Today, managers must understand increasingly diverse markets. Failure to discern customers’ preferences can cost a company its business in the United States and abroad. Some people argue that one of the best ways to ensure that an organization is able to penetrate diverse markets is to include diverse managers among the organization’s decision makers.⁷

Diversity in the managerial ranks has the further advantage of enhancing a company’s credibility with customers. Employing a manager who is the same gender or ethnic background as that of customers may imply to those customers that their day-to-day experiences will be understood. One African American female manager found that her knowledge of customers paid off when she convinced her company to change the name of a product it intended to sell at Wal-Mart. “I knew that I had shopped for household goods at Wal-Mart, whereas the CEO of this company, a white, upper-middle-class male, had not. He listened to me and we changed the name of the product.”

Morrison cites a case in which a company lost an important opportunity for new business in a southwestern city’s predominantly Hispanic community. The lucrative business ultimately went to a competitor that had put in charge of the project a Hispanic manager who solicited input from the Hispanic community.

Consider how Safeway gained market share through diversity. One of North America’s largest food retailers, with about 1,700 grocery stores, Safeway faced increasingly stiff competition from companies such as Target and Wal-Mart. In response, Safeway initiated a program to position itself as an employer of choice. In addition, with 70 percent of its customers being women, Safeway wanted to expand its workforce diversity to be more consistent with its customer base. Safeway recognized that a diverse workforce would help the company better understand and respond to customer needs and create a competitive edge in the marketplace. With industry leadership traditionally male, Safeway’s initiative supporting women leaders broke from the norm. Today, management openly credits its past diversity efforts as the foundation of the present levels of diversity and profitability.⁸

Companies incur high costs in recruiting, training, relocating, and replacing employees and in providing competitive compensation packages. According to Morrison, Corning Corporation’s high turnover among women and people of color was costing the company an estimated $2 to $4 million a year. Many managers who were questioned for her study felt that the personnel expenses associated with turnover—often totaling as much as two-thirds of an organization’s budget—could be reduced by instituting diversity practices that would give nontraditional managers more incentive to stay. When nontraditional managers remain with an organization, nontraditional employees at lower levels feel more committed to the company.

In addition to the personnel costs, executives are distressed by the high legal fees and staggering settlements resulting from lawsuits brought by employees who feel they have been discriminated against. For example, $17.7 million in damages was awarded to a woman employed by Texaco who claimed she had been passed over for a management promotion because of her gender. Executives are finally learning that such sums would be better spent on promoting diversity.

Many executives quoted in Morrison’s study believe productivity is higher in organizations that focus on diversity. These managers find that employees who feel valued, competent, and at ease in their work setting enjoy coming to work and perform at a high level.

Morrison also cites a study by Donna Thompson and Nancy DiTomaso that concluded that a multicultural approach has a positive effect on employees’ perception of equity. This, in turn, positively affects employees’ morale, goal setting, effort, and performance. The managers in Morrison’s study also saw innovation as a strength of a diverse workforce. In essence, diversity becomes the spark that ignites innovation.⁹

Morrison also found that including nontraditional employees in fair competition for advancement usually improves the quality of management by providing a wider pool of talent. According to the research she cites, exposure to diverse colleagues helps managers develop breadth and openness.

The quality of management can also be improved by creating more effective personnel policies and practices that, once developed, will benefit all employees in the organization, not just minorities. According to Morrison’s study, many of the programs initially developed for nontraditional managers resulted in improvements that were later successfully applied throughout the organization. For example, ideas such as adding training for mentors, upgrading techniques for developing managers, and improving processes for evaluating employees for promotion—all concepts originally intended to help nontraditional managers—were later adopted for wider use. (See Table 3.1 for more information on the advantages of a diverse workforce.)

At first glance, the advantages of diversity to an organization seem undeniable. In a survey focusing on small- to medium-sized enterprises, however, more managers disagreed that diversity contributes to performance than the number of managers that agreed.¹⁰ These findings, however, do not dispute the overall conclusion that diversity contributes to improved organizational performance. Instead, they seem to indicate that many managers still need to be convinced of the benefits that accrue to an organization through diversity.