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The real business case for inclusion

September 6, 2017

How diversity can make a better, more profitable business

As a small business owner, you may think ‘inclusion’ is an issue for big corporates, with large HR departments.

This misperception assumes that inclusion is a cost, when in fact, done properly, inclusion is one of the best free resources available to smaller businesses.

Here’s how being an inclusive business can help you succeed and how it can help you to build a more profitable company.

In a recent edition of Harvard Business Review there was a flyer for the bestselling business strategy book, Blue Ocean Strategy. It proclaimed how over 3.5 million copies had been sold and it had been translated into 43 languages.

Michael Porter said that strategy was “about deliberately choosing to be different”. There is something deeply ironic about offering an insight to the mass market – the credentials the book was using to further its sales are precisely those that will diminish its impact.

If 3.5 million people all pursue the same strategy then any competitive advantage will quickly be eroded!

By contrast, ‘diversity’ books are lucky to break even. Yet anyone who has read Scott Page’s, The Difference, Laura Liswood’s The Loudest Duck, or my books on inclusion may well gain more benefit than one of the three million Blue Ocean Strategy readers. Why might that be?

Diverse workforces perform better financially

Just as value is created by scarcity (think certain talent skills) so value is created by diversity. New research now consolidates the already pretty robust case that diverse workforces perform better financially.

McKinsey published their latest research showing that companies in the top quartile for gender or ethnic diversity are more likely to have financial returns above their national industry medians.

Companies in the bottom quartile in these dimensions are statistically less likely to achieve above-average returns. And diversity is probably a competitive differentiator that shifts market share toward more diverse companies over time.

I don’t want to overstate the case for diversity and financial returns – we can only prove correlation, not causation, and gender and other demographic differences are in one sense only a proxy for cognitive diversity (the real prize).

But given the increasingly competitive nature of business, increasingly volatile nature of politics and the operating environment, and increasing demands on us as professionals with information overload, it’s worth another look at the business case for diversity. That may indeed offer us a different route to the clear blue ocean.

Gender diversity linked to increased profits

Fortune 500 companies in the top quartile for female representation outperform those in the lowest quartile by at least 53% return on equity.

the benefits of being an inclusive business

In 2014 Credit Suisse found a strong correlation between female representation at senior levels and financial performance, with return on equities (ROE) reaching 14.7% in companies where women make up more than 15% of senior managers – dropping to 9.7% ROE for companies fewer than 10% of senior managers were women.

McKinsey’s report found a 10% increase in gender diversity was associated with a 3.5% uplift in earnings before tax.

Eiko Shinotsuka of the National Personnel Authority of Japan said that ‘the insufficient utilization of women as human resources, particularly in their intellectual resources’ was a factor in Japan’s slow growth.

Women received 45% of the PhDs in science in Europe in 2006 yet occupy only 18% of senior research oppositions today. This is market failure.

London 2012 showed financial benefits of diversity

In contrast, consider the case of the London 2012 Olympics where we took diversity very seriously. Diversity in our workforce led to better customer service as we had a phenomenal skill set available to welcome the world.

A junior, Muslim colleague suggested the idea of “Ramadan packs” that became a new product line and a revenue stream at Games time as well as delighting a significant customer segment.

Diversity in our supply chain helped save £112 million of our projected £1.3 billion spend. This was largely achieved through decreasing barriers to entry, increasing transparency and competition, driving down costs, and sourcing new and innovative ideas that a closed shop arrangement would have locked out.

Co-operation not confrontation

I teach the Harvard MBAs a class on inclusive leadership. We ask the students to have an arm wrestle, the goal being to score as many points as possible in one minute and, if at all possible, avoid litigation.

After one minute the room of future CEOs splits into two camps. 80-90% of the room, predominantly men have scored zero points, or possibly one or two. 10-20% of the room, predominantly women have scored 30-40 points. They simply let each other win, and through cooperation as opposed to confrontation, enlarge the pie for all parties.

Beyond the classroom, or the large corporation, inclusion really comes into its own in small businesses. When budgets are tight and resources constrained, what other assets are at your disposal?

Including people with different perspectives can mitigate risk by challenging bad decisions, groupthink and bias.

You don’t need to pay people more money for them to have a different viewpoint, perspective or skill set. But you need to include them to benefit from this difference.

The smaller you are, the less resources you have available. The more diverse you are, the more you maximize what you do have.

Letting people be themselves

Including people by allowing them to bring their whole selves to work can increase employee engagement and boost productivity. We know that people perform better when they can be themselves.

In a small company, like mine, people often get more job satisfaction from being able to be themselves and have more direct responsibility and client contact. This is a free way to retain people and motivate people to deliver excellent client service.

Including difference also increases the resilience of firms. Think of your company as a toolbox. When faced with a problem to solve or a solution to build would you rather have a toolbox of hammers, or a toolbox of different equipment that allowed you to get the job done quicker, and with more resources and options at your disposal?

For some, diversity is still a half-baked idea. The Harvard classroom shows it can actually enlarge the pie for all of us. It’s time for a real discussion on inclusion and to swiftly follow up the talk with concrete actions.

There will never be enough time or resources. But diversity is free, in infinite supply and largely within our own control. It’s time to include it.

About the author

This article has been written exclusively for ByteStart by Stephen Frost. Stephen is the founder of Frost Included, a consultancy that works with HR professionals to help them embed inclusion in their decision making. His latest book, Inclusive Talent Management – How business can thrive in an age of diversity, is out now, published by Kogan Page. For more information visit www.frostincluded.com

Image: DepositPhotos.com

  • bytestart

    Thanks for pointing that Michael. The title has now been corrected.

  • Michael Olenick

    The book that sold >3.5 million and is translated into 43 languages is Blue Ocean Strategy, not “Clear Blue Ocean.” It says that differentiation and low cost are not mutually exclusive. There is another part on inclusiveness that details “fair process.” Basic economics suggests that diversity is not “free” unless costs are unconstrained by capital. However, diversity is worth the cost.