The Diversity Scorecard

Edward Hubbard

• Publisher: Routledge
• Year: 2012
• eBook ISBN: 9781136358319
• Topic: Business
• Subtopic: Business General
• Index: Business

'The Diversity Scorecard' is designed to provide step-by-step instructions, worksheets and examples to help diversity executives and managers analyze and track the impact of their diversity initiatives to mobilize the organization for strategic culture change. Diversity is not a program; it is a systemic process of organizational change that requires measurement for organizational improvement and success. Measuring the progress and results of diversity initiatives is a key strategic requirement to demonstrate its contribution to organizational performance. Diversity executives, professionals and managers know they must begin to show how diversity is linked to the bottom-line in hard numbers or they will have difficulty maintaining funds, gaining support, and obtaining resources to generate progress. Many organizations collect some type of diversity-related data today, even if it focuses only on Affirmative Action statistics. "The Diversity Scorecard" focuses on tools and techniques to make sure diversity professionals are collecting and measuring the right type of data that will help ensure the organization"s success both now and in the future. This book helps the reader spend some time thinking about what they currently measure and adding new measures to a database to track progress towards their diversity vision. The basic premises of this book are that it is important to develop measures that focus on the past, present, and future; and that measures need to consider the needs of the organization"s diverse workforce, its work climate, diverse customers, the community, and shareholders. Part I of "The Diversity Scorecard" identifies the need for diversity measurement highlighting a business case for diversity and providing an introduction to diversity measurement. Part II of the book outlines the diversity return on investment (DROI) process taking you through step-by-step processes and techniques. Part III teaches you how to use measures in six key categories - Diversity Leadership Commitment, Workforce Profile Representation, Workplace Climate, Learning & Growth, Diverse Customer / Community Partnerships, and Financial Impact - to build a diversity scorecard that is aligned and linked with the business strategy of the organization. Finally, in Part IV, Dr. Hubbard discusses implementation issues involving strategic change procedures and techniques to avoid the pitfalls inherent in a diversity-based cultural transition process.

PART I

The Need for Diversity Measurement

CHAPTER 1

The Business Case for Diversity

A DIVERSITY MEASUREMENT CHALLENGE: HOW CAN WE ENSURE THAT DIVERSITY IS “AT” THE STRATEGIC BUSINESS TABLE, NOT “ON” THE TABLE?

Many diversity professionals and others interested in diversity have asked the following questions:

How will we be able to demonstrate that diversity contributes to the organization’s bottom line?

How do we show senior executives and others that diversity is a strategic business partner that is aligned and linked to the strategic goals and objectives of the organization?

How can we measure the impact of diversity on organizational performance and an improved work environment?

How does the strategic diversity process help an organization excel in the domestic and global marketplace and provide favorable returns to stockholders and stakeholders?

If your organization is like most, you have probably found it challenging to answer these questions. Experience has shown that the diversity organization has its own brand of strategy and visions and has developed its own perspective regarding the value of its efforts to implement a diverse work environment; however, senior leaders and line management are skeptical, at best, of diversity’s impact on the organization’s success and their ability to demonstrate any financial or strategic contributions that a diverse workforce makes to the bottom line. In many firms, executives and others want to believe the cliché that views people as the organization’s most important asset; however, they simply cannot understand how diversity realistically makes that vision a reality that results in a measurable difference in organizational performance.

Organizations typically define their diversity efforts in terms of race and gender, which get reflected in the elements they track regularly. This list is usually sorted by demographic group and might include items such as number recruited, employee turnover, cost per hire, number of minority personnel or women on the organization’s board of directors, and employee attitudes. Now consider those diversity attributes that push beyond race and gender that you believe are crucial to implementing your organization’s competitive strategy. In this list, you might include items such as penetrating diverse customer markets, retaining capable and committed diverse work teams that generate new, paradigm-shifting ideas in half the time of competitors, improving customer issue resolution processes, reducing cycle time, increasing market share and shareholder value, and the like.

How well do your existing diversity measures capture the strategic diversity drivers you identified in the second list? For most organizations, there will not be a very close match between the two lists. Even more important, in those firms where diversity professionals think there is a close match, the senior executives frequently do not agree that this second list actually describes how diversity creates value. In either case, a serious disconnect exists between what is measured and what is important to organizational performance.

These questions are fundamental because new economic realities are putting pressure on organizations to widen their traditional focus of diversity as the guardian of ethnic representation and social well-being to a broader, more strategic factor in business success. As a primary source of production and performance impact, our economy has shifted from physical to intellectual capital (which comes in all colors, backgrounds, genders, orientations, thinking styles, and so on). As a result, senior diversity managers are increasingly coming under fire to demonstrate exactly how they are helping the organization organize, utilize, and document this critically significant organizational asset to create performance and value.

The primary issue that diversity must deal with is difficult for some to imagine and believe (i.e., showing diversity’s measurable impact on organizational strategy and the financial bottom line). The ability to utilize a diverse mixture of human and other resources to create a unique blend of strategy-focused solutions, by its very nature, creates an innovative competitive process that is difficult to copy—thus making it a competitive advantage (largely invisible to competitors).

Simply put, utilizing diversity as a strategic asset keeps an organization’s competitive edge sharp for the long haul. This makes diversity a prime source of sustainable competitive potential. To realize this potential, however, diversity professionals must understand the organization’s strategic plan for developing and sustaining this competitive advantage throughout the organization and its marketplace. In order to gain its benefits, this diversity must be utilized.

CAN A PERCEIVED INTANGIBLE ASSET LIKE DIVERSITY GENERATE TANGIBLE BENEFITS?

Yes, it can! Executives and other organizational personnel are beginning to recognize the importance and benefits of calculating the impact of perceived intangible human assets in today’s marketplace. This has been challenging in the past for a number of reasons. As Becker, Huselid, and Ulrich (2001) point out, the accounting systems in use today evolved during a time when tangible capital, both financial and physical, constituted the principal source of profits. During this time, they state, those organizations that had the most access to money and equipment enjoyed a huge competitive advantage. With today’s economic emphasis on knowledge and intangible assets, however, conventional accounting systems actually create dangerous informational distortions. As just one example, these systems encourage limited, short-term thinking with respect to managing intangibles. Why? Because expenditures in these areas are treated as expenses rather than investments in assets. In contrast to this view, investments in buildings and machinery are capitalized and depreciated over their useful lives.

Consider the following dilemma faced by executives and managers: Decide whether to invest $10 million in hard assets or $10 million in people. In practical terms, when an organization invests $10 million in a building or physical asset, this investment is depreciated over time and earnings are reduced gradually over a 20- to 30-year period. In contrast, a $10 million investment in people is expensed in its entirety (and therefore earnings are reduced by $10 million) during the current year. For executives and managers whose pay is tied to this year’s earnings (as many are), the choice of which investment to make is clear.

As a result, organizations under financial pressure tend to invest in physical capital at the expense of human capital—even though the latter may very well generate more value. This kind of pressure can lead to poor decision-making behavior, such as using personnel layoffs, downsizing, and right-sizing to generate short-term cost savings. We know from past experience that after a layoff, the market may initially respond with a jump in share value; however, investors often eventually lose most, if not all, of these gains. This pattern is not surprising, given that people are a crucial source of competitive advantage rather than an expensive luxury that should be minimized.

The clear bottom line is this: If current accounting methods cannot give diversity professionals the measurement tools they need, then it is imperative that we, as diversity professionals, develop our own ways of demonstrating diversity’s contribution to the organization’s performance. Like any other discipline, diversity must be composed of both solid theory and applied sciences to gain credibility as a key contributor to organizational performance. At some point, the theory has to be put into practice and evaluated for its ability to add measurable value and understanding to real organizational issues.

We have evidence of a great deal of solid diversity theory, such as those put forth by R. Roosevelt Thomas (1991, 1996, 1999), Judith Rosner (1991), Marilyn Loden (1996), Taylor Cox (1993, 1997), and many others; however, notwithstanding the seminal diversity measurement work completed by Edward E. Hubbard (1997, 1999), the Hubbard Diversity Measurement and Productivity Institute’s research, and a chapter on the subject by Lawrence M. Baytos (1995), there has been little scientific inquiry research and operational processes that measure the real financial impact of diversity.

The first step in building a diversity contribution process is to discard the accounting mentality that suggests diversity or human resource–based efforts are primarily cost centers in which cost minimization is the primary objective and measure of success. At the same time, it is important to take advantage of the opportunity to help define the standards for measuring diversity’s impact. Investors and organizations such as the Swedish firm Skandia have made it clear that intangible assets are important. Skandia, for example, includes intellectual assets as a normal part of its profit and loss (P&L) reporting.

Edward E. Hubbard has pioneered efforts to create a wide variety of measures for the diversity field in his books Measuring Diversity Results (1997) and How to Calculate Diversity Return on Investment (1999). In addition to these books, Hubbard founded the Hubbard Diversity Measurement and Productivity (HDM&P) Institute. The HDM&P Institute is dedicated to creating applied sciences for measuring diversity performance and results to improve organizational performance. It is really up to diversity professionals to develop a new measurement system that creates real value for the organization. This will help position diversity as a legitimate strategic business partner.

A key ingredient of any organization’s success is its ability to strategically utilize human capital and leverage performance-based measurement feedback as a competitive advantage. To sustain success, maintain high productivity levels, retain talented employees, create new systems, and keep its diverse customer base, an organization must know its strengths and weaknesses in order to improve its overall performance. It is critical to have the diversity tools and systems required to lead a measurement managed diversity implementation strategy. These tools must channel the energies, abilities, and specific knowledge held by a diverse workforce throughout the organization toward achieving its long-term strategic goals and objectives.

DIVERSITY FACTS, FIGURES, AND FINANCIAL PERFORMANCE

Diversity professionals are increasingly challenged to take a more strategic perspective regarding their role in producing results for the organization. As diversity professionals respond to these challenges, measuring the impact of diversity and its contribution to the organization’s performance will consistently emerge as a critical theme. This should really come as no surprise because over the last 5 to 7 years there has been an ever-increasing appreciation for the value of the softer people side or intangible assets of the organization’s business and an associated trend toward strategic performance measurement systems, such as those of Robert Kaplan and David Norton’s The Balanced Scorecard (1996).

During the past few years, several surveys of executives and human resource professionals have identified broad areas of diversity as one of the top priorities now and in the immediate future. Certainly, the growth of consulting firms, seminars, conferences, and publications are evidence of the interest and needs of organizations. The staying power of diversity as a corporate priority has been demonstrated by the high level of interest that carried through the recession periods of the 90s and the beginning of the 21st century. In fact, during the early part of the 90s, Towers Perrin reported in a survey that 96 percent of the responding companies had either maintained or increased their support for diversity management during the recession. The HDM&P Institute conducted a diversity measurement benchmarking survey in 2001 that reflected similar results. This survey found that 83 percent of the responding organizations planned to spend either the same amount or more on diversity in 2002.

WHAT DO WE MEAN BY DIVERSITY?

Diversity can be defined as a collective mixture characterized by differences and similarities that are applied in pursuit of organizational objectives. Diversity management is the process of planning for, organizing, directing, and supporting these collective mixtures in a way that adds a measurable difference to organizational performance.

Diversity can be organized into four interdependent and sometimes overlapping aspects: Workforce Diversity, Behavioral Diversity, Structural Diversity, and Business and Global Diversity.

Workforce Diversity encompasses group and situational identities of the organization’s employees (i.e., gender, race, ethnicity, religion, sexual orientation, physical ability, age, family status, economic background and status, and geographical background and status). It also includes changes in the labor market demographics.

Behavioral Diversity encompasses work styles, thinking styles, learning styles, communication styles, aspirations, beliefs/value system, as well as changes in employees’ attitudes and expectations.

Structural Diversity encompasses interactions across functions, across organizational levels in the hierarchy, across divisions and between parent companies and subsidiaries, and across organizations engaged in strategic alliances and cooperative ventures. As organizations attempt to become more flexible, less layered, more team-based, and more multi- and cross-functional, measuring this type of diversity will require more attention.

Business and Global Diversity encompasses the expansion and segmentation of customer markets, the diversification of products and services offered, and the variety of operating environments in which organizations work and compete (i.e., legal and regulatory context, labor market realities, community and societal expectations/relationships, business cultures and norms). Increasing competitive pressures, globalization, rapid advances in product technologies, changing demographics in the customer bases both within domestic markets and across borders, and shifts in business/government relationships all signal a need to measure an organization’s response and impact on business diversity.

Lawrence Bayos (1995) suggested that the 3 Ds have generated widespread corporate concern and interest in addressing diversity management issues, whether an organization has 100 or 100,000 employees. The 3 Ds are as follows:

□ Demographics. Females, minorities, and foreign-born personnel are projected to produce 85 percent of the net new growth in the U.S. workforce, while white males are fast becoming a minority in the workforce. In 1960, nine out of ten consumers were white. Currently, it is estimated that only six out of ten are white. The changing demographics of the workplace are also the changing demographics of the marketplace. Organizations are looking at ways to align their organizations to the new realities of their customer bases.

□ Disappointment. The traditional U.S. method for handling diversity was to bring women and people of color into the workforce under the banner of affirmative action. In doing so, it is often assumed that those individuals possess some deficiencies and may not have been hired if not for affirmative action. It was also assumed that they should be willing to assimilate their differences to better fit the norms of the majority group (usually white males) and thereby enhance their opportunities for recognition and advancement. In other word...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Foreword
• Preface
• Acknowledgements
• Part 1 The Need for Diversity Measurement
• Chapter 1 The Business Case for Diversity
• Chapter 2 Introduction to Diversity Measurement
• Part 2 The Diversity Return-on-Investment (DROI) Process
• Chapter 3 Introduction to the Diversity ROI Process
• Chapter 4 Planning and Collecting Data
• Chapter 5 Evaluating Diversity's Contribution
• Chapter 6 Track and Assess Progress
• Part 3 Building a Diversity Scorecard
• Chapter 7 Basic Diversity Scorecard Components
• Chapter 8 Diversity Leadership Commitment Perspective
• Chapter 9 Workforce Profile Perspective
• Chapter 10 Workplace Culture/Climate Perspective
• Chapter 11 Learning and Growth Perspective
• Chapter 12 Diverse Customer/Community Partnership Perspective
• Chapter 13 Financial Impact Perspective
• Chapter 14 Building Your Diversity Scorecard
• Part 4 Implementation Issues
• Chapter 15 Achieving Strategic Alignment from Top to Bottom
• Chapter 16 Implementing the Diversity Scorecard Process
• Appendix A: Hubbard Diversity Measurement and Productivity (DM&P) Institute
• Index
• About the Author