Hershey H. Friedman x.friedman@att.net is a Professor of Business and Marketing, Brooklyn College of the City University of New York. Taiwo Amoo is an Assistant Professor of Business and Quantitative Methods, Brooklyn College of the City University of New York.

             The number of Americans who belong to minority groups in  the United States has grown tremendously during the last decade, and they currently account for 31 percent of the United States' population.  According to the 2000 census (U.S. Census Bureau, 2001), there are approximately 36.4 million African-Americans (12.9 percent of the population), 35.3 million Hispanics (12.5 percent of the population), and 11.9 million Asian-Americans (4.2 percent of the population).  (These numbers include individuals who either report belonging to only one race and/or in combination with another race.) The National Organization on Disability claims that about 54 million Americans have one or more physical or mental disabilities, two-thirds of whom of working age are unemployed. This number will continue to increase as the population ages. There is no question that this diversity will have a great impact on business. Businesses today have to be at the forefront in ensuring that their organizations are multiculturally diverse because diversity is not only morally correct behavior, it also makes good business sense. This article posits that workforce diversity is a critical necessity, especially in today’s knowledge economy.  

             In the corporate world, many firms recognize that an organization’s ability to learn and adapt itself to a rapidly changing business environment is the key to survival and growth. In fact, “organizational learning” has become the mantra of many companies (Argyris and Schoen, 1996; Senge, 1990). What is organizational learning?  Organizational learning has been defined in many ways: Stata (1989) asserts that:  “organizational learning occurs through shared insights, knowledge, and mental models … [and] builds on past knowledge and experience.”  Pedler, Burgoyne, and Boydell (1991) state:  “A learning company is an organization that facilitates the learning of all its members and continually transforms itself.” Garvin (1993) believes that a learning organization is “an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights.”

            What should we find in a learning organization?  The following briefly summarizes what one would expect:  

1. Awareness of the external environment.  Knowing what the competition is doing.

2.  Belief that individuals can change their environment. A learning culture.

3. Shared vision. One that encourages individuals to take risks.

4. Learning from past experience and mistakes — experience is the best teacher. Learning from the experiences of others in the organization. Organizational memory in order to know what worked in the past and what did not.

5. Willingness to experiment and take chances. Tolerance for failure.

6. Double-loop or generative learning.  With double-loop, as opposed to single-loop, learning, assumptions are questioned.  “Double loop learning asks questions not only about objective facts but also about the reasons and motives behind those facts” (Argyris, 1994).

7. Infrastructure allowing the free flow of knowledge, ideas, and information.  Open lines of communication.  Sharing of knowledge, not just information.  Team learning where colleagues respect and trust each other.  An organization where one employee will compensate for another’s weaknesses, as in a successful sports team.

8. Utilization of shared knowledge.  Emphasis on cooperation, not turf.

9. Commitment to lifelong learning. Constant learning and growth.

10. Concern for people: respect for employees.  Diversity is seen as a plus since it allows for new ideas and the empowerment of employees.

           Thus, a learning organization is proficient at generating, transferring, and sharing knowledge.  The ability of a firm to harness the collective knowledge of all of its employees provides it with the skill to renew, regenerate, and revitalize itself.  A learning organization is like a well-functioning sports team: emphasis is on cooperation, and team members utilize each other’s strengths, caring more about the team than individual accomplishments. In a knowledge economy, transforming a company into a learning organization is crucial if it wants to survive, and workforce diversity is a key ingredient of a learning organization.

            We live in an age of knowledge, and firms that succeed are those that are best able to harness the collective knowledge of their employees. The collective knowledge of any group is enhanced by including people with different experiences and backgrounds. The knowledge of a homogeneous group consisting of, say, 100 white males with similar backgrounds reminds one of the remark often made about someone’s so-called vast experience: It is not thirty years of experience; rather, it’s one year of experience, thirty times over. Firms that want to generate ideas need to hire employees from diverse backgrounds. If you do not believe this, consider that the group working on the Manhattan Project consisted of scientists from varied backgrounds and countries — Fermi and Segre from Italy; Szilard, Wigner and Teller from Hungary; Franck, Peierls, and Bethe from Germany; Bohm and Oppenheimer from the United States; Bloch from Switzerland; Chadwick from England, etc. — and they developed the atomic bomb by working together on a common goal.  Howes, Herzenberg, and Weaver (1999) demonstrate that women scientists also made indispensable contributions to the Manhattan Project.

Marketers have discovered that many ideas for new products have come from subcultures. Foods such as tacos, tortillas, pita, salsa, sushi, falafel, borscht, kishka, and ginseng did not originate in mainstream America, but were first popular with various subcultural groups. The same is true of much of the music that has become so widely popular with all, e.g., jazz, reggae, blues, salsa, and rap. Firms need new ideas to thrive and the best way to ensure a steady flow of ideas is to hire employees from many diverse backgrounds. A homogeneous workforce is not likely to come up with creative solutions to the problems faced by a national and world market that is characterized by individuals from many races, nationalities, and religions.

Empathetic marketing is very effective marketing; those firms that hire employees similar to their customers will find that they have become more successful businesses. Their employees will know the special problems faced by their customers and will be able to come up with ideas for new products that best satisfy women, minorities, and the disabled. The ethnic market in the United States is not small. Hispanics alone will spend about $1 trillion a year by 2010.

           Richard Hole, a disabled inventor, has come up with many new products (revolutionary lightweight tents, specially-designed backpacks, thermal suits that fit in one’s pocket) to make it easier for disabled and able-bodied individuals to go backpacking, camping, and hiking. Obviously, one who is disabled is more attuned to the problems that other handicapped individuals face when trying to continue with hobbies they enjoyed in the past. Bessie Blount, an African-American physical therapist, was not disabled, but she worked with seriously injured soldiers and invented a device that enabled amputees to feed themselves. 

          Madame Walker, the first African-American woman to become a millionaire, invented several cosmetics that were popular with African-Americans. Marjorie Joyner, one of her employees, invented a wave machine to make longer-lasting wavy hair that was popular, not only with black women, but white women as well. Products such as bras (invented by Mary Phelps Jacob), Barbie dolls (Ruth Handler), disposable diapers (Marion Donovan), dishwasher (Josephine Cochran), vacuum-packed canning (Amanda Theodosia Jones), Scotchgard (Patsy Sherman), White-Out (Bette Nesmith Graham), the “Self-Cleaning House” (Frances Gabe), and the zig-zag stitch sewing machine (Helen A. Blanchard) are just a few of the products invented by women.

            Florida and Gates (2001) demonstrated the importance of diversity to high-technology growth. They studied the diversity of 50 metropolitan areas and the success of these areas in high-technology growth.  Areas were ranked in regard to high-technology using an index developed by the Milken Institute, called the “Tech-Pole.” High scorers on the Milken Tech-Pole rankings were: San Francisco, Boston, Seattle, Washington D.C., Dallas, and Los Angeles. Areas were also ranked on a Gay Index, Bohemian Index, Foreign-Born Index, and Composite Diversity (which considered proportion of gays, bohemians, and foreign-born residents) Index.  Areas that scored high on the composite diversity rankings were: Los Angeles, San Francisco, Washington D.C., New York, Seattle, and Boston. Florida and Gates found the following factors to be correlated with high-technology success: (1)  having a large gay population; (2)  having a large proportion of bohemian types (artists, musicians, writers, actors, etc.); (3) having a large population of foreign-born individuals; and  (4) overall diversity. The authors conclude that “people in technology businesses are drawn to places known for diversity of thought and open-mindedness.” 

            Several studies demonstrate that the standard of living and life expectancy in a country improve significantly as women enter the labor force and are treated the same as men (Crossette, 2001). Suppressing the rights of women and keeping them uneducated and out of the labor force is a sure way of ensuring that a country will remain impoverished. Schwartz (2001) attributes the poverty of many Muslim countries in their failure to “invest at all in the human capital of half the population — that is, women.” Lewis (2002) also believes that the severe restrictions on women in Islamic countries contributed to tremendous difference in the economic success of  the Islamic world and the West. The U.S. Joint Economic Committee has calculated the loss of GDP in the United States due to racial discrimination to be about 4 percent each year. 

The same is probably true of firms that engage in discrimination. In fact, a recent study demonstrated that firms with senior leader teams consisting of multicultural and female members had significantly higher growth rates than firms with teams consisting only of white males.  The incremental sales growth of companies with multicultural teams was 8 percent higher ( 21percent vs. 13 percent) than companies utilizing teams consisting only of white males (Weaver, 2001).

              These findings strongly suggest that firms that seek to employ personnel with specialized abilities should ensure that their organizations are open-minded and tolerant of all groups. Diversity and tolerance are not only about morality: They are a way of ensuring that firms attract the most talented individuals. Moreover, firms that desire to grow by attracting customers from the country’s numerous ethnic groups should hire individuals from these ethnic groups. For instance, firms that hire a significant number of Chinese-American accountants should find it significantly easier to attract Chinese clients than firms that do not employ any Asian-Americans. Executives with disabilities may prefer to do business with firms that hire the disabled. 

             Diversity will also help firms when they compete in foreign markets. For instance, what a firm learns about marketing to Hispanics in the United States will be helpful if it decides to expand its business into Latin America. Some of the huge markets that are opening up to the United States are in China and India. These two countries have a combined population of over 2 billion people. Hire Chinese-American and Indian-American employees and you may very well have an advantage if you decide to do business in these two countries. Clearly, firms that do not practice workforce diversity will find themselves at a big disadvantage when competing globally.

            Organizations have to be concerned with their image, i.e., what the public thinks of it and the kind of feelings evoked when its name is mentioned. Think of the images of Ben & Jerry’s, Dell, and Federal Express. What kind of feelings are evoked when you think of these companies? That is their image. Firms will spend a great deal of money on public relations to create a positive image for themselves and their products. A favorable image helps a firm attract investors, customers, and employees. Being known as a firm that values diversity can do wonders for a company’s image. 

            Companies that are sued for discrimination generate a great deal of negative publicity for themselves.  Texaco’s image was severely tarnished when The New York Times ran a front-page story quoting a recording of executives that was derogatory to black employees; the company settled eleven days later. As part of the settlement, the firm agreed to pay $115 million to black employees and to do penance. This penance involved establishing an “Equality and Tolerance Task Force” and to implement a cultural transformation of Texaco (Rosin, 1998). 

            Denny’s is another firm that transformed itself after a great deal of adverse publicity. During the early 1990’s the restaurant chain was sued by various African-Americans for racism -- the chain was accused of denying service to individuals because they were black. The media featured numerous stories describing the discriminatory practices of Denny’s. Today Denny’s is considered one of the best companies for minorities.  Despite this, Denny’s CEO, Jim Adamson (2000), recently stated:

“I believe that Denny’s image will take years to clean up...I don’t know if we’ll ever get beyond the stain, but we are truly are a company that is totally inclusive and can stand tall on the issue of diversity.” (Race Relations Newsletter)

            Firms that want to ensure an adequate supply of labor have to wake up to the fact that over the next two decades, women and minorities will account for almost all of the growth in the labor force. This means that firms that want to survive had better plan on recruiting more minorities. It is well known that people are more comfortable hiring others that are similar to them. This means that it is considerably easier to hire women and minorities once you already have a significant number of them working in your firm. Furthermore, women and minority employees prefer working in firms that are committed to corporate diversity. Incidentally, it is a good idea to make sure that the Human Resource Department in a company is itself diverse if a firm wants to attract anyone other than just white males.

            There is another practical reason for diversity. Firms that employ very few women and nonwhites will find themselves extremely vulnerable in the case of a discrimination or sexual harassment suit.  Imagine a firm in which almost all the employees are male. First of all, this is the kind of business environment in which sexual harassment is quite likely. Secondly, if a woman does sue for harassment, the first question that will be asked is why the firm has done such a poor job with diversity. The fact that there are so few women employed in the firm might be seen as evidence that the firm is not interested in the rights of women.

Indeed, in the current discrimination case against Microsoft, one piece of evidence being presented by the plaintiff is that only 83 of its 5,000 managers are black, and there are only 500 blacks in a workforce of between 21,000 and 25,000. It should be noted that the possibility of being sued for discrimination is not that remote. In the United States, approximately 24,000 workplace discrimination lawsuits are filed every year in federal court and many more in state courts. The average award for compensatory damages is over $250,000. Some recent U.S. Supreme Court decisions (e.g., Beth Ann Faragher v. City of Boca Raton and Burlington Industries, Inc. v. Ellerth) make it clear that employers that wish to defend themselves against a discrimination lawsuit had better be able to demonstrate that they made a serious attempt to create a friendly, non-hostile environment for women and minorities.

            There is one problem with diversity that should be noted. Tsui, Egan, and O’Reilly (1992) found that diversity can reduce the cohesiveness of the group and result in increased employee turnover. It seems that males working in homogeneous environments were more attached to coworkers and to their jobs. As heterogeneity increased, however, absenteeism and turnover increased among males. Interestingly, they found that this negative reaction to diversity  existed among white males, not women or minorities. This problem can be solved by changing the culture of the organization so that employees understand the value and importance of diversity and of focusing on the goals of the organization rather than individual needs (Chatman et al., 1998).

            It is extremely important for firms to understand that workforce diversity works.  It helps create a work environment in which female and minority employees and customers feel welcome.  The demographics of America are rapidly changing, and workforce diversity is vital for firms that desire to thrive in the future.  Discrimination is costly not only on the individual level, but also on the corporate level and even on a national level.  

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Chatman, Jennifer A., J. T. Polzer, S. G. Barsade, and M. A. Neale (1998). “Being Different Yet Feeling Similar: The Influence of Demographic Composition and Organizational Culture on Work Processes and Outcomes.”  Administrative Science Quarterly, vol. 43, 749-780.

"Chatting with Jim Adamson: Denny's CEO discusses battling back from a racist corporate culture." Interview March 21, 2000. Race Relations Newsletter http://racerelations.about.com/library/weekly/aa032700a.htm (January 2002).

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Tsui, Anne S., T. D. Egan, and C. A. O’Reilly III (1992). “Being Different:  Relational Demography and Organizational Attachment.”  Administrative Science Quarterly, vol. 37, 549 – 579.

U.S. Census Bureau (2001).  USA Statistics in Brief--1990 and 2000 Census Race and Hispanic Data. < http://www.census.gov/statab/www/part1a.html > U.S. Census Bureau, Administrative and Customer Services Division, Statistical Compendia Branch.  Last Revised: April 25 2001.  (January 2002)

Weaver, Vanessa J. (2001).  “What These CEOs and Their Companies Know About Diversity.” Business Week, September 10, 2001, Special Section.

B>Quest 

(Business Quest) 

A journal of applied topics in business and economics