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Financial performance

Diversity has the potential to yield innumerable benefits to organizations. First and foremost, Ollapally and Bhatnagar (2009) have asserted that organizations with a diversified workforce are typically endowed with multiple perspectives since the employees in such an organization have diverse backgrounds which give them different ways of looking at the same thing. As a result, an organization with a highly diversified workforce is associated with higher levels of creativity and innovation than one whose workforce is not diversified (Ollapally and Bhatnagar, 2009).

Secondly, diversity within organizations has been said to lead to lower costs for organizations. The reasoning behind this argument is that when an organization adheres to best practices in as far as diversity is concerned, it will not have to pay huge costs associated with diversity-related lawsuits. In addition, organizations with diverse workforces are associated with higher levels of productivity and employee motivation.

Highly satisfied employees have lower turnover and absenteeism, as well as lower training and recruitment costs; which necessarily leads to a lower cost structure for the organization (Ollapally and Bhatnagar, 2009). According to Ollapally and Bhatnagar (2009), organizations which are poor at managing diversity are also faced with a host of issues, which include the formation of

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in-groups and out-groups at the workplace, as well as the tendency by employees from the dominant group to stereotype those from the subordinate groups.

The net effect of these is impaired communication and lower levels of creativity in the organization. Additionally, employees who bear the brunt of the discrimination arising from their association with the subordinate groups also suffer from workplace stress whose inevitable outcome is poor psychological and physical health. According to a study carried out by Korn-Ferry International, US-based firms lose an estimated $64 billion annually due to employee turnover caused by poor diversity management (Gilgoff, 2009).

Ollapally and Bhatnagar (2009) have also asserted that firms which are very good at managing diversity generally find it easier to attract potential employees during the recruitment process than those firms which are poor at handling diversity issues. Since business organizations that have a diversified workforce draw their employees from many diverse backgrounds, it has also been argued that they are better at understanding the needs of diversified markets than those which are poor at diversity management.

For example, a firm with employees drawn from ethnic minority groups will be better to understand the needs of such market segments better than one whose employees are primarily drawn from the dominant group. This has positive implications for the profitability of the organization (Ollapally and Bhatnagar, 2009). A number of other researchers have also authoritatively established that firms with proper diversity management practices are more creative and innovative, have lower costs arising from lower staff turnover, are more flexible in adapting to changes in the firm’s external environment, and enjoy higher rates of productivity.

These researchers include: Cox and Blake (1991) and DeMuse, Todd, Claire and O’Neil (2007). Richard and Shelor (2002) have carried out a research study which sought to establish the causal link between diversity and sales. Their study finds that there is a positive and significant relationship between high diversity and increased sales. Robinson and Dechant (1997) establish a positive relationship between high diversity and a firm’s financial performance, while Ollapally and Bhatnagar (2009) establish a positive relationship between high diversity and efficiency, as well as positive causal link between high diversity and brand image.

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