Workforce Diversity – Why it matters and how to measure

In this article I will try to outline first why workforce diversity is important and secondly explain the measures and dimensions organizations must maintain in order to nurture a healthy workforce culture and profitable business.

Organizations very rarely spend time on reporting financial measures that have no significance or are legally required. Financial reporting is focused on providing an understanding of the standing of the business and if it is doing good or bad, and to predict the chances that the organization will survive the next reporting period.

Similarly, in the area of human resources, organizations need to keep track of the measures that have a business significance or are legally required. Most organizations are legally required to report how many employees they have and some breakdown in groupings. But apart from this, it is up to every organization to define what makes an important metric, and often these are kept in-house away from the public.

A retail company with many entry level positions and high employee turnover needs to focus on employer branding, talent acquisition effectiveness and retention of new joiners. A pharmaceutical company with decade long product development cycles and expensive R&D needs to focus on employee engagement and long term career planning. So because different industries - and organizations - face different business challenges this impacts what metrics they need to monitor. Within people and human resources, it is recommend to identify the most important people related measures based on business priorities and strategies. But in the area of workforce diversity there are also some commonalities and metrics that all companies should seek to understand, just like they measure sales, EBITDA, profit in the area of finance.

Why is diversity important

From a personal experience, I myself have always enjoyed working in diverse teams. Working with different nationalities, educational backgrounds, ages & gender has always been a source of inspiration and energy to me.?There are several ways diversity influences our workplaces and business results. Different personal experiences and backgrounds often bring a wider variety of perspectives. Varied points of view may result in a more well-rounded workforce - it helps makes people work harder, more creatively, and deliver a higher quality of work, according to?a research by Scientific American . A diverse workforce shows a commitment to equal opportunities, giving your organization a positive reputation and capturing a larger share of the market, as covered in an article in Forbes . In attracting talents, job seekers may be more likely to want to work with your organization, which in turn, gives you a larger pool of applicants to choose from. And finally - and maybe most importantly - companies with high levels of racial and ethnic diversity?are more likely to outperform their industry averages financially according to studies by?McKinsey .

Must have analysis dimensions

Organizations should consider diversity as a dimension with multiple variations. Gender, Age Range, Nationality, Country of Work, Educational Background, Ethnic Background to name a few. In People Analytics, these are analysis dimensions that we can use to analyze our metrics. Metrics are in this case measurable data items such as Headcount, Retention Rate, Promotion Rate, Termination Rate.

To properly understand your workforce, you must be able to analyze the metrics on a variety of demographical dimensions as well as job and organizational dimensions. These are the most important demographical dimensions you need:

• Gender
• Age Range
• Nationality
• Work Country

These are the most important job and organizational dimensions you need:

• Business Unit (or other relevant company specific org unit)
• Country (region, site if relevant)
• Job Family
• Employment Type
• Manager/Individual
• Organizational Tenure
• Position Tenure

Now we have the metrics and analysis dimensions in place, which will allow us to understand our current workforce, the status quo. But there is one important piece missing, and without this you will not know how you arrived at status quo. Time.

The importance of Time as analysis dimension

To make any meaning and not just understand the status quo, you also must have time as analysis dimension. Time can be in years, quarters or months (and even days in some cases). If you do not have time as analysis dimension, you will not be able to understand how measures change and you will not be able to understand the trends that are shaping your workforce. This can lead to inability to spot a small trend before it becomes a significant problem. It also does not allow you to understand how any changes in practices are actually improving.

Time is important. History might not predict the future, but it does shape status quo every day.

Not analyzing people metrics over time would be similar to not analyzing your budgets over time – completely unthinkable in the finance world.

Must have measurements

Understanding your current workforce as well as joiners and leavers are must have measurements. These below are what I would consider basic, must-have measurements:

• Headcount (at the end of reporting period).
• Hires
• Terminations – Voluntary
• Terminations – Involuntary
• Promotions
• Demotions

Having these basic measures allows you to understand quite accurately what your workforce consists of and how it has changed over time. Having the base measures as absolute numbers is important but also allows to create ratios in percentages. These ratios are useful because they allow easier

• Hire Ratio (the ratio of people hired in a time range vs. the people in the beginning of the time range)
• Promotion Ratio (the ratio of people promoted in a time range vs. the people in the beginning of the time range)
• Male to Female Staffing Ratio (the ratio of female to male employees)
• Male to Female Staffing Ratio – Managerial (the ratio of female to male managers)
• Termination Ratio i Voluntary (the ratio of people who left voluntary in a time range vs. the people in the beginning of the time range plus people who joined)
• Termination Ratio i Involuntary (the ratio of people who left involuntary in a time range vs. the people in the beginning of the time range plus people who joined)

Remember, each measure should be analyzed on the mentioned demographic dimensions as well as organizational and job dimensions - and time of course.

Having the listening channels and systems in place these will allow you to answer questions that impact your business performance. These questions can be framed in a way that relates to language spoken by the business. Three of such questions could be:

• Are we losing talents with low organizational tenure? Losing high numbers of new joiners has a direct impact on hiring costs and productivity and also stresses a company unnecessarily. If the answer is yes, we need to understand where in the organization it is most predominant, and we need to investigate strategies to improve onboarding practices and retention for new joiners.
• Are we losing experienced colleagues who knows our customers, products and services the best? Losing high numbers of experienced colleagues has a direct impact on quality, service delivery and productivity as well as customer retention. If the answer is yes, we need to understand where in the organization it is most predominant, and we need to investigate strategies to improve retention practices for experienced colleagues.
• Are we providing our employees equal opportunity for building their career? Not providing equal opportunity for employees to build their career has a direct impact on engagement, job satisfaction, productivity and ultimately retention and profitability. If the answer is yes, we need to understand exactly where in the organization it is most predominant, and we need to investigate strategies to improve promotion practices for colleagues of different backgrounds and diversity.

There are many more questions that can be asked and answered with the metrics and dimensions, the important part is to identify the questions that have a direct impact on business performance or quality in order to be relevant to the business. This exercise is something that should not be taken lightly as there is not always a one size fits all approach that works.

Advanced measurements

If you already have the listening channels and systems for measuring the base metrics then you are doing good . But - you can do even better and use people analytics for creating even more insights and business advantages. So you might want to start asking more advanced questions that build upon the base measures but with additional dimensions on top. Some of the more advanced dimensions include the following:

• Performance Evaluation
• Annual Salary
• Employee Engagement Rate
• Part-time/Fulltime
• Termination Reason

Having the listening channels and systems in place to report on these, will allow you to answer more complex questions that impact your business performance even more. The questions you should ask should also be framed in a way that relates to language spoken by the business. Three of such questions could be:

• How much are the people that leave us impacting our business? Losing high performers more than low of medium performers has a direct impact on culture, effectiveness, profitability. If the answer is yes, we need to understand where in the organization it is most predominant, and we need to investigate in strategies to improve career opportunities and retention of high performers.
• Are we rewarding equal value? Paying equally needs to be viewed in context of each country we operate in and by job family as workforce costs depends on country and job area. If we are not paying equally for the same value people bring it will impact culture, engagement, sense of belonging, intent to stay and retention. If the answer is no, we need to understand where in the organization it is most predominant, and we need to investigate in strategies to change rewarding practices for different employment groups. We may need to provide managers with better guidelines and market data in the annual salary process or we need to establish calibration of salary reviews.
• Are we providing flexible working routines for our employees to suit their life situation? Not providing flexible working routines for employees has a direct impact on talent acquisition, retention and ultimately profitability. If the answer is no, we need to understand where in the organization it is most predominant, and we need to investigate in strategies to provide flexibility (in working time, flex time, part-time) for colleagues at different stages of their work life.

Closing

Regardless of your business strategy and priorities, understanding your workforce and the trends that are shaping your workforce for tomorrow is important. Keeping track of diversity and trends allows you to take action where it matters the most, take action early on before an issue turns critical and understand if your actions have any effect or not. Regardless of your listening channels and analytics maturity, there are measures that you must have, and if you are more advanced measures you can add on top. People analytics might be a niche domain but it is a specialty that is here to stay and is only increasing in value and adoption among leading organizations.

I hope you found this piece useful and I welcome comments and feedback.

Erik Ebert, Director of People Analytics , Effective People

Erik Ebert is a trusted advisor with 25 years experience in information technology, human resources and commerce helping organizations transform the way they operate and work. I work at Effective People and welcome you to visit our company web site below.

www.effectivepeople.com

References

The following web sites were available at the time of writing this article.

https://www.scientificamerican.com/article/how-diversity-makes-us-smarter/

https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/delivering-through-diversity

https://www.forbes.com/sites/biancamillercole/2020/09/15/8-reasons-why-diversity-and-inclusion-are-essential-to-business-success/