With all the press we read about diversity, inclusion, women in leadership, and the need to be open-minded about religious and cultural differences, one might ask “Is 2016 going to be the year of diversity in business?” Yes, I believe so: this topic has been raised in the public eye, and a broad range of research1 indicates that inclusive and diverse businesses outperform their peers by a significant margin. If you aren’t taking this topic seriously, you should be.
We just completed a two-year research study (our 2015 High-Impact Talent Management research) and the results are profound: among more than 128 different practices we studied, the talent practices that correlate with the highest performing companies are what we call building an “Inclusive Talent System.” And we can now describe in detail precisely what this entails.
Companies that embrace and integrate inclusion into all aspects of their business statistically outperform their peers.
Our process analyzed these companies’ investment and maturity in a total of 128 areas of talent management. These include practices like how well companies assess candidates for job and culture fit, how fair their performance management practices are, their culture of learning, and much more. (You can get more details on the methodology here.)
We then looked at the business performance of these 450+ companies (financial and talent outcomes, including cash flow, profitability, innovation, and growth), and correlated the talent practices against performance. We carefully eliminated dependent variables (dimensions that are correlated with each other) to understand what truly characterizes the highest-performing companies.
Our analysis found 31 distinct talent practices that are highly correlated with strong business performance. We grouped these into nine categories and rank ordered them based on impact.
As part of this work we also used the data to group companies into four levels of maturity, and labelled the four levels based on the key practices that emerge at each level. The data show that only about 10 percent of the companies we studied are truly exceptional talent organizations—with the bulk of companies focused on talent management for operational growth, essential HR needs, and ongoing performance support. The top two groups, Levels 3 and 4, are the exceptional companies and, as the labels show, these are companies that look at leadership and inclusion as a hallmark of their talent strategy.
Business Impact of the High Performers
In short, these level 3 and level 4 companies are not just “better at HR”—they are higher-performing companies measured by business, financial, and talent outcomes.
The Learning: What this research tells us
The message is clear to me: in today’s fast-moving global business environment, companies that build a truly inclusive culture (and that means hiring, promotion, leadership, compensation, and a value system that supports inclusion everywhere) are companies that outperform their peers.
What this means to you
First, recognize that a focus on building an inclusive work environment (and embedding diversity and inclusion into hiring, leadership assessment, development, and performance management) does create a higher performing, more innovative company. Today the entire workforce is highly diverse, and these larger global companies do business in many countries with many cultures. When they embrace and force leaders to build an inclusive environment, they outperform.
I recently finished a two-week trip through Asia (Hong Kong, China, and India), and in all of the 30+ meetings I attended, we discussed how important it is for companies to build a culture that is both globally consistent and locally relevant.
Why is inclusion such a powerful tool? Quite simply because it engages people and gives them a feeling of “belonging” to the organization—freeing them to push themselves harder, innovate, take direction well, and continuously improve.
Second, a focus on inclusive work practices in performance management and transparency in career discussions, leadership, and succession management is key. Today the traditional performance management process is under attack. More than two-thirds of the companies we surveyed in the Deloitte Global Human Capital Trends 2015 research told us they are redesigning their performance management process.
The companies we surveyed and interviewed for this study have specific practices (unconscious bias training, analytics tools and scorecards, diversity metrics) to make sure that managers and executives are not promoting or out-rewarding people in an unfair way. We actually studied the issue of “fairness” in the study, and if you read the detailed results, you’ll see how wide the variation is among companies. Only 35 percent of level 1 companies, for example, believe their performance evaluation process is truly “fair” while 94 percent of level 4 companies feel that way. This is a huge variation, and of course it has an enormous impact on people’s energy, enthusiasm, engagement, and performance at work.
So as you redesign or rethink how you measure and reward people, take the time to build in tools and training to remove bias, measure diversity openly, and make sure everyone is evaluated based on performance and results, not position or status. I believe today’s trend to redesign performance management gives us a once-in-a-decade opportunity to remove bias and make the process more transparent, data driven, and fair.
Third, The level 4 companies also pride themselves on open, transparent communications about succession, leadership potential, and career growth. As I describe in my previous post, “Feedback is the killer app” these companies are both “good listeners” and “open communicators”—able to talk about who and why people are put on a “fast track.” This openness, which we highlight in our High-Impact Succession Management research, shows that only when you tell people where they are can they internalize their performance, ask for coaching, and continuously improve. And this openness in itself drives inclusion and diversity conversations to improve.
I won’t say more here; a subset of our benchmark data is available here, we have a webinar coming up on this research, and we will be highlighting much more in the coming year. But the message is very clear: diversity and inclusion is now a business strategy, not an HR program—and it must be embedded into the organization through culture, programs, measures, and stories.
It is a topic all CEOs and business leaders should take seriously, and we should all learn how to understand and reduce our own unconscious bias. Take time to talk about diversity and inclusion and put it high on your agenda for 2016.
An expanded version of this post first appeared on LinkedIn.