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Using a Diversity ROI Analytics Business Case to Show Diversity & Inclusion’s Payoff in Big $$$

Organizations depend on their diverse employees to grow their bottom line and achieve the aggressive goals needed to win in today’s global, fast-paced economy. They know the marketplace is full of a diverse group of customers, yet they do not always effectively utilize their diverse workforce members to create innovative, paradigm-shifting solutions.

This guide is designed to help you build your Diversity ROI Business Case to demonstrate value-added by aligning with key business goals and objectives:

  1. Market Share Improvement
  2. Improving Global Leadership and Management Capability
  3. Lowering Costs and Increasing Productivity
  4. Developing New Revenue Sources

Why should you concern yourself with effective Diversity ROI Measurement and Management? In the past, many managers answered this question out of a sense of the “right thing to do” or because they were seeing more and more people who didn’t look like them in the workforce, or merely felt they had to meet the organization’s requirement for working with diverse groups. However, today’s managers know that without effective diversity management capability, organizational effectiveness is in jeopardy. Being effective at managing a diverse workforce for example, helps to lift morale, improve processes, bring access to new segments of the marketplace and enhance productivity of the organization. In essence, it is good for business.

In profit-making organizations, maximizing the difference between revenues and costs optimizes performance. This same goal exists in many non-profit organizations, except that the result is called surplus instead of profits. The question therefore is: “How are workforce Diversity and its management related to revenues, costs, or both?” To answer this question we can explore several concepts and strategies that illustrate the impact of diversity on business performance. These concepts and strategies include items such as marketing strategies, problem-solving strategies, creativity and innovation that can be viewed as important factors in revenue generation.

Marketing Strategies and Market Share Improvement

We live in an increasing global world that is diverse. Whether your business includes marketing financial services, computers, telecommunications products, social services, health care equipment, manufacturing processes, engineering expertise, and the like, expertise in addressing a diverse customer market (Business-Consumer Archetype) will be essential to your success. For example, an automobile manufacturer in Japan cannot afford to ignore the fact that nearly half of all new car buyers in the United States are women. This is true regardless of the gender make up of car buyers in Japan. Likewise, no reasonable person in the consumer-goods industry can afford to ignore the fact that roughly a quarter of the world’s population is Chinese and immigration to the United States from mostly Asian and Latin American countries is occurring at a rate of more than a million people per year.

We know that in the United States, Asians, African-Americans, and Hispanics combined now collectively represent over a $Trillion dollars annually in consumer spending. The Selig Center for Economic Growth (from the University of Georgia Terry School of Management) estimates and projections of buying power for minorities—African Americans, Asians, Native Americans, and Hispanics—definitely share in driving business success, and together wield formidable economic clout. As these groups increase in number and purchasing power, their growing shares of the U.S. consumer market draw avid attention from producers, retailers, and service providers alike.

The buying power data presented here and differences in spending by race and/or ethnicity suggest that one general advertisement, product, or service geared for all consumers increasingly miss many potentially profitable market opportunities. As the U.S. consumer market becomes more diverse, advertising, products, and media must be tailored to each market segment. With this in mind, new entrepreneurs, established businesses, marketing specialists, economic development organizations, and chambers of commerce now seek estimates of the buying power of the nation’s major racial and ethnic minority groups.

In a Business-Consumer Archetype (B to C), your diversity measurement strategies and analytics must be “Relationship/Brand Focused”. They must measure your organization’s ability to build customer intimacy knowledge and “use it” in measurable ways to generate outcome-based results that add revenue and other value to the bottom-line. Sample Diversity measurement strategies must focus on areas such as: Cultural Competence, Market Share, Brand, Relationship/Service-based outcomes, etc.

Sample metrics may include:

  • % Market Share
  • $ Share of Wallet by Demographic Group
  • #/% Diversity Competent Leaders/Managers by Demographic Group
  • #/% New Products generated by Demographic Group and for Demographic Groups
  • Improvement in Average Speed of Problem Resolution using Diverse Work Team Suggestions
  • % Favorable Response on Diverse Customer Satisfaction Surveys

In a Business-Business Archetype (B to B) on the other hand, your Diversity Measurement strategies and Diversity Analytics must be “Relationship/Product/Process Focused”. Sample Diversity measurement strategies must focus on areas such as: Innovation, Creativity, Process Improvement, Relationship/Service-based outcomes, etc.

Sample metrics may include:

  • Consultative Selling-Culture/Style Match
  • Customer Relations Effectiveness using Diverse Workforce Suggestions
  • Creativity (Competitive Edge Generation) – # Patents Generated by Demographic Group
  • Innovation (Diverse Work Team)
  • Cycle-time Reduction – Process speed to market
  • Solution Set Match-to-Problem (Improvements generated by diverse team)
  • Cost Reduction (strategic Diversity)

Research to prove the value of Diversity and Inclusion must clearly demonstrate a “causal chain of impact” working through seven levels of analysis as well as isolate Diversity and Inclusion’s contribution from other possible contributors. These processes and sciences are embedded in in the Hubbard Diversity ROI Methodology and the Diversity High Impact Mapping process.

Improving Global Leadership and Management Capability

If an organization plans to sell or deliver goods and services in a diverse marketplace, it must be fully capable of effectively utilizing its diverse workforce in key strategic ways. For instance, it is important from a public relations point of view to be viewed as a company that is known for managing and utilizing its diverse workforce assets well. There are a number of well-publicized ratings for “The Best Company for Working Women and Working Mothers”, “The Most Admired Company” and the “The Top 50 Companies for Women and Minorities”. This fuels a public relations climate where workforce talent and consumers make choices about the organizations they would work for and buy from. This line of thinking is also supported by a study of stock price responses to publicity that changed either positively or negatively on an organization’s ability to manage diversity. Many studies have found that announcements of awards for exemplary efforts resulted in significant positive changes in stock prices while announcements of discrimination suits resulted in significant negative changes in stock prices.

In addition, organizations can gain a lot from the insights of its diverse workforce to understand the cultural effects of buying decisions and mapping strategies to respond to them. Depending on the product or service delivered by the organization, many employees may also represent part of the firm’s customer base! A good reputation inside the organization can help product and service sales outside the organization. Another key marketing strategy includes tapping employee network or resource groups. They can be an excellent resource for focus groups, feedback and ideas for honing the organization’s reach into diverse marketplace opportunities.

Lowering Costs and Increasing Productivity

Revenue increases can also show up due to improvements in diverse work team problem solving and decision-making. Diverse work teams have a broader and richer base of experience to draw on in solving organizations problems and issues. The presence of minority views creates higher levels of critical analysis of assumptions and implications of decisions. In addition, it also generates an increase in the number of alternatives from which the group chooses. Problem solving benefits from diverse work groups do not happen by simply mixing people together who are culturally different.   The improved outcomes heavily depend on a diversity-competent manager “utilizing” key diverse insights and experiences of the total group.

In one study, researchers found that properly managed and trained diverse work teams produced scores that were six times higher than homogeneous teams. Researchers also found that it is important how a diverse team uses its diversity. For example, those diverse teams that recognized and utilized their diversity had higher productivity. Even when the team was diverse, if that diversity is not used effectively, it can cause process problems that result in lower team productivity. The essential variable is a Leader’s or Manager’s ability to “effectively manage and utilize the team’s diversity”.

Developing New Revenue Sources

Creativity and innovation can be vital to an organization’s ability to perform. New product introductions, advertising, process re-engineering, quality improvements and the like are examples where these skills are required. Diverse work teams have also been found to promote improved creativity and innovation that generates revenue. In her book “The Change Masters”, Rosabeth Moss Kanter notes that highly innovative companies have done a better job of eradicating racism, sexism, and classism; tend to have workforces that are more race and gender diverse, and take deliberate steps to create heterogeneous work teams with the objective of bringing that diversity to bear on organizational problems and issues. Many organizations such as Pepsico for example, with the introduction of Guacamole Chips, and other innovations, created a plethora of new product SKUs generated by utilizing their diverse Employee Resource and Business Resource Groups.

As the buying power of diverse consumer segments including women, Hispanics, African Americans, and the lesbian, gay, bisexual and transgender community continues to grow, these segments represent a marketplace opportunity too big for retailers and consumer product manufacturers to ignore, according to “The Changing Consumer and the Workforce Imperative” Report. “This report focuses on how the retail and consumer products industry can unleash our multicultural workforces to achieve results that benefit our employees, our communities and our companies,” said Network Chair Michelle Gloeckler, senior vice president for merchandising execution at Walmart Stores. “Research for this project began at last year’s NEW Multicultural Workforce Conference and the results were previewed at this year’s conference in March. The Network believes that diversity and inclusion is critical to the future of our business.”

The report, based in part on one-on-one interviews with more than two-dozen leading U.S. consumer goods and retail executives, explores the correlation between workforce diversity and the ability of the consumer goods and retail industries to engage the changing U.S. consumer.

“Cultural connections are critical to understanding what drives purchasing decisions and brand loyalty across different market segments,” said Alison Paul, immediate past president of the Network of Executive Women, and vice chairman and U.S. retail sector leader, Deloitte LLP. “Making these connections rely on retailers’ and manufacturers’ ability to not only become more culturally aware-which are increasingly table stakes–but harness and value diverse perspectives as a source of innovation.”

Consumer insights most often come from those who share a consumer’s cultural experience, the report concludes. As such, recruiting, retaining and advancing a diverse workforce are integral to creating a brand/consumer connection, as consumers feel most comfortable doing business with companies whose employees mirror their communities.

According to the report, consumer product manufacturers and retailers may be able to achieve an inclusive culture by first understanding the bottom-line business opportunity, then making a commitment to diversity that touches all company departments. Top management should view workforce diversity not as a stand-alone program, but as an essential element for business survival. Achieving cultural competency involves leadership commitment and communication, employee accountability, strong talent recruiting and retention programs, progressive succession planning, diverse supplier relationships, and effective ROI measurement and analysis processes that capture impacts and results.

Appealing to a carefully segmented, diverse market is no longer only a niche opportunity for adventurous store managers and edgy entrepreneurs: Multiculturalism is fast becoming a retail and consumer goods industry opportunity too big to ignore. The same is true for “B to B” organizations as well. A diverse workforce serving a broadened customer base is a critical success factor because, as market research further demonstrates, a diverse workforce improves service outcomes and enhances financial performance regardless of the specific archetype.

Embracing Diversity as a way of thinking is the most effective response for business leaders and an important driver of an organization’s innovative engine. This means Diversity and Inclusion, and the archetypes that drive its constant performance, need to be brought to the forefront of your value proposition and ingrained in the organization’s cultural DNA. It must become a branded component of how you do business. When an authentic, inclusive culture is at work, a diverse workforce becomes capable of producing a broad range of original and engaging ideas that is simply not possible among homogenous employee populations. At the top of the organization, this can translate into more apt and financially rewarding decision-making.

The Diversity ROI Business Case highlighting the link between “Diversity and Inclusion Utilization” and Business Performance, not merely acquiring “Representation” alone, can be made by utilizing Diversity ROI processes and practices. From a Diversity ROI standpoint, Diversity measures and analytics must capture the outcomes and impact of these Diversity and business strategies in a way that demonstrates compelling evidence of Diversity’s contribution to the organization’s business objectives and results. By using tools such as the Diversity ROI 7-Level Chain-of-Impact, the Hubbard Diversity ROI Methodology, the Diversity High Impact Map, a ROI-based Diversity Scorecard, etc., a strong business Diversity ROI Business Case can be made in dollars and “sense” that clearly shows Diversity and Inclusion as “great for business”!

Dr. Hubbard is an expert in Organizational Behavior, Organizational Analysis, Applied Performance Improvement and Measurement Strategies, Strategic Planning, Diversity Measurement, and Organizational Change Methodologies. He holds a Practitioner Certification and Master Practitioner Certification in Neurolinguistic Programming (NLP), a Neuro-science discipline. Dr. Hubbard earned Bachelors and Masters Degrees from Ohio State University and earned a Ph.D. with Honors in Business Administration.

 

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“Searching For Measurement Processes And Best Practices: Key steps to building an effective Diversity measurement system” Part 2

Utilizing a focused Diversity measurement system can make a critical difference in the performance effectiveness of your Diversity ROI metrics. In Part One, I gave an overview of a 5 step process to consider and highlighted some key background issues. In this segment (Part Two), I will detail each step of the 5-step process including possible diversity metrics, formulas, and suggestions.  Although measuring Diversity Return on Investment (DROI®) impact is not an exact science, there are a number of valid techniques, tools and reliable methods for translating business performance gains into tangible financial results that C-Suite executives will support and embrace. Let’s take a look at the specific steps I am recommending in detail…

 

Key steps to building an effective measurement system

 

Creating an effective diversity measurement system involves at least five critical steps:

  • Review the Strategic Business Plan
  • Formulate Research Questions
  • Design the Study Methodology
  • Collect and Analyze Data
  • Communicate and Monitor the Results

1. Review the Strategic Business Plan

  • If diversity is to address the strategic business challenges of the organization, then it is imperative that the needs of the business are understood. The best place to start is the strategic business plan. The strategic business plan (or its equivalent) can offer a wealth of information regarding areas where diversity can make a difference or contribute. It is critical to examine the mission of the organization, key goals and objectives, core business strategies and tactics, marketing and sales targets, production or operational issues, recruitment and retention issues, succession plan challenges, productivity issues, legal compliance concerns, customer service challenges, globalization plans, and the like. Each of these areas should be examined to determine where diversity could have a direct or indirect impact on the business. The results of this activity should form the basis for creating your diversity initiatives.

2. Formulate Research Questions

  • Know what you want to know. This involves formulating research questions that help give you answers for establishing baseline diversity measures or calculating change and impact. Useful approaches for formulating research questions include starting broad then narrow the focus. Using strategic business plan information as your guide, focus on helping the organization solve and/or prevent business problems as well as improving business operations.  An example might include questions such as “What is the distribution and retention impact of females and minorities in management positions above the first level?”, “What is the diversity makeup of our customer base by product line and market share?”, “What factors make the difference for high productivity among diverse work teams and their impact on customer service ratings?”, “What percentage of mothers return to work after maternity leave by diverse groupings compared to industry and majority group norms?”, etc.
  • These research questions should help align and link the diversity initiative with the strategic plan. If they are systemic, diversity initiatives will also proceed along several lines at the same time. Activities such as child-care services, flexi-time, flexi-place strategies, parental leave options, mentoring, and others could be in action simultaneously. Let’s suppose that at the end of a two-year period, management notes a 45 percent decrease in turnover among female managers. The impact of this decrease is an identifiable value to the organization in lower recruiting and training costs. However, which of the above programs caused the improvement during that period?
  • Most of the time, diversity can take only partial credit for improvement. To help isolate the effects of an initiative from other factors that could have affected the result, you will need to go beyond standard control group analysis to use one or more techniques for isolating extraneous factors. Three techniques, in addition to control group methods, include:
  • Trend-line analysis – Using a graph of mothers returning to work after maternity leave, for example, a line is drawn from current percentages to future percentages, assuming that the current trend would continue even without diversity initiatives. After the diversity intervention is implemented, post statistics are compared to the trend predicted on the trend line. It is reasonable to attribute any improvement over the trend-line prediction to the diversity intervention. It is not an exact process, but it does provide a reasonable estimate of this diversity intervention’s effectiveness.
  • Forecasting – This approach is more analytical and mathematical than the trend-line. Instead of drawing a straight line, a linear equation is used to calculate a value of the anticipated performance improvement or impact. A linear model (such as y = ax+b) is appropriate when only one variable influences the result. When several variables intervene, it’s necessary to use sophisticated statistical models. Without them, forecasting is difficult to implement. Still it can be an accurate predictor of performance variables without the diversity intervention, if the appropriate data and models are available.
  • Employee and Supervisor Estimations – This approach involves asking employees and supervisors to determine how much performance improvement or environmental change is due to specific diversity interventions. Their actions have produced the improvements, so they should have some idea of how much improvement is due to their participation and use of the diversity initiative. Upper management will tend to find these reports credible because employees and supervisors are at the center of these improvements or changes. Employees’ and supervisors’ input can be obtained by asking questions such as “What percentage improvement can be attributed to the implementation of the ‘XYZ’ diversity initiative?”, “What is the basis of your estimation?”, “What degree of confidence do you have in your estimation?”, “What other individuals or groups could make an estimate?”, “What other factors do you think contributed to the improvement?”. To be conservative, it is recommended to factor in a confidence level. For example, if an employee estimates that 50 percent of an improvement seen in turnover statistics among Hispanic employees is due to the minority career development network initiative but is only 70 percent confident about that estimate, multiply the confidence percentage by the improvement percentage and divide by 100, for a confidence level of 35 percent. Then multiply that figure by the amount of the improvement in order to isolate the portion attributed to the diversity intervention. To calculate return on investment (ROI), convert that portion to a monetary value.

3. Design the Study Methodology

  • This step in the process involves creating a formalized plan of action, which spells out how you will address each research question and the potential tools used. A complete plan should address questions such as “What existing measures can be adopted to measure these areas?”, “What benchmark or compatible measures are available?”, “What is the priority or order of measures by criticality level?”, etc.

4. Collect and Analyze Data

  • The data collection and analysis process requires the use of specific formulas and techniques designed to assess the research questions. These formulas and techniques might include calculations such as Cost per Diversity Hire, Percent Change in Local and Global Customer Diversity Demographics, the Family of Measures Index, Diversity Hit Rate, Diversity Training Evaluation using the Kirkpatrick Model-Levels 1-5 surveys along with ROI calculations, etc.  For example, to measure the distribution of performance and retention impact of females and minorities in management positions above the first level, you might use the following calculations:
  • Percentage of Minorities and Women in Key Leadership Positions – Formula: PMW = (PF/LP) * 100 where: PMW = number of minorities and women in key leadership positions, PF = number of leadership positions filled with minorities and/or women (e.g., 19), LP = number of leadership positions (e.g., 65). Therefore, the percentage would calculate as PMW = (19/65)*100 or .2923*100 = 29.2% Changes in these numbers might signal forward or reverse trends in diverse workforce promotional changes.
  • Diversity Hire Performance Impact – Formula: DHPI = DHPR+DHP+DHS/N where: DHPI = Diversity Hire Performance Impact, DHPR= average job performance rating of new diversity hires (e.g., 4 points out of a 5 point performance rating scale = 80%), DHP= Percentage of new diversity hires promoted within one year (e.g., 45%), DHS= Percentage of new diversity hires retained after one year (e.g., 90%), N= number of indicators used. Therefore, the percentage would calculate as DHPI = (80+45+90)/3 or (215)/3 = 71.7%. The resulting percentage is a relative value. You must determine whether this value represents high, medium, or low performance impact for this hire group. This comparison can be based on historical comparisons, preset performance standards or objectives, or management mandates.
  • In order to have maximum impact in demonstrating diversity’s value to the bottom-line, it is vital that percentage calculations are converted to financial terms (dollars and cents) whenever possible. These percentages might convert to a preventative cost savings such as a turnover dollar saving, lower recruiting costs, or a benefit such as increased customer satisfaction ratings, added customer purchase volume, improved employee morale and productivity (measured in increased units per hour, faster problem resolution using diverse teams which results in reduced cycle time, speed to market), etc.
  • For the most part, any object, issue, process, or activity that can be described by observable variables is subject to measurement. Phenomena can be evaluated in five dimensions of measurement: cost, time, quantity, quality or frequency of occurrence.
  • The central issue in applying measurement to the diversity culture change process is to decide what is worth measuring and agree on the measure as a fair representation of progress and accountability. Which measurement tools you use will be determined by what you want measured and what results you want from the measurements. Direct measures are always identifiable by the fact that they measure some kind of cost. Indirect measures do not cover costs, but do describe some measure of time, quantity, or quality.
  • Report card measures of diversity are like snapshots of the past. They can provide a historical reference to accomplishment or serve as milestones along the path to producing outcomes. Examples might be the number of diversity training sessions completed, cost per diversity trainee hour, turnover by performance level by gender by length of service.

5. Communicate and Monitor the Results

Reporting your diversity results is almost as important as producing the results. Regardless of the message, at least three general rules are important to remember:

  • The communication must be targeted to specific audiences – The communication will be more efficient when it is designed for a specific group. The message can be tailored to the interest, needs and expectations of the intended audience. The length, content, details, and slant will vary with the audience.
  • The communication should be unbiased and always modest – Facts must be separated from fiction, and accurate statements must replace opinion. Some target audiences may view communication from the Diversity Department with skepticism and may look for biased information and opinions. Boastful statements will sometimes turn individuals off, and most of the content of the communication will be lost. Observable, believable facts carry more weight than extreme, sensational claims, although the claims may be needed to get initial attention.
  • The communication must be consistent – The timing and content of the communication should be consistent with past practices. A special communication at an unusual time may create suspicion. When a particular group, such as top management, regularly receives communication, the information should continue even if the results are not good. If selected results are omitted, it might leave the impression that only good results are reported. Find out how you can become a regular participant and presenter in key departmental staff meetings. Encourage others to join your staff meetings to create strategic partnerships. Finally, be sure to develop good measurement monitoring practices. This will ensure a continuous feedback loop to meet the organization’s informational and development needs in a responsive manner.

 

Start your measurement journey

I hope that this article will help you begin the journey of measuring your diversity results. You can use measurements to identify winning approaches and processes that work to transform the organization’s culture to a more inclusive environment. They can help you increase the value of your workforce diversity efforts by providing focus and demonstrating organizational impact. If full utilization of the diverse workforce is to be a reality in our lifetime, we must use every tool or resource available to fully monitor and communicate the effectiveness of this effort.

Each step in the process logically builds on the previous step which generates an evidenced-based framework that creates a “Best Practice” method for proving Diversity’s link to performance.

If you put these steps in operation, we want to hear about your experience and share it with others. Let us know about your success with the Diversity ROI metrics process to help elevate the field.

 

Dr. Edward E. Hubbard Short Bio

Dr. Edward E. Hubbard is President and CEO of Hubbard & Hubbard, Inc., (http://hubbardnhubbardinc.com), Petaluma, CA, an international organization and human performance-consulting corporation that specializes in techniques for applied business performance improvement, workforce diversity measurement, instructional design and organizational development.

The American Society for Training and Development (ASTD) inducted Dr. Ed Hubbard into the prestigious “ASTD New Guard for 2003”. The July/August 2007 Issue of Profiles in Diversity Journal featured Dr. Hubbard as the “Diversity Pioneer” in Diversity Measurement. In April, 2012 Dr. Hubbard was an honoree at the Inaugural International Society of Diversity and Inclusion Professionals Legends of Diversity Ceremony in Rio Grande, Puerto Rico where he received the Legends of Diversity Award for establishing the “Diversity ROI Analytics” and “Diversity Measurement Fields/Disciplines”. Dr. Hubbard serves on the Harvard Business Review, Diversity Executive Magazine and Strategic Diversity & Inclusion Management (SDIM) magazine Editorial Advisory Boards.

Dr. Hubbard is an expert in Organizational Behavior, Organizational Analysis, Applied Performance Improvement and Measurement Strategies, Strategic Planning, Diversity Measurement, and Organizational Change Methodologies.  He holds a Practitioner Certification and Master Practitioner Certification in Neurolinguistic Programming (NLP), a Neuro-science discipline. Dr. Hubbard earned Bachelors and Masters Degrees from Ohio State University and earned a Ph.D. with Honors in Business Administration.

 

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