In the summer of 2021 we wrote an article for HBR titled “How Good Is Your Company at Change?” In it, we proposed a new way for organizations to measure, quantify, and build their ability to change. We called this their “change power,” and we noted that companies with high change power had better financial performance, stronger culture and leadership, and more engaged and inspired employees.
In the years since, amidst ongoing geopolitical and macroeconomic uncertainty, a growing number of companies have been drawn to the idea of systematically building their organizational change power. To help them, we’ve sought to learn more about the underlying drivers of change power, and in doing so we’ve discovered a strong connection to diversity, equity, and inclusion (DEI). Among companies that Glassdoor has given the highest DEI scores, change power is 80% higher than other companies.
To learn more about this fascinating intersection, we looked at how companies with strong change power and DEI developed those capacities, what impact those strengths have had on performance and results, and how DEI and change power can build on each other.
In a detailed study of 79 large companies, we found that every 0.1-point improvement in DEI ratings for a company (on a 5-point scale) was linked to a corresponding 13% increase in the absolute change-power score on average. Our previous research has found change power to be associated with a 2X improvement in EBIT margins, 2X in total shareholder return, and 1.5-3X in revenue growth.
Causality, as always, is difficult to prove, but the relationship here is hard to ignore. Doing DEI well correlates with better change power, which in turn is linked not only to company performance but also leadership and employee engagement. These are all characteristics every executive would like to improve.
To understand how DEI efforts support change power, and how companies might practically benefit from their combination, we started with a bottom-up analysis of DEI’s correlates with each of the nine elements of change power. (For a list and definitions of all nine elements, see our original HBR article.) We found correlation with all nine elements, but in the balance of this article we’ll focus on three that are highly correlated and top of mind for many of the executives we’ve talked to: purpose, which guides decisions and inspires action while creating a sense of belonging (75% correlation); choreography, which helps an organization be more dynamic, adjusting change priorities and sequencing action (70% correlation); and development, which prepares a company for growth and builds both learning and change capability (63% correlation).
Purpose
Because they embrace a variety of perspectives, DEI efforts build inclusion and strengthen an organization’s purpose. Shared commonalities become the principles around which everybody can unify, aligning leaders and helping push forward meaningful organizational change.
Mastercard has done impressive work on this dimension. When the company expanded beyond credit and debit cards into new businesses including digital-payment ecosystems, cybersecurity, and data services, it needed to diversify its talent base as well. At the time of our research, Mastercard had a Glassdoor DEI score of 4.4 out of 5, and a Just Capital score of 114, compared to 56 for its peers. At the same time, the company has proven exceptionally adaptive to change, with a change power score in the 90th percentile.
Like any complex, global enterprise, many things contributed to these results, but Michael Fraccaro, Mastercard’s chief people officer, sees a mutually reinforcing connection between the company’s ability to change and its mission of “doing well by doing good.” Guided by that purpose, which aligns well with DEI, Mastercard has created new products focused on financial inclusion for the unbanked and underserved.
Internally it has devised enlightened, DEI-inspired people policies. With a global workforce of nearly 30,000, Mastercard must be mindful of the specific needs of the many communities its workers represent, says Randall Tucker, the company’s chief inclusion officer. The company tracks and reports to its board on a scorecard of ESG and gender-diversity goals that are linked to executive compensation and annual reviews. One result: Today its female employees are paid as much as men — lamentably, still a rarity in the corporate world. While it’s hard to draw a straight line from any individual DEI effort to a specific impact on change power, it’s clear that a DEI-focus has helped Mastercard thrive in an industry undergoing marked change.
Choreography
Effective choreography helps an organization be more dynamic, adapt in the moment, and sequence its actions. Strength in choreography is an asset of particular value in moments of change, when a company must act on something new or unexpected — as was the case, for example, in the aftermath of the 2020 murder of George Floyd in the United States.
Like many executives, in the days following Floyd’s murder, Adobe’s chief people officer, Gloria Chen, found herself wanting to act in an intentional way that would have real impact on the company’s Black community. As a first step, she and Adobe’s CEO, Shantanu Narayen, met with Black colleagues, to ask what mattered to them and to listen to their stories. What they learned allowed them to choreograph the launch of specific DEI change initiatives focused on hiring and recruiting, growth and advancement, advocacy, community, and data transparency. Today these have become much more than individual projects: They are integral parts of the company’s operations and DNA.
“At any strategic juncture,” Chen says, “we have always chosen the path that was looking towards the future. Sometimes that leads you into places that are uncomfortable, that are uncharted territory. We have always leaned in. When you have done it that much and done it that often, it just becomes a part of who you are and how you approach things.”
Adobe’s numbers on inclusion are impressive. As of the time of our research, the company’s Glassdoor DEI score was 4.5 out of 5, and its Just Capital DEI Score was 114, compared to an industry average of 47. Its DEI-minded decision to seek feedback from diverse perspectives in the aftermath of the Floyd murder helped Adobe take the right steps in the right order, the essence of strong choreography. That strength in choreography contributes to the company’s exceptional change power ranking, 97th percentile by our calculation. “Diversity helps us to question our assumptions and open our minds,” Chen says. “When you are continuously open to new ideas, you are more adept at change. It becomes like a well-developed muscle.”
Development
Companies that are good at change focus on development, particularly talent development. They help their employees build new skills, augmenting their resilience and that of the broader organization. DEI activities support those efforts by ensuring that all talent is developed, meeting employees where they are today, supporting a variety of career pathways, and fairly distributing growth opportunities.
Mastercard has recognized this. That’s why the company includes DEI on the curriculum in its learning academies and focuses in particular on how leaders can provide employees with feedback that enables growth opportunities — something that recent Bain research on inclusion has shown is vital for talent development. This DEI-focused study finds that in fact the impact can go both ways. Based on the study of nearly 10,000 employees in seven countries and 18 intersectional populations, development turned out to be the single most consistent contributor to increased inclusion out of 72 factors tested.
The Path Forward
DEI advocates have long argued that their efforts strengthen innovation and connectivity within organizations. We now understand that these efforts are also powerfully linked to the structural ability of an organization to change.
A lot of investment has been made in recent years in quantifying both DEI metrics and change goals, but many companies remain in the early stages. So what can a company do to really accelerate performance by connecting DEI and change power?
On change, companies can start by taking a simple survey to get a clearer picture of where they stand on changeability, and then begin to develop actionable, specific steps to improve. On DEI, companies can look at their representation in the workforce and leadership, in recruiting and retention, and they can investigate sentiment by community, using measures like employee NPS to understand to what degree people feel included. Wherever you are on DEI maturity, there are actions that you can take.
Once a company begins to understand where it stands, the next step is to put those findings on the next leadership agenda. Discussing where strengths and weaknesses are relative to competitors on both change ability and DEI will surface important insights.
To harness the full value of DEI and change power, executives will need to have a shared ambition and commit to taking concrete action. Many companies today have agile teams working on innovation-related projects they hope can accelerate change in their businesses. In many cases those teams are staffed based on experience and availability alone. Rethink that. Diverse teams provide many benefits. They introduce realistic and constructive friction, mitigate groupthink, and reduce errors. They may sometimes take a little longer to get to the answer, but Bain research has found that diverse and inclusive teams are 5 times more likely to innovate.
Consider the experience of a global logistics company. A few years before the pandemic upended trade as we know it, the company was growing frustrated by the slow pace of its digital and supply-chain transformation. The leadership team decided to reach out to a more diverse and inclusive set of people to see if their fresh perspective and varied experiences could break the log jam, a novel step for this organization. They gathered 50 high-potential mid-level managers from around the world into a conference center in Northern Europe and together hammered out a narrative for change, along with a more effective way to communicate why changes were taking place and how they fit into the company’s purpose. It was an opportunity for development for these leaders that gave them a chance to help shape the company’s future, and a turning point in the project’s overall momentum. Over the next two years as the benefits of this strategy became apparent in the company’s results, the stock price climbed 25%.
How companies measure their changeability and DEI will continue to evolve, but there’s no question that the relationship between the two is important. There’s ample opportunity for companies to begin to act now, and by distinguishing themselves in these two areas to set themselves apart.
Source link: https://hbr.org/2023/05/how-investing-in-dei-helps-companies-become-more-adaptable
