The Business Case for Cultural Intelligence

The Business Case for Cultural Intelligence

by Felicity Menzies

Today’s business leaders face unprecedented diversity in their markets and their workforces. Regardless of the industry, location, or size of the company, the globalisation of business means everyone can do business with anyone—and competes with everyone.

Increased integration across customer, talent, and supplier markets has increased the complexity of business. Individuals from different social or cultural backgrounds naturally think, feel, and behave differently. In business, the misunderstandings, tensions, and biases caused by those differences can lead to missed opportunities, legal challenges, decreased returns, and even outright failure.

Not only is the business environment increasingly diverse and complex, it is also fast-moving and unpredictable. Cultural shifts occur suddenly, with dramatic implications for business models. Swings in consumer demand, the emergence of nontraditional customers and suppliers, technological innovations, and policy changes all can radically alter the competitive landscape with incredible rapidity.

The business environment has become increasingly complex, volatile, and uncertain. Against this background, only those organisations that can effectively manage change and respond quickly will survive. Today’s business leaders understand this. They know agility is the new planning. When you don’t know what is coming next, the best response is to be ready for anything. Organisations must be able to move as quickly as their markets. Companies must be able to quickly detect and adapt to changing consumer trends, emerging opportunities, new risks, and talent and supplier shifts.

That makes innovation critical. That makes understanding the diversity across your markets critical as well. Innovation and diversity awareness will ensure businesses stay relevant, capture new opportunities, and engage the top talent they need to thrive and survive amidst the chaos.

The diversity paradox

Diversity is by its very nature complex, but that complexity has tremendous value. New consumer markets offer opportunities for growth. The integration of diverse perspectives, knowledge, and experience can drive innovation. The global labour market increases the pool of talent a company can recruit from. Diverse workforces can better understand and respond to the needs of diverse customers and increase access to suppliers and other stakeholders.

Research continues to produce results that support the importance of diversity for organisational performance. Studies show workforce diversity drives growth, sales revenue, profitability, market share, share price performance, and return on equity.

In particular, cultural diversity offers the insight and flexibility needed for sustainable global success. Organisations with a culturally diverse leadership are 35 percent more likely to outperform their industry peers.

In response, diversity management is de rigueur for today’s leading global companies. Organisations make significant investments in recruiting and retaining diverse workforces. And market leaders extend their diversity efforts outwards, building diverse stakeholder networks. With a greater focus on the strategic value of diversity, organisations across all industries are setting more aggressive diversity targets and ramping up their diversity efforts. Accountability for diversity management often sits with the C-suite and board of directors.

But despite these efforts, many organisations fail to achieve their diversity goals. Leaders struggle to create the inclusive work environments necessary to attract, retain, and engage diverse employees and unlock the potential value in a diverse workforce for innovation and agility.

And established organisations continue to stumble in their global ambitions. Less than half of business leaders do not believe their organisations are flexible enough to respond to change across diverse markets. Despite significant investments in global leadership programs, almost half of firms with these programs doubt their effectiveness.

Pursuing diversity in your markets and your workforce is only half of the solution. Because diversity is complex, its benefits for growth, innovation, and talent optimisation will only be realised if your workforce has the knowledge, skills, and abilities required to manage that complexity.

The solution: Cultural Intelligence

Cultural Intelligence provides leaders with a proven tool to help narrow the complexity gap. Backed by over a decade of robust academic research and practical application, Cultural Intelligence offers organisations a framework for managing diversity that yields tangible results.

Cultural Intelligence is an individual’s capability to function and manage effectively in culturally diverse settings—the collection of knowledge, skills, and abilities that enable an individual to detect, assimilate, reason, and act on cultural cues appropriately. As a tool for managing any form of cultural diversity, whether national, gender, generational, ethnic, health status, sexual orientation or other subculture, Cultural Intelligence helps turn a business risk into a strategic strength.

Individuals with high Cultural Intelligence display four main competencies:

CQ Drive is the willingness to work with others from diverse backgrounds. It includes an ability to overcome explicit or unconscious bias and the capacity to persist in challenging intercultural settings—even when the individual feels confused, frustrated, or burnt out.

CQ Knowledge is the understanding of culture and cultural differences. That involves more than awareness of variations in language, customs, and appearance. Core cultural differences like values, assumptions, and beliefs are often invisible but cause the most problems—and are frequently overlooked.

CQ Strategy is the ability to flex mentally. With high CQ Strategy, individuals are not confined to a single worldview. They are open to new or integrative ideas.

CQ Action is the ability to flex verbal and non-verbal behaviour. CQ Action decreases the risk of miscommunication and helps an individual respond to diverse others in a manner that conveys respect and builds trust and rapport.

A proven model

The four competencies that form high Cultural Intelligence are not abstract ideas. Social scientists have demonstrated that those competencies map to particular regions of the brain. Studies show they predict important measures of performance in diverse cultural settings, including better problem solving and decision-making, improved well-being, and better task performance. In fact, Cultural Intelligence is a better predictor of effectiveness in diverse settings than cognitive ability, emotional intelligence (EQ), personality, demographic characteristics, and international experience.

Manage any cultural setting

It is increasingly misleading to categorise individuals into a social group. An individual’s cultural identity involves the integration of multiple cultural influences over the course of his or her life.

Cultural identity is fluid and changes infinitely as new experiences mould and shape belief systems and behavioural patterns. Cultural Intelligence, as a dynamic learning capability, mirrors this dynamism and enables a person to construct a unique cultural map for every new cultural encounter, constantly questioning and amending assumptions as new learnings come to hand.

Cultural Intelligence is not about becoming an “expert” in any one culture. Instead it involves an inclusive mindset and adaptable behavioural repertoire that promotes cultural fluency across varied contexts. By transcending rigid stereotypes, Cultural Intelligence accommodates for nuanced cultural differences and that makes Cultural Intelligence a powerful tool for managing the complexity of diversity and unlocking its potential.

The competitive advantage of Cultural Intelligence

Every organisation needs to be able to detect and manage change in their markets. And this needs to happen quickly to future-proof your competitiveness. With Cultural Intelligence, companies can thrive in turbulent times. They are adaptable and resilient.

A workforce with high Cultural Intelligence possesses the dynamic competencies needed to continuously adapt processes, products, and services to capture new opportunities and respond to change across diverse markets.

Cultural Intelligence improves organisational agility by preventing organisational silos and turf wars and encouraging customer centricity, challenging the status quo, and an increased willingness for change.

Cultural Intelligence helps to foster an organisational culture where diverse viewpoints drive new insights. Cultural Intelligence encourages expansive and integrative new ways of thinking. This drives innovation, creativity, and experimentation.

Cultural Intelligence improves and speeds up problem-solving and decision-making in ambiguous, complex, and volatile environments. Without Cultural Intelligence, an organisation is myopic. Without an ability to look outside itself and think divergently, businesses lacking Cultural Intelligence may miss emerging opportunities, fail to strategise to take advantage of new opportunities, or fail to successfully execute adaptive strategies.

Leaders and workers with high Cultural Intelligence can establish trust and rapport and build strong collaborative networks both inside and outside the organisation. They can build strong alliances across the globe to help them capture new opportunities. They are better at engaging with suppliers and collaborators and influencing policy makers and other stakeholders external to the organisation.

Cultural Intelligence improves inclusion. Leaders with Cultural Intelligence inspire and unite diverse employees with a shared and well-articulated vision. Diverse employees contribute fully to work processes. Workplaces are more harmonious. Workers are more satisfied, engaged, and committed. Companies are better able to win and energise top global talent.

Developing Cultural Intelligence

Cultural Intelligence is not a personality trait, nor something you are born with. Rather Cultural Intelligence can be developed with education, training, and experience. This malleability provides companies with an opportunity to create an enviable competitive advantage—a capacity for innovation and agility—that can drive sustainable global growth.

As markets become more diverse, diversity competence will emerge as an increasingly powerful driver of performance and profits.  Cultural Intelligence can help you to build a sustainable business that captures as many customers as possible and provide them with the best products, continuously. Cultural Intelligence can accelerate you ahead of your competitors. Companies without it are not even in the race. The time to invest in Cultural Intelligence is now. You can’t lead in global markets without it.

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Felicity Menzies is CEO and Principal Consultant at Include-Empower.Com, a diversity and inclusion consultancy with expertise in inclusive leadership, unconscious bias, cultural intelligence and inclusion, gender equity, empowering diverse talent. Felicity is an accredited facilitator with the Cultural Intelligence Centre and the author of A World of Difference. Felicity has over 15 years of experience working with and managing diverse workforces in blue chip companies and is a Fellow of Chartered Accountants of Australia and New Zealand. Felicity also holds a Bachelor of Commerce and a Bachelor of Arts in Psychology.