The ROI of Diversity and Inclusion Efforts
The return on investment and effectiveness of corporate diversity programs have been debated, but there are many ways in which organizations can correctly gauge this elusive measurement.
By Andie Burjek
Being a good organization for a diverse workforce is the right thing to do, but it’s more than that. It’s also a business function equal to every other business function, according to Edward Hubbard, president and CEO of Hubbard & Hubbard Inc. He is an expert in the field of strategic diversity ROI measurement, has written 45 books and created the Hubbard Diversity ROI methodology, which evaluates a diversity program using seven levels to demonstrate whether or not the program is credible.
Thirty years ago, when he was working on growing the field of diversity analytics, many people argued that diversity didn’t need to be measured because it was just the right thing to do, he said. But the diversity function within an organization needs to present itself with the same legitimacy as any other function — sales, marketing, operations, whatever it is — all of which must present to the CFO reasons rooted in data to support the investments they seek.
Measuring diversity isn’t as simple as doing a few calculations with the valuable metrics.
“Diversity and inclusion doesn’t get a pass,” Hubbard said. “If we want to be credible, like any other [function], then we have to be able to have the business acumen to be able to generate a financial return on investment for the organization and be able to show it in evidence-based numbers and outcomes.”
The Nuts and Bolts of Diversity ROI
There are a variety of types of measurements employers can look at for diversity return on investment, and it can help if they break that up into categories, according to Scott Page, the Leonid Hurwicz collegiate professor of complex systems, political science and economics at the University of Michigan. Recently his academic focus has been on diversity, and he’s written several books on the topic including “The Diversity Bonus,” “The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies,” and “Diversity and Complexity.”
One ROI measurement category is profit loss: Is the company making more or less money after the diversity efforts? Another is internal metrics such as employee turnover and employee satisfaction.
A third category, Page said, is qualitative or quantitative measures of customer satisfaction. Diversity of the workforce can impact customer feedback in a few ways. For example, if there is a company that handles pension funds for a diverse group of clients, those clients may not be as comfortable or trusting if none of the people at that company look like them, even though that has no effect on their portfolio performance. This could be said for any consumer-facing industries such as retail, insurance and finance.
Finally, business goals matter, according to Page. Companies should consider questions like: Are we trying to grow our business in certain communities? Are we trying to open new markets? Is my customer base very low among people in a certain group? Does my employee population represent that group?
Ed Frauenheim, director of global research and content at Great Place to Work Institute and co-author of the book “A Great Place to Work for All,” agreed that revenue is one of the most important metrics. Gender-diverse companies are 21 percent more likely to outperform their non-gender-diverse peers financially, and that number for ethnic and cultural diversity is 30 percent, according to the report “Delivering Through Diversity” from consulting firm McKinsey & Co.
“When you see that a consistent, positive experience is correlated with [higher] revenue growth [than] other companies that don’t have an equitable experience across demographic groups, that’s a powerful measurement of the ROI of diversity, and not just in the traditional sense of getting the numbers right but getting the experience right,” Frauenheim said.
All these numbers related to the “R” part of ROI, but the “I” part is the something that some organizations don’t consider fully, Frauenheim added. Many people think about financial cost when they think of investment, but diversity costs more in terms of time and energy to form positive relationships with the employees, he said. Forming these positive relationships is how companies can see the payoff of diversity efforts.
Boston-based financial services company State Street Corp. is one of many organizations that is currently investing in diversity initiatives. One part of their strategy is looking at ROI not from a quarterly or yearly basis but from more long-term outcomes, according to Paul Francisco, the company’s chief diversity officer and head of workforce development programs.
They’ve established a three-to-five-year window to measure results, he said, which allows them to measure in a very systematic way things such as if more women are represented at the top of the organization than they were five years ago, how the organization’s competitive advantage has shifted in the marketplace or how D&I initiatives have impacted talent attraction over the years.
These trends tell the company if it’s headed in the right direction, he added.
One important aspect of State Street’s D&I initiatives are employee groups, Francisco said.
“What we are able to activate through these networks is an incredible array of programs, relationship-development strategies, engagement strategies, [and] branding and advertising and recruiting strategies that really help us become a better company from an external perspective but actually help us become a company also internally,” he said.
For example, while these groups help people feel connected to each other they also appeal to clients, Francisco added. When a department has a business document that needs to be translated into a different language, there are employee networks that can do that.
Misunderstandings and Misconceptions
Not everyone is a supporter of corporate D&I initiatives or a believer that they produce noteworthy results. Here, a couple of D&I experts respond to common criticisms of these initiatives.
“One of the common complaints about this work is ‘It’s too fuzzy. There’s no metrics. We don’t know what to measure,’ ” said Joe Gerstandt, keynote speaker, author and D&I consultant. What’s problematic is that in a fairly short amount of time, the expectations of organizations have changed a lot, and there’s an expectation that they are supposed to understand the nuts and bolts surrounding D&I, he added. But it’s not their area of expertise.
Business leaders or HR professionals may not be clear on what the terms “diversity” and “inclusion” mean within the context of their organization or clear on what their objectives are for a program.
“If you define what inclusion means for your organization [and] what a diverse workforce looks like in your organization, it becomes easy to figure out what to measure,” Gerstandt said.
Another common misconception of D&I is that diversity efforts lead to a lower quality of talent, said Jessica Rohman, director of content at Great Place to Work and co-author of the book “A Great Place to Work for All.” “It’s one of these catchphrases people feel comfortable saying even though it’s not true,” she said. Suggesting that the bar is somehow being lowered because a company is expanding its diversity efforts is an insulting and cringeworthy statement that is not representative of the facts, she said.
“Research shows that increasing diversity actually raises the quality of the end product and raises the quality of talent overall,” she said. “You’re sourcing from a larger pool.”
She gave the example of Austin-based tech company WP Engine, which removed the four-year college degree criteria for entry-level positions whose duties did not necessarily require a college education. The company widened its talent pool, focused on alternative training methods like on-the-job training or code academies, and found that the overall quality of talent did not dip at all. The company was not hurt by its decision to look at a wider range of applicants.
— Andie Burjek
Quality Versus Quantity
Measuring diversity isn’t as simple as doing a few calculations with the available metrics.
“I think we greatly overestimate our ability to measure things in the workplace because there are so many variables at play,” said Joe Gerstandt, a keynote speaker, author and D&I consultant. “We sometimes act like we are measuring, ‘This is a pound of dirt’ or ‘This is a gallon of milk,’ but we’re dealing with far more intangible things than that.”
For example, at a doctor’s office, the doctor might weigh the patient, take their temperature and take other measurements. But if they don’t have a conversation about how that patient is feeling, they may not get the full story. The same idea can be said about diversity, Gerstandt said. An employer, like a doctor, needs a comprehensive view.
The hard numbers that come with employee surveys or research on the demographics of one’s organization are valuable, but employers must also consider open, candid conversations with individuals or with groups of employees about their workplace experience, he said.
“You’re still going to end up with something that is incomplete and imperfect, but multiple perspectives on it makes it a more valuable evaluation,” he added.
The exit interview is one valuable source of qualitative feedback that companies have yet to use very often, according to Gerstandt, even though that’s often the situation in which organizations have the most valuable and honest conversations with employees. In many organizations, most people know what the flaws in corporate culture are, but there’s no conversation about it, he added.
“I would love to see organizations aggregate their exit interview data, post it on an internal blog a couple times a year and have a conversation about how to fix that stuff,” Gerstandt said. “Most organizations have room for improvement.”
Jessica Rohman, director of content at Great Place to Work and a co-author of “A Great Place to Work for All,” shared some areas of concern that employees might have. These are just some types of qualitative information that might come up in candid conversations with employees. Although they are areas one might not associate with ROI, research shows that they enable people to contribute to an organization and feel comfortable in the organization, she said.
For example, people should feel like they can make a mistake and not be penalized more harshly based on that mistake than someone in a different group, she said. Also, people want to feel that their voice will be heard and included in conversations about decisions that will affect them.
“Those are elements of a person’s work experience that might seem soft or not having a direct ROI, but what our research shows is that ultimately, if you take those types of experiences and combine them with the overall work experience, people will be far more innovative at work and contributing their best ideas, which ultimately contributes to the bottom line,” Rohman said.
If an organization does not consider qualitative feedback, they lose out on entire groups of people who are less likely to step up and contribute their best ideas, she added.
Overall Value of Diversity and Diversity ROI
One area in which diversity may be valuable is talent attraction, according to Rohman. Each employer has a brand, and they have been focusing more on that reputation in the past few years.
“There’s this heightened awareness among organizations now that companies are more interested in the public knowing they support D&I efforts, and there is some sort of social gain and brand value that’s associated with companies that understand these efforts,” she said.
For example in Spring 2017, leaders at PwC spearheaded the CEO Action for Diversity and Inclusion, the largest CEO-driven commitment to improve D&I in the workplace. By offering other CEOs and organizations the chance to collaborate on this topic, PwC communicated to its customer base and its employees its commitment to diversity, Rohman said.
Another potential impact of bringing diversity into the workforce is the ability to develop more well-rounded, effective management practices. Managing diversity is harder than managing those just like you, University of Michigan’s Page said. Initiatives bring additional time and costs for employers that might otherwise be earmarked for other things. However, there are certain results that help employers in the long-term.
“What people tell me is the techniques, procedures and protocols you have to develop to manage an identity-diverse workforce also enable you to better manage a cognitively diverse workforce,” he said.
Meaning: This will allow for more disagreement and thus more diverse and creative ideas. “I think that those [diversity] costs need to be chalked up to learning costs,” he added.
A company has to invest in learning, and a diverse workforce is harder to manage, according to Page. “But if you learn how to do it and create the right culture, you’re going to win,” he said.
Andie Burjek is a Talent Economy associate editor. To comment, email email@example.com.