Does Diversity Pay? Race, Gender, and the Business Case for Diversity

In one of only a few studies to empirically examine the implications of organizational diversity, sociologist Cedric Herring found that a workforce comprised of employees of both genders and varying racial backgrounds resulted in positive business outcomes.

"Although previous research on diversity in the workforce has suggested diversity's negative impact on group dynamics and communication, this study makes the case for diversity in clear financial terms," said Herring, the interim head of the sociology department at the University of Illinois at Chicago and a professor of sociology and public policy at the University of Illinois' Institute of Government and Public Affairs.

Herring found that companies reporting the highest levels of racial diversity brought in nearly 15 times more sales revenue on average than those with the lowest levels of racial diversity. Gender diversity accounted for a difference of $599.1 million in average sales revenue: organizations with the lowest rates of gender diversity had average sales revenues of $45.2 million, compared with averages of $644.3 million for businesses with the most gender diversity.

For every percentage increase in the rate of racial or gender diversity up to the rate represented in the relevant population, there was an increase in sales revenues of approximately 9 and 3 percent, respectively. Herring found racial diversity to be a better determinant of sales revenue and customer numbers than company size, the company's age and the number of employees at any given work location.

Companies with a more diverse workforce consistently reported higher customer numbers than those organizations with less diversity among staff. In terms of racial diversity, companies with the highest rates reported an average of 35,000 customers compared to 22,700 average customers among those companies with the lowest rates of racial diversity. The difference is even larger for gender diversity rates. That is, companies with the highest levels of gender diversity reported an average of 15,000 more customers than organizations with the lowest levels of gender diversity. Herring also found that the smallest incremental increase in levels of racial or gender diversity resulted in more than 400 and 200 additional customers, respectively.

Although a corporate workforce's gender composition did not have a significant impact on a company's relative market share, Herring found that racial diversity was among the most important predictors of a company's competitive positioning relative to other firms in its industry.

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