We know that implementing strong diversity, equity and inclusion (DE&I) practices positively impacts organisations, from improving workplace culture to facilitating better decision-making. What’s discussed less is the clear correlation between DE&I and profitability – an aspect that some organisations overlook when considering its importance.
In challenging financial times, companies typically revert to cost-cutting strategies that reduce their focus on non-core activity, such as DE&I. However, research shows this is a mistake that can put organisations at significant disadvantage and lead to multi-year setbacks. With the growth of AI technology, however, this needn’t be the case: cost-effective, digital HR tools are available that can help companies maintain strong DE&I practices and lay the foundation for future profitability whilst keeping costs to a minimum.
Cutting back on DE&I
As 2024 picks up pace, corporate cutbacks in DE&I have already begun. So far this year, DE&I jobs have shrunk by eight percent according to data by Revelio Labs, with the attrition rate for DE&I roles being around double that of non-DE&I ones[1]. In February, Zoom surprised the market by axing its entire internal DE&I team whilst, last year, X reduced its 30-person DE&I team to just two employees. Tesla’s 2023 annual report, meanwhile, revised its DE&I goals[2].
These changes reflect what many had predicted. In 2023, consulting firm BCG found that 70 percent of DE&I leaders among large Danish companies expected a potential economic downturn to negatively affect DE&I in their company – citing a likely reduction in budgets and executive focus as the cause[3]. DE&I investment continues to be sacrificed during economic crises as businesses shift their priorities to achieve short-term cost efficiencies – but evidence shows this is short-sighted.
Business case for DE&I
Studies have repeatedly demonstrated that organisations that are diverse, equitable and inclusive are typically: more successful in attracting and retaining top talent; better able to support employees and customers; better represented; and more equipped to generate broader insights and perspectives that improve innovation, decision-making and problem-solving.
The business case for adopting effective DE&I practices is robust from all angles. A survey by consultancy firm McKinsey found that nearly 40 percent of respondents have turned down or not pursued a role because of a perceived lack of inclusion at an organisation. What’s more, drawing on data from 1,000 large companies across 15 countries, McKinsey’s findings show a clear correlation between business performance and diversity. In their Diversity wins report, companies in the top quartile for gender diversity within executive teams were 25 percent more likely than companies in the lowest quartile to have above-average profitability. Specifically, the most gender-diverse companies were 48 percent more likely to outperform the least gender-diverse companies. Similarly, companies in the top quartile for ethnic and cultural diversity outperformed those in the fourth quartile by 36 percent in profitability.[4]
These findings correlate with a broad spectrum of research. For instance, research firm Gartner found that 75% of companies whose frontline decision-making teams reflect a diverse and inclusive culture exceed their financial targets. They also found that teams that were gender diverse and inclusive outperformed gender-homogeneous, less inclusive teams by an average of 50 percent[5]. Meanwhile, Harvard Business Review determined that the most diverse organisations were also the most innovative[6].
How digitisation can help
Advancements in AI can prevent DE&I practices from being sacrificed during times of economic uncertainty by increasing access to learning whilst minimising the financial cost involved.
Managers often find themselves lacking the necessary tools, resources and training to engage in effective and empathetic conversations with diverse team members – whether through unintentional bias, misinterpretation of cultural nuances, lack of awareness about inclusion and diversity, or simply a gap in communication skills. But the significant increase in AI’s capabilities can help address this.
Through the latest AI tools, organisations can provide their employees with access to continuous, real-time HR support. Such tools can, amongst other things: provide ongoing assistance with goal setting, career growth and personal development; deliver guidance on how to issue constructive criticism; and facilitate empathetic return-to-work discussions. By offering easily accessible training, organisations can continue to improve the quality of managerial interactions – something that will be particularly important if economic constraints continue to slow wage growth.
AI can also aid company performance on a larger scale. For instance, through AI platforms, HR teams can monitor every stage of the employee lifecycle and build an informative picture of activity – from the efficiency of the onboarding process through to how engaged employees are with learning programmes and the rate at which employees are progressing through the organisation.
AI’s ability to collect and evaluate data can provide tangible metrics and highlight patterns that provide valuable insights into the employee lifecycle – helping HR teams to glean key learnings, target areas for improvement and deliver a better employee experience.
Strategic use of AI
The scope of AI technology can be overwhelming when considering how an organisation can best utilise AI tools. Every organisation has different needs, therefore the best way HR teams can use AI is by adopting a goal-oriented approach; establishing a few well-defined objectives and working backwards from there. The biggest mistake businesses make is using AI for the sake of it without attaching a specific business outcome or having a clear strategy.
At DEJI Digital, for instance, we are changing how businesses can develop and retain talent by delivering a digital tool that equips managers with the resources and training to help them improve their interactions. Our tool has the versatility to be an executive coach, a DE&I consultant and a crisis communications specialist and so can be tailored to an organisation’s individual business objectives. Tools like ours can boost manager confidence and competence around DE&I whilst also reducing traditional training costs by delivering inclusive, scalable and cost-effective AI coaching.
Optimising profitability
For organisations looking to manage costs in today’s challenging environment, AI HR tools can ensure their teams have access to the best resources to help them retain and inspire high-performing diverse talent. Failure to do so by curbing investment in the wrong areas could end up costing these businesses far more by hindering their long-term profitability.
As the business environment becomes increasingly competitive in today’s challenging economic environment, organisations who provide access to effective DE&I training and resources will have a significant advantage over competitors who neglect this. With irrefutable evidence showing the financial benefit of investing in DE&I, the role of digitalisation will become increasingly vital in facilitating this whilst minimising financial burden. The organisations who have the foresight to embed bespoke AI tools into their strategy now will have the most advantage in the future.
Ends.
[1] https://www.washingtonpost.com/business/2024/02/20/corporate-diversity-job-cuts/
[2] https://www.fastcompany.com/91025936/zoom-laid-off-its-dei-team-and-its-not-the-only-company-making-cuts
[3] https://www.bcg.com/publications/2023/denmark-de-i-more-important-than-ever-in-times-of-crisis
[4] https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-diversity-equity-and-inclusion
[5] https://www.gartner.com/smarterwithgartner/diversity-and-inclusion-build-high-performance-teams#:~:text=Through%202022%2C%2075%25%20of%20organizations,by%2050%25%2C%20on%20average.
[6] https://hbr.org/2018/01/how-and-where-diversity-drives-financial-performance
