More diversity brings increased profitability

Aug 17 2006 by Brian Amble Print This Article

Companies with more racially diverse workforces are often better and more profitable performers than those with a more homogeneous makeup.

A study by Cedric Herring, professor of sociology at the University of Illinois at Chicago, suggests that diversity produces tangible benefits for a business.

Herring's study, "Does Diversity Pay?: Racial Composition of Firms and the Business Case for Diversity," found that businesses with greater racial diversity reported higher sales revenues, more customers, larger market shares, and greater relative profits than those with more homogeneous workforces.

The study, presented at the American Sociological Association annual meeting in Montreal, analysed data from a national sample of firms across the U.S.

"These results suggest that not only is having a diverse workforce a good and socially responsible thing for companies to do, but in addition, organizations that broaden their pool of qualified workers also reap material economic benefits from doing so," Herring said.

He added that racial diversity improved performance even after controlling for such factors as a firm's legal form of organization, gender composition, size, age, type of work and region.

According to his analysis, average sales revenues of organizations with low racial diversity were approximately $3.1 million, compared with $3.9 million for those with medium diversity and $5.7 million for those with high diversity.

Similarly, the average number of customers for businesses with high racial diversity was 45,525, versus 38,254 for firms with medium diversity and 23,415 for companies with low diversity.

Companies with high racial diversity were also more likely to report higher-than-average market share (72 per cent) and profitability (72 per cent), compared to companies with medium diversity (66 per cent and 61 per cent, respectively) and low diversity (54 per cent and 52 per cent).