Essay

"Hard" Measures that Support the Business Case for Diversity: A Balanced Scorecard Approach Stephen B. Knouse, PhD, and James B. Stewart, PhD

The Diversity Factor © 2003 ISSN 1545-2808 Fall 2003 Overcoming Barriers to Opportunity Volume 11, Number 4

Employee diversity is touted by consultants and university experts as an important factor in the organizational mix. Not only is diversity ethically and legally (EEOC and Affirmative Action compliance) the right thing to do, it is considered good for business.1 Many measures of diversity's effectiveness in organizations have been self-reports — perceptions of personal satisfaction and organizational climate taken from organizational surveys. Such "soft" measures of effectiveness have been downplayed by managers who want "hard" data on how diversity is working. They want to see an increase in market share, improvement in quality, fewer errors, decrease in costs and, most importantly, better performance on the "bottom line" of financial reports. In this article we focus on the "hard" measures that support and reinforce the business case for diversity, and we examine the innovative measures of several well-known companies.

The Business Case for Diversity In recent years ample theoretical work has emerged about why diversity should work. Taylor Cox nicely encapsulates this work in five basic arguments for the business case:

organizations want to attract and retain the best available talent; diversity helps by creating a larger talent pool, which makes firms more competitive. diversity enhances marketing efforts; a diverse workforce better serves a diverse customer base, offers better insights into customer needs and markets can be segmented along diversity group lines. better creativity in organizational processes: a diverse workforce

possesses more innovative ideas, creative approaches and diverse strategies for dealing with organizational issues. the need for improved problem solving: a diverse workforce offers new solutions, expanded critical analysis and higher quality decisions. the need for a diverse workforce creates organizational flexibility; less tradition-bound and more divergent thinking (looking at problems from different angles). Moreover, accommodating diversity makes the organization more adaptable to other organizational issues.2

These arguments sound convincing; they make sense. But again where is the hard evidence

Stephen B. Knouse is the Alvin & Patricia Smith Professor and Head of the Department of Management at the B. I. Moody III College of Business Administration at the University of Louisiana at Lafayette.

James B. Stewart is Professor of Labor Studies and Industrial Relations, and of African and African American Studies, at The Pennsylvania State University.

"Many of the measures of the effectiveness of diversity in organizations have been self-reports — perceptions of personal satisfaction and organizational climate taken from organizational surveys. Such "soft" measures of effectiveness have been downplayed by managers who want "hard" data on how diversity is working."

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that diversity works? We present here several examples of such "hard data" by using a Balanced Scorecard framework.

Measures of Effectiveness with the Balanced Scorecard Approach The Balanced Scorecard offers a means of categorizing various organizational performance indicators. Four basic categories of performance form the basis of the Scorecard:

Financial performance shows bottom-line activity — profitability, return on investment, economic value added and sales growth. The customer includes measures of the organization’s effect on its customers — customer satisfaction, customer retention, acquisition of new customers and market share of targeted market segments. Internal business process covers quality, response time, cost and new product development. Learning and growth examines long-term growth and improvement through employee self-improvement and technological advancement.

Beyond merely a means of categorizing measures of organizational effectiveness, the Balanced Scorecard links organizational structure, processes and results through strategy.3 By setting basic business goals which drive the creation of business structures and processes to meet these goals, the Scorecard sets performance measures that track how well the goals are being met.

Originally, the Business Scorecard was created to link strategy and performance. As a strategy-based framework, it is readily adaptable to diversity management. Indeed, recent research shows that the effectiveness of diversity programs depends on the strategic approach of the organization.4 Diversity can enhance proactive strategies, such as growth and innovation, by using creative problem solving.5

Table 1 summarizes a number of hard measures of diversity effectiveness using a Balanced Scorecard approach. Within the first Scorecard category of Financial is return on diversity. Basically, this is an indicator of how the costs of diversity (the amounts invested in diversity initiatives) relate to increases in revenue due to these initiatives. Ford Motor Company has a unique variation on return on diversity. During an economic downturn, Ford wanted to increase sales by using its diversity connections. As do many companies, Ford has a large employee resource network composed of 11 employee resource groups. These groups support the effort by calling upon their external connections in the community who can influence the purchasing of Ford products. In this case, the incentive was an invoice rebate they could use with the Ford dealer. In the African American group alone sales increased $50 million.6

The Customer category focuses upon diversity market segments. Olive Garden wanted to increase its presence in Latino markets by changing its advertising slogan from "When you’re here, you’re family" to "Aquí estas en casa" ("Here you are at home") in the Spanish language media. The original family slogan was judged to be too personal for many Latinos with strong extended family ties. Tests of the ad showed an increase of brand recognition and favorability of 15-20% among Latinos. These ads will be directed to Latino markets in Dallas, Houston, Phoenix, Los Angeles, Orlando and Chicago.7

Another section of the Customer category involves market share of customer market segments. As part of its strategy, Xerox uses its employee resource groups to cultivate new business through adapting current products and creating new products to serve its diversity market segments. Xerox tracks how its share of diversity markets grows.8

"Beyond merely a means of categorizing measures of organizational effectiveness, the Balanced Scorecard links organizational structure, processes and results through strategy."

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TABLE 1 A Balanced Scorecard Framework of Hard Measures of Diversity Effectiveness

Scorecard Category

Hard Measure of Diversity Effectiveness

Examples of the Measure Companies Using Each Measure

Financial Return on diversity Increase in sales due to diversity/ investment in diversity initiative

Ford

Customer Brand Favorability

Increase in rated brand favorability due to advertising focused on diversity group

Olive Garden

Diversity of Customer Base

Percent of diversity groups in customer base

Xerox

Internal Business Process

Benchmarked as Best Business Practice

Number of other companies that benchmark a process like mentoring as a best practice

DuPont

Representation of Diversity

- Percentage of diversity groups hired - Percentage of diversity groups in different career tracks - Percentage of diversity groups in levels of the organizational hierarchy - Percentage of promotions to diversity group members - Turnover rate of diversity groups - Numbers of diversity members in middle management

Xerox Citigroup

Targeted Recruiting - Percentage of minority hires from targeted recruiting programs - Expenditures to targeted schools

IBM Motorola

Workforce Competency

Training and development costs/diversity group members

Proctor & Gamble

Hours of developmental planning per employee

Eastman Kodak

Diversity Training Percentage of employees participating in diversity training programs

Pricewaterhouse Coopers

Work Life Programs Percentage of participation of diversity groups

IBM

Alternative Dispute Resolution Programs

Reduction in discrimination and harassment complaints and litigation

IBM

Supplier Diversity

- Total spent on diversity suppliers - Percentage of total procurement spent on diversity suppliers - Number of 2nd tier diversity suppliers

Ford

Awards for Diversity

- Awards from local and national diversity associations - Media ranks on diversity efforts - Diversity awards transmitted over internal media

Xerox Motorola

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In the Internal Business Process category, companies can measure progress in many ways, from benchmarking to representation to supplier diversity. DuPont, for example, keeps a count of how many companies (over 200 to date) benchmark its best practices of mentoring for women and minorities (DuPont has over 30 different mentoring programs).9 Many companies have as a strategic goal that the diversity of their workforce mirrors the diversity of their customer base. There are several direct measures of meeting this goal: percentage of women and minorities hired; percentage of these groups in different career tracks; percentage of these groups in all levels of the organizational hierarchy (from janitor to the board of directors); and promotion and turnover rates of these groups. Xerox has a Management Resources Planning Program where the number of women and minorities in middle-level management throughout the company is tallied and recommendations are made for their next career move.10

IBM maintains Project View, a diversity recruiting program that includes networking, a career fair and interviews. This program provides 55 percent of minority hires at IBM. Motorola actively recruits minority engineers at Hampton University. To emphasize its presence, it supplies money, equipment, faculty training and faculty summer work with the company.11

Proctor & Gamble tracks its training and development costs by diversity group, while Eastman Kodak requires that each employee receive at least 40 hours per year in career developmental planning. A policy committee monitors this time. PricewaterhouseCoopers looks at the percentage of all employees participating in its diversity training programs: Improving Communications and Relationship-building, Gender Awareness and Valuing Diversity. IBM gathers data on the percentage of participation of diversity groups in its Work Life Programs, such as child care and elder care resource referral, flexible working schedules and personal choice holidays. In addition, IBM emphasizes alternative dispute resolution programs in order to reduce the number of discrimination and harassment complaints and the lengthy and costly litigation that can accrue from unresolved problems. Specifically, IBM has a Panel Review Program consisting of three employees and two managers who decide appeals on company policies and procedures. The Speak Up Program allows an employee to anonymously bring up concerns or report seemingly unlawful activities.12

Many companies also have a diversity supplier program, where vendors with at least 51 percent ownership by women or minorities are encouraged to bid for company business. These companies track the total amount spent on diversity suppliers, as well as the percentage of the total procurement budget that is spent on diversity suppliers. For example, in 2002, Ford spent over $3 billion on procurement from diversity suppliers. In addition, it helped start-up diversity suppliers to meet their specific needs.13

Learning and Growth

Partnering with Diversity Groups

- Number of partnerships with community diversity groups - Number of partnerships with national diversity professional organizations

Pricewaterhouse Coopers

Survey Feedback Surveys on results of diversity determine percentage of managers’ performance evaluation

American Express

Tuition Aid Expenditures/diversity group members

AOL Time Warner

"As part of its strategy, Xerox uses its employee resource groups to cultivate new business through adapting current products and creating new products to serve its diversity market segments. Xerox tracks how its share of diversity markets grows."

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The final Scorecard category is Learning and Growth. One indicator of how diversity affects the growth of the organization is measured by its ability to attract talented, diverse employees. Many companies pursue the public relations value of winning diversity awards, which are handed out by local and national diversity group organizations. In addition, several diversity- oriented magazines rank companies on their diversity initiatives. For example, Xerox is rated in the top ten companies for diversity hiring by Fortune, Forbes, Working Mother, Latino Style and Enable Magazines.14 Motorola touts its diversity, EEO and AA awards to employees through company print media and videos.15

Many firms also partner with local and national diversity group professional organizations. They use these relationships both to maintain visibility and to recruit professional specialists from these groups. PricewaterhouseCoopers strengthens its link to minority accountants by partnering with minority professional organizations, such as the National Association of Black Accountants and the Association of Latino Professionals in Finance and Accounting.16

With regard to Learning, some "soft" measures suddenly become significant when used as a measure of performance in a performance appraisal. For example, at American Express 12.5 percent of managers’ performance evaluation is based on diversity results from its annual employee survey.17 This feedback offers important lessons for managerial improvement.

Other companies, such as AOL Time Warner, measure more formal learning. AOL Time Warner provides up to 100 percent tuition reimbursement to all employees wishing to pursue formal education and tracks the tuition expenditures for diversity group members.18

Conclusion A number of companies are using a wide range of finance, customer, process and employee measures that yield hard data on the effectiveness of their diversity initiatives. Indeed, these companies must be experiencing direct payoffs from their investments in diversity, because during the recent economic downturn many diversity programs remained intact or even saw an increase in funding, while many other company programs were cut.19

The Balanced Scorecard approach offers a number of important variables, measures and examples of hard data that can prove the value of diversity programs and initiatives. More categories and measures can and should be developed. In the Financial area, sales growth for new diversity group customers could be measured. In the Customer category, the number of new customers from diversity groups and the number of diversity group customers who stay with a product (a variation on brand loyalty) could also yield valuable data. Internal Business Processes could include the number of new products and services developed for diversity group customers. In addition, a measure of Internal Process could be the number of problems resolved, the number of ideas for improvement and the number of ideas for cost containment, all submitted by teams with diverse members. Finally, in the Learning and Growth area, new measures could involve the self-improvement efforts of members of diversity groups — the number of new skills acquired by diversity group employees, the number of internal courses and workshops completed by diversity group employees, and the number of external courses, specialist certificates and even college degrees completed by diversity group employees.

The business case for diversity proposes that employee diversity improves business performance. To prove this, companies need to go beyond soft self-report indicators and focus on the hard, performance-related measures. A number of companies are already using such measures, however, we must continue to look for new measures that quantify the value of

"With regard to Learning, some "soft" measures suddenly become significant when used as a measure of performance in a performance appraisal. For example, at American Express 12.5 percent of managers’ performance evaluation is based on diversity results from its annual employee survey."

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diversity initiatives.

Endnotes 1. F. Crosby and A. Konrad, "Affirmative Action in Employment," The Diversity Factor, Vol. 10, No. 2 (Winter 2002), pp. 5-9. 2. T. Cox, Diversity in Organizations: Theory, Research, Practice (San Francisco: Berret-Koehler, 1994). 3. R. S. Kaplan and D. P. Norton, The Balanced Scorecard: Translating Strategy into Action, Boston: Harvard Business School Press. 4. O. Richard, "Racial Diversity, Business Strategy, and Firm Performance: A Resource-based View," Academy of Management Journal, Vol. 43 (2000), pp. 164-177; O. Richard, A. McMillan, K. Chadwick, and S. Dwyer, "Employing an Innovation Strategy in Racially Diverse Workforces: Effects on Firm Performance," Group and Organization Management, Vol. 28 (2003), pp. 107- 126. 5. T. Cox (1994). 6. Y. Cole, "Top Companies for Diversity," DiversityInc, Vol. 2, No. 3 (2003a), pp. 30-65. 7. Ibid 8. Xerox. Diversity: Making all the Difference. Retrieved June 4, 2003 from http://www.xerox.com. 9. DuPont. People Diversity. Retrieved June 4, 2003 from http://www.peoplediveristy.dupont.com. 10. EEOC. Best Practices of Private Sector Employers. Retrieved July 8, 2003 from www.eeoc.gov/task/practice.html 11. Ibid 12. Ibid 13. Ford Motor Company. Model D: At Ford Motor Company, Diversity is the Model Way to Grow). Retrieved June 4, 2003 from http://www.dd.ford.com. 14. Xerox (2003). 15. EEOC. 16. Y. Cole (2003a). 17. W. Conklin, "Conversations with Diversity Executives," The Diversity Factor, Vol. 10, No. 1 (2001), pp. 5-14. 18. EEOC. 19. Y. Cole, "The Winning Strategies: Why Diversity Initiatives Thrive in a Downturn," DiversityInc, Vol. 2, No. 1 (2003b), pp. 35-50.

Published by Elsie Y. Cross & Associates, Inc. Developed by Rutgers University - Division of Continuous Education and Outreach © 2003 The Diversity Factor.

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