Diversity: A Strategic Business Issue

« Back to blog home

Posted on by

king“We may have all come on different ships, but we’re in the same boat now.”

Today is our national day to honor Dr. Martin Luther King Jr. He’s one of our country’s  most inspiring heroes. He had vision and moral courage, and a rhetorical eloquence that held audiences spellbound. He spoke truth…to power, and to the rest of us. His lessons were profoundly spiritual and powerfully affecting; he directed his considerable intellectual weight against racial prejudice, poverty, war, and other social ills.

 

So…what does this have to do with marketing?

One of Dr. King’s core messages was that diversity is healthy – for people, for politics, and for publics. In his Nobel Peace Prize acceptance speech, he said:

“…This is the great new problem of mankind. We have inherited a big house, a great ‘world house’ in which we have to live together – black and white, Easterners and Westerners, Gentiles and Jews, Catholics and Protestants, Moslem and Hindu, a family unduly separated in ideas, culture, and interests who, because we can never again live without each other, must learn, somehow, in this one big world, to live with each other.”

Diversity is clearly a moral issue. It’s also, pragmatically speaking, a business imperative.

“The right thing to do is also the smart thing to do”

A recent Forbes story, “Businesses Harness The Power Of Diversity For Growth” lays out an open-and-shut case for diversity. The story quotes from a Deloitte report titled “Diversity as an Engine of Innovation”:

“Fast forward to today, as a new conversation about diversity emerges. Retail and consumer goods companies, in particular, recognize that understanding and satisfying an increasingly diverse customer base is critical to growing market share and the bottom line over the next decade and beyond.”

Partly, it’s numbers. The US Department of Commerce notes that in the U.S., 85 percent of the U.S. population growth between 2011 and 2050 will come from nonwhite ethnic groups. Today, one in three individuals in the United States is a person of color, and by 2050 that proportion is expected to climb to one-half. And look at the trends in buying power: Tredns in buying power

“The business case has been demonstrated quite thoroughly. When you’ve got over one-third of this country as people of color, a diverse workforce benefits in terms of connection and creativity. … Regardless of the group, it is hard to form a brand relationship unless you have people that come from those cultures and ethnicities that can connect.” – Don Knauss, chairman and CEO, The Clorox Company

Diversity begins at the top

A 2012 study by McKinsey, “Is there a payoff from top-team diversity?”, found that there is a direct correlation between board diversity and company performance. The study evaluated the executive board composition, returns on equity (ROE), and margins on earnings before interest and taxes (EBIT) of 180 publicly traded companies in France, Germany, the United Kingdom, and the United States over the period from 2008 to 2010. Company “diversity” was scored by two groups that can be measured objectively from company data: women and foreign nationals on senior teams (the latter being a proxy for cultural diversity).

The findings were startlingly consistent: for companies ranking in the top quartile of executive-board diversity, ROEs were 53 percent higher, on average, than they were for those in the bottom quartile.

McKinsey diversity and profit

Talent and Productivity

Whatever your own background, if you’re running a marketing department, you know the most qualified candidate for your next job opening could come in any ethnicity, any size or shape. (Just like the people you market to.)

A January 2013 UK meta-analysis, The Business Case for Equality and Diversity, reviews the literature and highlights trends:

“This range of potential business advantages for diversity has been supported by several authors (e.g. Subeliani & Tsogas, 2005) who suggest that increased diversity can lead to a better understanding of local markets and customers, increased ability to attract and retain the best people, greater creativity, better problem solving and greater flexibility for organizations.”

A 2007 Tatli & Ozbilgin survey of 285 diversity and equality officers suggested that the top ranking business benefits for diversity were perceived to be:

  • Ability to recruit and retain the best talent (63.9%)
  • Because it makes business sense (60%)
  • To improve business performance (48.1%)
  • To address recruitment problems (47.3%)
  • A desire to improve customer relations (43.2%)
  • To improve products and services (42.6%)

Having Women on Boards Increases Profits

To zero in on just one component of diversity – employment and advancement opportunities for women: The European Commission published a study of the effect of having women in management and on boards. The fact sheet from this study marshals the research, including:

  • The 2009 McKinsey “Women Matter 3” study reported that companies scoring in the top quartile of organizational performance – which were the companies with more women in top management – tended to have an operating margin at least twice as high as those in the bottom quartile.
  • In McKinsey’s 2010 study, “Women at the top of corporations: Making it happen”, they report a 41% higher return on equity for companies with the highest share of women on their boards compared to companies with no women on their boards.
  • An August 2012 Credit Suisse study compiled a database on the number of women – since 2005 – sitting on the boards of the 2,360 companies constituting the MSCI AC World index. The outcome shows that, over the past six years, companies with at least one female board member outperformed those with no women on the board (by 26%!) in terms of share price performance. Interestingly, this performance pattern is particularly noticeable since the onset of the global financial crises in the second half of 2008.

Companies with women on their boards are more pfitable

Innovation and Global Business

Ernst & Young’s Insight report “Driving innovation through diversity” warns: “If an organization does not leverage the potent weapon of diversity, it risks limiting its creative potential and ultimately losing its competitive edge.”

E&Y’s viewpoint is that diversity is not defined by race or gender, but encompasses the whole human experience — age, culture, education, personality, skills and life experiences. E&Y believes this cultural diversity offers the flexibility and creativity we need to recover from the economic crisis and confront the many forces challenging us, and lists four imperatives for success:

  1. Stir the pot. Research shows that diverse viewpoints generate the lively debate that can create new ideas.
  2. Anticipate the Next Big Thing — or better yet, drive the Next Big Thing! Diversity powers innovation, helping your business generate new products and services.
  3. Nurture a spectrum of talent. Expect to find talent in unexpected places.
  4. Get the mindset. Focus on transformational leadership.

As an example, Frito-Lay asked its own Hispanic employee affinity group to provide input for a new guacamole-flavored chip, and as a result, it was able to produce a new product worth $100 million.

And according to Forbes, diversity helps overcome “the disadvantage of sameness”:People from the same background and experiences tend to also have shared perspectives, which can make it difficult for them as a group to produce fresh ideas and solutions. The broader the range of people, the greater their innovation power.”

What’s It Mean for Marketing?

To circle back to our own patch of turf, diversity is quite important for marketing. We look outward to understand our customers so we can speak to them in ways they recognize. More and more often, they will be different from us (no matter who “we” are) – particularly if you’re moving into global markets. As Deloitte notes, “a diverse employee base will drive affinity with and understanding of the customer.” This can affect messaging, product names, media buys, distribution channels, and much more. And as Frito-Lay’s experience shows, product marketers can discover new, profitable products.

So, as your build your plans and your teams, keep diversity in mind. Think beyond race and gender; look for diversity in backgrounds, outlooks, and cultural training. You always need someone who can make the trains run on time – and somebody who can figure out how to build a better train. Look for different skill sets, which together become a collection of strengths balanced against weaknesses, so your marketing department can be strong in every area.

As Dr. King famously said, “…life at its best is a creative synthesis of opposites in fruitful harmony.”

« Back to blog home

  • bri44any

    What a great collection of studies. It took 10 minutes to read this, but I feel like I got hours of research from it.

    • SherryLamoreaux

      Thank you! I learned a lot writing it as well.

  • Todd Holbrook

    What a great post about diversity in the workplace – and even more – about how diversity enables and encourages a greater potential for business greatness! I have found that some of the best pieces I have worked on were assisted by people of great and differing backgrounds, each offering insightful opinions to consider.

    • SherryLamoreaux

      That’s been my experience as well.

  • Tim

    Sherry, great research here in this post. I really like your point about diversity going beyond race and gender. Our firm has seen immense value in being “multi-generational” and having a team of all ages. Additionally, the diversity in backgrounds can definitely add a lot to the workforce. For marketers, it only makes sense to have diversity on your team because we are after all marketing to increasingly diverse audiences.