By Mike Prokopeak
Determining the bottom-line impact of diversity and inclusion can be as easy as a few quick calculations.
Ed Hubbard, president and CEO of human performance consultancy Hubbard & Hubbard, quickly works through a series of math problems about a client study he conducted.
The study surveyed employees to find out what percentage of an eight-hour day is not spent on critical work due to real or perceived workplace barriers. While answers ranged between 9 and 90 percent, Hubbard said 25 percent was the score given most often by respondents.
“Twenty-five percent of an eight-hour day is two hours per day, per person,” he said. “Doesn’t sound like a lot. You take that two hours per day per person and you take an average wage of $12. So now it’s $24 per person. You take 5,000 people, that’s $120,000 per day. That translates to about $31.2 million a year in terms of lost productivity cost.”
After factoring in statistical estimates of error and barriers not related to diversity, Hubbard said the client’s cost equated to about $11.9 million per year.
“If you had an $11.9 million loss in any other part of the business, what would you do?” he asked. “Would somebody’s head roll? Would you change operational process to recapture the $11.9 million cost? Certainly you would.”
In many cases when it comes to diversity, the root causes of that cost to business aren’t addressed. Based on his work with clients, Hubbard has identified 7,000 strategic measures to quantify the bottom-line impact of diversity. But because the impact often is hidden beneath many layers of organizational culture, process and structure, measurement can be a complex challenge.
Not the Same Old Song
While it may be daunting, the measurement focus is necessary for the practice of diversity and inclusion to mature as a core organizational strategy.
Deborah Plummer, chief diversity officer at the Cleveland Clinic and author of the Handbook of Diversity Management: Beyond Awareness to Competency Based Learning, said it’s a natural progression of the field from its roots in affirmative action and social justice to a results-based focus.
“It became, ‘What’s the business rationale? What’s the business case for diversity?’” she said. “To add meaning or add value to the organization, it really had to show how it contributed to the business objectives.”
Plummer said the turning point came as leading practitioners began to expand their goals beyond building diversity awareness to broader business challenges. It’s a transition that some have yet to make.
“That’s where many practitioners fell off the track, or they kept playing the song with the same tune that was a No. 1 hit in the ’80s,” she said. “Right now, it’s an old song.”
It’s at this transition point that practitioners and academics have turned to metrics to help elevate the level of practice, Plummer said. The next step is to build a set of standards around diversity practice that supports the theory and leads to a measurement focus.
“In diversity, we’ve always had people doing excellent work who have given us great theory, but we didn’t always have the science,” Hubbard said. “Our focus is around adding the science and creating the other half of the discipline and applying measurement to that process.”
Context Is Important
Making that transition from theory to practice opens up a whole new level of complexity that requires a broader view of diversity and a more sophisticated way to examine its organizational impact.
“It’s not about just representation; it’s about utilization because that’s how you get to the measurement piece,” Hubbard said. “The impact isn’t so much in the diversity as much as it is in the context of how you utilize people in the environment.”
Hubbard maps out the context for diversity across four layers:
These layers are the different mixtures that get applied in pursuit of organizational objectives. This four-dimensional focus makes measurement more complex, but also richer, more meaningful and realistic.
- Workforce diversity: Race, gender, age, ethnicity or sexual orientation.
- Behavioral diversity: Differences in working styles,
- thinking styles, values and belief systems.
- Structural diversity: Teams, alliances across levels and the
- different structures to be navigated in an organization.
- Business diversity: Customer markets, diverse community representation and supplier diversity.
“Unless you have a clear definition of diversity and you can see it beyond race and gender, you may be stuck,” Hubbard said. “The reason why people have been somewhat disappointed with diversity is that they have focused primarily on just race and gender. They brought people to the organization that looked differently physically and expected that as a result of this mixture that magically something was going to happen, and that essentially those mixtures were going to translate into added value on the bottom line.”
That’s like sitting a group of 20 strangers down at a table and calling them a team, Hubbard said. The team capability only comes from leadership around a shared purpose, values and processes. It’s the context that becomes important, and within that context are the layers of diversity that can be managed and measured for impact.
“What we look at is being able to measure the differences and similarities in these collective mixtures and how they get utilized inside of the organization in operational process,” he said.
Clarifying the Connection
Many factors lead to bottom-line impact, and the connection to diversity isn’t always clear. For example, buying behavior is influenced by many factors, and the assumption that consumers buy products from people who look like them may or may not be true, said Katherine Phillips, associate professor of management and organizations at Northwestern University.
“There are other things people take into consideration when they decide whether they want to do business with a firm or not, including what their perspective is and their record around diversity and inclusion. But it’s not the only thing,” she said.
In some cases, consumers actually will steer away from situations in which they feel a representative was chosen solely because the company thought it would gain minority business by doing so.
“It’s a very complicated process, and there are a lot of steps between what people are doing on a daily basis in the firm and what the bottom line ends up looking like,” Phillips said. “In some companies, those steps in between are very messy and affected by lots of things. It takes time before you will see that kind of impact because there’s a lot of noise there, a lot of room for error and variance.”
Reprinted with permission from Diversity Executive Magazine
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