Editor's Note: Take a look at our featured best practice, Business Case for Diversity & Inclusion (D&I) (28-slide PowerPoint presentation). Diversity and Inclusion (D&I) are 2 sides of the same coin--each with its unique effect, yet they are inseparable and have to be considered together. D&I involves actions beyond policies, programs, or headcounts. Diversity pertains to representation of races, ethnicities, and other [read more]
Diversity and Inclusion: Leaders vs. Laggards
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Diversity pertains to representation of races, ethnicities, and other minority groups in an entity, or in other words the make-up of an organization. Inclusion on the other hand, represents the degree of value given to inputs, existence, and viewpoints of various groups of people and the extent of their integration in a setting.
A study conducted by McKinsey discovered that a handful of companies present a very strong business case for D&I and were moving ahead considerably more intrepidly on Diverse representation.
The study then set out to find whether these few companies were also beginning to move ahead from their cohorts in terms of an increased chance of surpassing the rest—financially.
Scrutiny vividly exhibited that businesses in the top quartile for both Gender and Ethnic Diversity were expected to surpass in performance the rest of the companies in the data set by an additional 12%.
Businesses in the 4th quartile of both Gender and Ethnic Diversity were anticipated to underachieve on profitability 27% more than all other firms in the data set.
General advancement on representation was found to be sluggish and this actually concealed a broadening gap between foremost D&I practitioners and businesses yet to incorporate Diversity. Rising divergence between top and bottom performers signaled an escalated probability of a performance penalty.
Trajectories of 100s of large companies have been followed by research since 2014. More than 1,000 large companies from 15 countries, on 5 continents, were included in the 3rd analysis. It tracks Ethnic and Cultural Diversity, as well as Gender based Diversity.
Research has identified following 5 associated categories of companies whose progress has been measured over the years:
- Diversity Leaders
- Fast Movers
- Moderate Movers
- Resting on Laurels
Prospects of Diverse businesses surpassing others in the same industry on the basis of profitability has amplified appreciably since the 1st data set was analyzed in 2014-15.
Let us go a little deeper into some of the categories.
Diversity Leaders are companies that are well on their way to Diversity. These firms have taken and continue to take concrete steps for Diversity and may reach Gender parity.
Diversity Leaders were 5% of the data set in female representation. They had on average 40% women executives in 2019 compared to an already strong 26% in 2014.
They were 17% of the data set in Ethnic Diversity in the 2014 data set. Ethnic representation also rose by 46% from 17% in 2014.
Such companies have, as a rule, adopted a systematic, business-led method to D&I for at least 5 years.
Fast Movers category contains those companies that have displayed tremendous progress in the period of study.
Women on average were 27% in 2019, compared to an average representation of 7% in 2014. As regards Ethnicity, firms in the corresponding category have improved representation from just 1% in 2014 to 18% in 2019.
At the other end of the category are the Laggards. Their previously feeble Diversity accomplishment has been observed to deteriorate even more.
Laggards comprised of 28% of the data set on Gender as well as Ethnic Diversity. They have dropped further in 5 years.
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About Mark BridgesMark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
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