Understanding diversity and inclusion and the business benefits

Understanding diversity and inclusion and the business benefits

by Felicity Menzies
Today, it is increasingly common for diversity initiatives to be called ‘diversity and inclusion’, but these terms are not interchangeable. The meanings of diversity and inclusion are not the same and the business benefits of diversity rely on both being present in an organisation.
Diversity is the representation of different social or cultural groups in a workforce. Inclusion refers to the active integration of diversity into an organisation’s work processes. Inclusion is achieved when all members of the organisation are enabled to fully participate in and contribute to an organisation’s decision-making processes and operations.

Business Benefits of Diversity

Growth across diverse consumer markets

A diverse workforce supports growth across diverse and rapidly changing consumer markets because diverse employees can better understand and respond to the needs of varied customers. Many companies hire employees from different backgrounds because they personally represent the tastes, sensibilities and interests of a broad range of customer segments. As populations become more diverse, through immigration and cultural changes, this factor becomes increasingly important.

Effective global partnerships

A diverse workforce also supports growth by increasing access to new suppliers and the formation of positive partnerships with other stakeholders such as policy-makers or investors across global markets.

Expanding and enriching a pipeline of top local and global talent

The global labour market increases the pool of talent a company can recruit from—expanding and enriching the talent pool for the organisation. Rapid economic growth globally, and particularly across Asia Pacific, has increased the demand for skilled talent, in some cases straining the ability of the local labor market to keep up, particularly in countries with low and falling birth rates. In response, companies are widening their recruitment efforts, past talent pools they may have overlooked in the past to build a robust pipeline of global and local talent that can support future growth.

Improved problem solving and decision making and increased innovation

Lately, there has been an increased focus on the value of a diverse workforce for higher-quality information processing and innovation. The greater variety of ideas and perspectives accompanying a diverse workforce increases the breadth of solutions available for problem-solving, promotes more critical information-processing in decision making, prevents groupthink, and challenges and changes existing business practices and assumptions to drive innovation in the firm’s practices and products and services. When people in a workforce are alike, they will reach the same conclusions more quickly. Diversity, in contrast, is like having 360-degree vision. It may take a little longer to reach a decision or design a new product or service, but the company will have a better and more robust solution as a result of integrating diverse views.

Managing legal and reputational risk

Also, diverse workforces also improve compliance with local employment laws, for example, quotas for hiring people with a disability or ethnic groups, and contribute to a firm’s CSR efforts by improving workforce participation rates of traditionally marginalised groups. In many markets, employee diversity improves the organisation’s image and is particularly important for attracting millennial and female consumers and talent to the organisation. Studies indicate that social responsibility values such as diversity are valued highly by members of those groups. In this way, workforce diversity is a valuable brand differentiator.

The Value in Diversity

An increasing body of evidence shows a statistically significant relationship between the financial performance of a company and the extent of diversity in its leadership team. While the evidence only supports a correlation, not necessarily a causal link, the findings indicate that businesses with diverse leadership teams outperform businesses with homogenous leadership teams.
Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their national industry medians. (McKinsey, 2015).
Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their national industry medians. (McKinsey, 2015).
Asia Pacific firms with at least 10 percent women on boards have average ROE of 15.4% compared to 11.8% for those that do not. (Korn Ferry/NUS, 2015).
On a sector-adjusted basis, Credit Suisse LGBT 270 index has outperformed the MSCI AWCI by an excess of 3% per annum over the past six years returning 6.4% on average each year. (Credit Suisse, 2016).

 Diversity Challenges

Workforce diversity is a double-edged sword. Diverse groups can both enhance and detract from group performance.
While diversity offers potential benefits, diversity also enhances the potential for language and other communication barriers. It heightens the risk of ambiguity, value conflicts, reasoning and decision-making differences, and stereotypes and bias threaten rapport and stifle the exchange of information and ideas.
Workforce diversity is associated with poor team integration and cohesion, decreased satisfaction and commitment, and increased turnover.

Inclusion Unlocks the Value in Diversity

Diversity management refers organisational efforts to manage the complexity of workplace diversity and unlock its strategic value. Today’s best-practice diversity management involves an organisational culture that values, embraces and celebrates individual differences. Diversity practitioners and researchers refer to this as inclusion.
Without an inclusive culture, the challenges of a diverse workgroup can overshadow the potential benefits. Diversity may even detract from work performance. Prejudice, discrimination, stereotyping, isolation and communication barriers may prevent employees from underrepresented groups fully contributing to workplace decision-making and practices. Diversity, per se, does not guarantee workgroup outperformance, but diversity plus inclusion does.

The Value in Inclusion

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Organisations that give diverse voices equal airtime are nearly twice as likely to unleash value-driving insights and their employees are 3.5 times more likely to contribute their full innovative potential.



Firms with inclusive cultures are 45% more likely to report a growth in market share over the previous year and 70% more likely to capture a new market.

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The positive effects of diversity practices on employee trust and engagement depend on high perceptions of inclusion.

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Employees who feel included are more likely to go beyond the call of duty to help co-workers.

An inclusive culture is an environment where all employees:

Feel Respected

Respect exists when employees perceive that their uniqueness is valued and that they can bring their whole and authentic selves to work.

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Only when employees feel comfortable bringing their authentic selves to work will the company benefit from their differences. In an inclusive context, employees with non-majority social and cultural identities are more likely to share their diverse perspectives, knowledge, experience.

Are Empowered

Inclusive workplaces recognise the different needs of diverse employees and ensure that work practices accommodate for those differences.

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One common misperception of inclusion is that it involves treating all employees the same. Rather, inclusion involves recognising that different employees face unique challenges at work. Inclusive workplaces recognise the different needs of diverse employees and ensure that work practices accommodate for those differences to ensure all employees can contribute. Examples include physical adjustments like wheelchair ramps, prayer rooms, breastfeeding rooms; also scheduling adjustments like flexi-work, job-sharing, telecommuting. Other empowerment initiatives for underrepresented groups involve tailored professional development and career plans, networking, mentoring and sponsorship.

Experience a Sense of Belonging

Belonging is the perception that you belong to a workgroup and are an essential member of that group.

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Belonging results when an individual’s social and emotional needs for connection with others are met. Employees who experience a sense of belonging to their workgroup feel emotionally safe and supported at work. They feel that they are part of a community—a core member of a collective whole.

Can Achieve Their Full Potential

Ultimately, the extent to which an organisation is inclusive is reflected in its development and promotion of diverse talent and the diversity of its leadership team.

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Inclusive workplaces recognise the role of bias in workplace inequality, scrutinise the employee life-cycle for institutionalised bias and train recruiters and managers in fair and objective selection, appraisal and development to ensure that members of underrepresented cultural or social groups have a fair chance of progressing in the organisation alongside members of the traditionally dominant group.

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