To survive and prosper in an increasingly heterogeneous society, organizations must capitalize on employee diversity as a source of competitive advantage. For example, Computer Associates International hires software developers from many nationalities, filling jobs where there is an extreme shortage of personnel.4 Because many of these employees are non-English speakers, Computer Associates offers free courses in English as a second language.5 Avon Products provides another example of how firms capitalize on diversity. Avon uses its diversity to create a competitive advantage, using feedback from its workforce to adapt to women’s changing needs quickly and effectively. The input of Avon’s minority employees—almost one-third of its workforce—helped the firm find a successful niche in an industry that tends to ignore the beauty needs of women of color.6 AT&T provides formal recognition and support to employee networks formed around a characteristic of diversity (such as the Asian Pacific Islanders’ Business Resource Group) if the networks present a business plan to management showing their value to the company.7 Procter & Gamble has a strong multicultural marketing approach, and it views the diversity of its 38,000-plus employees as a key factor in this regard. According to one top company executive, “Diverse organizations are better connected to their markets.”8 A monthly publication, DiversityInc., offers many examples on the most recent diversity initiatives taken by major employers such as Marriott, IBM, Bank of America, Cox, PriceWaterhouse Coopers, Johnson & Johnson, and Ernst & Young .

Many people perceive management of diversity as a new label for affirmative action. In reality, these are two very distinct concepts.9 Affirmative action first emerged from government pressures on business to provide greater opportunities for women and minorities. Management of diversity , in contrast, recognizes that traditional firms, where white men are the majority, are becoming a thing of the past. There is a growing awareness that a key factor in corporate performance is how well women and minorities can be fully integrated and work effectively with one another and with their white male counterparts. Given demographic trends, companies can no longer ignore issues of diversity if they are to be successful. For this reason, many organizations (such as the Society for Human Resource Management, Microsoft, Texas Instruments, and Computer Sciences Corporation) specify diversity as the ability to effectively use the talents of people from various backgrounds, experiences, and perspectives.10 Another term that is currently used to refer to diversity management is inclusiveness, or making all employees feel that they are an integral part of the same organization and that they share a common desire to make the firm succeed regardless of their race, gender, age, and so on.11

In the next decade or so, we will see a dramatic growth rate in people aged 55 or older (46.6% growth rate). Asian Americans, Hispanic Americans, and other ethnic minorities have shown very rapid growth rates since 1990, and these are projected to continue at a fast pace into the end of the decade. In 2014, approximately 16 percent of the U.S. population was considered Hispanic, surpassing the percentage of African Americans (13.0%), Asian Americans (5.6%), and other minority groups (2.0%). All of these groups have registered increases in workforce participation in recent years, and these are also expected to continue. White Americans still made up a substantial majority of the population in the year 2012 (72%), but less of a majority than in 1990 (79.1%). At current growth rates, in 20-plus years or so white Americans will be a minority (less than 50 percent of the total U.S. population). Women’s labor force participation rates (currently 47 percent versus 53 percent for males) are expected to keep rising, and men’s participation rates to go on declining .

Note that the data previously described is national. If we focus on the larger metropolitan areas, where most business takes place, the changes have been even more dramatic. Of the top 25 markets, “minorities” now make up a majority of the population in at least 20.12 In Los Angeles, for example, half of the population is foreign born, mostly Asian and Hispanic. Most corporations are located within or near these metropolitan areas and are highly dependent on the local nonwhite labor supply to meet their needs.13 In some states—most notably California, where nonwhites account for more than half the population—the future is already here.

The idea that individuals can be pigeonholed into racial categories—which goes back centuries to unscientific racist notions of “pure blood” that were incorporated into law by many states well into the 1960s (in part of the South, for instance, even one-eighth black parentage automatically classified a person as being of African descent rather than white)—is likely to crumble in the coming decades. Many first-, second-, and third-generation Americans are descended from immigrants who were mixed race themselves (usually a combination of European, Native American, and/or black). In addition, the number of interracial marriages has increased, and as a result close to half of the mixed-race population is under age 18.14 One prime example, of course, is U.S. President Barack Obama, the offspring of a white woman and an African father. Currently 16 percent of blacks, 26 percent of Hispanics, and 31 percent of Asians marry outside their race/ethnicity in the United States.15 In the western states of the United States, almost one-fourth of all new weddings take place across race and ethnic lines. Eventually this will serve to blur the stereotypical classification of people into racial groupings.

Other statistics provide a glimpse of what the near future will look like in terms of labor force characteristics. In 2014, minority children younger than age five are close to becoming the majority nationally, but this is already the case in the nation’s fastest-growing states, such as Florida, Nevada, Georgia, Maryland, New York, Texas, and Arizona. Recent immigration is part of the reason for this trend, but it is not the most important. Although about 15 percent more births than deaths have been recorded among whites since 2000, more than eight times as many Hispanics, four times as many Asians, and twice as many blacks have been born than have died.16 In the most recent 2010 kindergarten class, one out of four five-year-olds was Hispanic, meaning that approximately 25 percent of high school graduates in 2024 will be Hispanic.17 Since the last edition of this book was published , the annual inflow of undocumented workers has decreased significantly. However, this may well be a temporary phenomenon as a result of the severe recession experienced by the United States during 2008–2011 and the relatively high unemployment rate since then.18 One interesting development uncovered by the 2010 census is that the Hispanic population grew far greater than expected in states with smaller and newer immigrant populations. For instance, the Hispanic population increased by more than 10 percent in Alabama, Louisiana, Kansas, Maryland, Delaware, and Minnesota when compared to the 2000 census.19

Of the more than 20 million jobs projected to be created over the next decade, 75 percent will be filled by women and minorities. This means that firms must actively compete to attract and retain educated and talented workers from those groups: Most large corporations across different industries are eagerly trying to create receptive environments for nontraditional employees. For instance, Lucent Technologies, Chase Manhattan, Marriott International, FedEx, Xerox, Sun Microsystems, Colgate, Palmolive, Merck, and DuPont, among others, have at least one minority member on their board of directors and close to one-fifth of officials and managers who are minority group members.20

At the same time more than one-third of small businesses are started by women and minorities.21 This is important because small businesses employ more than three-fourths of the U.S. population. Many of these businesses become success stories (see the Manager’s Notebook, “Recent Success Stories of Small Businesses Launched by Women and Minorities”).

At some firms, including such blue-chip companies as Johnson & Johnson, Xerox, General Mills, and Walt Disney, at least one-fourth of the board of directors are nonwhite.22 At many Fortune 1000 firms, which not too long ago were almost all white, diversity now permeates every facet of management and technical operations. Recent figures confirm this. At Coca-Cola, approximately 40 percent of managers receiving promotions are African American, Latino, Native American, or Asian, and approximately 60 percent were women. At JPMorgan Chase, more than half of new hires are African American, Asian American, Latino, or Native American. At Ernst & Young, almost half of its most recent management promotions went to women, and one-third went to African American, Latino, Asian American, or Native American employees. At AT&T, half of new hires are nonwhite; 27 percent are African American and 15 percent are Latino. The corporate giant IBM has received hundreds of awards for its diversity initiatives in recent years; it has a worldwide executive council to guide specific corporate-wide diversity initiatives. The examples could go on and on. The basic point is that a growing number of firms realize that a changing labor force requires the active recruitment, retention, and advancement of all talents.

In some respects the changes that have occurred since the first edition of this book in the mid-1990s have been remarkable. For instance, in 1995 not one of the Fortune 500 CEOs was a person of color. Today, 21 Fortune 500 companies are run by people of color, including six blacks, seven Hispanics and eight Asians.23 And it is now commonplace to have one or more senior executives who is a woman or a minority, something that was rare in the mid-1990s. Currently 21 of the Fortune 500 firms are led by women.24

Diversity as an Asset

An enormous amount of research on diversity-related issues has been conducted in recent years, with the number of publications doubling every five years.25 For instance, since 2007 most of the major journals dealing with human resource topics have dedicated at least one full issue to this subject, and in some cases more than one.

Two conclusions may be drawn from this research. The first, and perhaps the most obvious, is that managing employee diversity is not a passing fad or just “politically correct” words. Firms must deal with it on a day-to-day basis, given the demographic trends discussed earlier. If anything, this issue will continue to grow in importance. Second, as recently summarized by two leading researchers, “It is now known that diversity’s effects on organizations and groups can be positive, negative or neutral.”26 It all depends on how this diversity is managed. In this section, we discuss the positive aspects of diversity, followed by some of the challenges that organizations face in managing that diversity. Later in the chapter, we discuss approaches that firms can use to improve the management of diversity.

Employee diversity can improve organizational functioning by stimulating greater creativity, better problem solving, and greater system flexibility.27 Rosabeth Kanter, a well-known business consultant based at Harvard University, notes that “most innovative firms purposely establish heterogeneous work groups to bring a multiplicity of points of views on a particular problem.”28 Employee diversity offers a number of other benefits.

• ▪ Greater creativity Employee diversity can stimulate consideration of less obvious alternatives. Consider the following true story:

  A Hispanic man and a white woman were members of a task force advising the CEO on a planned organizational downsizing. These two people suggested that the recommendation of the task force majority to lay off 10 percent of the workforce would devastate morale. Upon further consideration, the CEO decided not to lay off employees and opted instead for a plan proposed by these two dissenters. The plan proposed to reduce labor costs by offering early retirement, unpaid vacations, and stock in the firm to employees in exchange for a 5-percent salary cut. Most employees reacted very positively to the plan, with many reporting that it increased their loyalty and commitment to the firm.29

• ▪ Better problem solving Homogeneous groups are prone to a phenomenon called groupthink, in which all members quickly converge on a mistaken solution because they share the same mind-set and view the problem through the lens of conformity.30 In a heterogeneous group with a broader and richer reservoir of experiences and cultural perspectives, the potential for groupthink shrinks.

• ▪ Greater system flexibility In today’s rapidly changing business environments, flexibility is an important characteristic of successful firms. If properly managed, employee diversity can infuse more flexibility into the firm. The existence of diversity at different levels generates more openness to new ideas in general and greater tolerance for different ways of doing things.

• ▪ Better information A more diverse workforce provides the organization with a broader scope of information and set of skills that may be applied to a variety of situations. For example, see the Manager’s Notebook, “Police Comb Their Ranks for Foreign-Language Speakers.”

Many firms now believe that effective management of employee diversity is an integral component of their overall strategy and not just a set of programs run by the human resources function to keep government regulators at bay. It has become standard practice in their annual reports for CEOs of Fortune 1000 firms to explicitly mention diversity management as part of their firm’s strategic objectives.33 In many of the Fortune 1000 firms, the person responsible for diversity issues, often called chief diversity officer, now reports directly to the CEO.