Diversity & Inclusion: Competitive advantage?

Penny Holt asks where Diversity and Inclusion (‘D&I’) sits in an environment where initiatives that deliver tangible commercial results are valued above all others.

In 2013, businesses are driving change through productivity gains, cost minimisation and greater customer centricity. HR needs to be at the forefront and driving these changes by focusing on initiatives that deliver tangible commercial benefits.

So what place is there for Diversity and Inclusion (‘D&I’) in this environment? The reality is that experienced and successful HR leaders know that hardheaded, evidenced-based, commercially driven HR initiatives are required as a key to success with C Suite stakeholders and Boards. Like any other area of HR, D&I initiatives can build a competitive advantage for businesses. Understanding this is a powerful tool for HR professionals to deliver successful outcomes and accelerate their careers.

A business case for D&I

At a recent function hosted by The Next Step, Liz Griffi n, former Director, Global Diversity & Inclusion at Ernst & Young, shared her experience and insights on the topic of “Workforce Diversity: Compliance or Competitive Advantage?” Liz spoke on how the overall approach to diversity has changed over time, from an initial focus on equality and compliance – for the purpose of managing liability and risk; to a focus on diversity – concentrating on data collection and analysis; through to an emphasis on inclusion – creating a competitive advantage through workforce diversity – led by the words and actions of organisational leaders.

If the current environment is driving a need for strategic agility and improved productivity, what is the business case for the current D&I agenda? Liz indicated that research has shown that, by engaging a diverse stakeholder group, businesses will drive diversity of thought, flowing on to more sustainable engagement, which supports businesses in building more effective relationships (both with their own people and their customers). Metrics derived from a variety of research provides some strong evidence that a concerted focus on D&I can deliver positive commercial outcomes.

The supporting D&I metrics

Liz outlined that research undertaken by McKinsey in 2012 indicates that companies with more diverse executive teams have 53% higher ROEs and achieve 14% higher EBIT margins.¹ Companies with women Board members outperformed those without women Board members by 26% over the past six years in terms of share price, return on equity, gearing, book value and average growth.² Workforces that are both diverse and inclusive have 12% higher employee productivity; 19% higher retention; 57% higher team collaboration – diversity of thought and therefore innovation; and 42% higher team commitment.³ In terms of diversity of teams and experience, 85% of respondents stated this improves reputation or financial performance or both.4 As Liz indicated, these are very compelling numbers.

Positioning and execution

So given the strength of these metrics, how do HR practitioners develop the ability to position D&I as a cornerstone to their contemporary HR frameworks? More importantly, how do they develop the personal toolkit to successfully execute D&I initiatives?

If it is assumed that an engaged and productive workforce is key to any business strategy, HR practitioners, through open and business focused conversations, need to create an effective D&I agenda. They also need to outline what is involved in implementing this agenda, being aware that it will impact every aspect of business strategy; and, in Liz’s view, it’s not a matter of implementing a bunch of stand-alone initiatives.

Liz’s view is that implementing a D&I agenda is about macro, systemic change aligned with organisational perspectives encompassing structure and strategy, processes, capability and style. With this in mind, HR practitioners can work with business leaders to explore questions such as:

• Do organisational processes ensure we are identifying and developing the right talent, or are we recruiting in our own image?
• Do people leaders have the skills to identify and provide the right development opportunities to draw out team members’ diverse strengths and capabilities?
• Does the organisational structure allow opportunities for experienced people as they move through life stages and careers?
• Do we understand the organisation’s dominant leadership style? Is it allowing us to maximise productivity and hear from everyone in the team?
• Are leaders benefiting from innovation and diversity of thought across the business, e.g.in bringing new products to the market?

The final word

As Liz indicated, the first place in developing a D&I agenda for HR practitioners is building their own capability and toolkit to set the agenda. Understanding the research and presenting the metrics is a start. Business is commanding more strategic counsel from HR on people-related initiatives that will drive greater internal engagement and improved customer centricity, and the facts speak for themselves if presented well. If HR practitioners are able to bake D&I initiatives into business plans, they can be a powerful means of driving competitive advantage and enhanced commercial outcomes.

References:

1. McKinsey, Is there a payoff from top-team diversity? 2012

2. Credit Suisse Research Institute, Gender Diversity and Corporate Performance, 2012

3. Corporate Leadership Council, Creating Competitive Advantage through Workforce Diversity, 2012

4. Ernst & Young/Economist Intelligence Unit, Globalisation Survey, 2010

About the author

Penny Holt is a Senior Consultant in The Next Step's Executive Appointments team based in Sydney. For more information, call 02 8256 2500 or email [email protected]. Website: www.thenextstep.com.au