A study by McKinsey found that companies in the top quartile of racial and ethnic diversity are 33 percent more likely to have financial returns above their respective national industry medians, while gender-diverse companies have 35 percent higher financial returns than other companies. That’s why diversity and inclusion has become an essential component of corporate strategy and business operations, resulting in increased employee engagement and loyalty, improved recruitment, training, retention, and operational efficiency. But how much does it really cost to achieve this return on investment?
How Much do You Spend on Diversity Efforts?
When we’re considering the decision to invest in DEI strategies for your organization the first question you must ask yourself is “will this save money for us, or generate new revenue for us?” Consultants have been telling companies for a decade that DEI reduces their overhead expenses. The truth is that it’s hard to summarize the ways in which DEI initiatives improve your organization’s bottom line, attract better employees, and make for better products because DEI should be embedded to support your revenue plans, not stand alone as a separate strategy.
What is the True Cost?
When you think about the cost of DEI, it’s not just budget allocation. It’s the entire cost of an authentic strategic approach to DEI. This includes hiring or allocating staff, the cost of revising processes, the cost of collaborating across stakeholders and most importantly the cost of prioritizing DEI alongside other strategic initiatives. So why bother investing at all, if you cannot even link the cost of DEI to increased revenue?
How Profitable is Investing in DEI?
Study after study has proven that DEI efforts make a difference to the bottom line. A McKinsey study found that companies with gender-diverse executive teams generated 21% more EBIT (earnings before interest and taxes) and 27% more long-term value than those with male-dominated executive teams. In contrast to companies with the least racial diversity, companies with racially diverse executive teams achieved higher EBIT and created more long-term value by 35%. As a result, companies with diverse talent and executives are more likely to retain them and make decisions that address a wider variety of customers than companies with a more monolithic customer base.
Strategies to achieve desired outcomes - ROI
1. Commitment from the Top
Commitment to building a diverse workforce needs to come from the CEO, with open and consistent support from the C-Suite team. By having this support and ensuring that diversity remains embedded in the company culture will mean that the rest of the organization takes notice.
Senior leadership should regularly communicate progress against goals, invite employees to give feedback and get involved in building a diverse workforce.
2. Incorporate DEI into Policies and Process
Building a diverse and inclusive culture needs formality and policy. Often employee engagement surveys show that employees feel that leadership’s interest in DEI is more talk than real action. Reviewing and updating training, recruitment, performance management and promotion policies to shine a light on promoting diversity makes the difference.
3. Make it Intentional, not Mandatory
Research has shown that companies that impose mandatory diversity and inclusion training end up with lower diversity results than when they started.
There is a strong case for making DEI training voluntary by allowing employees to choose to show up. This, of course, must go hand-in-hand with policies and procedures that emphasize the positive impact of better representation.
When there is no “consequences” sword hanging over their heads, employees respond better to training, leading to an increase in representation. This, of course, means that your training needs to have a strong “pull” factor and a culture that supports diverse thought and inclusivity.
4. Involve Underrepresented Groups in the Decision-Making Process
Senior leadership teams continue to largely consist of heterosexual white men. So, when developing training that truly understands and explains the challenges and injustices faced by ethnic and gender minority groups it needs to resonate with minority groups. The only way to do this is to have a diverse group of employees who contribute to the development of the DEI strategy.
Not only does this empower these groups and help them feel included it also ensures that the approach stays aligned with the organization’s DEI goals.
5. Make Managers Accountable
While senior leadership can be the face of the DEI agenda, the drivers and implementers of the DEI strategy are the people managers. Managers are hiring, conducting appraisals, and having a direct impact on employees’ careers – having this group both accountable and engaged with the DEI agenda is critical. By putting managers at the front of implementing DEI strategy and holding them accountable companies will see their representation and inclusivity numbers increase.
Ultimately, company leaders need to rethink DEI investment as a short-term cost to gain a long-term increase in revenue and profitability. Research is constantly showing us that the investment is worth it and that the competitive edge and increased revenue that is created by a purposeful DEI strategy far outweigh the cost.