Franklin D. Raines, chairman and CEO of Fannie Mae, states that, “the way America will be able to excel in the increasingly competitive world market of the twenty-first century is to utilize the incredible wealth of untapped, diverse talent in this country. Those companies that maximize their utilization of our greatest natural resource will be the ones who emerge as the global leaders of the next millennium” (qtd. in Bucher x). With changes in demographics trending toward an increasingly diverse workforce and consumer-base, it is of utmost importance for leading edge companies to gain a strategic competitive advantage through the utilization of diversity. When management does not understand how diversity can be profitable, and does not understand and implement strategies for utilizing it, the economic benefits of diversity go unrealized and companies miss opportunities to increase their profit margin.
Assuming managers have the prerequisite skills for managing diversity, it is important that they understand why diversity is of importance to their organization, how and when it is profitable, and what strategies they can implement to utilize diversity to increase their profit margins. In order to effectively utilize diversity for profitability, one must define diversity and utilization, and take into account the effects of context on the use of it. Management’s role in utilizing diversity is key to the profitability of it, and requires prerequisite skills in leadership and management, conflict management, and a profound dedication to the utilization of diversity.
In general, diversity can be utilized for profitability through the employee base, consumer base, and organizational structure. Under each of these categories, examples and strategies for utilizing diversity will be examined forthcoming, as will the costs of not managing/utilizing diversity. Additionally, solutions and suggestions for utilizing “hidden” diversity will be discussed including: measurement, assessment, and management accountability, with an emphasis on the importance of an integrative approach. Managers who utilize diversity within their organizations can potentially increase the profit margin of their company; thereby gaining a strategic competitive advantage over other companies.
Diversity has many definitions and is used in many different contexts. Generally speaking, diversity means a range of cultural differences. When most people refer to diversity, or cultural differences, they are commonly referring to age, ethnicity, and gender. However, diversity and culture include a very wide spectrum of differences ranging from a macro-level to a micro-level. An example of a more macro-level difference is that of a foreign country’s “national” culture. Philip R. Harris and Robert T. Moran, summarize Geert Hofstede’s work in identifying four basic dimensions of “national” culture:
Power distance – the extent to which a society accepts that power in institutions and organizations is distributed unequallyÃ¢Â?Â¦Uncertainty avoidance -the extent to which a society feels threatened by uncertain or ambiguous situationsÃ¢Â?Â¦Individualism – a loosely knit social framework in a society in which people are supposed to take care of themselves and of their immediate families onlyÃ¢Â?Â¦Masculinity with its opposite pole, femininity -This dimension expresses (53) ‘the extent to which the dominant values in society are assertiveness, money and material things, not caring for others, quality of life and people’. (qtd. in Harris and Moran) 53
These large-scale categories of difference make up one aspect of foreign culture.
An example of a more micro-level difference is illustrated by the sub-culture of “work”. The work culture can include sub-categories of personnel, work role, work schedule, and workplace (Harris and Moran 168). These small-scale differences can be very minuscule. In order to utilize diversity to it’s fullest potential it is important that management recognizes that the definition of diversity is wider ranging than most people commonly define it as. Therefore, defining diversity inclusively provides more opportunities for management to tap into the profitable benefits of many types of diversity.
The context in which diversity exists makes a difference in how it is to be utilized. For example, Orlando C. Richard discusses the importance of context in the outcome of a study of the relationship between cultural racial diversity and firm performance, and business strategy within the banking industry. Richard states, “The results demonstrate that the positive impact of racial diversity on firm performance has to do with context. In sum, the same [diverse] resources that offer some firms competitive advantage can be a performance detriment to others” (par 50). The context of a business organization can include corporate life cycle, financial status, size, and organizational structure. In order to obtain the most profitable results from the utilization of diversity, management must take many contextual variables into consideration.
It is easy to see from people who surround us in our daily activities that the world is becoming increasingly diverse. Diversity permeates all areas of life from communities to schools, from church to the workplace, even inside our homes (e.g. intercultural marriages and international adoption). The changing demographics of the world, especially the United States, illustrate how increases in diversity has impacted the work-world. Richard D. Bucher states, “the U.S. Census Bureau estimates that by the year 2050, racial and ethnic minorities will account for 47 percent of the nation’s populationsÃ¢Â?Â¦” (3). There are many reasons the population has become more diverse, including improvements in communication, travel technology, and the globalization of business.
Improvement in communication technology has enabled people from around the world to converse more often, more conveniently, and with less expense (e.g. internet and cellular phones). Additionally, technological improvements in travel have decreased travel time and expense, therefore enabling people to travel farther and more often around the world. Regarding the influence of globalization in business, Taylor Cox Jr., notes that many businesses in the United States “derive more than half their revenues from overseas markets. This trend is even beginning to extend to predominately service operationsÃ¢Â?Â¦” (5). These technological and business changes have played a significant role in influencing demographics, and therefore diversity.
Understanding the impact of demographic trends is important to managers of international and national corporations alike, because it is an indicator that the demographics of the labor force and consumer-base are becoming more diverse as well. For example, Cox Jr. states that within industrial nations, including the United States, “growth of the labor forcesÃ¢Â?Â¦ must come from immigration or from increasing labor-force participation by groups that are presently underrepresented” (3). Cox Jr. also notes that within the United States, “Asians, Blacks, and Hispanics now collectively represent nearly $500 billion annually in consumer spending. The Asian segment of the population is growing at a rate that is ten times that of the overall population” (28-29). As the demographics of the employee and consumer bases change, managers must adapt their business strategies, management skills, and especially their corporate culture, in order to utilize diversity for increased profitability. Harris and Moran agree that, “For leading-edge organizations, globalism means the creation of a culture that embraces diversity to maximize the potential of personnelÃ¢Â?Â¦” (171). The ability to utilize diversity to increase the profit margin in any organization, is dependent upon managements’ ability to adapt to increasing diversity.
What does it mean to “utilize” diversity? In the context of this paper, it means to proactively seek out a wide variety of ways to reveal and use organizational differences explicitly for the purpose of increasing the profit margin. It is important to note that the utilization of diversity, within this paper, does not refer solely to the quantity of diversity within an organization. Although quantity is an element of utilizing diversity, quantitative approaches are usually more focused on managing or monitoring diversity, whereas, qualitative approaches to utilizing diversity focus more on proactive utilization of diversity. Although both approaches are necessary to effectively utilize diversity, moving beyond quantitative approaches, to qualitative approaches for diversity utilization is preferable and usually more effective.
The responsibility of utilizing diversity belongs to the leaders of organizations, the managers. However, in order for a manager to utilize it in the first place, this endeavor presupposes several things about the manager (and therefore the corporate culture). Management must have good leadership and management skills, view conflict in a positive light, and have profound dedication to obtaining diversity training and education for the entire corporation. Since it is the management that establishes and sustains the corporate culture, it is of utmost importance that managers work to create a corporate culture that fosters and utilizes diversity.
Cox Jr. discusses how “the degree of congruence or fit between organization and individual culture is of potential importance to various career outcomes of individuals” (21). Cox Jr. cites empirical tests completed by O’Reilly, Chatman, & Caldwell which “have shown that value congruence between employees and their firms has a significant effect on organizational commitment, employment satisfaction, likelihood to quit, and actual turnover” (21). What is significant about these results is that the diverse workforce thrives best in a corporate culture that respects and utilizes diversity.
Regarding leadership, a good leader is able to inspire a unified vision and lead the organization to a common goal, as well as be fully responsible for establishing and sustaining corporate culture. Therefore, the leaders of the organization must be able to communicate a plan for utilizing diversity and unify and lead the organization to this common goal. All leaders must be cohesive in this understanding and must communicate the same message in order for it to be effective. David A. Thomas and Robin J. Ely concur that “one cardinal limitation is at the root of companies’ inability to attain the expected performance benefits of higher levels of diversity: the leadership’s vision of the purpose of a diversified workforce” (par 76). Good leadership skills are a very important prerequisite to utilizing diversity for profitable ends.
Good management skills are equally important in ensuring that diversity is managed well. Cox Jr., discusses findings that indicate
some of the heterogeneous teams were more productive than the homogeneous teams and some were less productive than the homogeneous teams. This research was interpreted to show that if work teams manage the diversity well (for example, by ensuring that all members have ample opportunity to contribute and by dealing successfully with potential communications, group cohesiveness, and interpersonal conflict issues presented by cultural diversity), they will be able to make diversity an asset to performance. (26)
Cox Jr. adds, “Alternatively, if the diversity is ignored or mishandled [by management], it may become a detractor from good performance” (26). It is important that managers have good management skills in order to increase the profit margin by utilizing diversity.
Where there is a higher degree of diversity there will be higher degrees of conflict due to more frequent incompatibilities between goals, resources, values, and interests. Since conflict management skills enable two parties to effectively resolve these incompatibilities, conflict management skills are essential for utilizing diversity for profitable ends. Unresolved conflict disrupts productivity, which impacts profitability. A paradigm shift recognizing that conflict is not inherently negative, (which is a common cultural assumption in American management), is necessary for management to effectively deal with conflict.
Like managing diversity, the result of conflict resolution depends on how the conflict is managed. For example, Bucher lists some benefits of managing conflict well, such as, stimulating creativity, signaling a need for change, and creating personal and professional growth (179). Conflict management skills are absolutely essential when dealing with utilizing diversity and should provide management with most of the skills necessary to deal with it at most levels and within most contexts.
Regarding profound dedication, it is important that management take the utilization of diversity seriously by becoming immersed in diversity education and training on a regular basis and by purposefully exposing oneself to change. This level of dedication is quite thorough and the only true way to successfully implement initiatives aimed at utilizing diversity in the name of profit. Stephen Covey insists that real change “doesn’t come from hacking at the leaves of attitude and behavior with quick fix personality ethic techniques. It comes from striking at the root-the fabric of our thought, the fundamental essential paradigms which give definition to our character and create the lens through which we see the world” (qtd in Bucher 23). This is a very pertinent point that is key to management’s ability to utilize diversity. In order to utilize it, one must take it seriously, not as some passing fad, but integrate it into the foundation of one’s thoughts and actions. This immersion will also better enable the manager to foster corporate culture along the same vein.
It is important to note that the profitable results of diversity are usually indirectly obtained, as opposed to directly. For example, when management exploits individual skills and talents to their fullest potential, employee morale increases. Employees who experience higher morale are generally more productive. Employees who are more productive increase the profit margin of the company. Therefore, using this logic, utilizing diversity increases the profit margin. The forthcoming examples will often implement this logic, in order to help understand how diversity positively affects the profit margin.
Assuming that managers fulfill the necessary prerequisites for utilizing diversity, the next question becomes, “in what way does it positively affect the profit margin”? The basic areas of organizations in which diversity can be utilized for profitability include the employee base, consumer base, and organizational structure. Within these areas, it can be utilized quantitatively or qualitatively.
An example of a quantitative way of utilizing diversity is to intentionally widen the spectrum of differences regarding personnel and/or market segments and/or products and services (e.g. affirmative action). An example of a qualitative way to utilize diversity is to create a position in order to match an employee’s distinctive skills and talents. Both quantitative and qualitative examples exist within the employee base, customer base, and organizational structure of an organization.
Within the employee base, the profitable uses of diversity include innovation, creativity, and problem solving, as well as accommodation of the diverse needs of employees. In today’s business-world, the trend is turning from profiting from tangible products to intangible services that are created by people. The ability to innovate, create, and problem-solve is key to becoming a cutting-edge company because of the increased capacity to invent new products and services, and to come up with more frequent and creative solutions, all of which increases the companies profit margin by making the company more competitive. Additionally, the better employees’ needs are accommodated, the more likely they are to miss fewer days and be more productive, which in turn decreases employer costs, and increases profitability.
An example of profitable innovation, due to the utilization of a diverse employee base, is recounted by Bucher, who cites the following example from Ford Motor Company: “Ford decided that it needed to take a different approach to create a new and competitive midsized car. They put the designers, manufacturers, and salespeople on one team. Each person was asked to describe his or her ideal care and submit a “wish list.” The end product of this team effort was the Taurus, one of Ford’s best-selling models” (165). Ford’s example is a qualitative approach to utilizing diversity, in that management intentionally placed diverse positions together in order to create a group dynamic that spurned innovation. In another example, Cox Jr. discusses how Kanter’s studies of pioneering companies disclose that these organizations purposefully create diverse work-teams in order to “create a marketplace of ideas, recognizing that a multiplicity of points of view need to be brought to bear on a problem” (qtd in Cox Jr. 32). Innovation can be a very profitable outcome of the utilization of diversity.
Next we will examine how profitable creativity can be utilized from diversity within the employee-base. The more creative the company is, the more progressive the company becomes. The more progressive the company is, the more likely they are to be profitable. For example, Cox Jr. cites the research of Charlene Nemeth who “found that the minority groups adopted multiple strategies and identified more solutions than the majority groups [and she] concluded that the groups exposed to minority views were more creative than the more homogeneous, majority groups. She further concluded that persistent exposure to minority viewpoints stimulates creative thought processes (32). Cox Jr. also reported the results of a series of experiments performed by Triandis, Hall, and Ewen, to test the effects of diversity on creativity. The results were judged on “originality and practicality” and “indicated that as long as the team members had similar ability levels, the heterogeneous teams were more creative than the homogeneous onesÃ¢Â?Â¦” (32-33). Creativity is key to becoming a leading edge company and increasing profitability.
Regarding problem-solving, Cox Jr. cites research studies conducted at the University of Michigan in the 1960s that “found that heterogeneous groups produced better-quality solutions to problems than did homogenous groups” (33-34). Specifically, Cox Jr. cites studies by Nemeth and, Nemeth and Wachter, who
found that the level of critical analysis of decision issues and alternatives was higher in groups subjected to minority views than in those that were not. The presence of minority views improved the quality of the decision process regardless of whether the minority view ultimately prevailed. Among the specific differences in problem solving processes they found were (1) a larger number of alternatives considered, and (2) a more thorough examination of assumptions and implications of alternative scenarios. (34)
The preceding data indicates that the effects of diversity on problem solving are both quantitative and qualitative in that it increases the quantity and quality of problem solving. Many companies initially take only a quantitative approach to utilizing diversity in the employee base, by recruiting a wide variety of employees. Although this is a necessary first step, it is not until management purposefully creates various work-group dynamics for the intentional purpose of creating innovation, creativity, and problem solving, that the full profitability of utilizing diversity can be realized.
Accommodating diverse needs within the employee base can also increase profitability. Accommodating employees’ diverse needs to the fullest extent possible will increase employee satisfaction, which will then improve work performance. Improvements in work performance will result in increased profitability. Cox Jr. recounts several studies, which examine the extent of employer accommodation to a range of diverse employee needs, in relation to the effect on employee performance.
Cox Jr. discusses a study cited in “Helping Pregnant Workers” in which “companies were assigned an “accommodation score” on the basis of the adoption of four benefit-liberalization changes associated with pregnant workers. The higher a company’s accommodation score, the lower the number of sick days taken by pregnant workers and the more willing they were to work overtime during pregnancy” (Cox Jr. 24-25). Cox Jr. also discusses another example, which compared the absenteeism and turnover rates of mothers who worked and used company-sponsored day care, versus those who worked and were not utilizing company sponsored day care (25). The results showed that “the absenteeism rate for the day-care users was 38 percent lower than that of the other groups, and that they had a turnover rate of less than 2 percent compared to over 6 percent for the nonbenefit groups” (Cox Jr. 25). Cox Jr. cited yet another study by Youngblood and Chambers-Cook, which indicated that the implementation of an on-site child-care facility “improved worker attitudes improved on six measures, including organizational commitment and job satisfaction, and that turnover declined 63 percent” (25). Finally, Cox Jr. recounts a field study by Kim and Campagna, that assessed the effects of the implementation of flextime on worker performance and which found, “that both short-term and long-term absences declined significantly and that three of four worker-efficiency measures increased significantly under flextime” (25-26). It is apparent by the aforementioned studies that the utilization of diversity through managements’ accommodation of the diverse needs of employees, decreases absenteeism and turnover, and increases employee morale and job satisfaction, thereby increasing the profitability of the company.
Next we will examine how utilizing diversity within the consumer base potentially increases profitability. Within the consumer base, the profitable uses of diversity begin with understanding how consumerism differs within a diverse market. Once management obtains this understanding, the next step is to implement strategies in order to better relate to, identify with, and represent these consumer differences. These strategies utilize diversity within the customer base and, therefore, better serve the consumers’ needs. As a result, customer satisfaction increases, as do customers, thereby making the company more profitable.
Cox Jr. discusses examples of research on consumer behavior that demonstrates how cultural differences at both a macro and micro level impact consumerism. Regarding macro level consumer differences, Cox Jr. cites research by Tse, Lee, Vertinsky, and Wehrung who studied buying behavior distinctions “among 145 mainland Chinese, Hong Kong, and Canadian executives and found that culture had predictable effects on decision-making behavior. Among their specific conclusions was that culture affects problem identification and the objectives motivating choice in decision situations” (29). Furthermore, Cox Jr. points out that “the evidence on acculturation patterns among Asians and Latinos in the United States indicates that substantial identity with the root national culture remains even after three or more generations of citizenship” (29-30). This data is important for management to use in assisting with the utilization of diversity, within the customer-base.
Regarding consumer differences at a more micro-level, Cox Jr. cites research by Deshpande, Hoyer, & Donthu, which has shown that “consumer behavior of Hispanic-Americans is influenced by the strength of identification with their ethnic group” (30). Cox Jr. also summarizes the former president of USA today, Nancy Woodhull, who indicated that; “the early marketing success of the USA TODAY newspaper was largely attributable to the presence of people from a wide variety of cultural backgrounds in daily news meetings. Diversity in group composition was deliberately planned and led to a natural representation of different points of viewÃ¢Â?Â¦” (30). Once mangers have a good understanding of how diversity affects consumerism at both macro and micro levels, they can better implement strategies to better represent and accommodate these consumer differences.
Strategies for utilizing the profitability of diversity within the consumer base include accommodating diverse customer needs by improving customer relations, customer identification, and customer representation. These strategies are best illustrated by Allstate insurance company, which Louisa Wah states, designates local agents to interact with local communities in an effort to understand their specific needs and better serve them (par 39). Also, Allstate “recruits employees with diverse backgrounds” (Wah par 15) including its potential customers in order to better represent the market segments they are interested in” (Wah par 18).
In another example, Wah discusses how Penny Wells-Sims, who is in charge of the northwestern Arkansas Allstate office, has focused on tapping into serving the diverse needs of the senior market (par 54-55). Wah notes that Wells-Sims believes that her experience with the senior market “helps give her a competitive edge”, because she will already have experience with one diverse segment of the market (par 57). Also, Ron McNeil, senior vice president for product operations at Allstate, discusses how these strategies have been profitable, stating, “Our diverse workforce has allowed us to establish relationships in communities and allowed us to shorten the acquisition curves for new customers” (qtd in Wah 43). Wah also notes that “the partnership [between Allstate and the local community] program in PhiladelphiaÃ¢Â?Â¦boosted Allstate’s market share in the city from 7.3 percent in 1993 to 33 percent in 1997” (43).
Cox Jr. provides another illustration of how utilizing diversity through representation within the customer base, improved the profitability of Avon Corporation within U.S. inner city markets: “After the company made personnel changes to give substantial authority over these markets to Black and Hispanic managers, results in these formerly unprofitable sectors improved to the point where they are now among the most productive of Avon’s U. S. markets” (30). Another example by Cox Jr. asserts, “Avon president Jim Preston has commented that members of a given cultural group are uniquely qualified to understand certain aspects of the world view of persons from that group” (30). Cox Jr. provides another example of how Maybelline accommodated the needs of a diverse market by introducing a line of cosmetics especially made for darker skinned women (31). The first year the product was introduced it “did $15 million of sales, beating the industry standard for a major first-year success by 50 percent” (Cox Jr. 31). When management understands how diversity impacts the consumer base, they are better able to implement strategies that improve customer relations. Using improved customer identification and representation strategies, companies can better serve the diverse needs of their consumer base by increasing customers and customer satisfaction, thereby increasing profitability.
Organizational structure can be used to utilized diversity for profitable ends. Organizations can be structured in such a way as to either increase or decrease opportunities for utilizing diversity. The structural components of an organization can include marketing, sales, research and development, production, management, human resources.
An example of organizational structural strategies that multinational corporations can use to increase profit from the utilization of diversity, are discussed by Leslie Palich, Gomez-Mejia, and R. Luis. The authors contend that, “firms can manage international business units more efficiently when those businesses are established in countries that are related in terms of national culture (i.e., when the cultural diversity among the firms international division is manageable)” (Palich, Gomez-Mejia, and Luis, par 8). According to the authors, similarities in national culture, positively affects the profitability of marketing, production, and research and development, as well as the exchange of management knowledge, in such organizations (Palich, Gomez-Mejia, and Luis, par 36).
Palich, Gomez-Mejia, and Luis, assert that because “people from similar cultures are likely to value and, therefore, purchase similar productsÃ¢Â?Â¦operations serving similar cultures can achieve economies of scale through combined facilitiesÃ¢Â?Â¦” (par 14). The authors also discuss how cultural similarity may encourage the exchange of technology transfer, which may result in the following profitable benefits: “merged R & D function”, “shorten[ed] design time”, and “successful transfer of R & D”, which “allows [for] early entry into new technologies for multiple business units” (Palich, Gomez-Mejia, and Luis, par 19). Because people from similar cultures have similar “schemas”, the authors contend that, “culturally related MNEs are able to exploit management knowledge because of compatible thinking between international divisions” (Palich, Gomez-Mejia, and Luis, par 24).
The authors also assert that efficiency is likely to be promoted through cultural relatedness within strategy formulation, implementation, and control, and therefore, increase profitability (Palich, Gomez-Mejia, and Luis par 25). For example, the authors discuss how “culturally similar units are easier to understand and manage from the corporate center, thereby reducing the firm’s transaction costs” (Palich, Gomez-Mejia, Luis, par 34). Additionally, the authors note, different cultures prefer different organizational structures and, therefore, “models of expertise in organizational structure may be more usefully adapted between culturally related divisions vis-Ã?Â -vis culturally unrelated divisions” (Palich, Gomez-Mejia, and Luis, par 30). Although in the aforementioned examples, the utilization of diversity involved decreasing it within divisions of an organization, it is still a way of using diversity for profitable ends. A multinational corporation may, in its entirety, have a wide range of diverse divisions as well as wide ranging diversity within those divisions. However, the structure of the multinational corporation can be organized to utilize diversity for profitable ends.
In addition to looking at the profitability of managing diversity, it is just as important to realize what the costs of not utilizing it are, since costs directly affect the profitability of the company. The costs of not utilizing diversity include increased employee turnover and absenteeism, discrimination lawsuits, and the loss of potential and existing customers. When diverse people (especially those in the minority) do not feel that their diverse skills are respected and utilized, one of the results is decreased employee morale, which tends to negatively influences employee turnover rates and absenteeism, and increasing the chances of discrimination lawsuits, resulting in costs to the employer.
Cox Jr. provides examples from various studies of how companies suffer costs when they do not utilize diversity within the employee base: “data from the U.S. workforce indicate that turnover and absenteeism are often higher among women and non-White men than they are for White males” (23). Cox Jr. cites studies by Bergmann and Krause, which indicate “the overall turnover rate for Blacks in the U.S. workforce is 40 percent higher than the rates for Whites,” (Cox Jr. 30). Additionally, Cox Jr. discusses studies by Hymowitz, which indicate, “Corning Glass recently reported that during the period 1980-1987 turnover among women in professional jobs was double that of men, and the rates for Blacks were 2.5 times those of Whites” (Cox Jr. 23). Furthermore, Cox Jr. cites studies by Schwartz that indicate, “a two-to-one ratio in the turnover of women and menÃ¢Â?Â¦” regarding women in management (Cox Jr. 23). Finally, Cox cites studies by Meisenheimer that show that a “study of absence rates in the U.S. workforce shows that rates for women are 58 percent higher than for men” (Cox Jr. 23).
The costs of turnover and absenteeism can be a significant amount to the employer, and Cox Jr. provides two specific hypothetical breakdowns of costs to the organization: First, Cox estimates that in a hypothetical firm of 10,000 employees in which half of the workforce is composed of minorities (gender and ethnically speaking) and with taking the above statistics into account, that “the differential turnover rates would produce an additional 250 losses annually [and] Ã¢Â?Â¦a conservative figure for replacement costs for each loss would be $15,000Ã¢Â?Â¦” (Cox Jr. 23). Therefore, Cox Jr.’s final calculation for turnover costs in this hypothetical organization is “3.8 million” (23). Cox Jr. suggests a second hypothetical scenario in which the same organization has invested $40,000 in benefits and salary per year, per employee (23). Regarding the above statistics on absenteeism rates, and presuming women make up 35% of the workforce, Cox Jr. estimates that “the additional 1.74 percent in lost paid time represents a productivity loss of $2.4 million annually” (23-24). It is clear by the aforementioned hypothetical calculation, that not utilizing diversity can be quite costly to organizations.
Another cost of not utilizing diversity can be that of discrimination lawsuits, in which not only is it commonly not utilized at all, but also disrespected. For example, Bucher cites the following as an example of costly lawsuits revolving around discrimination: “In 1994, Denny’s restaurants paid $45 million to settle class-action suits. African-American customers charged that they were treated differently by the chain’s waiters and managers” (52). Aside from the direct costs of this lawsuit, undoubtedly, the organization’s reputation was also at stake and could have easily resulted in loss of employees and customers, which also costs the organization.
In addition to the costs of not utilizing diversity, it is also important to note that there are costs associated with implementing initiatives to utilize it. Each company must perform a comprehensive cost-benefit analysis in order to determine if they are in a position to profit from utilizing diversity. The profitability of diversity in its entirety can only be realized by companies that are either already profitable, or who are ready to make the utilization of diversity a continuous priority whatever their budget.
So, what can management do to better utilize diversity for profitable ends? First, management must realize that they will need to employ strategies for proactively seeking out what I will call “hidden” diversity. Bucher discusses how “only about 10 percent of [diversity] is visible,” which means the remaining 90% is not overtly known to managers (15).
A good example of “hidden diversity” is illustrated in David A Thomas, and Robin J. Ely who give an example of a company in which a manager hired a minority female on the basis of the leadership skills he had known she possessed from observing her in church (par 60-63). When the manager hired her, he soon became disappointed because the woman did not exhibit the same leadership behavior inside the company as she had exhibited outside of the company (Ely, Thomas par 60-63). When approached about her lack of expected performance, it turned out that the women did not feel that it would be acceptable to portray that talent within the company (Ely, Thomas, par 64).
Not only does this example illustrate how corporate culture affects the use of diversity, but, more important is that the only reason the hiring manager knew about this woman’s “hidden” talents is because he had the opportunity to witness her outside of work. This example illustrates that it is not enough for managers to be simply be open to the profitable opportunities diverse employees may overtly display, but the managers should actually be trained to uncover covert types of diverse opportunities as well. Oftentimes, employees’ skills and talents are overlooked because no one was able to uncover their hidden diverse talents, therefore, it goes to waste, and profitability goes unrealized. Therefore, the most important solution to utilizing diversity for profitable means is for managers to develop skills in uncovering the hidden 90% of it.
How a manager may go about revealing the hidden 90% of diversity may be the same for how technical work skills are revealed: through questionnaires and skill tests (which may be delegated to the Human Resource Department). These questionnaires and tests would have to be oriented specifically to diversity and be expansive in going beyond the scope of the workplace. For example, regarding macro-diversity, the questions would primarily revolve around national culture, ethnicity, religion, gender, culture, heritage, etc. Regarding micro-diversity, the questions would revolve around their hobbies, their education, their personalities, what roles they play outside of work and what skills they utilize for these roles that aren’t necessarily utilized at work (but that could be). There are many questions in between these two extremes, but the goal of the questioning is to reveal as much of the hidden diversity as possible. Revealing the fullest spectrum of diversity is key to obtaining the most profitable results from utilizing it.
Once, as much of the 90% of the hidden diversity is revealed as is possible, the next step is to research the background to such differences. This is where the profound dedication to diversity education and training comes into play. In order to know how to best utilize differences, one must understand why these differences exist, and that often requires researching the differences (i.e. studying the national cultural differences). This profound understanding of the person’s specific diversity enables the placement of the employees to be more profitable.
This preliminary research should be followed by an analysis of the diverse findings in relation to company objectives. It is important to note, that one should not attempt to fit the person into an already existing job position, because opportunities for maximizing the profitability of the diversity, may be obscured by the limitations of an already existing job description. What is important, however, is that when positions are created, or expanded, specifically to utilize diverse talents, this diversity must still align with the company’s objectives. Since company objectives are tied to profitability, the diversity that the position utilizes will be aligned with profitability as well. This type of assessment and analysis needs to be done for employees at all levels of the company, in order to be the most effective.
Once employees are placed into a position in which their diversity is maximized for profitability, it is up to management to ensure that this diversity is, and remains, profitable. In order to determine this, it is of utmost importance to measure the profitability of utilizing diversity, ensure management is held accountable for ensuring these initiatives are working, and to employ strategies for maintaining diversity initiatives. Without measuring devices (feedback systems), it is difficult, if not impossible, to determine the success of diversity initiatives in relation to profitability, and therefore, difficult to determine when they need improvements or renovation, or implementation (in the case of companies that do not have diversity initiatives, they would determine if implementation is necessary through a cost-benefit analysis of utilization of diversity). Without accountability, there is no one responsible for establishing and maintaining the diversity initiatives. Without maintenance systems in place, the utilization of diversity may become lost over time.
Allstate exemplifies several strategies for measuring the success (meaning the increase in profitability) of diversity initiatives, ensuring management accountability for diversity initiatives, as well as maintaining diversity initiatives. In order to measure diversity initiatives, Wah discusses how Allstate surveys all of its employees twice a year regarding diversity in relation to leadership (par 29). Then, the results of these surveys are placed in an index for leadership, and another index for diversity (Wah par 30). Then management compares the two indexes and has been able to draw a correlation between the two (Wah par 30) and, according to director of diversity, Carlton Yearwood, “the better employees perceive their manager’s effort to produce a diverse work environment, the more satisfied they are” (Wah par 31). This same correlation also suggests that, according to Yearwood, “the higher the leadership and diversity indexes, the more likely it is for customers to renew [their insurance policies]” (qtd in Wah par 31).
Additionally, Allstate has purposefully correlated the goal of diversity to compensation by associating merit pay and bonuses to the successful implementation and maintenance of diversity initiatives (Wah par 35). Regarding maintenance of diversity initiatives, Allstate has taken it upon themselves to ensure that every new employee receives diversity training within their first six months of employment (Wah par 60). This training shows the employee how diversity positively affects the bottom line (Wah par 62). Additionally, Allstate “provides additional support to managers on how to sustain a diverse and trustful environment” (Wah, par 64). The strategies utilized by Allstate exemplify how measurement, accountability, and maintenance, are important to the profitable success of the implementation of initiatives to utilize diversity.
Cox Jr. states that, “Ã¢Â?Â¦organizations that are able to preempt competitors in creating a climate where all personnel have equal opportunity and motivation to contribute should gain a competitive cost advantage” (26-27). In order to fully utilize the diversity for profitable ends, management must have good leadership and management skills, good conflict management skills, and profound dedication to the utilization of diversity. Management should implement a variety of strategies for utilizing diversity, beginning with proactively tapping into the “hidden” 90% of it. In an increasingly diverse world, management can utilize diversity within the employee base, consumer base, and through the organizational structure of the company, thereby increasing their profit margin.
Beyond utilizing diversity, is the ultimate goal of learning from it, which occurs when the organization begins to integrate what they have learned from diversity into their mode of operation. Thomas and Ely discuss the idea of learning from diversity by creating a paradigm that “promotes equal opportunity for all individualsÃ¢Â?Â¦[and] acknowledges cultural differences among people and recognizes the value in those differencesÃ¢Â?Â¦[yet] lets the organization internalize differences among employees so that it learns and grows because of them” (par 40). As an extension of increasing profitability by utilizing diversity, it would prove beneficial to research specific strategies for learning from diversity. As Bucher notes, “Many assume that our society is divided because of our differences. Does the problem lie with our differences or our inability to respect and learn from these differences?” (14). This is an important question, whose answer is the key to the ultimate utilization of diversity -learning.
Bucher, Richard D. Diversity Consciousness. Ed. Mary Carnis. New Jersey: Prentice Hall, 2000.
Cox, Taylor Jr., Cultural Diversity in Organizations. San Francisco: Berrett Koehler, 1993.
Harris, Philip R., and Robert T. Moran. Managing Cultural Differences. 4th ed. Houston: Gulf, 1996.
Palich, Leslie, Gomez-Mejia, and R. Luis. “A Theory of Global and Firm Efficiencies: Considering the Effects of Cultural Diversity.”
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Raines, Franklin D. Forward. Diversity Consciousness. By Richard D. Bucher. Ed. Mary Carnis. New Jersey: Prentice Hall, 2000. ix-x.
Richard, Orlando C. “Racial Diversity, Business Strategy, and Firm Performance: A Resource-Based View.” Academy of Management Journal. 2 (2000): 164 (14p). 16 July, 2000.
Thomas, David A. and Robin J. Ely. “Making Differences Matter: A New Paradigm for Managing Diversity.” Harvard Business Review. 5 (1996): 79 (12p). 23 July 2000.
Wah, Louisa. “Diversity at Allstate.” Management Review. 7 (1999): 24 (7p). 22 July 2000.