Is Diversity Good for Business?

Unlike quotas or affirmative action, which were broadly considered as fairness programs, diversity is often described as something that makes business more efficient and successful.

In this context, diversity means goals, process and practice with the intended outcome that specific designated demographics will be admitted/hired, promoted and paid more than the demographic of white males, relative to the outcome in the absence of these initiatives. In other words, what is being practiced in many organizations in the US and Western Europe today.

Unlike in academia, where the assertion that a diverse student body contributes to a better education for everyone, the outcome in business should be easier to observe and measure. While a “good” education is somewhat difficult to precisely define, the success or failure of business can be tracked using generally accepted measures. In this case, the chosen measure is GAAP Year Over Year Shareholders Equity, at the department or company level. In simple terms, this measures how much profit is retained after all transactions are accounted for.

Two explanations of exactly how diversity drives business results are women’s pay inequity and product improvements that arise from better understanding customers and unlocking creative problem solving.

Various studies assert that women in America are paid about $0.80 cents for the same work as men. Simply replacing men with women would reduce costs and increase profit.

It’s interesting to consider why markets do not seem to correct this imbalance in the absence of formal diversity programs. There are few conceptually simple actions in business that have the potential for a 20% reduction in costs with little upfront investment. One explanation is that organizations have a natural tendency to resist change. Another, that unconscious bias prevents decision makers from seeing the opportunity.

Both of these should be considered in the context of businesses that have been willing to shift production of hard goods and development of intellectual property to China and India as cost saving measures, and woman-owned and run businesses.

Other studies explain that a diverse workforce – specifically one that looks like our customers – results in better products and services based on two assumptions. The first, that a workforce that resembles the customer base understands them in subtle but important ways. The second, that diverse workforces draw from a large pool of life experience and points of view, and unlock creativity in ways that improve products, services and business and industrial process.

The underlying assumption is that most white men tend to think in similar ways and along narrow creative rails. Adding women and the minorities designated as diverse to the workforce mix introduces new ways of problem solving.

The reason for narrow thought is a combination of similar life experiences and white privilege. The white (in this case) privilege hypothesis argues that the dominant culture remains powerful in part because of an unconscious desire for familiarity. Absent conscious racism, the dominant white male culture invents products and systems that are familiar and comfortable to them, and by accident, unfamiliar to others. The net effect of years of many small oppressive messages like band-aids that don’t match skin color, and the lack of the titles which reflect women’s ability in jobs result in both the sabotage the confidence of women and minorities, and over-confidence and ease of success in white men. These self-reinforcing cycles tends stifle creative thought and perpetuate a power structure.

It would be worth studying both why whites in South Africa seem to have accumulated a majority of the country’s wealth and political power despite being a small percentage of the population. Privilege theory implies that in such an environment, a Black Privilege feedback loop should exist – assuming the size of a demographic is an accurate measure of “dominance”.

It would also be worth studying how business in countries with significantly non-diverse workforces like Korea, Japan, Germany and India can successfully compete in global markets. The Chinese and Indian experience can perhaps be explained by low wages as the dominant business factor. The least “developed” of these countries often have reputations for producing low cost copies of products – arguing that business innovation is hampered by a dominant mono-culture. If business innovation is defined to include manufacturing and logistics processes, this hypothesis seems weak even in the case of China an Korea.

It also seems worth examining if two billion people really do think so commonly that they cannot in practice be effectively innovative.

One of the least controversial assertions in this area of study is that a business workforce should understand their customers, and that looking like them is a tool to achieve this. As an example, building and shipping products with buttons that are too large to be comfortable for a demographic with small hands seems to reinforce both the dangers of an inward looking, not curious workforce and one with overly common physical traits. Introducing employees with smaller hands to the design team seems to be an effective cure to this problem and we should expect a positive return on investment.

Examples of obvious misses like this make the business case for structurally discouraging admission/hiring and promotion of white males almost self-evident. It is less self-evident what the ROI of diversity programs is in businesses that design and manufacture wheel bearings, sewer pumping systems, aircraft engines or supply chain logistics. It is possible that creatively can be unlocked in cases where product designs depends less on understanding human physical, psychological or behavioral trends by pursuing diversity on axis beyond the current gender and selected races. It may be worth considering that the current diversity initiatives have only uncovered a fraction of the power of programs like these.

One wonders what the adjusting the relative percentages of Christians, Hindus and Muslims, or the musically gifted, in a workforce might have on innovation and customer friendly products.

One thing that makes the study of diversity difficult is that while the programs may have a positive return on investment, they may not be the dominant variable in a system.

In the event this is true, focus on more significant variables may be merited from a purely ROI perspective.

Mike.

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