How Cultural Diversity Boosts Profits!
Definition: Cultural diversity is when differences in race, ethnicity, language, nationality, religion, and sexual orientation are represented within a community. A community is said to be culturally diverse if its residents include members of different groups. The community can be a country, region or city. Cultural diversity has become a hot-button issue when applied to the workplace.
Why does cultural diversity matter? People from different races, etc. have different life experiences. This flavors their interpretation of events. These differences can bring strength to the group if it is valued and integrated into the group dynamics. However, it can take time, intent and the willingness to be open-minded and non-judgmental about the value the differences bring. It definitely takes effort to make cultural diversity a strength.
Cultural diversity can also weaken a group. Differences in interpretation of events can lead to mis-communication, awkwardness and hostilities if not addressed. Prejudices about people of different backgrounds can also lead people to jump to conclusions and misinterpret actions and behaviors.
Economic Benefits of Diversity
Put simply, diversity increases profit. Each year, Diversity Inc selects the 50 most diverse companies. The 43 that were public corporations were 24% more profitable than the S&P 500. They made up just 7% of the Fortune 500, but generated 22% of its total revenue.
How does diversity drive profitability? The European Union Commission studied 200 companies in 2003. It found three area where diversity mattered:
Marketing – Having a diverse workforce builds trust in your brand with a diverse target market.
Operations – Valuing diversity cuts costs by reducing turnover and absenteeism, and by avoiding legal costs. How? It enhances employee engagement by showing the company understands and respects different cultures. Valuing diversity also gives the company freedom to go after the most highly talented people throughout the world.
Innovation – When the diversity within a product development team is in sync with diverse target markets, the team can more successfully create new products that satisfy the markets' needs. That's because a diverse workforce better understands, because they share, the values of diverse markets. For example, Daimler/Chrysler found the best mix for a product development team was heterogeneous: 50:50 male//female; a gradual age distribution rather than peaks, and no more than half of any team be any one ethnic group or nationality.
For the individual, it literally pays to be on a diverse team. Wharton Business School Research found that members of successful diverse teams earn more.
Embracing diversity also cuts down on legal costs. That's because it's illegal for employers to discriminate against employees based on their cultural diversity. The Equal Employment Opportunity Commission (EEOC) promotes equal opportunity and handles complaints about workplace discrimination. Federal laws prohibit discrimination in the workplace for: age, disability, national origin, race, religion, and gender. However, sexual orientation and gender identity are not protected by Federal law. Here is a list of states where they are protected under the law.
How to Manage Diversity
Stereotypes can create destructive communication. Team members have to sort through all the prejudices about people who are different. Even though it takes longer for the teams to perform, it's worth it. Once the team bonds, the diversity of the members makes it more innovative and perform better. Result? Higher salaries, bonuses, and even stock options for everyone on the team.
Wharton Biz School consultant, Pamela Tudor, found that if members of a team shared similar values and dedication to a shared goal, this commitment to the common goal overcame any other diversity issues.
Therefore, these teams must be supported by departments that clearly explain the goals of the team. This is more likely in growth-oriented companies that know they need to embrace diversity to fuel the innovation that's their competitive advantage.
The buying power of Gen X (34 – 45) and Millennials (12 – 33) is $1 trillion. They grew up in a diverse society, and celebrate it. For them, valuing diversity is assumed. Article updated December 4, 2013
Why does cultural diversity matter? People from different races, etc. have different life experiences. This flavors their interpretation of events. These differences can bring strength to the group if it is valued and integrated into the group dynamics. However, it can take time, intent and the willingness to be open-minded and non-judgmental about the value the differences bring. It definitely takes effort to make cultural diversity a strength.
Cultural diversity can also weaken a group. Differences in interpretation of events can lead to mis-communication, awkwardness and hostilities if not addressed. Prejudices about people of different backgrounds can also lead people to jump to conclusions and misinterpret actions and behaviors.
Economic Benefits of Diversity
Put simply, diversity increases profit. Each year, Diversity Inc selects the 50 most diverse companies. The 43 that were public corporations were 24% more profitable than the S&P 500. They made up just 7% of the Fortune 500, but generated 22% of its total revenue.
How does diversity drive profitability? The European Union Commission studied 200 companies in 2003. It found three area where diversity mattered:
Marketing – Having a diverse workforce builds trust in your brand with a diverse target market.
Operations – Valuing diversity cuts costs by reducing turnover and absenteeism, and by avoiding legal costs. How? It enhances employee engagement by showing the company understands and respects different cultures. Valuing diversity also gives the company freedom to go after the most highly talented people throughout the world.
Innovation – When the diversity within a product development team is in sync with diverse target markets, the team can more successfully create new products that satisfy the markets' needs. That's because a diverse workforce better understands, because they share, the values of diverse markets. For example, Daimler/Chrysler found the best mix for a product development team was heterogeneous: 50:50 male//female; a gradual age distribution rather than peaks, and no more than half of any team be any one ethnic group or nationality.
For the individual, it literally pays to be on a diverse team. Wharton Business School Research found that members of successful diverse teams earn more.
Embracing diversity also cuts down on legal costs. That's because it's illegal for employers to discriminate against employees based on their cultural diversity. The Equal Employment Opportunity Commission (EEOC) promotes equal opportunity and handles complaints about workplace discrimination. Federal laws prohibit discrimination in the workplace for: age, disability, national origin, race, religion, and gender. However, sexual orientation and gender identity are not protected by Federal law. Here is a list of states where they are protected under the law.
How to Manage Diversity
Stereotypes can create destructive communication. Team members have to sort through all the prejudices about people who are different. Even though it takes longer for the teams to perform, it's worth it. Once the team bonds, the diversity of the members makes it more innovative and perform better. Result? Higher salaries, bonuses, and even stock options for everyone on the team.
Wharton Biz School consultant, Pamela Tudor, found that if members of a team shared similar values and dedication to a shared goal, this commitment to the common goal overcame any other diversity issues.
Therefore, these teams must be supported by departments that clearly explain the goals of the team. This is more likely in growth-oriented companies that know they need to embrace diversity to fuel the innovation that's their competitive advantage.
The buying power of Gen X (34 – 45) and Millennials (12 – 33) is $1 trillion. They grew up in a diverse society, and celebrate it. For them, valuing diversity is assumed. Article updated December 4, 2013
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By Kimberly Amadeo
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