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4race, age, sex, ethnicity, and gender to secondary influences such as culture, education, religion, socio-political beliefs, management and communications styles, and a variety of intangible factors that create the mixture in the workplaceâ (SHRM, 2009). After IBMâs success in its diversity initiatives, many companies began viewing the collaboration of cultures, ideas, and different perspectives as organizational assets. In any organization, human capital and workforce relation- ships are the keys to success. As Carr-Ruffino states, âThe flow of information between colleagues, work teams, customers, and suppliers . . . depends on the quality of relationships and talent in the workplaceâ (1999). Consequently, workforce diversity continues to be seen by businesses as essential to their competitiveness and a âtool for improving organiza- tional performanceâ (Jayne and Dipboye, 2004, p 410). Linking Diversity to Organizational Performance Companies that tie workplace diversity to their organiza- tional strategic goals and objectives exhibit greater flexibility and adaptability in fast changing marketplaces than compa- nies that do not. They also attract and retain great talent and, therefore, reduce the risk management costs associated with turnover, absenteeism, and low productivity. The return on investment (ROI) can be seen in business initiatives, poli- cies and procedures that assist with gaining market share, expanding customer and client bases, andâultimatelyâ increasing sales and profits. The connection between workplace diversity and organiza- tional performance can be direct or indirect. DuPont, for exam- ple, learned how one small change could directly translate into significant profits. After finding that the sales of an anticoagu- lant drug were low in Hispanic markets, a Hispanic manager noticed that the drug instructions were not in Spanish. Now the educational materials for the drug are translated into 15 lan- guages and bring in millions of dollars in new business. C H A P T E R 2 Introduction: The Case for Diversity The Growing Relevance of Workplace Diversity Globalization has changed the organizational fabric of companies and industries worldwide. The way businesses operate, create economic value, address customer demands, recruit and manage human capital, and contribute civically and socially to the communities they represent has completely changed over the last several decades. One significant change is the recognition of the need for workplace diversity to reflect the miscellany of global, national, and regional markets. As the Society for Human Resource Management (SHRM) reported, âDiversity and inclusion continue to be the next frontier for an organizationâs competitive advantageâ (2009). Industries around the globe recognize that increasing diver- sity increases both innovation and market share. As early as 1997, 400 business executives at a Conference Board Sympo- sium agreed that âdiversity programs help to ensure the cre- ation, management, valuing, and leveraging of a diverse workforce that will lead to organizational effectiveness and sustained competitivenessâ (Hart, 1997). Lou Gerstner, for- mer CEO of IBM, was one of the first national leaders to tout the importance of diversity and to implement a structure that positioned diversity as an area of strategic focus. Gerstner said, âthe success of the program was achieved because the com- pany made diversity a market-based issueâ (Thomas, 2004). âBig Blue,â as IBM was affectionately called, created a philo- sophical shift in the mindsets of businesses that remains strong today. That emphasis on diversity has expanded beyond race and sexual orientation to employee abilities and broad-based relationship management. As predicted in the landmark study Workforce 2020 (Judy and DâAmico, 1997), ârapid technological change, globaliza- tion, the demand for skills and education, an aging work- force, and greater ethnic diversification in the labor market have forever redesigned the workplace and marketplace.â Todayâs definition of diversity covers âvisible dimensions of
Nortel experienced a less direct, but just as persuasive, cor- relation between diversity and performance. Because their average cost of replacing an employee is $55,000, Nortel views accessing and retaining talent from a worldwide diverse labor pool key to gaining a competitive edge in todayâs global work- place (Martino, 1999). Positive community relations are another argument for workplace diversity. When employees are proud of their organization for its connections to the community, they are likely to communicate that pride to friends and family. This goodwill can lead to a companyâs reputation as an âemployer of choiceâ (Richard and Johnson, 2001). Similarly, the shift in purchasing power in the United States attests to the importance of workplace diversity. According to the Selig Center for Economic Growth, the purchasing power of minorities in the United States will outpace that of whites in the next 5 years. In 2009, the center reported the combined buying power of African Americans, Hispanics, Asian Amer- icans, and Native Americans to be approximately $1.1 trillion out of a total of $11.1 trillion (www.terry.uga.edu, 2005). One of the most effective ways of reaching minority communities and markets is to employ representatives of minority groups to sell the companyâs story. These representatives can establish trust in their communities because of their common language and experiences. The result of minority outreach can be seen in increased company profits. Measuring the ROI for Diversity Working in the evolving field of human capital metrics, business leaders are continuing to explore ways to validate diversity initiatives (Gates, 2005). Perhaps because they feel they do not have tangible results to measure, many organiza- tions do not collect data on diversity initiatives. In the past, some organizations have explored climate surveys, cultural audits, employee attitude surveys, focus groups, customer surveys, and equal employment and affirmative action met- rics. Performance evaluations, training and education evalu- ations, and incentive assessments also have been used as an attempt to measure the ROI of diversity. Some researchers are calling for metrics outside of these traditional boundaries. Digh (2005) argues âHR leaders can better measure the return on investment of diversity by looking at the following: â¢ Demographics, â¢ Organizational culture, â¢ Accountability, â¢ Productivity, â¢ Profitability, â¢ Benchmarking, and â¢ Other pragmatic measures.â Figure 2-1 shows Hubbardâs example of typical intangible variables linked with diversity (2004). Although many intangible variables are associated with diversity results, monetary values can be established. Diversity return on investment (DROI) is calculated by using the diver- sity initiative cost and benefits to get the benefit/cost ratio (BCR). BCR equals diversity initiatives benefits divided by diversity initiative costs. This ratio also is referred to as a cost- to-benefit ratio. Specifically, the DROI calculation is the net benefit of the diversity initiative divided by the initiative costs: DROI% = (net diversity initiative benefits Ã· initiative costs) Ã 100. One also can derive monetary values through the follow- ing steps: â¢ Identify a unit of measure that represents a unit of improvement, â¢ Determine the value of each unit, â¢ Calculate the change in performance data, â¢ Determine an annual amount of the change, and â¢ Calculate the total value of the improvement. This method is similar to others used to calculate ROI for other monetary programs. Major corporations are involved in diversity measure- ment because of its importance for creating diversity training programs and corporate objectives. Businesses see these methods as ways to validate the success of employee retention, 5 Attitude Survey Data....................................................Employee Transfers Organizational Commitment........................................Customer Satisfaction Survey Data Climate Survey Data....................................................Customer Complaints Employee Complaints..................................................Customer Response Time Grievances...................................................................Teamwork Discrimination Complaints...........................................Cooperation Stress Reduction.........................................................Conflict Employee Turnover.....................................................Decisiveness Source: The Diversity Scorecard: Evaluating the Impact of Diversity on Organizational Performance, 2004. Figure 2-1. Typical intangible variables linked with diversity.
satisfaction, and productivity goals. The results are translated into low employee turnover, market gain, market branding, and the applicantsâ perceptions of a companyâs employer-of- choice characteristics. In 2004, LâOrÃ©al received the Diversity Best Practices Global Leadership Award for the work of Ed Bullock, chief diversity officer (Global Cosmetic Industry, 2005). Bullock tracks, monitors, and benchmarks the progress of the companyâs U.S. diversity programs, focusing on areas such as recruitment, retention, supplier relationships, com- munity relationships, and support groups to create a culture of inclusion. Similarly, Nextel Communications developed scorecards to measure employee retention, diversity training, and employee satisfaction. The company determined that for every dollar spent on diversity training, it realized a $1.63 net benefit (Kirkpatrick, Phillips, and Phillips, 2003). Diversity Recruitment Although Fortune 500 companies continue to recruit diverse candidates, diversity at the CEO level (the âC-Suiteâ) is lagging. Blacks and Hispanics face a disproportionate challenge to employment, specifically in recessionary econo- mies. Minorities who graduate from Ivy League colleges with advanced degrees are quickly hired and taken out of the market- place. Minorities who are looking for someone like them in middle management to emulate and follow will see few minori- ties in the hierarchies. Asian Pacific Americans represent 5% of the U.S. popula- tion; their education level is nearly double that of the general population. Approximately 2.2% held Fortune 100 board seats in 2009 (Zoppo, 2010). The Asia Society 2010 survey found that Asian Pacific Americans tended to be hired in two primary fields across industries, finance and technology, and often Asians become siloed in these occupations. The EEOC reports, âof the companies in The Diversity Inc. Top 10 Companies for Asian Americans, 13.5% of promo- tions in management go to Asians, versus 4.5% of all U.S. managers.â Statistics for Asian representation were higher for the top 10 companies than in national statistics. Boardroom representation in the top 10 companies reached 6% for Asians versus 1% nationally. Generally, workforces were 9.6% in these companies and new hires were 13.8% versus 5.5% nation- ally. Asian women represented 11.6% of the workforce and 14% of new hires compared with 2.5% identified by the EEOC. CEOs in the top 10 companies were 8.6% Asian compared to 3.7% identified by the EEOC (Zoppo, 2010). The Asia Society survey identified the five best practices that helped Asians reach the C-Suite, as well as how well the sur- veyed companies organized and implemented the programs. The survey cited KPMG as the best company for promoting Asians to the C-Suite. Other companies cited for their best practices relative to recruitment and promotion of Asians were American Express, IBM, JP Morgan Chase, Merck & Co., Sodexo, Time Warner, Novartis Pharmaceuticals Corpora- tion, and PricewaterhouseCoopers (Zoppo, 2010). Despite these examples of success, workplace diversity may be suffering, along with other programs, from cutbacks resulting from the recent economic decline. Janet Smith, a consultant specializing in recruiting diverse candidates for Fortune 500 companies, believes that without a concentrated focus on the recruitment and promotion of minority candi- dates fewer minorities will find their way to the C-Suite. She states that âFor most recruiters or even hiring managers, things are relationship basedâif you donât have diverse rela- tionships, you canât hire different types of peopleâ (Castro, 2010). The unprecedented budget cuts of the recession have negatively impacted the recruitment of minorities. In her case for diversity, Melissa Castro reported, âIn 2009, the unem- ployment rate for African Americans hit 16% and for His- panics 13%, as compared to 9% for whites, according to the Center for American Progress.â Smith cites companies such as Marriott International and Capital One Financial Corporation as examples of companies continuing to increase their recruitment, retention, and promo- tion of minorities even during tough times. Xerox also made an investment in diversity, and minorities were able to reach the C- Suite as a result of their senior-level experiences there. A. Barry Rand, for example, a Washington-based African American salesman with Xerox, became AARPâs CEO in 2009 (Castro, 2010). Ironically, Rand was passed over for CEO at Xerox, which later hired Ursula Burns, an African American woman. Xeroxâs investment in diversity became the subject of a Harvard Business Case Review. In a letter to its managers, Xerox presented a rationale for inclusiveness and creating opportunities for minorities: âIt will also mean the creation of an enormous and affluent market for new products and services, and of an equally enormous pool of manpower to help meet the critical shortages of manpower predicted for the futureâ (Castro, 2010). Harvard found that between 1964 and 1974, the percentage of minorities in leadership positions grew from 1% to 6.9%. More importantly, Harvard found that the percent of revenue grew more than tenfold, from $318 million to $3.6 billion. Today, companies such as the New York Times, pay execu- tives to hire women and minorities, despite widespread crit- icism of the practice. In a March 18, 2010, speech, Lawrence Watkins stated, âthe Compensation Committee of the New York Times retained their discretion to increase or decrease the individual component of the total bonus paid to each executive by up to 10% based upon the continuing develop- ment of a diverse workforce, including the inclusion of diverse candidates in hiring processes and the demonstration of personal commitment to diversity through participation in diversity-related activities.â 6
Watkins noted that, although the Times is succeeding in its efforts to diversify, Google is ranked as the Number 1 com- pany in America for minorities, according to Forbes Maga- zine. Minorities make up 36% of Googleâs employee population. Watkins believes that, by making a commitment to diversity, all companies can duplicate this success. Wesley Poriotis of Wesley, Brown and Bartle (W, B & B) a 4-decade- old executive search firm, echoes this point, âuntil a CEO mandates a balanced slate of candidates for every staffing engagement, hidden talent pools have little chance to com- pete for unadvertised positionsâ (www.prnewswire.com, 2009). Poriotis notes that his own industry is at fault because many executive search firms have perpetuated the myth that qualified black and Hispanic executives cannot be found. To help resolve this issue W, B & B devised âan innovative strate- gic pipelining system external to a corporate clientâs succes- sion plan whereby the firm creates a proprietary bank of qualified diverse executives for positions across multi- functions and multi-levels before they open.â The corporate leaders and talented professionals socialize to simulate the traditional networking way to forge relationships. According to W, B & B, this âinformal and confidential ice-breaking method has helped negate the myths that qualified minorities donât exist, they canât perform like their counterparts, or they are just not a cultural fitâ (www.prnewswire.com, 2009). In the global economy, industries are constantly searching for candidates who can manage communications and exer- cise leadership qualities across cultures. To climb the corpo- rate ladder, minorities have always had to shift between two cultures, the corporate white male culture and that of their native culture. Some claim, âthis fluid, back and forth move- ment allows minorities to think outside their cultural norms and more clearly understand how others see the worldâ (Flander, 2008). In conjunction with organizational leaders, HR executives must implement mentoring and succession plans to ensure their workplace cultures welcome inclusion and believe in diversity. The CEO and HR executive must make the busi- ness case for diversity in the C-Suite. Stephanie Smith, sen- ior vice president of HR for Kraft North America states, âHRâs role is to ensure that managers understand that diver- sity should be the equivalent of other revenue generating ideasâ (Flander, 2008). Diversity Statistics for the C-Suite Diversity efforts have progressed since the mid-1980s, at which time less than 40 African Americans were CEOs or within three levels of that rank at Fortune 500 companies and global equivalents, according to Damon Williams of the Alexandria, Virginia-based Executive Leadership Council (Flander, 2008). By 1998, that number had increased to 150, and by 2003, more than 575 black executives were in Amer- icaâs workplaces. As a result of the economic recession and business mergers, that pace has slowed and now stands at 720 executives (Flander, 2008). In 2007, there were seven black CEOs at Fortune 500 com- panies, the most ever, according to Williams. Since then, three of those have retired, and today, in 2010, four black CEOs head Fortune 500 companies. The numbers for His- panics are even lower. In 2009, Hispanic Magazine sent a sur- vey to Fortune 500 companies. Only 70 companies reported data and of those the magazine chose the Top 60 companies for Hispanics. Of those 60 companies, 63% reported they did not have any Hispanics among their 10 highest paid execu- tives (Flander, 2008). Minorities still find a glass ceiling when trying to ascend to the C-Suite. Many minorities occupy staff functions but do not have responsibility for profit/loss, which typically catego- rizes a position for the C-Suite. Many experts cite the lack of experience in this arena as a primary reason for companies to ignore otherwise well-qualified candidates. Without this kind of experience early in their careers, the path to the C-Suite becomes more difficult for minority employees. Hiring practices are another reason for the discouraging statistics regarding workplace diversity. Not having experi- ence with people of diverse cultures makes it difficult for companies to accept candidates who do not mirror their cul- ture and values. Many companies do not have any diversity programs or initiatives, and the idea of spending revenue in an economic recession for something outside of the normal box of revenue generating programs is foreign to corporate decisionmakers. Transportation Social and Demographic Trends Americaâs transportation systems are overly dependent on foreign oil and are strongly affected by a volatile economy, deteriorating environments, and climate changes. U.S. trans- portation systems have been unable to provide true competi- tion to the automobile, despite the growing need for public transportation. Public transit agencies are not poised to handle the increased needs from aging adults, a growing population of individuals with disabilities, rural populations with limited transportation options, and an increase in transit-dependent ridership. The recognition that public transportation is severely underfunded has not occurred within the general public. These circumstances mean that public transportation has an opportunity to revolutionize America and become an increasingly important player in confronting the economic and demographic challenges of the future. The rise of minor- ity populations and ridership continues, especially in urban 7
and mega regions. Transit Vision 2050 reports, âIt has been estimated that by 2050, more than 70% of the nationâs pop- ulation will be concentrated in 10 extended metropolitan regionsâ (Federal Transportation Advisory Group, 2010). The demand for public transportation services will increase with each decade. In 2007, Americaâs transit systems had more than 10 billion passenger trips for the first time since 1957. Between 1995 and 2008, public transportation ridership increased by 38%. Simultaneously, increases in minority pop- ulations occurred throughout the country. In its June 10, 2010, article âU.S. Minority Population Could be Majority by Mid- Century Census,â the Huffington Post reported that the minor- ity population was 107.2 million compared to 199.9 million whites. One in ten counties in America has minority popula- tions of 50% or greater. By 2050, minority populations will become the majority in America. With these impending demographic changes, mirror- ing the diversity of their ridership in their managerial ranks becomes a strategic imperative for transit systems. The busi- ness case for diversity has been made in two previous TCRP studies: TCRP Synthesis 46: Diversity Training Initiatives (Simpson, 2003), and TCRP Report 77: Managing Transitâs Workforce in the New Millennium (Davis, 2004). Both studies cite the need for workplace diversity in transportation and the importance of CEO advocacy for understanding the link between the communityâs transit services and the systemâs employee base. This linkage will strengthen the transporta- tion customer base and will develop the regional oversight for connectivity between urban, suburban, and rural communi- ties in the future. Service industries are established through a foundation of customer and employee relationship management. Trans- portation will continue to expand where these relationships are viewed as important to a systemâs profit and loss financial statement. A model for expanding minority leadership in the transportation industry is an organizational tool that will tighten the gap between the profit/loss ratio and increase rid- ership statistics in the future. It is a methodology that will enable transportation organizations to connect diversity to their business goals. Transportation CEOs Not only has transportation, like other industries, experi- enced a decline in C-Suite employees, it has historically strug- gled with workforce development. Over the last 2 years, APTA has concentrated on workforce development in concert with TRB. Workforce development committees have responded to the challenge of creating avenues for recruiting, retaining, and sustaining qualified senior-level employees. Principal drivers of the workforce development crisis in transportation include the fact that 60% of the industryâs workforce at the technical and managerial levels is reaching retirement age over the next 5 years. Rapidly changing technology, electronic communications, and new energy-efficient systems are becom- ing pervasive. Although programs and groups such as Leadership APTA, NTI Training, CTAA Training, and the Eno Foundation are all designed to develop transportationâs future leadership, the reality is that these programs have only touched the surface. Transit organizations need CEOs who can understand business goals and translate them for customers. Markets boom and bust; however, transportation service is on the rise as a result of both phenomena, providing service to the transit dependent and working poor, assisting with traffic management in areas of congestion, and serving as a good alternative to the auto- mobile by decreasing Americaâs dependence on oil. Diversity Models and Strategic Alignment Diversity models help companies tie inclusion strategies to revenue generation and, therefore, enhance business perform- ance by aligning goals throughout all levels of an organization. Using a diversity model, an organization can identify the best employees, retain them, andâin turnâreap the benefits of the products and services they produce. When implemented correctly, diversity models engage employees, positively impact recruitment, and strengthen the knowledge transference within an organization. When an organization is strategically aligned, it performs better. In a 2009 organizational survey where employees were engaged and business units aligned, â83% of the companies respond- ing report outperforming the company median when it came to retention measures, customer loyalty, profitability, turnover, safety, absenteeism and qualityâ (Gallup, 2009). Harvard Business School looked at characteristics of organ- izations that are strategically aligned and identified the follow- ing attributes: â¢ Positive branding, â¢ Low turnover, â¢ Fiscal stewardship, â¢ High discretionary effort, â¢ Effective communication, â¢ Trust/loyalty/security, â¢ Labor management unity, â¢ Clarity of mission/values, â¢ Breakthroughs, â¢ Possibility culture, â¢ High-performance teams, and â¢ Shared sense of vision. 8
Harvard identified Southwest Airlines as the Number 1 transportation organization with high levels of diversity and functional attributes. The strength of Southwestâs diversity model is that it sustains on-time performance, shareholder investment, and employee engagement, while providing safe transportation and creating a collective culture that fosters support for organizational goals laterally and vertically. The model of diversity has allowed the airline to continue to pros- per in slow economic times (Harvard School of Business, 2006). Conclusion Public transit agencies are proactively addressing the bene- fits of workplace diversity and the impending talent and lead- ership gap. The industry provides a number of avenues for the development of minority CEOs such as Leadership APTA, Conference of Minority Transportation Officials (COMTO), NTI, the Eno Foundation, Womenâs Transportation Seminar, Transit Labor Exchange, and the Transportation Learning Center. These initiatives, in conjunction with programs spon- sored by FTA and conducted by TCRP, are continuing to put the case for diversity at the forefront of the industry. Despite the lack of a model, transit systems have invested in diversity training initiatives and found those to be valuable in creating diverse workplace cultures and workforce reten- tion. One of the key findings in TCRP Synthesis 46 (Simpson, 2003) was that diversity was viewed as having played a major role in the governance structures of transit organizations. This suggests that ensuring a methodology for preparing and developing minority CEOs for the next generation of trans- portation leaders is a national transportation imperative. In the past, transit systems were viewed as a vehicle for the transit dependent. In todayâs modern environment of escalat- ing oil prices, recessionary economies, political uncertainty, and transportation comparators in other countries, the Amer- ican public views public transportation as a mobility choice. It is valued by an increasingly diverse population that includes all levels of workers, all classes of people, persons with disabil- ities, and individuals preparing for primary, secondary, and higher education. Developing a model to increase minority CEO leadership in transportation is not only timely but a touted business neces- sity correlating to the industryâs general ledger. It is perceived to be one of the foundations for sustained âlivableâ communi- ties, emerging mega regions, and expanded rural communities. Managing diversity begins at the top and is about compre- hending that Americaâs melting pot continues to change with each generation. CEOs who appreciate diversity and are able to ascertain the creative advantage that comes with managing employee and customer relationships effectively will be suc- cessful in expanding the industry points of service to improve financial resources. 9