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LEVERAGING DIVERSITY TO IMPROVE

BUSINESS PERFORMANCE: RESEARCH


FINDINGS AND RECOMMENDATIONS FOR
ORGANIZATIONS

Michele E. A. Jayne and Robert L. Dipboye

Research findings from industrial and organizational psychology and other disciplines cast
doubt on the simple assertion that a diverse workforce inevitably improves business perfor-
mance. Instead, research and theory suggest several conditions necessary to manage diversity ini-
tiatives successfully and reap organizational benefits. This article reviews empirical research and
theory on the relationship between workforce diversity and organizational performance and out-
lines practical steps HR practitioners can take to manage diversity initiatives successfully and
enhance the positive outcomes. © 2004 Wiley Periodicals, Inc.

Does diversity help organizations perform bet- Organizations devote resources to diver-
ter? Ask many organizations today and the an- sity initiatives because they believe diversity is
swer is a resounding “yes.” What began for a business imperative and good for the bot-
many as an effort to meet governmental and tom line. Demographic shifts in the U.S.
legal requirements has evolved into a strategic labor market, specifically the projected rapid
priority aimed at positioning organizations growth of the minority labor force over the
more competitively in the marketplace. It is next 10 years (Bureau of Labor Statistics,
estimated that organizations spend $8 billion 2004), impact organizations on a number of
annually on diversity training (Hansen, 2003). fronts. Konrad (2003) has stated three pri-
In addition, organizations devote resources to mary arguments in the business case for di-
a variety of other diversity-related initiatives, versity. First, competition for the best talent
including dedicated diversity management requires organizations to reach out and em-
staffs and workplace programs and benefits brace an increasingly diverse labor pool. Sec-
such as flexible work arrangements, domestic ond, a global economy requires that organiza-
partner benefits, corporate-sponsored em- tions have a diverse workforce so that they
ployee affinity groups, and other programs de- can effectively deal with an increasingly di-
signed to attract and retain a diverse work- verse customer base. Thus, a diverse work-
force (Corporate Leadership Council, 2003). force can lead to an increased market share,

Correspondence to: Michele E. A. Jayne, Ford Motor Company, World Headquarters Room 524-E2, Dear-
born, MI 48126-2798, tel. 313-337-1014, mjayne@ford.com

Human Resource Management, Winter 2004, Vol. 43, No. 4, Pp. 409–424
© 2004 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com).
DOI: 10.1002/hrm.20033
410 • HUMAN RESOURCE MANAGEMENT, Winter 2004

whereas lack of diversity in the workforce can ences. Table I provides excerpts of diversity
lead to a shrinking market share. A third argu- statements from the public Web sites of com-
ment is that demographic diversity unleashes panies ranked in Fortune magazine’s 50 Top
creativity, innovation, and improved group Companies for Minorities. A common theme
problem solving, which in turn enhances the of each statement is a reference to embrac-
Fortunately, competitiveness of the organization. In addi- ing all employees under the umbrella of di-
despite mixed tion to these arguments, one could add that in versity. Further evidence of the movement
empirical the context of the debate and controversy sur- toward “inclusion” as a diversity strategy is
findings on the
relationship
rounding affirmative action programs, diver- revealed in a Human Resources Institute
between sity is a more palatable and “socially accept- (2003) report of findings from a 2001 survey
diversity and able” way to address race and gender issues. of Fortune 1000 companies: 96% of respon-
organizational Finally, one could argue that in a multicul- dents said they provide diversity training on
performance, tural society, attempting to increase workforce race, 88% on gender, 85% on ethnicity, 65%
research and
diversity is simply the right and ethical thing on age, 64% on disability, 57% on sexual ori-
best practices of
organizations to do as corporate citizens, regardless of the entation, and 54% on religion. Inclusion as a
with defined economic implications. diversity strategy attempts to embrace and
diversity Ask about empirical support for the leverage all employee differences to benefit
initiatives have claim that diversity has a positive impact on the organization. As a result, managing all
uncovered
business performance, however, and the an- workers well has become the focus of many
strategies and
techniques HR swer is a more tentative “maybe.” Research corporate diversity initiatives.
practitioners examining the impact of demographic het- In contrast, inclusion as a diversity strat-
can use to erogeneity on workgroup performance as egy differs from policies and programs such
facilitate well as overall organizational performance as equal employment opportunity and affir-
positive has produced mixed results at best. So, what mative action. Equal employment opportu-
outcomes of
diversity. does this mean for the HR practitioner? For- nity ensures that employment decisions (e.g.,
tunately, despite mixed empirical findings on hiring, promotion, pay) are made without re-
the relationship between diversity and orga- gard to legally protected attributes such as an
nizational performance, research and best employee’s race, color, religion, sex, or na-
practices of organizations with defined diver- tional origin. Affirmative action programs, in
sity initiatives have uncovered strategies and turn, seek to remedy past discrimination by
techniques HR practitioners can use to facil- taking proactive steps based on race or gen-
itate positive outcomes of diversity. The pur- der and to prevent current or future discrim-
pose of this article is to review the empirical ination. Both focus on legally protected at-
findings on the relationship between diver- tributes, whereas diversity and inclusion
sity and organizational performance and broaden the scope beyond legally protected
highlight practical techniques for applying attributes to include a much larger and wide-
these findings in organizations. In addition, ranging pool of individual differences. One
this article will discuss techniques for estab- concern raised is that the movement toward
lishing metrics to evaluate the effectiveness inclusion has led some companies to place
of diversity initiatives. less emphasis on affirmative action pro-
grams, which opened corporate doors for mi-
How Is Diversity Defined? norities in the 1990s (Hansen, 2003; Human
Resources Institute, 2003).
Before launching into the empirical findings
regarding the impact of diversity on organi- What Is Involved in a Diversity Program?
zational performance, it is important to un-
derstand how organizations define diversity. Diversity programs come in a variety of forms
For many organizations, the definition of di- and can include some or all of the activities
versity has evolved from a focus on legally listed in Table II. The first three components
protected attributes such as race, gender, are crucial to changing the composition of
and age to a much broader definition that in- the workforce and include efforts to recruit,
cludes the entire spectrum of human differ- retain, and develop employees from under-
Leveraging Diversity To Improve Business Performance • 411

TABLE I Excerpts from Diversity Statements Posted on the Public Web Sites of Select Companies Listed in Fortune
Magazine’s 50 Best Companies for Minorities (Hickman, 2002)

Company Web Address Diversity Statement


McDonald’s http://www.mcdonalds.com/corp/ Diversity at McDonald’s is understanding, recognizing, and valuing the
values/diversity.html differences that make each person unique.

McDonald’s is committed to recognizing the talents and job performance


of all employees and values the contributions that come from people with
different backgrounds and perspectives.
Fannie Mae http://www.fanniemae.com/ . . . (O)ur corporate philosophy on diversity is based on respect for one
careers/diversity/index.jh another and recognition that each person brings his or her unique attrib-
utes to the corporation. Fannie Mae will be most successful in meeting
its public mission and our corporate goals when we fully capitalize on the
skills, talents, and potential of all our employees . . .
Sempra Energy http://www.sempraenergy.com/ When we talk about diversity at Sempra Energy, we mean more than
diversity.htm race, age, sexual orientation, and gender.

We believe that diversity includes:


• Human diversity, characterized by our employees’ physical differences,
personal preferences, or life experiences.
• Cultural diversity, characterized by different beliefs, values, and
personal characteristics.
• Systems diversity, characterized by the organizational structure and
management systems in a workplace.
PepsiCo http://www.pepsicodiversity.com/ We respect individual differences in culture, ethnicity, and color. PepsiCo
employees.shtml is committed to equal opportunity for all employees and applicants. We
are committed to providing a workplace free from all forms of discrimina-
tion. We respect the right of individuals to achieve professional and per-
sonal balance in their lives.
Freddie Mac http://www.freddiemac.com/ To ensure the achievement of Freddie Mac’s mission, vision, and
corporate/careers/environment.html strategic objectives, we must foster an increasingly diverse work culture,
where all employees have the opportunity to be included, add value, and
contribute to their fullest potential.

Freddie Mac is committed to diversity and inclusion and has made it a


core value integral to how we do business . . .

represented groups. Diversity programs also ing to persons from other cultures. Finally, a
include attempts to promote diversity crucial component of a diversity program can
through developing external relationships include the creation of internal structures to
with underrepresented groups outside the or- maintain the program.
ganization, including minority communities
and suppliers. Efforts to communicate the Gaps between Diversity Rhetoric and
rationale for diversity programs and to recog- Research Findings
nize and reward successes in achieving and
maintaining diversity can constitute addi- The research findings of industrial and orga-
tional components. The training component nizational psychologists and other organiza-
is by far the most common component and tional scientists cast doubt on the simple as-
can consist of efforts to increase awareness sertions that are so often stated in support of
of discrimination and prejudice and to im- diversity programs. Simply having a diverse
prove behavioral skills of employees in relat- workforce does not necessarily produce the
412 • HUMAN RESOURCE MANAGEMENT, Winter 2004

TABLE II Activities Commonly Included in Diversity Initiatives

Strategic Initiative Sample Interventions


Recruiting • Employee referral programs
• Diverse recruiting teams
• Internship programs and sponsored scholarships
• Job posting and advertising initiatives targeting specific groups
• Minority conference and job fair attendance
• Recruiting efforts targeting universities and community colleges with diverse student bodies
Retention • Corporate-sponsored employee resource or affinity groups
• Employee benefits (e.g., adoption, domestic partner, elder care, flexible health, and dependent
spending accounts)
• Work life programs and incentives (e.g., onsite child care, flexible work schedules, onsite lacta-
tion facilities)
Development • Leadership development training programs
• Mentoring programs
External Partnership • Minority supplier programs
• Community service outreach
Communication • Award programs providing public recognition of managers and employees for diversity achieve-
ments
• Newsletters, internal Web sites on diversity
• Senior leadership addresses, town hall meetings, business updates
Training • Awareness training on the organization’s diversity initiative
• Issue-based/prevention training (e.g., sexual harassment, men and women as colleagues)
• Team building and group process training
Staffing and Infrastructure • Dedicated diversity staffs
• Executive and local diversity councils

positive outcomes that are often claimed by of training and development is likely to harm
some of the more optimistic proponents. diversity efforts. Effective diversity programs
1. Increased diversity does not necessarily are likely to achieve a balance between iden-
improve the talent pool. An increase in the tifying and selecting people who have the
diversity of a group at the demographic level right KSAOs using the best measures and
(age, gender, race, disability) does not guar- growing these KSAOs through training,
antee an increase in diversity of task-related coaching, mentoring, and other develop-
knowledge, skills, abilities, experiences, and ment activities.
other characteristics (KSAOs). The research 2. Increased diversity does not necessarily
in industrial and organizational psychology build commitment, improve motivation, and
has yielded a variety of standardized tech- reduce conflict. Another expectation is that a
niques that have been shown to be predic- happier, more harmonious workplace will re-
tive of job performance (Schmidt & Hunter, sult from diversity. Unfortunately, the diver-
1998). These include behavioral interviews, sification of the workforce often has the op-
biographical data inventories, assessment posite effect. One area of research, often
centers, work samples, personality invento- called “relational demography,” has focused
ries, mental ability tests, and other proce- on how individual employees react to work
dures, all of which provide objective, quanti- situations in which they must work with per-
tative assessments of KSAOs. Improvements sons who are demographically similar to
in the talent pool are best accomplished by themselves as opposed to situations in which
using measures such as these rather than they must work with persons who are dissim-
using demographic diversity as a surrogate ilar. This research has shown that working
of talent diversity. While organizations with dissimilar others is often associated
should seek the most valid assessment tools, with negative outcomes (Riordan, 2000;
an overemphasis on selection to the neglect Williams & O’Reilly, 1998). Persons working
Leveraging Diversity To Improve Business Performance • 413

with dissimilar others are likely to show mundson, 2000), but others have shown
lower commitment to the organization, ex- that diversity is actually detrimental to orga-
press less satisfaction, perceive more dis- nizational performance (c.f. Sacco &
crimination, and display a variety of other Schmitt, 2003). Richard, McMillan, Chad- One cannot, on
negative behavioral and attitudinal out- wick, & Dwyer (2003) hypothesized an in- the basis of the
current
comes. In one such study, Ellen Fagenson verted-U relationship in which the highest research in
(1993) found that commitment to the organ- performance results from moderate levels of psychology,
ization decreased among male managers as racial diversity. In the most comprehensive conclude with
the number of women in their work units in- evaluation to date, Kochan et al. (2003) confidence that
creased, and for white managers, as the concluded that there is no justification for a diverse group
is a better-
number of minorities in their work units in- the assertion that organizations that are di- performing
creased. verse in their workforce perform better on group.
3. Increased group-level diversity does not the return on investment, profits, revenue,
necessarily lead to higher group performance. costs, and other financial measures. Al-
One cannot, on the basis of the current re- though this appears to be the best study so
search in psychology, conclude with confi- far, there are limitations, including small
dence that a diverse group is a better-per- and possibly unrepresentative samples. Con-
forming group. While some research has sequently, the debate on the business case
identified benefits of demographic hetero- for diversity is far from over.
geneity on workgroup outcomes such as cre-
ativity and innovation (Bantel & Jackson, The Implications of Research and Theory
1989), other research has shown that work- for Diversity Programs
groups whose members are diverse in terms
of their race, gender, age, or tenure have a Although the research in industrial and orga-
variety of problems, including communica- nizational psychology and related areas casts
tion breakdowns, low cohesion, and turnover doubt on the contention that diversity pro-
(Milliken & Martins, 1996; Williams & grams will yield a cornucopia of benefits, the
O’Reilly, 1998). Two recent surveys of this research and theory have identified at least
research (Bowers, Pharmer & Salas, 2000; four general conclusions that have important
Webber & Donahue, 2001) have shown that implications for diversity initiatives.
group diversity is associated with a mix of re- 1. The benefits of diversity are contingent
sults and that the overall relationship of ho- on the situation. The accumulated research
mogeneity to performance based on the ag- and theory in industrial and organizational
gregate of these studies is very small. These psychology provide little comfort for those
findings have led many researchers to view who seek simple rules and procedures that
diversity as a “double-edged sword” (Milliken apply across all situations. Based on the re-
& Martins, 1996), specifically improving search, a variety of contingency models have
group processes on some tasks and leading to been proposed for leadership, motivation,
higher-quality solutions while also decreas- group behavior, and organizational effective-
ing cohesion and all too often disrupting ness. Likewise, there is unlikely to be “one
group processes. best way” with regard to diversity programs
4. Diversity does not necessarily improve (Roberson, Kulik, & Pepper, 2003). The
organizational performance. Unlike the re- probability of success is likely to depend on
search on the effects of diversity on individ- situational factors such as the organizational
ual and group-level performance, where culture, strategies, and environment, as well
there are a large number of studies, there as the people in the organization and their
are relatively few studies assessing the rela- jobs. In one typology, Cox (1991) described
tionship to the performance of the organiza- organizations as ranging from “monolithic,”
tion. Again, the results are mixed. Some where there are relatively few minority em-
studies have shown that diversity is related ployees and diversity efforts are subject to re-
to higher performance (Wright, Ferris, sistance, to the multicultural organization, in
Hiller, & Kroll, 1995; Hartenian & Gud- which minorities are at all levels of the or-
414 • HUMAN RESOURCE MANAGEMENT, Winter 2004

ganization and diversity is incorporated as a versity program do not have the same bene-
basic value in the corporate culture. Diver- fits. On the other hand, stating vague and
sity programs are more likely to be accepted all-encompassing objectives (e.g., greater ap-
in multicultural organizations with “diversity preciation for diversity) without specific
climates” (Elsass & Graves, 1997) and in goals to accomplish unambiguous results is
The probability firms that are growth-oriented rather than likely to do little to focus attention, generate
of success is engaged in downsizing (Richard, 2000). strategies, or energize participants.
likely to depend None of this is particularly surprising, but 3. The success of diversity initiatives de-
on situational
factors such as
what is surprising is the frequency with pends on how they are framed. Research in a
the which diversity programs are implemented variety of areas of psychology has shown the
organizational with little or no attention to the specific sit- powerful influence of psychological framing
culture, uation to which they are applied. on how messages are perceived and how the
strategies, and 2. Successful diversity programs are based recipients of these messages respond to them
environment, as
on specific goals with feedback provided on (Howard-Grenville, Hoffman, & Wirtenberg,
well as the
people in the how well the programs achieve these goals. In 2003). An implication of previous research
organization its simplest form, goal-setting theory states on the framing of goals in complex task envi-
and their jobs. that explicit goals that are difficult but also ronments is that diversity programs should
acceptable lead to higher performance on a be framed as challenges and opportunities
wide variety of tasks than goals that are am- rather than as threats to overcome (Drach-
biguous, easy, or nonexistent (Locke & Zahavy & Erez, 2002). Ely and Thomas
Latham, 1990). Goals are used here to refer (2001) contrasted three frames. The integra-
to whatever the diversity program is designed tion-and-learning perspective approaches the
to achieve. Goals should not be confused diversity program as a vehicle for rethinking
with quotas. Although increasing the diver- the primary tasks and processes of the or-
sity of employees is one potential goal, the ganization. In the access-and-legitimacy per-
use of quotas in hiring, promotion, or place- spective, the diversity program is seen as a
ment can result in charges of reverse dis- strategy of gaining entry into markets
crimination. Consequently, diversity pro- through hiring employees who are similar to
grams should be designed with other goals in customers. The discrimination-and-fairness
mind than quotas. For example, one could perspective approaches the diversity program
have goals for improved relations with mi- as a way of eliminating discrimination and
nority communities, mentoring of minorities, providing equal opportunity. Based on quali-
cross-cultural knowledge, and a variety of tative data, the authors concluded that all
other outcomes in addition to goals for num- three perspectives can succeed to some ex-
bers of minorities and women hired and pro- tent, but only the integration-and-learning
moted. Furthermore, any goal regarding perspective contains a rationale that will mo-
workforce representation should be devel- tivate management and employees in a sus-
oped in conjunction with legal counsel to en- tained manner to ensure the long-term suc-
sure it is consistent with applicable employ- cess of a diversity program.
ment law. Whatever the specific nature of Needless to say, the research also sug-
the goals, they should be realistic and based gests that the messages and actions of man-
on a careful assessment of the current or- agement must convey strong support for the
ganization and translated into specific tar- programs. Based on a survey of 785 human
gets against which the program can be eval- resource professionals, Rynes and Rosen
uated. To achieve the full benefits of goal (1995) concluded that the factor that was
setting, progress must be evaluated and feed- most strongly related to successful diversity
back provided on progress in achieving goals. training was the perception that top manage-
Goals focus attention on what needs to be ment supported the diversity training. Hav-
achieved, encourage the development of ef- ing a top management team that is diverse is
fective strategies, and energize efforts to perhaps the most powerful way of conveying
achieve them. There is little reason to believe this support. Given that diversity programs
that specific goals set for participants in a di- usually contain efforts to increase the hiring
Leveraging Diversity To Improve Business Performance • 415

and promotion of women and minorities, the liefs, and values. Diversity in terms of sur-
research on how affirmative action programs face-level features had negative conse-
are framed is particularly important to con- quences in the short term, but as persons in-
sider. It appears that affirmative action pro- teracted over time, deep-level diversity Based on a
grams are less likely to be accepted to the ex- emerged as a more potent force that bene- survey of 785
human
tent that they emphasize the group affiliation fited the group. resource
of the recipients and deemphasize merit Time and contact are necessary but are professionals,
(Kravitz & Klineberg, 2002). Descriptions of insufficient to ensure the success of diversity Rynes and
an affirmative action program that focus the programs (Gaertner, Rust, Dovidio, Bach- Rosen (1995)
attention of employees on the gender or mi- man, & Anastasio, 1994). The research and concluded that
the factor that
nority status of an employee who is the ben- theory also suggest that the task and reward was most
eficiary of a program can stigmatize the ben- structures in the organization must foster co- strongly related
eficiary as incompetent (Heilman, Block, & operation and motivate them to form colle- to successful
Stathatos, 1997). gial, mutually helpful relationships (Brick- diversity
4. Diversity initiatives are more likely to son, 2000). When the task and the rewards training was
the perception
succeed when employees identify with their require people to cooperate, organizational
that top
teams and the organization. A fourth theory and team membership become more salient management
that is relevant to a consideration of when di- than the demographic differences among in- supported the
versity initiatives are more likely to succeed is dividuals. On the other hand, competitive or diversity
social identity theory (Tajfel & Turner, 1986). individualistic task designs, reward struc- training.
This theory starts with the basic assumptions tures, performance appraisal practices, and
that people are motivated to view themselves compensation systems create barriers to co-
as positively as they can and that a primary operative interaction and prevent realization
means of achieving this goal is to identify of the benefits of diversity (Chatman, Polzer,
with a group of people who are similar to & Barsade, 1998). Actions to foster a coop-
themselves. Consequently, there is a ten- erative culture include leadership emphasis
dency to sort people into ingroups and out- on the common good, basing part of employ-
groups and to attribute to members of the ees’ compensation on organizational or group
outgroup the negative attributes of the group outcomes, collecting performance feedback
(Ashforth & Mael, 1989). The implication is on group members’ performance from a vari-
that factors in the workplace that trigger such ety of perspectives (e.g., peers, customers,
categorizations are likely to interfere with di- subordinates), and celebrating successes on
versity efforts by encouraging stereotyping, a regular basis (Chatman et al., 1998).
prejudice, and intergroup conflict, whereas
those that encourage the adoption of a com- Actions Organizations Can Take To
mon identity facilitate diversity efforts. Manage Diversity Effectively
There are powerful forces at work in the
typical organization that encourage employ- Despite mixed results regarding the impact
ees to associate with those like themselves of diversity on organizations, research and
and to reject outgroup members (Lefkowitz, theory clearly indicate that the outcomes of a
1994; Waldman & Avolio, 1991). What can diversity initiative depend heavily on how the
be done to counteract these divisive pres- diversity initiative is managed. Empirical re-
sures and encourage people from different search, theory, and the best practices of or-
demographic groups to place priority on their ganizations with well-defined diversity initia-
team identity over their demographic group tives offer specific steps organizations can
identity? The research suggests that a crucial take to reap the benefits of a diverse work-
first step is that they get to know each other force.
as individuals. Harrison, Price, and Bell 1. Build senior management commitment
(1998) distinguished between “surface-level and accountability. A key element of any suc-
diversity” in terms of race, gender, appear- cessful organizational intervention is senior
ance, age, and physical disability and “deep- management commitment to the interven-
level diversity” with regard to attitudes, be- tion. Diversity is no different. Because orga-
416 • HUMAN RESOURCE MANAGEMENT, Winter 2004

nizational barriers to diversity are often sys- managers often attribute the absence of
temic, subtle, and deeply ingrained in the or- women and people of color in leadership po-
ganization (Lyness, 2002), leveraging diver- sitions to skill and experience deficits such as
sity for the benefit of the organization lack of line management experience. Women
requires ongoing and consistent leadership. and people of color, however, frequently
A thorough Success also requires that line management, point to factors such as lack of mentoring
needs as opposed to human resources, own the di- programs, stereotyping, and exclusion from
assessment of versity strategy and hold managers account- informal networks. Research examining the
the people,
jobs, and
able for leveraging diversity. Many organiza- attitudes of various subgroups of an organi-
organization tions establish executive-level diversity zation can go a long way in identifying issues
ensures that councils chaired and composed of senior line that may otherwise be overlooked. Other av-
issues related to managers who are responsible for ensuring enues of research include analyzing internal
diversity are that diversity issues are addressed, commu- complaints (e.g., harassment) and legal ac-
framed
nicated, and acted upon in their home or- tivity regarding employment practices and
accurately and
that the right ganizations. Holding managers accountable policies.
interventions for addressing barriers to building a work- Identifying areas of the organization that
are identified. force that mirrors the demographic make-up might benefit most from a well-managed di-
of the available internal and external labor versity intervention is another outcome of a
market represents another common strategy thorough needs assessment. Research sug-
used to build commitment. Diversity inter- gests that areas requiring greater flexibility,
ventions mean change for the organization, creativity, and innovation are likely to experi-
and visible, active, and ongoing senior man- ence the greatest benefits from a diverse
agement involvement and commitment are workforce. It has also been suggested that
critical to the change effort. the nature of the business strategy an organ-
2. Conduct a thorough needs assessment. ization employs may impact the relationship
There is no single best way to manage diver- between diversity and performance. Richard
sity. To be effective, a diversity initiative must (2000), for example, found that among or-
be tailored to the situation, including the ganizations pursuing a growth strategy, racial
culture and unique business and people is- diversity enhanced productivity, but there
sues facing the organization. A thorough was little effect of diversity when the organi-
needs assessment of the people, jobs, and or- zation was downsizing. HR professionals
ganization ensures that issues related to di- must understand both the business context
versity are framed accurately and that the and culture of the organization in order to
right interventions are identified. The needs manage diversity effectively.
assessment will help an organization navi- An organization’s culture must also be
gate the wide range of offerings and pick considered when developing strategy and
those interventions that best address organi- choosing diversity interventions. An inter-
zation needs. vention that works successfully in one organ-
At the level of the people and their jobs, ization may not work as well in another or-
elements of an effective needs assessment ganization and may require more focused
process include understanding the business attention and support for successful imple-
challenges facing the organization, analyzing mentation. For example, an organizational
the current demographic make-up of the or- culture that places a premium on “face time”
ganization, including workforce flow (e.g., is more likely to struggle with alternative
new hires compared to labor market avail- work schedule programs such as compressed
ability, promotion rates, turnover rates), and workweeks and part-time work than an or-
understanding employee attitudes (e.g., per- ganization that places more emphasis on re-
ceptions of diversity, need for work/family sults. Without consideration of culture, the
benefits). Employee surveys, focus groups, outcome is likely to be that programs are un-
and exit interviews can be particularly useful derutilized and the desired outcomes, such
in uncovering the often subtle and systemic as enhanced retention of women, unrealized
issues facing the organization. For example, because employees feel participation is ca-
Leveraging Diversity To Improve Business Performance • 417

reer-limiting. The situation described here Demonstrating how diversity ties directly
will likely require active and sustained effort to the organization’s business strategy pro-
over a long period of time to truly meet em- vides a foundation for linking the diversity
ployees’ need for more flexibility in their initiative to organizational outcomes. Tying the
work arrangements. Richard (2000), for example, found a posi- diversity
strategy to
In some cases, a needs assessment will tive relationship between racial diversity and business results
identify those aspects of the culture that are firm performance in organizations pursuing a in a realistic
“givens” that the diversity program must ac- growth strategy. This finding supports the ar- way is the
commodate. The needs assessment is also gument that a diverse workforce offers sev- foundation of a
likely to identify those aspects of the culture eral benefits to organizations entering new successful
diversity
that must change and suggest ways to imple- markets—for example, the added insight and initiative.
ment change. Fostering a culture that em- cultural sensitivity that women and minori-
braces diversity is an important component ties provide (Cox, 1994). Alternatively, racial
of an effective diversity initiative. Actions diversity was found to have a negative impact
such as visible and consistent senior man- on the performance of firms pursuing a
agement support and management account- downsizing (no or negative growth) strategy.
ability will go a long way in shaping an orga- This finding, in turn, may result from the
nization’s culture to better support effective fact that a downsizing strategy typically pro-
diversity management. The empirical re- motes efficiency and an emphasis on cost
search offers additional steps that may con- containment, whereas diversity in human re-
tribute to a supportive diversity culture. Fos- sources creates costs stemming from in-
tering a culture that views diversity as an creased coordination and control (Milliken &
opportunity to capitalize on the insights, Martins, 1996; Williams & O’Reilly, 1998).
skills, and experiences of members of various This research suggests diversity efforts can
cultural identities has also been identified as support and contribute to an organizational
a factor enhancing the performance of di- growth strategy and reinforces the impor-
verse workgroups (Ely & Thomas, 2001) and tance of linking diversity initiatives directly
will go a long way toward building an organ- to the business strategy.
ization that leverages diversity effectively. While the Richard (2000) study offers
3. Develop a well-defined strategy tied to support that diversity has a positive impact
business results. Tying the diversity strategy to on firm performance, it is important to keep
business results in a realistic way is the foun- in mind that this benefit appears to emerge
dation of a successful diversity initiative. The only in certain contexts. Therefore, when
diversity strategy guides decision making and framing the business case for diversity, it is
builds the business case for employees. For important to clearly articulate how diversity
meaningful change to occur in an organiza- supports the business strategy of the organi-
tion, employees must understand and em- zation. Furthermore, diversity is perhaps best
brace the business case for change. Organi- framed as a business reality, and organiza-
zations and researchers have posited several tions that rise to the challenge with a com-
potential competitive advantages of diversity, mitted, long-term, systematic and strategic
including enabling organizations to compete approach are likely to mitigate the potential
for the best talent, competing more effec- negative outcomes of diversity and may suc-
tively in the marketplace by understanding ceed in capitalizing on the benefits of diver-
the demands of a diverse customer base, en- sity, leading to better overall organizational
hancing the creativity and problem-solving performance. As Kochan et al. (2003, p. 18)
effectiveness of work teams, and reducing state, “Success is facilitated by a perspective
costs associated with turnover, absenteeism, that considers diversity to be an opportunity
and lack of productivity (Cox & Blake, for everyone in an organization to learn from
1991). Again, while each may be a plausible each other how better to accomplish their
benefit, for a business case to resonate with work and an occasion that requires a sup-
employees, it must be tailored to the unique portive and cooperative organizational cul-
business challenges facing the organization. ture as well as group leadership and process
418 • HUMAN RESOURCE MANAGEMENT, Winter 2004

skills that can facilitate effective group func- sues as part of ongoing business review
tioning.” Specifying how diversity con- meetings, and recognizing and rewarding
tributes to organizationally specific business managerial and employee efforts to leverage
objectives as opposed to blanket statements diversity represent strategies leaders can use
that diversity will inevitably lead to better or- to demonstrate active commitment and inte-
Specifying how ganizational performance is a more realistic grate diversity interventions into the busi-
diversity message and more likely to be embraced by ness plan. Incorporating diversity issues into
contributes to employees. the regular business of the organization, as
organizationally
specific
Building support for a diversity initiative opposed to a stand-alone initiative, will
business requires a clearly defined strategy for com- demonstrate senior leadership commitment
objectives as municating the business case and clear roles and move the organization toward a culture
opposed to and responsibilities for the senior leadership that truly embraces diversity.
blanket team, managers, and employees. In particu- 4. Emphasize team-building and group
statements that
lar, emphasizing the fairness of a diversity process training. Once a diverse group of em-
diversity will
inevitably lead program is crucial to building support and ployees is hired and recruited with a variety
to better mitigating the potential negative reactions of skills and perspectives, steps are needed in
organizational from both majority and minority groups. the diversity initiative to ensure that these
performance is Backlash from majority group members and skills and perspectives are actually used to
a more realistic
the stigmatization of women and people of improve task performance. Capitalizing on
message and
more likely to color have been identified as potential nega- the strengths that individual members bring
be embraced by tive reactions to diversity initiatives (e.g., to the team requires knowledge and under-
employees. Heilman, Block, & Stathatos, 1997). Fairness standing of the unique contribution each
would include perceptions of the procedures member can make to the group. Diverse
used in implementing a diversity program groups are believed to perform better over
(e.g., employees have input or voice in the de- time, largely because time allows group
sign and evaluation of the program) as well as members to develop a deeper-level, interper-
in the distribution of outcomes related to the sonal understanding beyond demographic
program (e.g., employees believe that people characteristics (Harrison et al., 1998; Pelled,
are hired, promoted, and otherwise rewarded Eisenhardt, & Xin, 1999).
commensurate with their relative contribu- Facilitating the acquisition of interper-
tions). Research on employee perceptions of sonal knowledge through team-building ef-
fairness indicate that providing an adequate forts can accelerate the team’s ability to draw
explanation that emphasizes the reasons for upon these unique skills. Team-building ef-
an action, even in cases where the action may forts that encourage group members to share
result in negative consequences for the em- information about their unique backgrounds,
ployee, will result in more cooperation and skills, and experiences will help teams de-
less retaliation than providing a vague or gen- velop a deeper understanding of the re-
eral explanation (e.g., Shaw, Wild, & sources available to the team. Sharing infor-
Colquitt, 2003). Emphasizing the business mation about task-relevant abilities and
rationale for diversity, as well as the intent of characteristics may also foster “interpersonal
diversity initiatives to embrace all employees, congruence” among team members. Inter-
will demonstrate fairness and equity and mit- personal congruence refers to the extent to
igate potential negative perceptions on the which team members’ perceptions of them-
part of employees. selves and their unique skills and abilities
The communication plan often involves match the perceptions that others have
awareness training to educate employees about them. Polzer, Milton, and Swann
about the business case and objectives of the (2002) found that in groups with high levels
diversity initiative. Training, however, is only of interpersonal congruence, demographic
part of an effective communication strategy. diversity enhanced creative task perfor-
Discussing diversity in senior leadership ad- mance. Members of teams with high inter-
dresses to employees (e.g., business updates, personal congruence feel more positive
town hall meetings), including diversity is- about their teams, are more likely to share
Leveraging Diversity To Improve Business Performance • 419

unique perspectives and opinions, and are thought, skills, and perspectives can have on
more likely to understand and value the group performance is even more critical. It is
unique perspectives and skills of others. Fos- also important for managers and organiza-
tering a group norm early in the team’s tions to recognize that a team’s ability to Given the
tenure that values and encourages team leverage and capitalize on its diversity may impact that
effective group
members to share unique experiences and take time. Watson, Kumar, and Michaelsen processes can
perspectives will help teams capitalize on the (1993), for example, found that diverse have on the
potential benefits of a diverse team. teams, while initially performing less effec- productivity
While unique perspectives foster creativ- tively than homogenous teams, eventually and
ity, these differences also raise the specter of became more effective in identifying prob- performance of
diverse teams,
team conflict. Research suggests that differ- lems and generating solutions than the ho- organizations
ent types of diversity may result in different mogenous teams. This improvement, how- must help
types of conflict. Pelled et al. (1999) found ever, occurred over a relatively lengthy period managers
that differences in functional background in- of time—namely, 17 weeks. Team-building develop the
creased task-related conflict (e.g., disagree- activities should accelerate a team’s potential leadership and
group process
ments about goals, key decisions, best course to benefit from its diversity. However, it will
skills needed to
of action), whereas race and tenure diversity still take time, and organizations should con- facilitate
increased emotional conflict. Not unexpect- sider this when evaluating the performance constructive
edly, task-related conflict had a more positive of diverse teams. conflict and
impact on group performance than emo- 5. Establish metrics and evaluate the ef- effective
communication.
tional conflict. Therefore, effective conflict fectiveness of diversity initiatives. Establishing
management is also crucial when managing meaningful metrics to evaluate the effective-
diverse teams, as team member diversity will ness of an organization’s diversity initiative is
almost assuredly bring about situations critical to managing diversity effectively.
where perspectives and opinions collide. Kochan et al. (2003) reported that none of
Harnessing the creative energy from conflict the 20 large and well-known Fortune 500
is important to enhance team performance companies approached for their study had
and avoid undermining effective group systematically examined the effects of their
processes. Finally, instituting task and re- diversity initiatives. The reasons for not eval-
ward structures that foster cooperation and uating diversity programs are wide-ranging.
motivate team members to form collegial, First, organizations typically struggle to iden-
mutually helpful relationships will also en- tify meaningful metrics and calculate the re-
hance the performance of diversity teams. turn on investment of HR practices, and di-
(Brickson, 2000). versity is no exception. Second, HR
Given the impact that effective group organizations frequently don’t collect the
processes can have on the productivity and data required for meaningful evaluation and
performance of diverse teams, organizations are often reluctant to invest required re-
must help managers develop the leadership sources. Fear that the data may reveal sys-
and group process skills needed to facilitate temic bias or discrimination, leaving organi-
constructive conflict and effective communi- zations vulnerable to legal challenge, is
cation. A first step is to help managers un- another common reason for not evaluating
derstand and anticipate the potential chal- diversity initiatives. Finally, leaders of organ-
lenges diverse teams may face, including less izations with well-defined diversity initiatives
social integration, greater communication typically already believe in the benefits of di-
problems, and higher turnover rates (Mil- versity and therefore don’t demand definitive
liken & Martens, 1996; Williams & O’Reilly, evidence.
1998). Managers must also understand that Despite these reasons, there are several
these challenges can be overcome with ef- compelling reasons why organizations should
fective group leadership. Arming managers invest in the development of diversity met-
with the skills and techniques to help diverse rics. Metrics allow the organization to track
teams overcome potential challenges and progress and identify and address issues as
harness the benefits that a diversity of they emerge. It also signals an organization’s
420 • HUMAN RESOURCE MANAGEMENT, Winter 2004

commitment to the diversity initiative. The Once an evaluation team is established,


adage “what gets measured gets attention” is the next step is to identify metrics. The busi-
true in most if not all organizations. Metrics ness strategy for diversity should serve as the
also ensure that scarce resources are devoted framework for defining and tracking metrics.
to areas that will benefit most, and early iden- The focus should be on establishing metrics
Establishing tification of issues can avoid costly outcomes. that are truly meaningful and provide useful
metrics and Currently, due to the lack of field research, information for guiding decisions about di-
evaluating the little is known about the relative merits of one versity initiatives. For example, tracking the
effectiveness of
diversity
diversity initiative over another. Establishing number of people who attend diversity train-
initiatives will metrics and evaluating the effectiveness of di- ing may be an important implementation
allow versity initiatives will allow organizations to metric but will say little about how well the
organizations to make data-driven decisions about how to training is meeting its strategic intent (e.g.,
make data- leverage resources most effectively. convincing employees of the business case
driven decisions
Establishing meaningful metrics and im- for diversity). Tracking the utilization of flex-
about how to
leverage plementing an effective and comprehensive ible work arrangements programs will help
resources most evaluation of a diversity effort require careful the organization track participation rates but
effectively. planning and sufficient resources. Measure- will not indicate whether the organization
ment is about change, and an evaluation pro- has a culture that supports a balance be-
gram needs to be carefully monitored and tween employees’ work and personal lives. It
nurtured. Rosenfeld, Landis, and Dalsky is the role of the evaluation team to work
(2003) offer several steps organizations can closely with members of senior management
take to implement an effective evaluation to identify metrics that provide meaningful
program. An important first step is to estab- information tied to the strategic intent of the
lish an evaluation team championed by se- diversity initiative.
nior leadership and made up of business Unfortunately, the data that would be
process owners of the diversity initiative, most useful in evaluating a program are
members with measurement expertise, and, often not the data currently tracked by the
at least on an ex officio basis, a member of organization. For example, while data on
internal legal counsel. The senior leader race/ethnic and gender representation may
champion ideally will be someone from line be readily available, data on other factors in-
management who is willing to serve as an ad- cluded under the newer and expanded model
vocate for diversity initiatives and the plan to of diversity such as religion or sexual orien-
evaluate these initiatives. A senior leader tation may not be readily available. There-
champion is necessary to guide the team to- fore, the evaluation team will likely be
ward identifying meaningful metrics, provide charged with finding new and potentially
the team with sufficient resources, and help creative methods of data collection. This
team members overcome the inevitable re- likely outcome reinforces the importance of
sistance they are likely to face. Business securing commitment from senior manage-
process owners are critical team members ment to devote sufficient resources to the
because they are the ones who will be asked evaluation effort. A final key to the success-
to implement and use the metrics to evaluate ful establishment of diversity metrics is to
efforts. Including individuals with measure- focus on the vital few. Often, organizations
ment expertise will ensure metrics have sta- establishing metrics programs make the mis-
tistical integrity and provide meaningful in- take of trying to measure too much too soon.
formation on which to base decisions. This approach can strain organizational re-
Involving a member of the organization’s sources and overwhelm decision makers.
legal staff will help mitigate legal concerns Tying metrics to the diversity strategy will en-
that often deter organizations from pursuing sure that the most useful metrics are identi-
a rigorous evaluation process. Finally, ensur- fied and that resources are devoted to those
ing that team members are diverse, both in that are most critical.
skills and demographically, will help the There are several common metrics that
credibility of the team’s efforts. organizations use to track the effectiveness
Leveraging Diversity To Improve Business Performance • 421

of their diversity efforts. Measuring the cur- However, with some careful analysis and a
rent demographic profile of the organization bit of creative thinking, organizations can
and how it evolves over time is critical to suc- make important inroads in demonstrating
cessful diversity management. For example, the link to business outcomes. For example, Leveraging
comparing current race/ethnic and gender an intervention that succeeds in increasing diversity for the
good of the
representation of different job groups and minority retention will have a bottom-line organization
levels within the organization to labor market impact on the costs associated with em- requires change
availability may identify potential barriers in ployee turnover. Evaluating the performance and change
key human resources processes such as hir- of diverse teams that have engaged in team- takes time.
ing and promotions. Other key data that building activities versus those that have not
should be evaluated include workforce flow represents a way to evaluate the effectiveness
statistics, specifically data related to recruit- of team-building interventions on team per-
ing (who was interviewed, who was hired), formance. Finally, a reduction in litigation
promotions (who was considered, who was activity and costs following a specific inter-
promoted), and retention (who left the or- vention such as sexual harassment training
ganization, how do turnover rates compare represents another avenue for demonstrating
across demographic groups). Tracking and bottom-line results.
analyzing demographic data will identify Organization-specific metrics tied to the
processes requiring intervention and monitor organization’s overall business strategy repre-
progress as interventions are implemented. sent another avenue for linking diversity ini-
Employee opinion data represents another tiatives with bottom-line results. At Ford
source of data for evaluating the effective- Motor Company, for example, employee re-
ness of a diversity initiative. Surveys, focus source groups demonstrate their value to the
groups, and exit interviews can be used to bottom line by tracking the number of vehi-
monitor more subtle and systemic aspects of cles members sell through the company’s
diversity such as organizational culture and Friends and Neighbors vehicle discount
barriers such as lack of mentoring programs plan. An examination of the program, which
and exclusion from informal networking enables Ford employees to provide extended
groups. These techniques can also give a family members and acquaintances with ve-
voice to groups included under the larger hicle discount vouchers, revealed that re-
umbrella of diversity not typically tracked in source group members were more likely than
HR information systems (e.g., disability sta- nonmembers to use the program. In 2002,
tus, sexual orientation, country of origin, resource group members were able to sell
etc.). Finally, it is important to include an $100 million of Ford cars and trucks (Cole,
analysis of the majority group in any metrics 2003).
evaluation program. This approach will en- Finally, when establishing and reporting
sure any issues unique to majority group diversity metrics, it is important to keep in
members are addressed and demonstrate mind that the benefits of diversity will not
support for an inclusive diversity strategy. occur overnight. Leveraging diversity for the
Given the importance of a sound busi- good of the organization requires change and
ness case to successful diversity efforts, or- change takes time. Therefore, it is best to
ganizations must do a better job of tying di- take a long-range perspective in evaluating
versity results to business outcomes. HR diversity efforts. As stated previously, active
organizations in general struggle with tying and sustained commitment over time will re-
their programs and policies directly to busi- sult in an organization that derives benefits
ness outcomes, and diversity is no different. from a diverse workforce.
A Corporate Leadership Council study found
that 61% of participating companies cited Conclusion
identifying quantifiable links between HR
performance and business goals as the pri- The increasing attention given to diversity
mary HR metrics challenge facing organiza- management in both HRM practice and re-
tions (Corporate Leadership Council, 2001). search is not a momentary fad or fashion but
422 • HUMAN RESOURCE MANAGEMENT, Winter 2004

reflects the inevitable consequence of a Moreover, diversity alone does not guarantee
global economy and demographic changes. It immediate, tangible improvements in organi-
is obvious, however, that the rhetoric used by zational, group, or individual performance.
proponents and opponents of diversity has Nevertheless, achieving a diverse workforce
not been in touch with the empirical re- and effectively managing this workforce can
search. In this article, we have attempted to yield huge benefits. The research has pro-
highlight some of the conclusions that can vided important insights that can help HRM
be drawn from the existing research litera- practitioners achieve the benefits and avoid
ture, the gaps between the rhetoric and these the problems of diversity efforts.
findings, and some strategies for successfully
designing and implementing diversity pro- The opinions expressed in this article are
grams. It seems clear that increasing the di- exclusively those of the authors, and do not
versity of the workforce often involves prob- purport to represent the views of Ford Motor
lems such as dissatisfaction and conflict. Company or the University of Central Florida.

Michele E. A. Jayne, PhD, is Personnel Research Manager for Ford Motor Com-
pany. Her work focuses on developing, tracking, and analyzing HR metrics. She holds
a PhD in industrial-organizational psychology from Tulane University. She has au-
thored book chapters and presented research papers and workshops at national con-
ferences on personnel selection and assessment, HR metrics, and diversity manage-
ment. She is a past president of the Michigan Association of Industrial-Organizational
Psychologists and served on the executive committee of the Society for Industrial and
Organizational Psychology.

Robert L. Dipboye, PhD, is a professor and chair of the psychology department at


the University of Central Florida. Previous to this position, he was the Herbert S.
Autrey Professor of Psychology and Management at Rice University. He holds a PhD
in industrial-organizational psychology from Purdue University. His primary research
and applied interests include staffing, training, performance appraisal, feedback, lead-
ership, and implementation issues. He is a past associate editor of the Journal of Ap-
plied Psychology and is currently serving on the editorial board of the Academy of Man-
agement Review. He is on the executive committee of the human resource division of
the Academy of Management.

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