The Business Case for Investing in DEI at Your Organization

Given the current climate of the country and the prevailing sentiments surrounding race and underrepresented identities, companies have begun to implement more action surrounding their diversity, equity, and inclusion (DEI) work. Initiatives in the DEI space have noticeable impacts not only on ROI in terms of productivity and performance, but also organizational commitment, identification, and turnover intention (Gonzalez & DeNisi, 2009). More organizations have begun to shift their focuses to include DEI initiatives as part of their core values and goals moving into the future times and years.

At an organizational level:

Research has found that more racially, ethnically, and gender-diverse companies tend to outperform those matching the national average (Hunt et al., 2018). In the most recent report by McKinsey, they found that racially diverse organizations are 36% more profitable than those that are not as racially diverse. Similarly, gender diverse organizations are 25% more profitable than their counterparts (Dixon-Fyle et al., 2020). There is a positive relationship between racial diversity and financial performance such that as racial diversity increases in the senior-executive teams of companies, there is a rise in earnings as well (Hunt et al., 2015). This same relationship is also found for diversity in management teams and innovation, where deep level diversity (e.g., differences in background, personality, values), contributed to a higher degree of creativity in a board of directors (Torchia et al., 2015). Moreover, when workers feel increased belonging, there is a 56% increase in job performance, 50% decrease in turnover intention, and a 75% reduction in sick days (BetterUp, 2019). These findings indicate that there is a macro-level impact that diversity, both racial and gender, has on the organization.

At an individual level:

Investing resources towards an organization’s DEI initiatives can also impact employees. Employees have reported increased trust and engagement at work when feel both included and perceive that their organization supports diversity practices (SHRM, 2017). Additionally, employees rank respectful treatment of all employees as an important factor into their individual job satisfaction (Downey et al., 2015). Similarly, Avery and colleagues (2012) identified that when the employee workforce reflects the racial diversity of their customers, employee productivity increases, and customer satisfaction improves. In implementing diversity programs, organizations can positively affect the diversity climate when there is real diversity and collective values from the management teams (Herdman & McMillan, 2010). As such, they also reduce interpersonal aggression and discrimination overall (Drach-Zahavy & Trogan, 2013; Boehm et al., 2014).

What does this mean for your company?

As you can see, research has shown there are clear tangible rewards for investing in these efforts, both at the organizational level and the individual level. To reap the benefits detailed above, you need to do more than just provide financial support, you should create internal DEI roles responsible for developing and overseeing a data-driven strategy specific to your organization's needs. In fact, in the 2021 Global Diversity, Equity, and Inclusion Benchmarks it is listed as a best practice.

The 2019 Diversity Census reported that 61% of companies reported having a dedicated DEI team or program to address the gap between their hiring needs and their talent pool. Of those companies that had dedicated DEI teams or programs, 59% said they had improved or maintained their diversity and inclusion levels over the past year alone. While there are external DEI practitioners available to help on your journey as well, just like with any other critical organization strategy, having an internal person assigned to leading these efforts is key to ensuring accountability from the organization to follow through on its commitments.

For more information contact sertrice@mattinglysolutions.com

References

Avery, D. R., McKay, P. F., Tonindandel, S., Volpone, S. D., & Morris, M. A. (2012). “Is there a method to the madness? Examining how racioethnic matching influences retail store productivity”, Personnel Psychology, 65(1), 167-199.

Boehm, S. A., Dwertmann, D. J.G, Kunze, F., Michaelis, B., Parks, K. M., & McDonald, D. P.

(2014), “Expanding Insights on the Diversity Climate-Performance Link: The Role of Workgroup Discrimination and Group Size,” Human Resource Management, 53(3), 379-402.

Dixon-Fyle, S., Dolan, K., Hunt, V., & Prince, S. (2021, November 12). Diversity wins: How inclusion matters. McKinsey & Company. Retrieved from https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters.

Downey, S.N, van der Werff, L., Thomas, K. M., & Plaut, V. C. (2015). “The Role of Diversity Practices and Inclusion in Promoting Trust and Employee Engagement,” Journal of Applied Social Psychology, 45(1), 35-44.

Drach-Zahavy, A. & Trogan, T. (2013). “Opposites Attract or Attack? The Moderating Role of Diversity Climate in the Team Diversity-Interpersonal Aggression Relationship,” Journal of Occupational Health Psychology, 18(4), 449-457.

Gonzalez, J. A., & Denisi, A. S. (2009). Cross-level effects of demography and diversity climate on organizational attachment and firm effectiveness. Journal of Organizational Behavior, 30(1), 21– 40. https://doi.org/10.1002/job.498

Herdman, A.O., McMillan-Capehart, A. Establishing a Diversity Program is Not Enough: Exploring the Determinants of Diversity Climate. J Bus Psychol 25, 39–53 (2010). https://doi.org/10.1007/s10869-

009-9133-1.

Hunt, V., Layton, D., & Prince, S. (2015). Why Diversity Matters, McKinsey & Company,

https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters.

Kossek, E. E., & Zonia, S. C. (1993). Assessing diversity climate: A field study of reactions to employer efforts to promote diversity. Journal of Organizational Behavior, 14(1), 61 81.https://doi.org/10.1002/job.4030140107.

Molefi, Yvonne (Nene) Kegomoditswe, O’Mara, Julia, and Richter PhD, Alan, Global Diversity, Equity & Inclusion Benchmarks (www.centreforglobalinclusion.org, 2021), PDF.

Society for Human Resource Management, Employee Job Satisfaction and Engagement: The Doors of Opportunity Are Open: Executive Summary (2017): p. 2.

The value of belonging at work: New frontiers for inclusion in 2021 and Beyond. BetterUp. (n.d.). Retrieved December 1, 2021, from https://grow.betterup.com/resources/the-value-of-belonging-at-work-the-business-case-for-investing-in-workplace-inclusion.

Torchia, M., Calabrò, A., & Morner, M. (2015). “Board of Directors’ Diversity, Creativity, and Cognitive Conflict: The Role of Board Members’ Interaction,” International Studies of Management & Organization, 45(1), 6-24.