The Business Case for Cultural Diversity

Managing cultural diversity can be a tricky business for companies. With increasing globalisation and often workers carrying out their jobs remotely, this has led to many challenges for business.

In the early 90’s many academics and people in business recognised that the trend of globalisation was leading to a much more ethnically and culturally diverse workforce. This meant that managers had to increasingly pay more attention to this ethnic and cultural diversity. In doing this it would to enable them to enhance their organisational effectiveness.

Many companies who failed to act on this struggled to compete and lost their way.

Many of us are resistant to change as we are comfortable with what we know. However, having the courage to make changes and also to make them quickly will keep you in business.

It is now widely recognised that being able to manage cultural diversity gives you a competitive advantage. Some who embraced it; such as PepsiCo attributed 1% of its’ 7.4% revenue growth in 2003 or in other words around $250 million to their efforts in effectively managing cultural diversity.

Much of their increase in revenue was down to tapping in to the unique insights of their diverse workforce. Products such as ‘Doritos’ and ‘Gatorade Extreme’ were inspired by their workforce and initially targeted to minority groups before being sold globally.

Speaking in 2003, Steve Reinemund – Chairman and CEO PepsiCo stated, “I believe that companies that figure out the diversity challenge first will clearly have a competitive advantage,..” Since then PepsiCo have gone from strength to strength continuing to embrace cultural diversity.

In depth research gives 6 main arguments demonstrating that effectively managing and embracing cultural diversity gives a competitive advantage:

Cost Argument – As companies become more diverse, the cost of a poor job in integrating workers increases. Those who handle this well will save potentially thousands compared to those who don’t.

Resource Acquisition – Companies who develop the best reputations for managing diversity will be seen as good prospective employers by e.g. women and ethnic minorities. This will mean they win the competition for the best personnel.

Marketing – The insight and cultural sensitivity that members with roots in other countries or cultures bring to the marketing effort gives a competitive advantage when marketing to minority groups.

Creativity – Diversity of perspectives and less looking back at what has gone before enhances creativity.

Problem Solving – A wider range of perspectives and more thorough critical analysis of issues ensures better decision and solutions to problems.

System Flexibility – A model for managing cultural diversity is a system which is often less standardised, and more fluid. Increased fluidity creates greater flexibility to react to the ever changing business environment. Faster reactions = less cost.

The business case for managing cultural diversity is crystal clear and companies should ignore this at their peril.