How strong is the correlation between diversity practices and organizational performance? This has been the holy grail for diversity professionals — the definitive business case demonstrating that more diverse organizations are more successful. While there has been considerable theory developed and anecdotal evidence published, many in business remain unconvinced.
Rather than trying to prove the diversity hypothesis, the Institute for Corporate Productivity (i4cp) approached the issue differently in its 2009 "Global Diversity Practices Study." With the guidance of corporate members and based on interviews with diversity executives, i4cp designed a survey to examine diversity practices with independent variables, such as organization performance, effective diversity practices and whether or not an organization has a chief diversity officer (CDO) or other diversity leader in place, and link these variables to talent management practices. The survey was neither designed to benchmark senior level representation, corporate spending or other quantifiable diversity results, nor to award a designation or other organizational accolade.
The 32-question survey was fielded in September 2009 to i4cp members and non-members. Roughly 250 organizations responded fully. Thirty percent of respondents were from large organizations with 10,000 or more employees. Forty-six percent were global or multinational organizations.
The survey included four self-reported questions to identify high-performance organizations. These questions ask how the organizations are faring in regards to revenue, market share, profitability and customer satisfaction as compared to five years ago. Typically only organizations that are in the top quartile in all four dimensions are identified as high market performers. Thirty percent of respondents were identified as high-performing organizations.
Respondents were also asked, "How effective is your organization in leveraging diversity strategies and initiatives to meet business goals?" Twenty-five percent of respondents reported their organization as highly or very highly effective.
Seventeen percent of respondents had both high performance results and highly effective diversity practices. These 35 organizations were of greatest interest to the research team.
Often discussions of diversity can be stymied by a lack of a clear definition of diversity itself. For this reason, in the i4cp survey, respondents were asked, "What groups are included in your company's definition of diversity?" Fourteen identity groups ranging from race, gender, knowledge and experience to appearance were provided in a "check all that apply" format. In addition, there were "all of the above" and "we do not have a definition" options.
Not surprisingly, race and gender were universal for organizations that had a definition of diversity. Seventeen percent of respondents had no diversity definition. For high-performing organizations, 12 percent did not have a definition. All highly effective organizations had some definition of diversity, with 35 percent selecting the broad "all of the above" definition. Organizations with a CDO nearly always have some definition of diversity — only 2 percent did not have a definition. Most organizations that embed diversity in talent management also had some definition of diversity — only 3 percent did not have a definition, and 25 percent had a broad, comprehensive "all of the above" definition.
Surprisingly, more than 50 percent of all respondents included both sexual orientation and religion — at times controversial topics — in their diversity definition.
From this broad range of data, one can extrapolate one conclusion: Organizations need a definition of diversity to effectively leverage their diversity efforts, but how diversity is defined does not influence effectiveness.
Benchmarking the Business Case for Diversity
The most enlightening findings of the survey came from the question, "What is your organization's primary business case for diversity?" This required respondents to make a choice rather than select all that apply. The business-case choices were a need for compliance, a need for talent, diversity representing the right thing to do and diversity representing a key business strategy. Overall, 58 percent of respondents identified diversity representing a key business strategy as the primary business case for it. Fifteen percent selected diversity representing the right thing to do, 12 percent identified a need for talent, and 10 percent identified a need for compliance.
The research team looked at these results and how success in diversity initiatives was measured and arrived at some unique findings. The measurement of diversity success is dependent on the business case. The strongest correlations for many of the diversity practices were business case and not organizational size or industry. High-performing and highly effective organizations anchor their diversity efforts in a business strategy. For benchmarking purposes, organizations should look to other organizations with a similar business case rather than organization size or industry.
A Lack of Leadership Accountability
When conducting interviews, the research team heard frustration from many CDOs on the lack of leadership accountability for diversity success. Those organizations that have leadership accountability measures are in the minority. Fifty-seven percent of all respondents acknowledged that their leaders were not held accountable for diversity success. High-performing organizations only saw this number drop to 50 percent. But only 13 percent of highly effective organizations and 17 percent of both high-performance and highly effective organizations reported that their leaders were not held accountable.
The survey found the most popular accountability mechanism is annual CEO diversity reviews. When looking at the business case for diversity, 54 percent of compliance-driven organizations have no leadership accountability. Thirty-one percent of these respondents identified CEO diversity reviews and none identified board of director reviews. For organizations driven by diversity representing the right thing to do, only 37 percent acknowledged a lack of leadership accountability. Forty-two percent utilized CEO diversity reviews and 11 percent board of director reviews.
Surprisingly, respondents identifying diversity as a key business strategy reported that 32 percent do not have leadership accountability in place. Thirty-seven percent of this cohort uses CEO diversity reviews, less than organizations driven by diversity representing the right thing to do, but the board of director review is used twice as often, reported at 22 percent by organizations that see diversity as a business strategy.
The results for organizations that cite a need for talent as the primary business driver for diversity were radically different when examining accountability. First, only 29 percent reported no accountability measures for leadership. This is 28 percentage points lower than the average. CEO reviews were only used by 29 percent of these respondents, but board of director reviews were also reported by 29 percent. The hypothesis is that organizations with a diversity agenda driven by a need for talent have board-level interest and support but also more mechanisms to hold leaders accountable.
This article was originally published in the September 2010 edition of Diversity Executive magazine.