Does Demographic Diversity Have an Effect on Organizational Performance - Assignment Example

Does demographic diversity have an effect on organizational performance? Abstract There is increasing interest in the issue of diversity especially since legislation in the United States, the United Kingdom, and Canada, along with other countries, has pushed companies towards diversifying their workforce to include such groups as women, minorities, the elderly, and the physically challenged. The benefits that are supposed to be accrued from such diversity in the workplace, however, does not seem to come automatically but needs to be worked for through management leadership and planning. Management must be a proactive partner in the promotion and implementation of demographic diversity in the workplace. The numbers point to the inevitable increase of diversity in the labor force. Consequently, it only makes sound business planning for companies to initiate demographic diversity as a company wide policy. It will require a complete commitment on the part of companies, because a comprehensive, all inclusive effort must be manned to make the necessary adjustments from the monolithic thought process and posture of the past. This adjustment which is compelling companies to make adjustments in the mission, is not solely driven by governmental mandates. It has a foundation in Corporate Social Responsibility and ethics, and blended with the new customer composition.This paper raises two issues that could be tested to help clarify some of the uncertainties in the field. Hypothesis one notes that without active management, a diverse workforce is likely to lead to failure and dismal financial results while hypothesis two suggests that there is no difference between educational diversity and profitability in a company. In the future, ways by which companies can turn what is an inevitable reality into true success need to be explored. their having to deal with a diversified group of workers. Human beings, by their very nature, tend to congregate according to identifiable characteristics whether in terms of race, education, age, gender, or otherwise. When people are brought together in large numbers, the default might be to fall in with the groups with which they are comfortable. This may also create the potential for conflict with other groups. This means that without a massive effort on the part of management to control these groups and get them to identify with one overarching group, there could be disaster. The research on whether diversity is profitable is inconclusive though organizations such as Diversity Inc., which obviously have a stake in continuing diversity, seem unexpectedly vocal in their promotion of diversity as a way for companies to boost their bottom line. Introduction: In recent years, it has become fashionable for companies to tout their involvement in issues of diversity, including their having people from diverse backgrounds in their employ. This explosion in diversity with regards to demographics was not always the case, in particular, in countries such as the United States and the United Kingdom. In particular, in the U.S., "This changing demographic landscape is demonstrated in the dramatic increase in the number of same sex households, an increase in the number of Americans identifying themselves as multiracial, and the fact that Latinos now surpass African Americans as the largest minority segment" (McCuiston & Wooldridge, 2004). As companies that are demographically diverse continue to get positive press, more and more companies have joined in, if only to avoid being labeled in terms that are less than flattering. From a politically correct standpoint there is no question that there has been a shift towards giving women and minorities more opportunities in the world of work. While, in the initial stages of the boom in diversity, some companies may have sought such diversity from the viewpoint of doing the right thing, in recent years, many more companies have been attracted towards seeking demographic diversity because of the potential benefits, including the profits that such diversity can bring in. The message that diversity is strength and that demographic diversity in an organization can positively affect the bottom line continues to spread in the popular press. The question is whether this belief stands up to critical research scrutiny. Also, prior to engaging in a review and critical discussion of diversity, we must have a working definition, of what it is we seek to elucidate. It must be noted that diversity as an operative term, means different things to different companies. Additionally companies will vary on the manner in which it implements its quest towards diversity. It should also be noted that there is a common thread which runs through the diversity programs of all companies who adhered to this policy, and it is that functionally, they all have come to the realization, that be employing a representative sample of those persons who are indigenous, is good for business. A good demographic mix is a healthy entity for any company to practice. In the course of human development, persons with the same demographic characteristics, tend to have similar thoughts and similar ideas. In theory, or in a business management course, this likeness may be the ideal entity to earn a good grade. However, in the world of economics, there exists a broad demographic mix. Appealing to these individuals who have varying demographics, is essential to sustain a competitive posture in the market place. The company who harnesses the broader idea base, will in all likelihood, have a better performance rating. So, again, what is the meaning of diversity ion the workplace? According to the Bureau of Labor Statistics, members of minority groups will make up 41.5 percent of all people entering the U.S. work force measured between 1998 and 2008. The consensus definition of diversity today is, it involves more than race and gender (Thomas 1991), The concept has evolved out of anti-discrimination compliance ( Title VII of the Civil Rights Act of 1964), to having a focus on inclusion, and the possible impact on a company’s profit and loss. Today diversity has significance to women, minorities, persons who are mentally and physically challenged, older persons, ethnic minorities, persons who have nontraditional sexual orientations, and individuals who speak English as a second language. Some human resource professionals have even gone so far as to include characteristics which influence our lives and our value systems. To mention a few of these, we are talking about recreational habits, geographic location, religion, income, work experience, martial status, and even one’s educational background. There is no one set definition of diversity. The definition solely depends on the organization, and its developmental stage, and its outlook on diversity in the work place. In essence, the definition is still evolving. Review: The numbers clearly point to the inevitably changing labor force. The latest figures show that members of minority groups, are the fastest growing entities in the labor force. Glaringly, the numbers point to a surge among minorities, which will surpass the numbers of Euro-Americans. It is summarily projected that by 2014, the number of white males entering the job market will be at a mere 7 per cent. White men in the labor force will constitute approximately 43 percent, which will make them a minority. In the short term of approximately six years, women and other minorities will comprise more than 57% of the labor force. While these numbers bode well for companies and the further promotion of their corporate social responsibility, they must be careful in establishing the proper balance of diversity. According to (Park & Roberson 2007), firm performance declines with increases in the representation of racial minorities in leadership up to a point, beyond which further increases in diversity are associated with increases in performance.(Park, et al 2007). This is a very strategic business decision which must be carefully managed, which will preclude the likeness issue from creating a downward spiral. Today, most companies would disavow any association with quotas, however sound business acumen dictates a saturation point. This is a difficult issue to approach, because which company does not strive to realize as much profit as the market will bear. Whether one is producing a product, providing a service, or selling a commodity, it requires workers. Whenever the efforts of these workers contribute to the positive performance of the company, the workers feel entitled to additional compensation, promotions or both. In that there are definite negatives associated with employee entrenchment, the company also has to consider the ethical and legal ramifications, for the establishment and maintenance of a de facto quota system, which management by a minority of white male employees in the companies would resonate. It is clear that the available diversity work force is omnipresent, but the challenge is in weather the work environment will be adequately prepared to embrace this abundance of human capital, because diversity strategies tend to lay out lofty goals without providing the structures to educate senior executives in the specific challenges faced by various constituencies. In addition, these strategies often don't provide models that teach or encourage new behaviors. (Thomas 2004) There is no question that behavior on the job is of paramount concern. These minority individuals due to their inherent diversities, will invariably converge upon the workplace with their individual and group differences. Many of these idiosyncratic and cultural behavior attributes will be foreign to the work environment in general and the managers in particular. While these individuals will be accommodating in adjusting to the policies which are in place in their respective companies, these companies must look inwardly and prepare themselves for the onslaught which will require a paradigm adjustment. The diversity strategy of IBM has been particularly successful, because they have established a mentoring program for all of its executives. Moreover, the CEO plays an active role in conditioning the corporate landscape on the contents of its diversity outlook. The CEO is, extending previous theorizing on cultural diversity’s organizational effects by integrating value-in-diversity and social identity perspectives with the framework of Blau’s (1977) theory of heterogeneity.( Richard, Barnett, Dwyer, Chadwick 2004). The CEO’s presence at executive management meetings have changed the character and emphasis which is afforded diversity. The dialogue on potential minority candidates are now more detailed, with ample consideration given to short and long term growth capabilities, which matches advancement with existing skills, and long range development. Additionally, the outgrowth of this exercise, puts executive managers on notice, that from the top, diversity is viewed as a good thing for and among its workers, and it enhances the performance of the organization. The theories above, Social Identity and Similarity/Attraction (McMillan-Capehart 2002 ). suggests that there are negative outcomes to having increased diversity; and yet, at the same time there is a hint that diversity holds the potential for bringing great financial results to corporations. A solid diversity strategy also shows win, win situations for Bell South, Georgia Pacific Corp.. And Home Depot Inc. Valerie Adams of Bell South says, "We believe having a diverse work force allows our company to tap in to the best and the brightest from many cultures,You can show real benefits against the bottom line. We bring people into the business, we can retain them and not have to keep training new people.(Hughes 2007). Additionally, these companies with strong strategic diversity policies, believe that there is a strong measure of healthy variety which persons from varying demographics bring to the table, and if properly managed and guided, their contributions will represent a valuable contribution to their company’s performance. In keeping with the above mentioned strategy, Procter & Gamble, General Motors and other companies, (Schmitz 2008) have stopped recruiting students from the University of Wisconsin because its lack of diversity limits their pool of potential employees and limits the exposure of students to different cultures leaving them less prepared for the global environment. Wal-Mart has stopped hiring law firms without diverse senior partners which has shifted millions of dollars away from firms with limited diversity. According to Richard Barrett (1998) The mismatch of personal and corporate values is perhaps the most pervasive problem facing companies today. This trend is challenging executives to think more profoundly about the fundamental purpose of business, its responsibility to society and the nature of potential threats to its own "licence to operate." The hiring practices of Proctor & Gamble et al, personify the evolving concept of diversity. There is little doubt that the University of Wisconsin possesses a class “A” business department, however, with the changing demographic wave, the principles of management are not in accord with many businesses need to remain competitive, and keep their performance, and diversity ratings in par with the leaders of diversity in the business community. This move sends a message to academia, that serious retrofitting is needed if they expect to sustain their favorable profiles. As is the case with IBM, who stresses that its vendors and suppliers have a recognizable diversity program, companies like Wal-Mart is demanding that law firms which it deals with, show a serious commitment towards diversity. On the other hand the organizational demography approach (Pfeffer, 1981, 1983, 1985) argues that social similarity is important for interaction, communication and cohesion. Therefore, social dissimilarities between co-workers lead to dissatisfaction, less communication and in conclusion to an alleviated efficiency of the organizations. Hence, organizational demography states that firms with homogeneous workforces are beneficial. A counter argument from social psychology. Social comparison theory (Festinger, 1954) argues that individuals have an innate tendency to compare and evaluate themselves with similar others. People then try to act better than this comparison group exhibits the belief by major companies of how important diversity is to an organizations performance. The profound lament of Barrett, as he puts it into perspective in the classic sense, that personal values are not allowed to interfere with business performance. If the policy is not good for the customer, it is not good for the company. The effects of organizational demography and social similarity are beginning to evolve in the work place. There are legislative mandates which preclude such things as bullying, sexual harassment, all discrimination based on age, sex, race, sexual orientation, and race. Additionally the laws of complicity which provides a broad stroke of the canvass for any guilty party, including the employer, who might tolerate such actions from employees, makes it difficult for negative attitudes to persist. Moreover, with the shifting demographics in the labor force, the minority is rapidly becoming the majority. However, it may be a reality that organizational demography and social similarity may still possess some of its appeal, when it comes to international diversity. It appears that larger, more internationally involved firms are better prepared to handle higher levels of diversity ( Quinton 1993) in their international operating environments. When operations in diverse international environments are attempted by firms with low international involvement, profit performance appears to suffer. When operations in more diverse international environments are attempted by firms with higher levels of international involvement, profit performance is likely to improve. Research shows that successful teams do not merely draw on the individual contributions of their members but are able to create a new synergy (Varner and Palmer, 2002). Out of the diversity, teams form a new common culture (Varner, 2000). Companies who attempt to implement diversity and have not adequately prepared themselves and their staffs for this undertaking, will usually find themselves waging a battle to put out fires, instead of accomplishing their performance objectives. Again, regardless of the level or scope of the diversity, there must be a strategic plan in place. Moreover, all upper and mid level managers must embrace the policy and be committed to promoting and assisting in implementation of that plan. Individuals must be willing to make themselves over, and exert a team effort; an effort which embodies the concept that the whole is the sum of its parts. The successful operation of diversity comes together when all employees actualize the reality of the importance of the customer, and that the customer is the reason why they actually function, the attitude of oneness, can be rapidly reinforced. Demographic diversity is proving to be a windfall for most companies, and it is because it is not only the socially, moral and ethical thing to do, it is working because, customers see some of themselves, where they spend their money. In sum, it makes good cents. Hypotheses and testing: From the foregoing, it seems clear that diversity, as important as it has become, is not enough by itself to drive profitability. In other words, companies that are diversified, either out of fear or by design, and who make no effort to manage such diversity are likely to be saddled with infighting and other shenanigans that sap vitality from the company rather than moving it forward towards profitability. A possible hypothesis then is: Ho Diversity without active strategic management will yield no benefits. To test the above hypothesis, a number of companies that are known to be diverse could be surveyed to find out the extent to which management actively seeks to manage the diversity. The financial results of these companies could then be matched with the level of management involvement to determine if there is a correlation. Also, in some countries, in particular those in Asia, it is possible to find organizations that are very homogenous not only in terms of the outward appearances of the employees but also in terms of educational experience. In recent years, however, there has been a steady stream of people going abroad to study, which means that more and more of those with educational experiences different from those who had been schooled at home have entered the workforce. To that end, another hypothesis could be: H1 There is a difference in financial performance between companies that have educational diversity and those that do not. To test this hypothesis, it would be necessary to find two groups of companies in the same industry and find out the extent to which they are diversified in terms of having workers with educational experiences from different sources. One would expect, based on the literature, that companies with higher educational diversity will perform better than their non-diversified counterparts. Conclusion: Summarize the main points of your review. Demographic Diversity in the labor force, has come about due to a number of contributing factors; the large number of women who are now receiving higher education, and started to enter the job market in the early and late 80’s, which resulted in a decline in birth rates among Euro-American women and their households,. the high incidence of female headed households, the in migration of substantial numbers of immigrants, the willingness of mentally and physically challenged individuals to add meaning to their lives, the liberalization of society towards varying sexual orientations, and the relatively low rate of attrition among baby boomers, has resulted in a shifting of the paradigm in the work place. The demand was omnipresent, and the enabling came as a result of federal mandates. However, the idea of demographic diversity has been warmly embraced by most companies, because it makes good business cents. The mass business movement toward the embracing of demographic diversity has only been in vogue for a little more than six to eight years at the most. Albeit the trend is new for most companies, they are actively tuning up for the future wave, when there will be more minorities in the labor force than Euro-American males. Not only is demographic diversity successful and has a positive impact on performance, it has to work, because diversity is the reality of the future. References Barrett, R.,(1988) Liberating the corporate soul: Building a visionary organization, Butterworth-Heinemann Ltd. Equal Employment Opportunity Commission (2006) Job patterns for women and minorities in private industry. www.eeoc.gov Festinger, A. (1954), A theory of social comparison processes. Human relations 7 (2) 117-140 Hughes, D.(2007) Attracting the best and the brightest, A diverse workforce translates into business success. www.ajc.com McMillan-Capehart, Amy. 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