Table of Contents
- Deep-Level Diversity
- Surface-Level Diversity
This essay sets out to investigate the extent to which diversity management (DM) contributes to business, considering relevant theories and literature. Diversity first became a key concern for businesses in the 1970s, following the introduction of legislation aimed towards achieving employment equality. However, by the 1980s, firms began considering diversity as an opportunity to gain a competitive advantage, rather than just a legal requirement (Kochan et al., 2003). Basset-Jones (2005) defines this DM as planned commitment from organisations to recruit and retain employees with diverse backgrounds and abilities. This is a process which is implemented throughout all HRM sub-systems, including recruitment, rewards systems and training. However, incorporating this level of DM is a costly process and, thus HR managers must build a case for diversity management can generate a competitive advantage in order to get the backing of directors (Robinson & Dechant, 1997). Therefore, this essay completes a thorough analysis of the extent to which DM contributes to business, to demonstrate the potential case HR managers could build. To help guide this discussion of potential opportunities and drawbacks of diversity, the essay examines diversity in the two forms identified by Mohammed & Angell (2004) – deep-level and surface-level.
The first form of diversity examined in this essay is deep-level. This relates to factors which tend to be hard to identify, such as values, attitudes and expertise and are usually acquired through an employee’s functional background (Mohammed & Angell, 2004). Having employees from a range of deep-level backgrounds can contribute a substantial amount to businesses, especially within top management teams (TMT). For example, Canella et al. (2008) state that having a range of deep-level diversity in TMTs helps organisations avoid failure in times of crisis and react more quickly to environmental changes. This is because, when confronted with a problem, the team has a wider range of knowledge and experiences, from numerous sections of business operations, to draw on, therefore, an effective solution is more likely to be found. PepsiCo’s drive for diversity and inclusivity (PepsiCo, 2019) personifies Canella’s point that deep-level diversity within TMTs can help react to change and crisis situations. Pepsi faced a large social media backlash following the release of a controversial ad in 2017. However, the controversy was quickly overcome, in part, thanks to Pepsi’s investment in diversity, with a strong TMT organising the effective response of multiple departments simultaneously (Hobbs, 2017). However, Canella et al. (2008) also acknowledge that it is essential not just to have diversity within teams but to ensure it is managed effectively because, despite the benefits outlined, poorly managed diversity within a TMT may lead to disagreements between managers over the best way to react to change because they all believe their individual expertise and attitudes are superior. This, in turn, will result in slower and less effective decision making, having the opposite effect to that predicted by Canella.
Furthermore, Buyl et al. (2012) also points out the ability of DM to improve the performance of TMTs, claiming diversity can help increase innovation. They claim that employees from different backgrounds, for example those with different education or expertise, focus their attention on different pieces of information. Robinson and Dechant (1997) support this, claiming knowledge is not spread randomly throughout the population, it varies between people based on their previous experiences, such as education. Therefore, if diversity isn’t managed and all members of TMTs are from the same background, they will have a limited number of unique, innovative ideas, so the business may struggle to improve products or adapt with their market. Moreover, Buyl et al. (2012) also stress that DM can contribute to long-term success because diverse TMTs have a more balanced focus on both exploratory and exploitative goals, rather than just one. They define exploitation as improving efficiency and exploratory as seeking innovation, claiming that both are essential in the pursuit of long-term success. Diversity influences the pursuit of goals because long-serving employees start to develop the same attitudes and beliefs as each other, so the company culture stagnates, focusing only on either exploitation and exploratory, not both. Therefore, management of deep-level diversity provides an essential contribution to business, enhancing both innovation and efficiency to ensure long-term success. However, Buyl et al. (2012) also note that the ability of diverse TMTs to develop unique ideas and pursue goals effectively is still limited by factors beyond the control of HR’s diversity management. For example, they outline potential issues which might arise if CEOs have too much power – stating that, if CEOs have too much influence, the rest of the TMT may have to pursue the goals the CEO favours rather than a range which is best for the company.
Therefore, this section shows the necessity of managing deep-level diversity as it is a key driver of employee attitudes and beliefs, making it an essential contribution to company culture and objectives, which means it a key concern for businesses seeking long-term success.
The second form of diversity identified by Mohammed & Angell (2004) is surface-level. This diversity is more obvious and allows people to be easily categorised into groups based on demographics – such as gender, race and age. Managing this form of diversity also has the potential to contribute to business.
Firstly, Robinson & Dechant (1997) state that the management of surface-level diversity allows businesses to cut costs, claiming that DM can reduce staff turnover rates. DM has an influence on turnover rates because, when diversity management is ineffective, the turnover rates for minority employees can be very high. For example, the turnover rate in the US workforce for women is double that of men and non-white men have a turnover rate 40% above that of white men (Robinson & Dechant 1997). This occurs because, in companies where diversity is poorly managed, minority workers are given fewer opportunities for career progression and don’t feel valued in the company, causing them to become demotivated and leave. Therefore, surface-level diversity must be managed effectively, giving equal opportunities to all employees to ensure high levels of job satisfaction because this will mean costly activities associated with high labour turnover, such as recruitment and training, are avoided. Similarly, Robinson & Dechant (1997) also claim that more effective management of this surface-level diversity will increase productivity and reduce absenteeism rates – which are also high for minority employees. DM can help eliminate this problem because it can make minority employees will feel more welcome in the company, allowing them to form stronger bonds with their colleagues. This increases job satisfaction, making employees more productive and less likely to take days off. This leads to cost savings and makes the company more efficient, operating closer to max-capacity. Therefore, this is clear evidence that DM can contribute to business because the money gained from reduced costs can be used in an array of ways, such as investing in R&D to improve products or paying as dividends to please shareholders. However, the cost of implementing DM procedures can be costly so HR managers must ensure the management of diversity is well organised and is effective, otherwise the costs of introducing the diversity will be higher than the costs which have been saved, meaning the company losses this opportunity for reinvestment in the company.
Additionally, surface-level diversity can contribute substantially to business with regards to understanding different market segments. Basset-Jones (2005) claims that developments in technology and rapid globalisation has presented many businesses the opportunity to expand and reach out to new market segments. He claims that diversity helps remove barriers to entry for new market segments because the company will have employees who fit into the demographic of each market segment so have an understanding of the customers and how to satisfy their needs. Robinson and Dechant (1997) support this, claiming that, when Avon were failing to make profit from some inner-city market segments, they hired new employees to increase the range surface-level diversity within the teams targeting these areas. The Hispanic and African-American employees hired had a greater knowledge of the backgrounds, behaviours and consumer habits of the target customers and, as a result, targeted them more effectively, boosting sales. Moreover, not only do Robinson & Dechant (1997) claim diversity can help improve relationships with consumers, they believe it can help form strong global relations. For example, if a company has employees from a Hindu background, it is easier for them to form partnerships with businesses in India, for example, accessing suppliers. This is because these employees are more likely to understand the culture of, and have more things in common with, the colleagues in India, allowing the company to form stronger working relationships than if their employees were all Christian, for example. Forming strong working relations like this contributes to business to a large extent because it helps businesses get the best deals from partners and become more efficient by forming synergies, thus allowing them to perform more competitively on the global stage. However, Basset-Jones (2005) notes that, if not managed correctly, diversity can reduce group cohesion and make communication ineffective, meaning the company becomes more inefficient, rather than gaining a competitive advantage. Buyl et al. (2005) extends this point, claiming that a key reason communication issues may arise is through the formation of faultlines. Faultlines form as a result of the social categorisation theory which states that humans have a tendency to form groups with people whose demographics and surface-level diversity are similar to their own and avoid those who’s characteristics are different (Hogg, 2001). The term ‘faultline’ refers to the distance between the sub-groups, which form due to social identity theory, and the formal work groups established within the organisation structure. Faultlines therefore become very strong when formed with numerous demographics, for example employees forming a group based on both a specific gender and age. This can limit the extent to which diversity contributes to business because, unless effectively managed, employees will resonate more with sub-groups than work groups which leads to miscommunication and inefficiency within work groups and may even potentially cause conflict between informal sub-groups if two groups with different demographics can’t put their differences aside (Lau & Murnighan, 1998).
Furthermore Basset-Jones (2005) claims that shifting demographic trends mean, unless businesses recruit workers from a diverse range of backgrounds, they will find it hard to recruit top talent because they are recruiting from a much smaller pool than their competitors. Robinson & Dechant (1997) therefore identify this as another opportunity for diversity to generate a competitive advantage. They claim that companies with good DM procedures who are commonly voted ‘best companies to work for’ often receive higher volumes of applications from workers from more diverse minority backgrounds. Therefore, companies that invest in DM and ensure employee job satisfaction have an increased ability to pick the most skilled workers possible. This outlines how DM contributes to business because having more talented employees also means the firm will have access to more unique ideas so will experience more effective problem solving and efficiency. However, Robinson & Dechant (1997) claim that, for diversity to contribute to business to the greatest extent, it must be managed in a way which aligns with company goals and operations. For example, a manufacturing company, such as Volkswagen, may use DM to gain a competitive advantage by improving absenteeism and productivity, as mentioned above. On the other hand, a company such as Kraft-Heinz who sell a variety of brands globally may use DM to have a better understanding of niche market segments. Therefore, although companies must ensure they hire from diverse backgrounds to gain access to the most talent, it is important to consider the type of diversity which is most likely to deliver a competitive advantage.
In summary, this essay has examined the potential opportunities and drawbacks faced by businesses as a result of introducing deep-level or surface-level diversity to the business. From the evidence provided, it is clear that diversity management has the potential to contribute to business to a substantial degree, however the extent to which this potential is realised is dependent on various other factors. For example, it is not enough to simply increase the diversity of employees within a business, they must be appropriately integrated and managed to ensure they operate cohesively and effectively as a team, working towards collective company goals. Despite this, as argued by Basset-Jones (2005), even if DM doesn’t contribute to business in a large extent, it is still an essential consideration for all businesses because UK society is becoming increasingly diverse, so diversity must become a key part of all businesses’ HR practices, both with regards to hiring employees and targeting consumers, despite potential drawbacks.