Inclusion and diversity Each member of the class must share a comment, thought, observation, or point-of-view regarding the question (discussion topic.) In
Inclusion and diversity Each member of the class must share a comment, thought, observation, or point-of-view
regarding the question (discussion topic.) Individual discussion entries must not exceed 750
characters (including spaces and punctuation marks.) A ‘threaded discussion’ is a chain of written ideas or opinions exchanged among two or more participants in an on-line discussion board (Forum.) These are linked in the sequence in which they were shared by the class team members. Discussion threads allow a participant to start at any point and follow the entire discussion from its beginning to its latest observation, idea, or opinion.Question:There are five key ways in which inclusion and diversity can contribute to an organizations performance and help drive value creation. Name one example, and share ways in which it is impactful to an organization. Delivering
through Diversity
January 2018
Vivian Hunt
Sara Prince
Sundiatu Dixon-Fyle
Lareina Yee
Contents
Executive summary
1
Introduction
4
Diversity and financial performance in 2017
8
Diversity around the world
20
Delivering impact through inclusion and diversity
26
Conclusion
32
About the authors
33
Methodology
35
Executive summary
Since Why Diversity Matters was published in 2015, we have seen growing awareness of the
business case for inclusion and diversity. Widely cited, the report has influenced inclusion
and diversity policy-setting and transformation efforts by corporations, the public sector, and
third sector organizations worldwide. While social justice, legal compliance, or maintaining
industry-standard employee environment protocols is typically the initial impetus behind these
efforts, many successful companies regard inclusion and diversity as a source of competitive
advantage, and specifically as a key enabler of growth.
Yet progress has been slow. The 346 companies in our 2015 research (mostly based in
the US and UK) have increased average gender representation on their executive teams only
2 percentage points, to 14%, and ethnic and cultural diversity by 1 percentage point, to 13%.
What’s more, many companies are still uncertain as to how they can most effectively use
inclusion and diversity to support their growth and value creation goals.
Delivering through Diversity both tackles the business case and provides a perspective on
how to take action on inclusion and diversity to impact growth and business performance.
This latest research reaffirms the global relevance of the correlation between diversity (defined
here as a greater proportion of women and ethnically/culturally diverse individuals) in the
leadership of large companies and financial outperformance. The research is based on a
larger dataset of over 1,000 companies covering 12 countries and using two measures of
financial performance – profitability (measured as average EBIT margin) and value creation
(measured as economic profit margin). As importantly, we studied the inclusion and diversity
efforts of 17 companies representing all major regions and multiple industries to have a more
granular view of where in the organisation diversity matters most, and crucially, how leading
companies have successfully harnessed the potential of inclusion and diversity to help meet
their growth objectives.
Re-examining the business case for inclusion and diversity, we found:
The relationship between diversity and business performance persists.
The statistically significant correlation between a more diverse leadership team
and financial outperformance demonstrated three years ago continues to hold true
on an updated, enlarged and global dataset.
Leadership roles matter. Companies in the top quartile for gender diversity on
executive teams were 21% more likely to outperform on profitability and 27% more likely
to have superior value creation. The highest performing companies on both profitability
and diversity had more women in line roles (i.e., typically revenue-generating) than
in staff roles on their executive teams.
It’s not just gender. Companies in the top quartile for ethnic/cultural diversity on executive
teams were 33% more likely to have industry-leading profitability. That this relationship
continues to be strong suggests that inclusion of highly diverse individuals – and the myriad
ways in which diversity exists beyond gender (e.g., LGBTQ+, age/generation, international
experience) – can be a key differentiator among companies.
There is a penalty for opting out. The penalty for bottom quartile performance on
diversity persists. Overall, companies in the bottom quartile for both gender and ethnic/
cultural diversity were 29% less likely to achieve above-average profitability than were all
other companies in our data set. In short, not only were they not leading, they were lagging.
1
Delivering through Diversity
Executive summary
Local context matters. On gender, while there is plenty more to do, some companies
lead the way in both absolute average diversity and representation in top quartile –
Australia, UK, and US companies make up over 70% of this group. On ethnicity, there
is less global progress, but South African and Singaporean companies have a higher
representation in the top quartile vs overall representation in dataset, suggesting material
progress on ethnic diversity.
Lessons learned from the 17 leading companies we studied – among those that are engaging
effectively with inclusion and diversity – support our earlier perspective on what likely drives
the relationship with performance: that more diverse companies are better able to attract top
talent; to improve their customer orientation, employee satisfaction, and decision-making;
and to secure their license to operate. While progress has been slow on average, individual
companies have made real strides in improving their inclusion and diversity outcomes and
in effectively using these results to influence business outcomes. From their experiences,
we identified four imperatives for delivering impact through inclusion and diversity:
Commit and cascade: CEOs and leaders must articulate a compelling vision, embedded
with real accountability for delivery, and cascade down through middle management.
Link inclusion and diversity to growth strategy: The I&D priorities must be explicitly
defined based on what will drive the business growth strategy. Leading companies do
this in a data-driven way.
Craft an initiative portfolio: Initiatives in pursuit of the I&D goals should be targeted based
on growth priorities, and investments made to both hard- and soft-wire the programs and
culture of inclusion required to capture the intended benefits.
Tailor for Impact: I&D initiatives should be tailored to the relevant business area or
geographic region context to maximize local buy-in and impact.
This work sheds light on how companies can use diversity as an enabler of business impact.
It articulates a clear opportunity for companies to promote inclusion and diversity in senior
decision-making roles, and specifically in line roles on executive teams. As was the case with
Why Diversity Matters, correlation does not demonstrate causation. However, the statistically
significant relationship observed between greater levels of diversity in the leadership of a
large corporate organization and financial performance does prompt action. We encourage
companies to examine the case for inclusion and diversity and how it is directly relevant to their
business, as leading companies are already doing.
Designing a truly effective inclusion and diversity strategy is no small undertaking. But we
and the many companies we studied believe the potential benefits of stronger business
performance are well worth the effort.
Delivering through Diversity
Executive summary
2
3
Delivering through diversity
Section Heading
Introduction
Many successful companies regard inclusion and
diversity as a source of competitive advantage.
For some, it’s a matter of social justice, corporate
social responsibility, or even regulatory compliance.
For others, it’s essential to their growth strategy.
1
Gartner 2017 CEO survey
2
For more on how companies
can design effective growth
strategies, see Chris Bradley,
Martin Hirt, and Sven Smit,
“Have you tested your strategy
lately?” McKinsey Quarterly,
January 2011. For a discussion
of value creation, see Chris
Bradley, Angus Dawson, and
Sven Smit, “The strategic
yardstick you can’t afford to
ignore,” McKinsey Quarterly,
October 2013.
It makes sense that a diverse and inclusive employee base – with a range of approaches
and perspectives – would be more competitive in a globalized economy. A small but
increasing number of companies have recognized an opportunity to go even further,
reframing inclusion and diversity as an enabler of two of the foremost goals for CEOs:
growth and value creation.1,2
Yet progress is slow. Many companies struggle to materially increase representation levels
of diverse talent, gain an understanding of where in their organizations diversity matters
most, and create truly inclusive organizational cultures to reap the benefits of diversity.
The tangible impact these efforts have on organizational effectiveness, but also on business
performance, remains elusive. For many global CEOs, the extent to which taking action
on inclusion and diversity can contribute to their path to growth remains unclear.
Why Diversity Matters research established a statistically significant correlation – without
claiming a causal relationship – between greater levels of diversity in company leadership
and a greater likelihood of outperforming the relevant industry peer group on a key financial
performance measure, profitability. Why Diversity Matters was our Firm’s most downloaded
publication on diversity in 2016, demonstrating an increasing interest in the business case
for diversity. Widely cited, the report has influenced inclusion and diversity policy-setting
and transformation efforts by corporations, the public sector, and third sector organizations
worldwide. Other reports, including our Women Matter series as well as research
conducted by other organizations, have made similar findings. Corporate leaders we speak
to appreciate the business argument for inclusion and diversity. However, most wonder
how to make inclusion and diversity work for their firms and, more specifically, the extent
to which this can support their growth and value creation goals.
Corporate leaders increasingly
accept with the business
imperative for inclusion and
diversity, and most wonder how
to make it work for their firms and
support their growth and value
creation goals.
Delivering through Diversity
Introduction
4
3
Net Operating Profit Less
Adjusted Taxes – (Invested
Capital x Weighted Average
Cost of Capital). Previous
releases of our preliminary
findings used absolute
economic profit as the proxy
for value creation. Please see
the Methodology appendix
for further details.
4
See Sylvia Ann Hewlett,
Melinda Marshall, and Laura
Sherbin, “How Diversity
Can Drive Innovation,”
Harvard Business Review,
December 2013.
To shape answers to this, we built on our 2015 research to expand our data set to more
regions globally and examine an additional financial performance measure. We explore
not only whether and where in the organization diversity matters, but also how companies
can put it to work in pursuit of their business goals. Our latest research improves our
understanding of the correlation between diversity and company financial performance,
and of the actions companies can take to develop a robust inclusion and diversity strategy,
in five ways:
Expanded, updated data set. We nearly tripled the number of countries and
companies researched to 12 countries and more than 1,000 companies globally.
Exploring diversity at different levels of the organization. We correlated financial
performance with the diversity of a company’s total workforce, executive team, and
Board of directors, and within executive teams, we contrasted diverse representation
in line versus staff roles.
Additional lens on financial performance. We measured profitability, using EBIT
margin, and longer-term value creation, using economic profit margin.3
Broader, more holistic understanding of diversity. We considered through
qualitative research how both inherent (e.g., gender, ethnicity and, where possible,
sexual orientation) and acquired (e.g., international work experience, education and
training, socioeconomic background) forms of diversity relate to financial performance.4
Insight into company best practices. We developed in-depth profiles of 17 leading
companies, articulating how they use diversity and inclusion to create value in their
specific industry and geographic contexts.
Our latest research improves our understanding
of the correlation between diversity and
company financial performance and of the
actions companies can take to develop a robust
inclusion and diversity strategy.
This research extends and deepens the quantitative correlation analysis approach
taken by Why Diversity Matters, and complements it with qualitative company research,
with the practical aim of sharing insights from the experiences of companies effectively
engaging with inclusion and diversity. The same caveats apply to the correlation analyses
reported here as did in Why Diversity Matters: correlation is not causation. While not causal,
we observe a real relationship between diversity and performance that has persisted
over time and across geographies. There are clear and compelling hypotheses for why
this relationship persists including improved access to talent, enhanced decision making
and depth of consumer insight and strengthened employee engagement and license
to operate. We encourage businesses to examine the case for inclusion and diversity
at a more granular level to craft an approach that is tailored to their business, learning
from leading diverse companies around the world as to ways to do this with high impact.
5
Delivering through Diversity
Introduction
It makes sense that a diverse and
inclusive employee base – with a
range of approaches and perspectives
– would be more competitive in
a globalized economy.
6
7
Delivering through diversity
Section Heading
Diversity and financial
performance in 2017
5
6
As defined by each company
in our data set, typically C-2
and above.
See methodology section
for detailed explanation of
the financial performance
benchmark.
We first established a positive, statistically significant correlation between executive team
diversity and financial performance in our 2015 Why Diversity Matters report (using 2014
diversity data). We find this relationship persists in our expanded, updated, and global 2017 data
set. In Why Diversity Matters we found that companies in the top quartile for gender diversity
on their executive teams5 were 15% more likely to experience above-average6 profitability
than companies in the 4th quartile. Almost exactly three years later, this number rose to 21%
and continued to be statistically significant. For ethnic/cultural diversity, the 2014 finding
was a 35% likelihood of outperformance, comparable to the 2017 finding of a 33% likelihood
of outperformance on EBIT margin, both statistically significant (Exhibit 1).
Exhibit 1
The correlations between diversity and performance still hold
Likelihood of financial performance1 above national industry median by diversity quartile
Percent
Why Diversity Matters2
2014
Gender3
Ethnic/cultural4
Delivering Through Diversity3
2017
+15%
+21%
47
54
45
55
4th
1st
4th
1st
+35%
+33%
58
43
4th
1st
44
4th
59
1st
1 Average EBIT margin, 2010–13 in Why Diversity Matters and 2011–15 in Delivering Through Diversity
2 2014 results are statistically significant at p-value
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