The Business Case for Diversity

January 4, 2022

The business case for diversity has been on the minds of CEOs and human resources professionals for decades, but as we have more research and as employee/consumer opinions evolve, the focus for leadership also shifts. It’s not enough anymore to simply hire diverse employees; we’ve learned that doing so without also making systemic changes to an institution can actually hurt business more than help it.

Now, the emphasis is on inclusion and ensuring that diverse voices are also given equal value in the company. Instead of focusing solely on racial, ethnic, and gender diversity, socially driven consumer behavior is beginning to push companies to actively seek out talent from people with disabilities, neurodivergence, and other diverse backgrounds. 

The heart of the matter is as true as ever: Diversity, equity, and inclusion are good for business. And we’ve got the numbers to prove it.

Race and gender by the numbers

Research published in the Harvard Business Review in 2018 shows that companies with above-average total diversity had both 19% higher innovation revenues and 9% higher EBIT (earnings before income and taxes) margins, on average. This is based on a survey of more than 1,700 companies from eight countries that span a variety of industries and company sizes.

No matter where a company was located, how large it was or which industry it belonged to, there was a statistically significant relationship between diversity and innovation outcomes. In fact, the most diverse companies were actually the most innovative.

According to a 2020 Forbes analysis, this can be explained by the fact that complacency and sameness in thinking is more likely in homogenous teams than in diverse ones. Being part of a diverse team forces each person to anticipate unique needs, responses, and ideas based on the variety of backgrounds and lived experiences of their peers. When this philosophy is baked into a company culture, it becomes normal for workers to think more critically before presenting an idea. This breeds innovation and, therefore, is great for business.

A 2019 analysis from McKinsey found that the greater the representation, the higher the likelihood of outperformance (as illustrated in the chart below.) Companies with more than 30% women executives were 25% more likely to have above-average profitability than companies in the fourth quartile of this metric, for example. This is even more pronounced when considering ethnic and cultural diversity. Top companies in this regard outperformed those in the bottom quartile by 36% in profitability.


Companies with more than 30% women executives were 25% more likely to have above-average profitability than companies in the fourth quartile of this metric, and companies leading in ethnic and cultural diversity outperformed those in the bottom quartile by 36% in profitability.


Diversity in abilities

While it is now expected for corporate leaders to consider racial, ethnic, and gender diversity in their hiring practices, people with disabilities have historically been less of a focus in diversity efforts. Harmful stereotypes persist, including that people with disabilities cannot complete the basic functions of a job or that for them to do so will require expensive accommodations.

But recent research shows there is huge opportunity for growth if businesses focus on hiring and including people with disabilities; it benefits both the companies that hire people with disabilities and the greater economy as people with disabilities reach higher employment rates and therefore enjoy more expendable income.

In 2018, Disability Inclusion research by Accenture found that companies that hire and include employees with disabilities outperform peers that do not. In fact, companies leading in this particular metric of inclusion were twice as likely to have higher total shareholder returns than those trailing in hiring people with disabilities.

The Accenture study named Disability Inclusion Champions based on which companies stood out for leadership in areas specific to disability employment and inclusion. These “Champions” achieved 28% higher revenue, double the net income, and 30% higher economic profit margins compared to other companies studied over four years (illustrated in the chart below.) Champions were also twice as likely to outperform their peers in terms of total shareholder returns.

Accenture's "Disability Inclusion Champions" achieved 28% higher revenue, double the net income, and 30% higher economic profit margins compared to other companies studied over four years.
“Champions” outperform on profitability and value creation. Source: Getting to Equal 2018: The Disability Inclusion Advantage, Accenture

Team diversity leads to product success

While there is plenty of research indicating how greater diversity helps with product success, we can quickly see the impact of diversity on product development by reviewing a famous product failure.

Those of us who were working in the corporate world in late 1996 will remember “Clippy,” Microsoft’s animated office “assistant” that became its most unpopular feature ever introduced. It wasn’t just that the paperclip-shaped icon continually interrupted users about basic tasks; many women found it creepy.

In fact, the very expensive focus-group results that Microsoft conducted revealed that women felt they were being leered at by the overtly masculine characters. But the predominantly male design team didn’t experience the same response and rejected the findings. Microsoft shipped the product in 1996 with 10 male and two female assistants, but were attempting refinements just four years later, and finally retired the product in 2002. 

When we consider the first iPhone announcement was in January 2007 and the increasing popularity of digital assistants since then, it seems their idea was ahead of its time. Greater diversity and inclusion in the design phase may have made Microsoft the leader in digital assistants. Instead, they entirely removed the assistants from the platform in 2007, just as new, related technologies were becoming more mainstream.

Hiring for diversity and inclusion

When we see the hard numbers that show diversity is good for business, we might imagine companies are clamoring to diversify their staff. However, according to the aforementioned 2020 Forbes article, only 16% of corporate directors surveyed believed their companies scored “excellent” for recruiting a diverse workforce. Only 15% felt their companies were excellent in developing diverse executive talent. And a full 83% believed that companies should be doing more to promote diversity.

It seems the business community has reached a consensus that diversity and inclusion are good things to strive for, but perhaps leaders are unsure how to achieve it.

In terms of hiring, companies tend to see results when they explicitly state that diversity and inclusion are goals of the company, and when they have a diverse means of prospective employee assessment rather than a simple, standard interview process (at which people with autism, for example, tend not to excel.) This encourages a diverse applicant pool.

Leaders must also foster an inclusive culture throughout the organization. This can manifest as affinity groups, mandatory training for all employees, etc. Companies should also offer mentoring and coaching initiatives, as well as skilling and re-skilling programs, to ensure upward mobility and diversity at the leadership level.

Four actions are key for success: building trust and creating a workplace where people feel free to express themselves; actively combating bias and systems of oppression; embracing a variety of styles and voices; and using employees’ identity-related knowledge and experience to inform how best to accomplish the company’s mission. The report calls this a “learning orientation,” emphasizing vulnerability, openness, and a willingness to learn — with leadership setting the example.

Is a business case for diversity needed?

But, a word of caution: There’s also a new train of thought that argues a case against the business case for diversity. Also outlined in the 2020 Harvard Business Review report, this perspective argues that embracing a broad vision of success that prioritizes human dignity and representation for the sake of it is even more important than merely maximizing shareholder returns. 

Promising fast financial gains in exchange for diversity and inclusion initiatives can backfire; if those gains are not delivered fast enough, support for diversity, equity, and inclusion can diminish. But the importance of these ideas does not fade. As the authors of this article state:

“Why should anyone need an economic rationale for affirming the agency and dignity of any group of human beings? We should make the necessary investment because doing so honors our own and others’ humanity and gives our lives meaning. If company profits come at the price of our humanity, they are costing us too much.”



The Etta corporate travel management software powered by Deem is made to make it easier to travel anywhere for every body. Etta meets the AA-level guidelines for accessibility as outlined by the Worldwide Web Consortium. 

Find out more about how travel technology can and is improving the business travel experience for all travelers at Miles Ahead: The Next Decade in Business Travel, on March 2, 2022.


Author

Tahnee Perry
VP, Marketing

Tahnee Perry is a marketing executive with 15+ years of travel industry experience. She fosters a passion for excellence in execution and builds high-performance teams. Previously, Tahnee drove creative and marketing strategy for B2B information solutions company, Northstar Travel Group, and for travel research authority Phocuswright. She's a frequent industry speaker and guest lecturer at Stanford University.

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