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The Business Case and Challenges of Workforce Diversity

digital illustration of a large magnifying glass highlighting a woman out of a group of professionals

Why are companies growing more focused on increasing diversity in the workforce and promoting a more inclusive employee culture? Consider the potential impact on business that we uncovered while researching for our latest white paper, “Talent, Business and Competition: A New World of Diversity & Inclusion (D&I)”:

  • +35% Competitive Advantage: The percentage by which ethnically diverse companies are more likely than their peers to financially outperform their industry medians
  • $655 Billion in Profits: The amount potentially lost by companies with men-only boards
  • $4.3 Trillion in Value: The amount the United States could add to its annual gross domestic product (GDP) by 2025 if women were to attain full gender equality in the workplace
  • 2.3 Times Higher Cash Flow Per Employee: The revenue advantage for companies with mature diversity programs
  • 1.7 Times More Innovative: The estimated likeliness of a company with a mature diversity program to be an innovation leader in its market (compared with the industry norm)
  • 67% Improved Candidate Attraction: The percentage of active and passive job seekers who consider diversity a factor when evaluating companies and job opportunities

The Business Case for Diversity

The shortage of skilled talent is here to stay, and it is causing real pain for talent leaders. In our survey of nearly 7,000 employers and job candidates from around the world, Allegis Group found that only 7.7 percent of employer respondents expressed high satisfaction with their talent acquisition function’s ability to deliver in terms of speed, cost, and quality of results.

A significant portion of hiring managers were either somewhat or strongly concerned about issues related to attracting quality talent (23 percent), filling positions quickly (39 percent), and optimizing costs (27 percent).

These challenges are no surprise as many companies struggle to keep up with the new demands of a rapidly changing workforce. Consider the forces at play. Large numbers of older workers are retiring while new generations embark on their careers. Innovation is leading to a high demand for emerging skills, and organizations must compete for talent against companies both inside and outside their industries. Finally, companies are adjusting to the new reality of a workforce that is more diverse than ever before.

Millennials (those born between 1982 and 2000) have now surpassed Baby Boomers as the largest generation in the United States (83.1 million versus 75.4 million Baby Boomers), and 44 percent of Millennials are part of a racial or ethnic minority group. In the future, the worker population will grow even more diverse as those under five years old, of which 50.2 percent are from diverse backgrounds, enter the workforce, according to the U.S. Census Bureau. Added to this mix is a growing portion of women, LGBT workers, people with disabilities, military veterans, and other groups in the overall working population. The result: the workforce of the future is already here, and it is growing more diverse every day.

Given the challenges of competition and talent scarcity, long-standing commitments to workforce diversity are now a high priority among many organizations. The intention of “doing the right thing” aligns with the business necessity of attracting diverse talent, improving retention, and maximizing the value and contribution of every employee.

As a result of the changing workforce and the challenges of talent scarcity, companies are rethinking their approaches to D&I. As a practice, D&I is no longer about compliance, quotas, or check-off-the-box activities; instead, it is about taking down the barriers that stand between employers and vital sources of scarce talent. It is about bringing to bear the full power of diverse, personal experiences and perspectives to understand customers, create value, and support innovation. And, D&I is about being prepared for a future where demographic shifts will fundamentally change workforce dynamics.

Big Challenges Stand in the Way of Workforce Diversity

The business case for improving diversity in the employee population is compelling. Numerous studies indicate that a diverse workforce and inclusive corporate culture improves innovation, business agility, productivity, employee engagement, and talent attraction. And, leading companies across industries have publically committed to improving diversity as part of a business need and as a social responsibility. Unfortunately, many companies find that their ability to attract diverse talent remains blocked by longstanding issues that must be addressed clearly if they want to rise above lip service and achieve real progress. Those key issues include:

  • Diversity in Leadership: Diversity in the C-suite and board influences many of the strategic decisions an organization makes, and it reflects the opportunity for diverse employees to advance their careers at the company. Lacking leadership diversity, companies convey the presence of a “glass ceiling” that blocks diverse employees from attaining leadership roles. The issue is grabbing headlines. In Fortune 500 companies, women and minorities hold 31 percent of board seats, a low but slowly improving figure, with much progress still needed. Overall, nearly 80 percent of board members are male.
  • Equal Pay: A 2015 study calculated the gender pay gap at nearly 20 percent. Another study estimated the pay gap in median hourly earnings between black and white employees at 25 percent. In an era when compensation discrepancies draw negative attention, organizations continually struggle to achieve parity. Addressing the pay gap is not a one-time event; it requires vigilance and a focus on eliminating the barriers and biases that lead to those discrepancies.
  • Accountability: In an Allegis Group survey of 500 senior talent decision makers, only 4.6 percent of respondents worked for companies that linked executive compensation to D&I objectives. Notably, Microsoft announced in late 2016 that it would tie executive bonuses to diversity goals after reporting the second straight year of declines in female employees. Accountability begins at the top. Leading companies are taking action, and diverse candidates are looking to prospective employers for the level of change that accountability brings to the organization.

A New World of Promise: D&I as a Business Advantage

Together, the issues of leadership diversity, fair pay, and accountability persist in the world of D&I. These challenges impact the way prospective workers view a potential employer, and the organization that fails to address those issues will not be able to compete effectively for diverse workers or keep them on board.

Considering the business case and evolving expectations associated with D&I, it is no surprise that business and talent leaders face a compelling environment for change. But how can talent leaders re-think D&I? The conversation centers on four key areas:

  • Understanding Bias as a Root Cause of D&I Issues: A natural part of human behavior, bias affects nearly every decision we make. The influence of bias is felt across the talent acquisition process and in the employee experience. Bias often results in decisions or conditions that stand in the way of opportunity for diverse workers, even in the most culturally advanced, diversity- aware organizations. Fighting the negative influence of unconscious bias is the single common thread that underlies every D&I-related strategy and activity.
  • Getting Real About Change: Commitment to diversity is important, but how does an organization turn commitment into action, and, most importantly, action into results? The answer involves a solid diversity position, objectives for change, metrics for success, and executive support.
  • Building Diversity Through Talent Acquisition: Great recruiting brings diverse talent through the door. From job definitions to the sourcing and recruiting process, evaluation and selection, and in the use of technologies, the opportunities to reduce bias and improve diverse hiring span all aspects of talent acquisition.
  • Enabling an Inclusive Employee Experience: A positive employee experience is vital to attracting diverse talent. Leadership involvement, mentorship, training, employee resource groups, fairness in compensation, and opportunity for advancement are ingredients to an inclusive company culture.

Learn More

Ready for more insights about the latest D&I trends and research? Download our D&I white paper to gain an informed perspective on how today’s smartest companies are turning D&I into a talent and business advantage today.

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