Diverse Workforces Generate Favorable Results For U.S. Companies

Most American companies still lag in hiring, creating and encouraging diverse workforces

U.S. demographics are shifting – and quickly. Data from the U.S Census predicts that by 2050, the U.S. will have no racial or ethnic majority. While the country may end up looking much different, that’s good news for both culture and innovation - which are demonstrably their strongest when people of differing backgrounds and views can come together and cooperate to creatively solve problems. Yet, despite these broader demographic and cultural shifts, diversity in the workplace is still lagging behind – and businesses aren’t reaping the rewards and increased profits that diverse workforces create.
 

Most American companies still lag in hiring, creating and encouraging diverse workforces. This is true for both traditional measures of diversity - gender, religion, race and ethnicity – as well as broader and less tangible measures such as diversity of thought, background and experience. A glance at the gender gap shows that even the largest of U.S. companies are still behind, as women are hired far less often for entry-level positions and are even more poorly represented on the climb up the career ladder.

When looking solely at women of color, the contrast is even more stark. Black, Asian and Latina women represent almost 20% of the U.S. population but only 11% of the workforce in STEM fields. And as one looks further up the management chain, the bleaker the picture becomes, with representation of women in senior roles dropping dramatically the further one goes.

This is unfortunate just from a broader cultural standpoint and shows that there’s still a long way to go in fostering a diverse and inclusionary workplace. But it’s also unfortunate just from a business standpoint, as it turns out that diversity can have beneficial effects on business, innovation and even the bottom line.

According to a 2018 study by McKinsey and Company, companies with a diverse gender representation among executives are 21% more likely to see performance and profit above their industry’s national median. When looking at diversity of ethnicity, companies whose representation of different ethnicities ranked in the top-quartile of the survey were 33% more likely to perform above the national median.

The flipside is true, too. Companies who ranked in the bottom quartiles of ethnic, cultural and gender diversity were 29% less likely to see profits above their industry’s national median.

This survey included 346 companies, mostly from the US and UK – but also including companies from Australia, Singapore and South Africa.  

So, what can we learn from these numbers? Could they show in an economy that prizes innovation and creativity, the varying opinions, vantage points and richness of experience can be a boon for any business (particularly those looking to lead the way in innovation)?  

In fact, a separate survey conducted by Boston Consulting Group found that the more diverse the management team, the higher the revenue attributed directly to innovation: 19% higher, on average.

This is likely for the same reason that many of the world’s leading cities (at the front of the pack in both economic output and culture) are also some of the world’s most diverse. The more people thinking about and tackling a problem – bring different points of view and experiences, and fresh angles to look at it from – the more answers and inventive solutions they will find.  

So, while diversity and inclusion should be fought for, it would be beneficial for companies to start seeing a diverse workforce as an advantage in business, too.

Of course, companies can’t just hire and throw workers of various backgrounds together and just expect to see increased ROI. They also need to intentionally create an inclusive work culture - one that is welcoming, promotes collaboration and focuses on keeping employees engaged. Through the “Profit Formula I’ve discovered, profit from any employee is equal to the person’s potential times their engagement. Overall, engagement in the workplace is a strong indicator of employee satisfaction. The more engaged employees are, the happier they are – and the better their work.

Looking back at the McKinsey study, companies who had a high-level of employee engagement were more likely to show an average increase in operating income of 19.2% as companies with lower engagement had an average drop of 32.7% in income.

Thus, the easiest way to promote an engaged workforce is to create a place where people feel like they belong; a workplace where employees feel welcomed and included socially, and where their contributions are appreciated as valuable and significant.

Encouraging mentorship between senior and junior employees and creating an environment healthy to both personal and career growth, also goes a long way to helping workers be engaged and satisfied with their work.

Perhaps most importantly, companies can establish a workplace where openness, discussion and fairness are welcomed, allowing employees to participate and come forward with their concerns about their role within the company and working with their counterparts.

The more employers can take these steps to encourage a diverse workforce that reflects the country’s changing demographics and drive engagement and inclusion, the more out output they can expect from their employees.

Vladimir Sidorenko is the Founder and CEO of Performia CIS. He is a creator of original hiring and personnel management technologies that have made significant impact on the economies of Russian-speaking countries and are increasingly being adapted in the United States. Visit www.performiainternational.com Connect Vladimir Sidorenko