Cultural diversity is when population differences are well represented within a community. These include race, ethnicity, age, ability, language, nationality, socioeconomic status, gender, religion, or sexual orientation. The group is diverse if a wide variety of groups are represented. Cultural diversity has become a hot-button issue when applied to the workplace.
Why does cultural diversity matter? It can benefit the workplace. People from various backgrounds have different perspectives. Their contribution allows the group to look at problems from all angles. The results are often innovative.
For diversity to bring strength, it should be valued in the corporate philosophy. More important, it must be integrated into company practices. It takes time and a commitment to celebrate diversity. Workers must be willing to be open-minded and non-judgmental about the value of differences.
Without that commitment, cultural diversity can weaken a group. Differences in interpretation of events can lead to miscommunication. If not addressed, awkwardness and hostilities arise. Prejudices will worsen that effect. People can jump to conclusions and misinterpret behaviors.
Economic Benefits
When it works, diversity increases profits. Each year, DiversityInc selects the 50 most diverse companies. It found that 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 areas 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. It also avoids legal expenses. How? It enhances employee engagement by showing the company understands and respects different cultures. Valuing diversity also gives the company the freedom to go after the most talented people, regardless of differences.
- Innovation – Diversity within a product development team is very powerful. When it's in sync with diverse target markets, the team creates new products that satisfy the markets' needs. That's because a diverse workforce better understands diverse markets. For example, Daimler/Chrysler found the best mix for a product development team was heterogeneous. It was 50:50 male/female. It had a gradual age distribution rather than peaks. No more than half of any team was 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. It's illegal for employers to discriminate against employees based on their cultural diversity. The Equal Employment Opportunity Commission promotes equal opportunity and handles complaints about workplace discrimination. Federal laws prohibit workplace discrimination in six areas. These are age, disability, national origin, race, religion, and gender.
How to Manage Diversity
Stereotypes can create destructive communication. Members who are prejudiced don't value the minority as a person. They can only see race, gender, or sexual orientation. They want the individual to conform to their prejudice. As a result, they filter the minority's communication and behavior through their prejudice.
It may take longer for diverse teams to perform, but it's worth it. Once the team bonds, diversity makes it more innovative and raises performance. The result is higher salaries, bonuses, and even stock options for everyone on the team.
Wharton Business School consultant Pamela Tudor found the key to managing diversity. Members of the team must be dedicated to a shared goal. She found that a strong commitment to a common objective overcame any diversity issues.
Diverse teams must be supported by departments that unite employees around the shared goal. It is more likely in growth-oriented companies. They know they must embrace diversity to fuel the innovation that is their competitive advantage.
Examples
In 2018, Johnson and Johnson was No. 1 on Diversity Inc.'s top 50 list. Its 10-member board of directors has two black men and three white women. There are four women, one black, and one Hispanic in its 12-member executive team. It sponsors the Scientist Mentoring & Diversity Program that pairs ethnically diverse students with industry leaders. The company also offers great benefits to same-sex domestic partners. J&J was ranked as the 17th most LGBTQ-friendly company by Glassdoor.
The No. 1 LGBTQ-friendly company is Uber. It actively promotes LGBTQ equality in the cities in which it operates.
Google isn't on Diversity Inc.'s top 50, but its embrace of diversity has led to its success. It has 80% 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.” There are 4,000 languages.
Fortunately, Google can reach 99.3% of internet users with only 40 languages. It launched the 40-Language Initiative to accomplish this. It realized it must speak the language to reach the market. That includes understanding the cultural differences inherent in the language. Google's diversity motto is, “Never judge a search engine by its interface.” That's Googlese for “Never judge a people by their appearance.” Also, Google was ranked as the third-most LGBTQ-friendly company by Glassdoor in 2018.
The Buying Power of Diverse Groups
Emerging global trends are driving the growing economic power of a diverse workforce. In 2045, whites will be a minority in the United States.
Black buying power is $1.2 trillion. A 2018 Nielson report showed that Black consumer choices have a ‘cool factor’ that influences the mainstream. Companies that develop products that appeal to this market have reaped profitable rewards.
In 2015, Hispanic buying power was $1.3 trillion. Hispanics are diverse, and they notice companies that pay attention. People with a Mexican background make up 60% of the total, so firms can't assume they are reaching all Hispanics by using a Mexican flag.
In 2017, the buying power of the LGBTQ market was $917 billion. How well a company values diversity is important to this group. When job hunting, 90% consider how a company treats its LGBTQ employees and whether they sponsor LGBTQ events. More than 75% of LGBTQ adults and their friends say they would switch to LGBTQ-friendly brands.
In 2016, the buying power of Gen X, those born between1965 and 1980, was $2.23 trillion. Millennials, the generation born within the period of 1981-2000, can buy worth $1.3 trillion. Both groups grew up in a diverse society and celebrate it. For them, valuing diversity is assumed. For example, 74% of Millennials and 64% of Gen X support gay marriage.
The Bottom Line
How well the workplace embraces cultural diversity may spell a company’s competitive edge and profitability. Research by McKinsey and Company report that companies with workforces comprising a large percentage of diversity in gender, race, and ethnicity often outperform the national industry median by as much as 35%. Companies that score low diversity percentages are more likely to be ones that do not earn above-average profits.
Diversity in a business drives profitability from three key areas:
- Innovation
- Marketing
- Operations
For a culturally diverse workforce to work as an effective organization, the understanding and celebration of differences must be ingrained and valued in company culture. A well-managed, diverse employee base is key to answering an equally increasing diverse market.
