 11% in 1995).^^ Finally, change in board composition is also occurring at an inter- national level, as global organizations expand the cultural diversity of their boards with expertise in international business from other countries.”

Managing Diversity: HR Challenges and Opportunities

With the changing marketplace and an increasingly diverse labor pool. HR leaders are dealing with a myriad of factors regarding diversity management. Broadly speaking, workpiace diversity challenges can be considered within three interrelated cate- gories: attracting and retaining talent, greater diversity among employees and training.

Attracting and Retaining Talent

Competition for talent is growing—from competi- tion abroad, lower education levels of U.S. workers compared with other countries. U.S. immigration challenges and fear of terrorism in the United States.^ Further, with the retirement of the baby boom generation (those born from 1944 to 1960) in the next 10 years, a key concern is retention of older workers. Organizations are in different stages of preparation regarding this likely loss of talent. As of 2003, 35% were just becoming aware of the issue. 35% did not know if their organiza- tions were ready, 23% were beginning to examine policies, and 4% had proposed specific changes. Many HR leaders are looking for ways to attract and retain older workers. Benefits and workplace programs, such as reward initiatives and flexible work arrangements (e.g., part-time work, phased

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

2005 SHRM- Research Quarterly

retirement), are key tools that offer attractive options to older workers.^^

The skill shortage, however, will hit some indus- tries harder and sooner than others. The nuclear power industry, for example, faces replacing as much as 50% of its workforce. The talent crunch will also strike the expanding service industry: sales positions in the United States, for example, are expected to increase by 25%, yet many in today’s sales force are aged 55 or older.̂ ^

A recent study notes most firms are not paying close attention to retention and promotion strate- gies. For example, top minority talent is seeking leadership opportunities; yet companies indicate they have difficulty attracting talent for executive leadership (42%) and professional and technical skills (42%).^^ In corporate America, the “revolving door syndrome” is particularly evident for women and minorities. To retain women and minorities, HR professionals should re-evaluate their organiza- tion regarding taient, mentoring, career develop- ment and succession planning. Strategic initia- tives, such as mentoring, on-boarding and “listen- ing” forums, are additional tactics to address minority retention.”

Greater Diversity Amor^ Employees

The term “diversity” has typically referred to women and minorities. Today, however, employers are beginning to formally acknowledge other employees as well (e.g., ethnic groups, people with disabilities and self-identified gay, lesbian and bisexual persons). Some firms encourage a wel- coming and inclusive environment for all employees by creating diversity network groups. Kraft Foods uses employee councils to build employee develop- ment. Through nine employee councils (African- American Council, Hispanic Council, Asian-American Council. Rainbow Council, Women in Sales Council, Black Sales Council, Hispanic/Asian Sales Council, Women in Operations and African-Americans in Operations), Kraft takes an active role in mentoring and supporting its diverse workforce. For example, the company builds relationships with universities to bring in talent through internships and internally sponsors career days focusing on leadership com- petencies.^^

Different groups have different needs, and they want their needs recognized and met. Acknowledgment of different needs yields greater employee satisfaction, employer loyalty and, in turn, lower tumover and greater productivity. As a result, more organizations offer programs to address issues such as work/life balance and demands for more flexibility with telecommuting, adoption support, flexible health and

dependent care spending accounts, elder care and domestic partner benefits.*

Within workplace diversity, one ofthe least discussed minority groups is people with disabilities. This group is a source of under-represented taient in the work- place. One study reveals that in the majority of compa- nies, individuals with disabilities comprise less than 10% of their total workforce. The study recommends top management lead by example and hire qualified individuals with disabilities on their staff. Through training and focus groups, HR leaders can improve sensitivity toward employees with disabilities.^^

Training

Within the context of workplace diversity, training plays a key role in retaining talent. The role of training is to promote workplace harmony, learn about others’ values, improve cross-cultural communication and develop leadership skills. Awareness training raises understanding of diversity concems by uncovering hid- den assumptions and biases, heightening sensitivity to diversity in the workplace and fostering individual and group sharing. Skill-based diversity training improves morale, productivity and creativity through effective intercultural communication.^^ Leadership development, team buiiding and mentoring programs are also examples of organizational training that pro- motes growth and collaboration. An overlooked area regarding retention is cross-cultural competence with- in the organization, often a missed opportunity to address minority retention concerns.^

Rnally. working in a diverse organization requires diversity competencies for everyone, including HR (see Rgure 4). Yet not all HR professionals are experts in diversity. A survey notes that only about one-third of companies think their HR staff has the skills to serve a diverse U.S. workforce and only 22% believe HR has the skills to serve a global workforce/^ HR professionals best qualified to deal

•• Collison, J. {2003, June). SHRM/NOWCC/CEO older workers survey. Alexandria, VA: Society for Human Resource Management.

=’ Towers Pemn HR Services. (2004. October). The coming talent crisis: Is your organization ready? Retrieved March 2 1 , 2005. from www.towers.com.

” Hewitt Associates. {n.tS.). The workforce Is charging: Is your organiza- tion? Retreved March 2 1 . 2005. from www.hewttt.com.

” Hewitt Associates. (2004. February). Preparing the workforce of tomor- row. Retrieved February 10, 2005, from www.hewitt.com.

^ Cole, Y. (2004, June/Juiy). Top 10 companies for diversity. Diversityinc Top. 3. 3. 56-96.

^ Burke. M. E. (2004, June), SHRM 2004 benefits survey report. Aiexandfia, VA: Society for Human Resource Management.

‘• Lengnick-Haii. M. L.. Gaunt, Ph., & Coilison, J. (2003, April). Employer incentives for hiring individuals with disabilities. Aiexandria, VA: Society for Human Resource Management.

” Grant, B. Z., & Kieiner, B. H. (1997). Managing diversity in the word- piace. Equal Opportunities International. 16. 3. 26-33,

” Hewitt Associates. (2004, February). Preparing me worktorce of tomor- row. Retrieved February 10, 2005, from swww.hewitt.com.

” ibid.

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage

2005 SHRM'”̂ Research Quarterly

with workplace diversity have experience in areas such as team building, change management, conflict resolution and cross-cultural communication.

Aligning the Diversity Process W}th Strat^c Business Goats

The organization that best utilizes the full potential of all employees intentionally and thoughtfully aligns workplace diversiiy with strategic business goals by following these steps:

Define diversity. Clarify the role of workplace diversity in the organization, including leadership roles and expectations for diversity initiatives. In vision and mis- sion statements, highlight the importance of diversity {for example, is the organization’s philosophy on inclu- sion clearly stated?). Place the vision and mission statements on the company Web site as a public

• statement of the organization’s commitment to work- place diversity. Communicate commitment by allocat- ing the necessary resources—staff, budgets and time— t̂o move the diversity process forward.”‘

Establish accountability. With senior management, HR diversity leaders should develop challenging yet real- istic goals for diversity interventions. Demonstrate organizational commitment: 1) appoint senior execu- tives to diversity task forces for succession planning.

HuDbard. E. E. (2004), The diversity acorecard: Evaluating the impact ot diversity on organizational performance. Burlinglon, MA: Elsevier Butterwo^t^•He j neman n.

• Ibid.

‘ Mscton, J. N.. & Hernandez. C. M. (2004, August). A new study Identi- fies the “makes and breaks” of diversity Initiatives. Journal of Organizational Excellence. 23. 4 . 47-58,

‘ Nalionai Urban League, (2004, June). Diversity practices that work: The American worker speaks. New York: Author.

Figure 4 HR Competencies for Diversity Management

Actlve/nonjudgmental listening. Willingness to challenge one’s own concepts about diversity.

Collaboration skills.

Experience with conflict resolution and change man- agement.

Sensitivity toward terms iabeiing groups regarding diversity. Ability to identify diversity issues and understand related tensions.

Intercultural team building.

Ability to express respect and appreciation.

Openness to learning about others who are different. Ability to educate others on how to build diverse people skiits.

• Abiiity to provide appropriate responses.

Source: Adapted from Carr-Rufflho, N- (1999). Diversity success strategies. Boston: Butterworth-Heinemann.

education and training initiatives: 2) recnjit diversity candidates for senior leadership positions; and 3) establish diversity goals and objectives for all leader- ship levels in the performance management process and reward programs. Demonstrate commitment to workplace diversity by developing solutions when problems are identified through employee attitude surveys, focus groups, etc.”

Develop a diversity scorecanJ. Often overlooked, the scorecard is an important tool to manage diversiiy. The scorecard includes financial and nonfinancial recognition of diversity ROi initiatives as v^ell as rele- vant feedback (e.g., change management lessons). When developing the diversity scorecard, include measures aligned with the organization’s strategic business goals. When determining measures, keep in mind four themes: 1) key deliverables that leverage the role of diversity in the organization’s overall strate- gy; 2) utilization of diversity in the development of a high-performance work environment; 3) ways in which the corporate culture is aligned with the organiza- tion’s strategy; and 4) the efficiency of tfie diversi^ deliverables.

Studies on Workplace Diversity and the Bottom Une

Several studies link workplace diversity and com- pany performance. The study results run the gamut from identifying critical success factors for diversity initiatives that impact organizational effectiveness to connecting gender and diversity with financial performance.

‘ The “Makes and Breaks” of Diversity Initiatives” This study found that successful initiatives that leverage diversity to enhance organizational effectiveness share certain characteristics and approaches. Specifically, successful workplace diversity initiatives hinge on committed leader- ship, goals/targets of measures of effective- ness, strong diversity professionals, employee involvement and ties to performance evaluation, as well as data to identify, quantify and commu- nicate progress and challenges.

– Diversity Practices That Work” Companies with diversity practices collectively generated 18% greater productivity than the U.S. economy overall. The results of this study sug- gest that, at a minimum, diversity progress may enhance productivity through effective good lead- ership and management practices. Key factors that had the greatest impact on overall per- ceived effectiveness of diversity initiatives were: 1) a track record of recruiting diverse people; 2) management that is accountable for diversity progress and holds others accountable; 3) lead- ers who demonstrate commitment to diversi^;

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2005 SHRM” Research Quarterly

4) rewarding people who contribute in the area of diversity; and 5) training and education to increase awareness and help employees under- stand how diversity can impact business results.

• The Effects of Diversity on Business Perfonnance’ This study looks at the effects of racial and gender diversity on organizational performance. A key find- ing reveals that racial diversity has a positive effect on overall performance in companies that use diversity as a resource for innovation and learning. Further, the study results suggest that the best per- formance outcomes occur when diversity is found across entire organizational units.

• Connecting Corporate Performance and Gender Diversity’^ Based on an examination of 353 Fortune 500 companies, this study connects gender diversity

• and financial performance. {The study does not, however, demonstrate causation.) The key find- ings show that the group of companies with the highest representation of women on their top management teams experienced better financial performance than the group with the lowest women’s representation: that is, 35% higher return on equity and 34% higher total return to shareholders. The study results suggest there is a business case for gender diversity (e.g., recruiting, developing and advancing women)— specifically, organizations that focus on diversity are in a stronger position to tap the educated and skilled talent in the marketplace. This is important because women comprise 47% of the U.S. paid labor force and hold 46% of manage- ment positions. In addition, women earn more than half of all bachelor’s and master’s degrees in the United States (57% and 59%, respectively) and nearly half of all doctorates and law degrees (45% and 47%. respectively).

Global DIverstty—The European Union

Focus on gender equality and antiKliscrimination by the European Union (EU) offers a unique example of workplace diversity outside of the United States. With the addition of 10 member states in May 2004, the European Union—with 25 member states in 2005 and nearly 500 million people—is one ofthe largest economic forces in the world. Through legislation (called Directives) under the Social Policy Agenda, the EU is establishing significant social, economic and political change. The goal is to be “the most competi- tive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion.” To achieve the necessary economic and social renewal, the Commission ofthe European Communities devel- oped a five-year action plan (2000-2005) that

focused on investing in people and combating social exclusion.” In 2000, with the introduction of the EU Article 13 Race and Employment Directives (to be effective by 2006), the EU put in place measures designed to enforce the right to be treated equally.**

1. The Racial Equality Directive 2000/43/EC pro- hibits discrimination on the grounds of a personal racial or ethnic origin.

2. The Employment Equality Directive 2000/78/EC prohibits discrimination on the grounds of religion or belief, disability, age or sexual orientation.

However, the establishment of a Directive does not guarantee immediate results or even substantial progress. While EU Directives require member states to meet the minimum legislative standards, more work is needed to achieve workforce diversity. Fbr example, a recent report notes that while gender employment and education gaps are closing, the gen- der gap in the EU remains almost unchanged.”‘

Drivers and Benefits of Diversity in Europe

In Europe, there is a growing recognition of the bene- fits of workplace diversity for both the society and the economy. To remain competitive, however, there are a host of issues to address, from racial and ethnic diversity and new roles of women to work/life bal- ance and an aging population coupled with declining birthrates. A recent study notes that a third ofthe top European companies are gaining competitive advan- tage from diversity management. These progressive organizations, rather than seeing diversity as a regu- latory response that requires anti-discrimination and equal opportunity policies, view diversity management as a vehicle to develop an engaged, motivated and heterogeneous workforce to develop creative busi- ness solutions in the global marketplace.*

» Kochan, T, Bezrukova, K., Ely, R., Jackson. S.. Joshi. A., Jen, K., et al. (2002, October). T7)e eflfects of diversity on tjus/ness performarice: Report of tne Diversity Research Network. Building Opportunities for leadership Development Initiative, Alfred P Sloan Foundation and the ScKiety for Human Resource Management,

” Catalyst. (2004). Connecting corporate performance and gender diver- sity. New York: Author.

” European Commission. (2000, June 28). Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions: Social poli- cy agenda. Brussels: Author,

*• European Commission. (2004}. Equality and non-tHscrimlnation—annu- al report 2004. Brussels: Author.

*• European Commission, (2005). Report from the Commission to tfie Council, the European Parliament, the European Economic and Social Committee ana the Committee of the Regions on equality tjetween men and women. 2005. Brusseis: Author.

• Singh, V., & Point, S, (2004. August}, Promoting diversity management: New challenges and new responses by top companies across Europe, Management Focus [Cranfield School of Management, www, cranfieltJ,ac.uk/som/research/centrBs/cdwBIJ,

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2005 SHRM’ Research Quarterly

Another study notes the three most often mentioned benefits of workpiace diversity by European compa- nies are: 1) improved team effectiveness and cooper- ation; 2) improved productivi^; and 3) improved cus- tomer markets with broader access to labor markets. Other drivers considered moderately beneficial are improved employer image, more openness to change, improved morale and commitment, ease of entry into new markets and enhanced effectiveness of complex organization. Overall, the most important shifts in workplace diversity are in the areas of gender and ethnic diversity. R)r example, as women obtain higher professional degrees and qualifications and eam more money in the marketplace, they are increasingly viewed as important in the workplace. Ethnic minori- ties are seen as a growing workforce as well as cus- tomer ^

Enhancing Competitive Advantage Through Diversity Management: Recommendations for HR

• Assess. Conduct a top-to-bottom critical assess- ment of all company policies and programs. Determine if there are biases that create potential challenges for diverse employees. Review diversity initiative results (e.g., recruitment of top talent, retention strategies, succession planning, career development goals) to determine if the workplace is structured to exclude certain employee groups. Determine where changes in organizational culture, policies and programs need to be made.

• Capitalize. Promote diversity initiatives to the top agendas of senior management by capitalizing on reputation as a diversity management consultant.

• Dialogue. Develop and maintain continuous dia- logue with 1tie CEO and senior management regard- ing diversity as a business strategy.

” Simons, G, F. (2002). EuroDlverslty: A business guitie to managing dif- ference. Wbbum. MA: Etsevler Science.

Resources: Diversity in the European Union

European Council on Work-Life & Diversity: www.conference-board,org/pclf_free/councils/353.pdf

European Disability Forum: www.edf-feph.org

European Monitoring Centre on Racism and Xenophobia (EUMC): www.eumc.eu,int/eumc/index,php

European Women’s Lobby: www,womenlobby.org

For Diversity/Against Discrimination: www.stop<liscrimination.info

International Labour Organization—The Gender Toolkit: www.ilo.org/public/english/bureau /gender/newsite2002/about/defin.htm

• Discover Through focus groups, confidential employee surveys and exit interviews, determine how diversity initiatives are viewed and gather feed- back for improvement.

• Network, Network with other HR professionals to learn different approaches to diversity manage- ment, challenges encountered and recommended best practices.

• Learn. To best utilize a diverse workforce, profit from lessons learned.

In Closing

There is no “best way” to manage diversity. The iden- tification, selection and purpose of diversity initiatives and their development and implementation differ from company to company. The likelihood of success is dependent on business needs and workforce issues as well as situational factors, such as Uie organizational culture and workplace environment. Ultimately, the strength of commitment by the CEO, senior management and HR leadership will determine whether the organization successfully leverages work- place diversity for competitive advantage. •

Resources

AARP: www.aarp.org American Institute for Managing Diversity, Inc.:

http://aimd.org Business for Social Responsibility—Board Diversity:

www.bsr.org/CSRResources/lssueBriefDetail.cfm ?DocumentiD=443

Catalyst: www.catalystwomen.org Center for Women Poticy Studies:

www.centerwomenpolicy.org Diversityinc Top 50 Companies for Diversity:

www.diversityinc.com Hispanic Association on Corporate Responsibility:

viww.hacr.org National Association for Advancement of Colored

People: www.naacp.org National Organization on Disability: www.nod.org National Urban League: www.nul.org SHRM Diversity Home Page: www.shrm.oi^/diversi^

Acknowledgment

The author would like to thank the members of the SHRM Workplace Diversity Special Expertise Panel for their sage advice and recommendations.

Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage