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How are we tracking? A new method for measuring the effectiveness of your D&I strategy

Austria, Academic Article, May 2015

Traditional measures of D&I effectiveness tend to rely on static pictures of workforce demographics, employee attraction and retention. What if we could measure effectiveness dynamically through the collective intellectual capital generated by a diverse organisation?

The last 15 years have seen a transformation in the business landscape with increasing investment in Diversity & Inclusion (D&I) efforts within organisations. The rising importance of D&I in leaders’ agendas has stemmed from increasing awareness of the social and commercial benefits that can be achieved by adopting a more inclusive approach to organisation management. Past research by Cox (1991) and later Krell (2004) linked diverse workforces to competitive business advantages through increased innovation, market access, staff retention, and business brand.

As investment in D&I has increased over time, organisations have incrementally increased the number of initiatives aimed at improving D&I practices. Despite the increasing number and complexity of initiatives, EK (2005, 2008) found that organisations tend to rely on single measures of D&I effectiveness per initiative. Success of these initiatives would often be examined separately without an overarching strategy. A holistic diversity strategy is needed to tie all initiatives to core business processes and objectives. This would also enable them to be evaluated for their combined business impact.

The development of a holistic diversity strategy is often limited by the lack of tangible economic benefits that can be measured as outcomes for D&I initiatives. The difficulty of linking economic benefits to D&I initiatives mainly stem from the tendency of initiatives to influence the intellectual capital of an organisation rather than fiscal bottom-line directly. Intellectual capital can be defined as the collective knowledge pool of an organisation and its ability to tap that knowledge into core business processes thereby allowing the organisation to achieve strategic objectives (Edvinsson and Malone, 1997).

Acknowledging that the efficacy of D&I initiatives can be measured by evaluating its impact on intellectual capital, Hubbard (2004) designed the Diversity Scorecard derived from the Balanced Scorecard from traditional management theory. The Diversity Scorecard assesses an organisation across six business indicators (including both financial and intangible indicators) found to lead and lag increasing intellectual capital through better D&I outcomes. Hubbard’s approach, however, has not gained much traction in industry potentially due to demanding and academic-levels of measurement required.

With that in mind, a recent study by Mr Manfred Wondrak and Dr Astrid Segert (2015) explored another approach to measuring the efficacy of D&I initiatives that would be readily implemented into organisations.

This study aimed to determine the effectiveness of the Diversity Impact Navigator as a tool for measuring the impact of D&I initiatives on the intellectual capital of an organisation.

The Diversity Impact Navigator’s approach to measuring efficacy of D&I initiatives is comprised of seven steps:

  1. Description of Business Model
    Determine which core business processes contribute to economic returns
  2. Determination of Intellectual Capital
    Determine key internal intellectual capital factors that directly or indirectly impact the core business processes
  3. Diversity Management inventory and clustering of diversity measure
    Analyse existing or proposed D&I initiatives and strategies. This step aims to group similar initiatives that can be measured the same way
  4. Diversity impact analysis
    Assess the impact of the D&I initiatives on identified intellectual capital factors
  5. Selection of Indicators
    Assign quantifiable indicators to previously identified intellectual capital factors. These quantifiable indicators should change based on implementation of D&I initiatives
  6. Specification current and medium-term target values and interpretation of result
    Select targets based on identified indicators over different timeframes to evaluate progress of D&I initiatives
  7. Presentation of results in the Diversity Impact Navigator
    Create the Diversity Impact Navigator based on results.

The Diversity Impact Navigator was tested with three service-oriented organisations of varying sizes:

  • SIMACEK is a facility-management organisation with over 3,300 employees
  • Unitcargo is a niche international logistics company with 33 employees and is a recognised D&I leader (Tomasikova and Wondrak, 2013)
  • Brainworker is a communication and consultancy agency specialising in ethno-marketing and diversity with less than 10 employees.

The seven-step process for the Diversity Impact Navigator was conducted with small teams in the larger organisations (SIMACEK & Unitcargo) comprising senior management and employees responsible for managing D&I initiatives.

The study found varied but overall positive results for each participating organisation with three key findings:

1.  D&I initiatives that focus on building image and culture have the biggest impact on the intellectual capital of an organisation

Results showed that D&I initiatives promoting internal diversity culture had the largest impact on larger organisations. Examples of such initiatives include diversity awareness training for employees, activities to drive work-life balance, and programs promoting equal opportunity for women. These initiatives drove positive outcomes for elements of intellectual capital related to corporate culture and corporate behaviour.

Meanwhile, D&I initiatives promoting external diversity image (e.g. sponsorship activities and community projects) had the largest impact on small organisations by allowing employees to feel greater empowerment.

2.  The Diversity Impact Navigator helps organisations formulate a holistic diversity strategy

Following the seven-step process of the Diversity Impact Navigator allows organisations to formulate and document a holistic diversity strategy. Each organisation involved in the study had previously only had partially developed strategies which failed to systematically link initiatives together.

3.  Further tools are needed to tangibly link measured changes in intellectual capital to economic returns

Quantitative and qualitative data accrued through the seven-steps of the Diversity Impact Navigator was able to show the impact of D&I initiatives on components of intellectual capital of an organisation.  However, additional tools and resources are required to measure the impact of the changes in intellectual capital on the bottom-line of the organisation.

Collectively, these findings suggest that the Diversity Impact Navigator is a tool capable of helping organisations measure and compare their D&I initiatives while developing a more mature approach to future practices.

Results suggest the Diversity Impact Navigator is an improvement upon previous attempts at measuring the impacts of D&I initiatives carried out by organisations. The advantages of the tool stem from the ability to link D&I initiatives to core business objectives through intellectual capital and the flexibility of the tool to cater for large and small organisations.

Those seeking to use the Diversity Impact Navigator should consider the following insights observed during the study:

  • Organisations seeking to implement new D&I initiatives should factor in the size of the organisation as effectiveness and impact of intellectual capital will vary by size
  • The tool’s success is contingent upon engagement from stakeholders across the organisation, particularly senior management - the process of identifying components of the organisation’s business model and its relationship to components of intellectual capital require leader input
  • Involvement in the process helps participants gain understanding of D&I initiatives and their relationship with intellectual capital and organisational processes
  • The Diversity Impact Navigator helps organisations without mature D&I practices to set up a holistic D&I strategy.

To read the full article, see Wondrak, M., Segert, A. (2015). “Using the Diversity Impact Navigator to move from interventions to diversity management strategies” Journal of Intellectual Capital, Vol 16, No. 1 (2015), pp.239-254.

For more information contact: Kevin Lieu.

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