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The Business Case for Diversity

by Dr. Edward E. Hubbard

Why should you concern yourself with effective diversity management?

In the past, many managers answered this question out of a sense of the "right thing to do"

or because they were seeing more and more people who didn't look like them in the workforce, or merely felt they had to meet the organization's requirement for working with diverse groups. However, today's managers know that without effective diversity management capability, organizational effectiveness is in jeopardy. Being effective at managing a diverse workforce helps to lift morale, improve processes, bring access to new segments of the marketplace and enhance productivity of the organization. In essence, it is good for business.

In profit-making organizations, maximizing the difference between revenues and costs optimizes performance. This same goal exists in many non- profit organizations, except that the result is called surplus instead of profits. The question therefore is: "How is workforce diversity and its management related to revenues, costs, or both?" To answer this question we can explore several concepts and strategies that illustrate the impact of diversity on business performance. These concepts and strategies include items such as marketing strategies, problem-solving strategies, creativity and innovation that can be viewed as important factors in revenue generation.

Marketing Strategies

We live in an increasing global world that is diverse. Whether your business includes marketing financial services, computers, telecommunications products, social services, health care equipment, manufacturing processes, engineering expertise, and the like, expertise in addressing a diverse customer market will be essential to your success. For example, an automobile manufacturer in Japan cannot afford to ignore the fact that nearly half of all new car buyers in the United States are women. This is true regardless of the gender make up of car buyers in Japan. Likewise, no reasonable person in the consumer-goods industry can afford to ignore the fact that roughly a quarter of the world's population is Chinese and immigration to the United States from mostly Asian and Latin American countries is occurring at a rate of more than a million people per year.

In the United States, Asians, African-Americans, and Hispanics combined now collectively represent nearly $1 Trillion dollars annually in consumer spending. The Selig Center for Economic Growth's (from the University of Georgia Terry School of Management) estimates and projections of buying power for 1990-2007 show that minorities—African Americans, Asians, Native Americans, and Hispanics— definitely share in this success, and together wield formidable economic clout. As these groups increase in number and purchasing power, their growing shares of the U.S. consumer market draw avid attention from producers, retailers, and service providers alike.

The buying power data presented here and differences in spending by race and/or ethnicity suggest that one general advertisement, product, or service geared for all consumers increasingly miss many potentially profitable market opportunities. As the U.S. consumer market becomes more diverse, advertising, products, and media must be tailored to each market segment. With this in mind, new entrepreneurs, established businesses, marketing specialists, economic development organizations, and chambers of commerce now seek estimates of the buying power of the nation's major racial and ethnic minority groups. The Selig Center projects that the nation's total buying power will rise from $4.3 trillion in 1990 to $7 trillion in 2000, to $7.6 trillion in 2002, and to $9.9 trillion in 2007. The percentage increase for the seventeen-year period, 1990-2007, is 130.8 percent, which far outstrips cumulative inflation. These diverse forces support this substantial growth.

Buying Power Statistics by Race

In 2007, the combined buying power of African American, Asians, and Native Americans will be more than triple its 1990 level of $453 billion, and will total almost $1.4 trillion, a gain of $912 billion or 201 percent. In 2007, African Americans will account for 62 percent of combined spending, or $853 billion. Over this seventeen-year period, the percentage gains in minority buying power vary considerably by race, from a gain of 287 percent for Asians to 197 percent for American Indians to 170 percent for blacks. All of these target markets will grow much faster than the white market, where buying power will increase by only 112 percent.

The combined buying power of these three groups will account for 13.8 percent of the nation's total buying power in 2007, up from 10.6 percent in 1990. This 3.2 percent gain in combined market share amounts to an additional $316 billion in buying power in 2007. The market share claimed by a targeted group of consumers is important because the higher their market share, the lower the average cost of reaching a potential buyer in the group. To be effective managers in organizations must possess effective multi-cultural marketing savvy to meet specific needs of a diverse marketplace to affect buying behavior.

If an organization plans to sell or deliver goods and services in a diverse marketplace, it must be fully capable of effectively utilizing its diverse workforce in key strategic ways. For instance, it is important from a public relations point of view to be viewed as a company that is known for managing and utilizing its diverse workforce assets well. There are a number of well-publicized ratings for "The Best Company for Working Women and Working Mothers", "The Most Admired Company" and the "The Top 50 Companies for Women and Minorities". This fuels a public relations climate where workforce talent and consumers make choices about the organizations they would work for and buy from. This line of thinking is also supported by a study of stock price responses to publicity that changed either positively or negatively on an organization's ability to manage diversity. The authors found that announcements of awards for exemplary efforts resulted in significant positive changes in stock prices while announcements of discrimination suits resulted in significant negative changes in stock prices (Wright, Ferris, Hiller & Kroll, 1995).

In addition, organizations can gain a lot from the insights of its diverse workforce to understand the cultural effects of buying decisions and mapping strategies to respond to them. Depending on the product or service delivered by the organization, many employees may also represent part of the firm's customer base! A good reputation inside the organization can help product and service sales outside the organization. Another key marketing strategy includes tapping employee network or resource groups. They can be an excellent resource for focus groups, feedback and ideas for honing the organization's reach into diverse marketplace opportunities.

Problem Solving

Revenue increases can also show up due to improvements in diverse work team problem solving and decision-making. Diverse work teams have a broader and richer base of experience to draw on in solving organizations problems and issues. The presence of minority views creates higher levels of critical analysis of assumptions and implications of decisions. In addition, it also generates an increase in the number of alternatives from which the group chooses. Problem solving benefits from diverse work groups do not happen by simply mixing people together who are culturally different. The improved outcomes heavily depend on a diversity-competent manager utilizing key diversity management behaviors.

In one study, researchers found that properly managed and trained diverse work teams produced scores that were six times higher than homogeneous teams. Researchers also found that it is important how a diverse team uses its diversity. For example, those diverse teams that recognized and utilized their diversity had higher productivity. Even when the team was diverse, if that diversity is not used effectively, it can cause process problems that result in lower team productivity. The essential variable is the ability to "effectively manage and utilize the team's diversity".

Creativity and Innovation

Creativity and innovation can be vital to an organization's ability to perform. New product introductions, advertising, process re-engineering, quality improvements and the like are examples where these skills are required. Diverse work teams have also been found to promote improved creativity and innovation that generates revenue. In her book The Change Masters (1983), Rosabeth Moss Kanter notes that highly innovative companies have done a better job of eradicating racism, sexism, and classism; tend to have workforces that are more race and gender diverse, and take deliberate steps to create heterogeneous work teams with the objective of bringing that diversity to bear on organizational problems and issues.

About the Author: Dr. Edward E. Hubbard, President and CEO of Hubbard & Hubbard, Inc., and author of the books: "Measuring Diversity Results" and "How to Calculate Diversity Return on Investment", can be reached in Petaluma CA, at phone  707-763-8380; fax (707) 763-3640. Other books by Dr. Hubbard to be released soon include: "Building a Diversity Measurement Scorecard", "Diversity Strategic Planning: How to build a measurable framework for diversity"

Hubbard & Hubbard, Inc., headquartered in Petaluma, California, is a privately owned, International Organization and Human Performance Consulting corporation. Our sole business is to assist private and public organizations to strategically manage their human and other resources to obtain maximum performance and measurable results to meet their business plan objectives.

Our researched-based consulting, training and education systems strategically address the unique needs of each client using practical, comprehensive methods as well as providing the highest quality customer service.