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Diversity Leadership by the Numbers: Making a Measurable Differenceby Dr. Edward E. HubbardCan diversity make a measurable ROI difference in organizational performance? What role does leadership commitment play in making this happen?
Discussions of diversity in organizations is an on-going topic of conversation today throughout the U.S. and globally. As technology and other inventions help bring the world within easy reach, discussions of building skills to leverage diversity are now center stage. From a leadership and OD perspective, these questions are central elements in any discussion of diversity and its value in organizations.
Making a Measurable Difference Organizations that want to thrive in today’s global marketplace know that they have to focus well beyond adding technology, efficient production processes, and innovative products (Poole, 1997). In fact, it can be argued that none of these approaches will add significantly measurable improvements unless all employees have an environment that allows them to do their absolute personal best work. Forward-thinking organizations know that their competitive strength lies in focusing on their employees and their customers. For an organization to improve its performance and results, it must increase customers from new, emerging majority markets and be able to attract, motivate, and retain high-potential employees—including men and women from all backgrounds and walks of life (Hubbard, 2004). An excellent example of diversity leadership by the numbers is Prudential Financial. Prudential Financial’s diversity efforts grew out of a recognized need for change as determined by both external and internal indicators. Like other companies, they began to study the impact of the marketplace and changing workforce demographics on their employee population and customer base. Reports projecting the increase in women and people of color entering the workforce, the population growth of ethnic minorities in the United States and the impact of a growing global economy, forced the company to think and respond more effectively about diversity in the workplace. Internally, the need for change was highlighted as early as the 1980s by employee surveys and focus groups indicating that Prudential scored below external benchmark data on key business and people drivers such as “communication” and “teamwork”. There was also a growing gap on key survey items when comparing responses by demographic sorts (race, rank and gender). Results indicated that people of color, women and non-management employees experienced lower satisfaction levels than their counterparts. Prudential was determined to make an effort to close those gaps, increase overall employee satisfaction across the board and improve its business performance. Based on these concerns, several actions were taken to improve the environment and increase their focus on diversity. One diversity return on investment (DROItm) initiative launched within Prudential addressed issues of employee retention and turnover. Their commitment to excellence in utilizing diversity strategies resulted in value that could be shown in dollars and cents. The initiative concentrated on improving manager’s understanding of diversity, increasing their skills in the use of specific diversity leadership competencies, as well as enhancing their understanding of work-life balance policies and how to apply them. As a result of this effort, first year financial returns from turnover and retention savings yielded a benefit-to-cost ratio of 4.2:1 (that is, for every $1 invested, $4.20 is returned) for a Diversity Return on Investment (DROItm) percentage of 320%. Studies conducted by the Hubbard Diversity Measurement and Productivity Institute and others show turnover costs calculated to 1.5 times the salary of an employee to replace them and .75 times the salary of a non-exempt, hourly worker. Thus, any initiative which effectively reduces turnover, improves retention, and delivers benefit-to-cost ratios and DROItm numbers like those achieved by Prudential add value to the bottom-line (Hubbard, 1999). Diversity is not about counting heads, it’s about making heads count. It is not only about representation, it is about utilization! Organizations must be both diverse and inclusive in order for organizational performance to be measurably different. Events such as changing customer marketplace demographics, mergers and acquisitions, an expanding world economy, and the like require everyone in the organization to work together effectively. Organizations are realizing that managing marketplace change, system flexibility, teamwork, and measurement and analysis is central to the drive for Six Sigma–level quality and innovation in products and services. Years of research have shown that well-managed, heterogeneous groups will generally outperform homogeneous groups in problem solving, innovation, and creative solution building—exactly the capabilities that are critical to business success in today’s fast-paced global marketplace. A useful tool to begin tracking your organization's utilization of minorities and women is shown below: Template 2: Hubbard Minority and Female Workforce Utilization Analysistm Hubbard Minority and Female Workforce Utilization Analysistm
This tool can be programmed quickly in an Excel spreadsheet to automate you calculations. Organizations will have to be diverse because their customers are becoming more diverse, both abroad and in the United States. In the United States today, African Americans, Hispanics, Asian Americans, and Native Americans have an estimated combined spending power of more than $1.3 trillion. The shift to a service economy only increases the value of diverse employees, who may be better able to understand and negotiate with such customers. However, none of this will be possible without diversity champions (like those at Prudential) providing leadership vision, commitment, guidance, and incentives along the way.
Importance of Diversity Leadership Commitment Diversity leadership commitment can be defined as demonstrated evidence and actions taken by leaders to support, challenge, and champion the diversity process within their organization. It reflects the degree to which the organization’s leaders utilize behaviors that set the diversity vision, direction, and policy into actual practice and integrates its processes for strategic performance. It also reflects the individual level and degrees of accountability leaders have in forging an implementation strategy, which can be analyzed by the level of specific behavior they exhibit as a model diversity champion. From an organizational change point of view, diversity leadership commitment is the behavior that helps establish a direction or goal for change (a vision), provides a sense of urgency and importance for the vision, facilitates the motivation of others, and cultivates necessary conditions for achievement of the vision. Diversity leadership commitment is critical to the diversity change process. It cannot be delegated or given just tacit consideration. It is clear that the CEO of the organization and/or heads of the main operating units have primary responsibility for breakthrough progress on diversity. If they do not hold themselves accountable for the leadership requirements to execute diversity initiatives, the change effort is doomed to failure. As a unifying force, diversity leadership commitment throughout the organization serves as a key linchpin for success that is combined with the efforts of others to sustain forward progress. At Prudential for example, when I talk about the creation of a winning diversity strategy with leadership as a major component, the support of the senior leaders is extraordinary. The Leadership Team, known as the “Policy Committee” is made up of the U.S. based direct reports to the Chairman. In 1999, Emilio Egea, the Chief Diversity Officer (also the head of Equal Opportunity), engaged the Policy Committee in meaningful dialogue regarding diversity. As a result, they agreed to: · Be proactive by personally determining the areas of diversity measurement: - Profile Representation - Environment - Leadership · Increase accountability for results and incorporate related metrics into business group scorecards. The scorecard contained an overall HR impact on managements’ bonuses, 10% of which related to diversity representation and leadership · Become world class by identifying and aspiring to external benchmarks (i.e., Fortune Magazine’s Top 50 Companies for People of Color) A critical player was Prudential Financial’s Chairman & CEO, Art Ryan. He demonstrated by his actions and behaviors that diversity is an important part of Prudential’s business. He takes diversity results seriously and has used key diversity metrics results and feedback from the Chief Diversity Officer to incorporate comments into the performance appraisals of his direct reports which he uses to recognize and reward diversity champions among them (Hubbard, 2004). Although there have been changes to the components and weight attached to diversity, throughout this time period, Prudential has consistently held senior management accountable for diversity progress by continuing to have diversity metrics as a component of both their personal performance appraisals and their variable compensation. Additionally, all management is impacted by results in that the company and business group scorecards impact the size of the compensation pool available for management bonus. In 2001, bonuses became available for employees at all levels, further emphasizing the impact of these metrics on compensation of all employees. Today, as a result of its strategically-focused work on diversity, Prudential has not only met the goals stated above, but exceeded its goals for diversity and continues to set new standards for world-class diversity management. Prudential’s Chief Diversity Officer, Emilio Egea stated “The biggest benefit comes from knowing that the integration of diversity into business and human resource processes has caused us to advance in our quest to remain an “employer of choice” and a company with a “winning” business strategy.”
Summary Diversity leadership commitment and managing by the numbers is a mandatory prerequisite for improved performance and organizational success. Leadership behaviors set the stage and model requirements that drive, direct, and select what is important and valued in the organization’s culture. A leader or leadership team that is highly committed to diversity and “walks their diversity talk,” sends a message that diversity is a strategic partner in meeting the goals and objectives of the organization. When diversity leadership and diversity performance metrics are used effectively, the Return on Investment (ROI) success of the organization’s diversity efforts will become evident in it’s overall bottom-line!
References Hubbard, Edward E. How to Calculate Diversity Return on Investment. Petaluma, CA: Global Insights, 1999. Hubbard, Edward E. Implementing Diversity Measurement and Management. Petaluma, CA: Global Insights, 2004. Hubbard, Edward E. The Diversity Scorecard: Evaluating the Impact of Diversity on Organizational Performance. Burlington, MA: Elsevier Butterworth-Heinemann, 2004. Poole, Phebe-Jane. Diversity: A Business Advantage. Ajax, Ontario: Poole Publishing, 1997.
Diversity Return on Investment (DROI®) is a registered trademark of Hubbard & Hubbard, Inc. All Rights Reserved.
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