Benefits of Workforce diversity for businesses.

benefits of diversity management
Worker diversity <-> customer diversity.

In recent years, the emphasis on diversity in terms of human resource management has grown a lot. As more and more benefits of diversity have come to light, companies are focusing on hiring and managing a more diverse workforce. Diversity means the ways in which people are similar or different. Demographic diversity and managing it strategically has become a key concern for human resource managers in the United States. While a large number of organizations globally promote their diverse workforce publicly, many of them also find it very difficult to manage workplace diversity with efficiency. However, despite the difficulties that come in the way of human resource managers trying to manage a diverse workforce, the business case for diversity has continued to grow stronger. Even the leading technology businesses like Apple, Microsoft, and Google rave about the benefits of diversity and publicize the diverse composition of their workforce.

Leading benefits of diversity at workplace:

Potential benefits in terms of decision making:

Often it is found that quality of decision making improves with higher diversity. People bring together varying opinions and perspectives at a workplace with higher diversity. This also leads to growth in the number of alternatives available. Such groups that value diversity, tend to make more outside the box decisions. More diverse groups can consider more alternatives while groups with lower diversity have fewer alternatives. Highly diverse teams are also better in terms of problem-solving. They can generate more original and unusual solutions for any problem. Research also suggests that such teams are more innovative compared to the others. Companies that want to grow the pace at which innovation is carried out inside their organization must try to hire people from diverse backgrounds and with diverse skill sets. The more diverse the teams, the decisions are going to be more fact-based. Over time a large amount of research has accumulated that shows that diversity has clear cut benefits in terms of decision making.

Higher customer orientation and better customer service

Companies that are more diverse in terms of their workforce composition, also tend to be more customer-oriented. A large number of international companies accept that the diversity of their workforce reflects the diversity of their customer base. International companies serve across various regions and have a large and diverse customer base to serve. Hiring people from diverse backgrounds that understand their customers better makes it easier for these companies to serve customers efficiently. Apple started releasing its diversity figures a few years ago. These figures show that the representation of women inside the organization in its US operations. Under 30 employees at Apple represent around one third of the total workforce of the company. These are also the fastest growing and most diverse portion of the company’s workforce in the United States. The global workforce of Apple had 33% women and 67% men in 2018. Higher diversity and more focus on hiring underrepresented minorities have brought some important benefits for the company. It helps Apple understand and serve its diverse customer base globally better. The companies having a more diverse workforce find it easier to understand the needs of diverse customer segments. Customers also find it easier to deal with companies that understand their needs well. 

Higher Employee Satisfaction:

Workplace diversity has also been linked with higher employee satisfaction. However, apart from attracting staff from diverse backgrounds, companies also need to have a diversity strategy and manage diversity strategically. Employees tend to feel more satisfied when they think that their company treats them fairly and they are not being discriminated against. Companies that value diversity, tend to treat and pay workers from diverse groups equally. Pay equity tends to maximize work satisfaction for workers. Often companies fail badly in this area. When workers from minority groups and female workers are paid less than the other groups for similar work, the result is higher dissatisfaction and stress. 

Apple has consistently focused on achieving higher pay equity across its global operations. In 2019, the company received a top ranking for Pay Equity by Arjuna Capital’s Gender Pay Scorecard in the technology industry. Other companies that reported 100% pay equity for male and female workers included Facebook, Intel, Alphabet, Adobe, Microsoft, Progressive Insurance, Starbucks, Texas Instruments, and eBay. When employees are paid equally, they feel more satisfied. Lack of pay equity tends to hurt employee morale by making employees feel like being discriminated against.

Higher stock prices:

The image of a company also affects its market performance. Often it has come to light that the companies that are good at managing diversity are rewarded on the stock market. Investors judge the reputation of a company and how well the company is being managed also on the basis of this information. Companies that have received rewards and recognitions for their focus on managing diversity at the workplace have also experienced a rise in their stock prices. On the other hand, the companies that have spoilt their reputation for their lack of focus on managing diversity efficiently and for allowing discriminatory practices to prevail at work lose their reputation and in many cases have to bear a decline in their stock prices. For example, there is a company that has earned an outstanding reputation in terms of HR and diversity management and has achieved a strong market image. Its employees are highly motivated and speak positively about the company outside. On the other hand, there is another company whose employees regularly complain of workplace discrimination and poor work environment. The second company is also facing litigation related to discrimination and has lost millions in settlements. You can easily compare which company will be performing better and enjoying higher stock prices in the long run.

Lower legal issues and expenses:

Legal issues are getting costlier day by day for businesses. Whether they are related to product quality, customers, or labor practices, litigations bring heavy fines. As the number of laws related to labor and discrimination at the workplace has grown in the US, companies are growing cautious about their work policies and treatment of their labor force. Companies that manage diversity efficiently do not face legal complexities or labor-related complaints. While on the one hand, they are not losing in the form of fines and settlements, on the other hand, their employee retention rates are also higher. In 2019, EEOC received 72,675 complaints of workplace discrimination. Such companies that are not so careful about how their managers are treating their employees or if their work policies are somehow encouraging discrimination, continue to face legal challenges and fines. On the one hand, it drives their operating expenses higher, on the other, it also spoils their reputation since they lose employees’ trust and fail to attract valuable talent. So, one important benefit of managing diversity is reduced operating expenses which may otherwise creep up because of labor-related litigations.

Improved financial performance:

A company’s human capital is also a source of competitive advantage for the organization. Managing them efficiently helps grow organizational productivity and strengthen market reputation. Now, you are already familiar with the several benefits of having a more diverse workforce. How they bring diverse skill sets and strengthen the company’s position in the market. Overall, it leads to improved financial performance in the market. Research has shown that managerial diversity increases the ability of a firm to compete in the market. With higher diversity in the managerial workforce, companies are able to create more competitive strategies and take more competitive actions which allows them to outperform other firms in the market. Therefore the companies that want to gain market share and earn distinct sources of competitive advantage must focus on managing diversity in their workforce.

Other sources: An Introduction to Organizational Behaviour.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.