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Cultural Diversity

How It Boosts Profits

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senior shop keeper

The different world view that comes with age creates cultural diversity in the work place.

Credit: Tim Boyle/Getty Images
G-20

The members of the G-20 must respect each others' culture to work together.

Credit: G-20
Declaration of Independence

The Declaration of Independence protects equal opportunity, and diversity, under the law.

U.S. National Archives

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. 

Three Companies That Do Diversity Well

Three of the world's most successful companies got that way by valuing diversity. Google has 62% of the global search market share, covering more than 200 countries. Its mission is to “Facilitate access to information for the entire world, and in every language.”  However, there's 4,000 languages. The most popular languages are: Mandarin Chinese (882 million),  Spanish (325 million) and the English (312 million).   

Fortunately, Google could reach 99.3% of the Internet population with only 40 languages, so it launched 40-Language Initiative. It couldn't have done this without truly valuing diversity.    It's diversity motto? “Never judge a search engine by its interface.” That's Googlese for “Never judge a people by their appearance.” 

Johnson and Johnson has 58% of its operations outside the U.S. It 13-member board of directors is diverse, with three African-Americans, three women and one Hispanic. Women are 1/3 of the most senior-level executives, about half of the top 10% highest-paid employees. Offers great benefits to same-sex domestic partners. (Source: Diversity Inc Top 50 List)

Intel is one of Workforce Diversity Magazine's Top 50 Employers List and one of the Best Companies for Diversity by Diversity/Careers, and one of the most gay-friendly companies, according to International Gay & Lesbian Chamber of Commerce. Its workforce is  27% minority, 20% Asian and 20% female. One third of the Board are women, and a woman, Jane Shaw is Chairman  of the Board. More than half (55%) of the nearly 80,000 employees are in the U.S. 

Why Diversity Is Growing

Emerging global trends are driving the growing economic power of a diverse workforce. In just 30 years, whites will be the minority in the U.S. Babies being born now will belong to the first post-white generation in America.

China and India (Chindia) provide 1/3 of the global workforce.  Since 2000, 1 million IT jobs were outsourced to India.  Why? Both countries are obsessed with educating their people.  In 1990, China had 610,000 college graduates. In 2010, this grew to 5 million. The #1 supercomputer in the world is in Tianjin, ChinaChina's economic growth is designed to create a successful middle class, and avoid revolutions.  

In the $913 billion African-American market, buying power is up 55%, while the population increased just 10%.  Why? More than  80% of African-Americans completed high school or college, up from 62%1990. Similarly, the Hispanic market has $980 billion in buying power.

The buying power for the LGBT market (Lesbian, Gays, Bi- and Transexual) is $712 billion  as of 2008.  A Syracuse University study found that gay household income was $65,000, higher than the U.S. median of $40,800.  Why? Again, education - 90% were  college grads. How well a company values diversity is important to this group. Ninety percent look for how a company treats its LGBT employees and whether they sponsor LGBT events.

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.  More than half (53%) support gay marriage.   Article updated December 4, 2013

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