Diversity and the Business Case

Government organizations and businesses have been implementing diversity programs for years. Some organizations do it because of legal mandates, others for customer and business needs, and others for a higher social justice motivation. Regardless of the reason, I often encounter questions like “Do diversity programs really work? Is it good for business”?

Thomas A. Kochan, professor of management at MIT Sloan School of Management states that “The business case rhetoric for diversity is simply naïve and overdone. There are no strong positive or negative effects of gender or racial diversity on business performance” (2). The research outcomes are mixed. There is some research that would support that statement; however there are few studies that would challenge it.

I strongly believe though that if managed effectively, diversity programs can bring many benefits not only to employees, but also to the business bottom line. The people and organizational profits are intertwined. When we speak about diversity programs’ benefits to employees, we must acknowledge the correlation to the business’s success, even though that relationship is not always direct and observable. Here are some specific positive outcomes to organizations and their employees:

Improved recruitment and selection. When an organization expands a job candidate pool, that organization has more opportunities to find competent employees. The organization must first exert effort in attracting minority candidates. Minority candidates are more likely to apply for jobs at companies that have an equal opportunity policy, do not have a record of failing to implement that policy, and have a good reputation for staff welfare.

Increased retention. When an employee leaves a job, it costs to the company between 30% to 200% of the former employee’s salary, taking into consideration advertising, recruitment, training, and lost productivity costs. Thus, it’s much more cost effective to put resources in place to retain current employees. Women and minority employees tend to stay with the companies that offer flexible work scheduling, opportunities for advancement, development programs, and equal pay reviews. Most importantly, employees tend to stay where organizational culture truly integrates and appreciates diversity.

Increased commitment. Employees who feel valued and appreciated are more commitment to their companies. Commitment employees are more productive, less absent, and exercise beneficial job behaviors more often, going “beyond and above” their job description.

Fewer discrimination lawsuits. A discrimination lawsuit can cost organizations millions of dollars. Implementing diversity programs and promoting conflict resolution skills among diverse employees minimizes a likelihood of such lawsuits.

Increased marketplace knowledge. Diverse employees bring marketplace knowledge of their specific groups. Companies can use that knowledge while developing products, expanding to additional geographical territories, and developing effective customer relations. This strategy supports the “business case”, and at the same time it integrates diverse employees in organizational goals.

Improved brand reputation. Customers and clients tend to buy from and be served by companies that have a sound brand reputation. Client perception of company’s reputation relates to how well a company treats its own employees. A scandalous discrimination lawsuits can lose in moments customers that took years to gain.

Increased creativity and problem solving. Diverse teams tend to be more creative while making decisions and solving business challenges. Diverse teams have more perspectives on the issue and exercise more critical thinking. However, if a diverse team is not managed effectively, such groups experience more conflict than a more homogenous team.

Thus, if diversity programs are managed competently and effectively, they bring good feelings, creativity, a greater talent pool, and can positively impact a business bottom line. On the larger scale, even when we question the business case, the cultivation of diversity at all organizational levels is simply a right thing to do.

Canas, K. A., & Sondak, H. (2008). Opportunities and Challenges of Workplace Diversity. Pearson Prentice Hall.
Kochan, T. (2003). The effects of diversity on business performance: Report of the diversity research network. Human Resource Management, 42, p. 3-21.