Thursday 9th April 2020
To those of you who are already converts to the leadership excellence philosophy that inclusive culture enhances performance, I salute you. To those of you who are not, if there is nothing else you take from this blog, then remember this… The most-diverse businesses are also the most innovative and profitable, and if you need me to outline the business case, here’s a single sentence that I hope helps to change your mind.
‘Companies with above-average total diversity have on average both 19% higher innovation revenues and 9% higher EBIT margins’
(EBIT - Earnings Before Interest and Taxes)
Now we are clearly in unprecedented times, and in this blog, I want to explore the importance of inclusive culture in a crisis (or pandemic).
This period of (almost) global isolation is unprecedented and it’s impacting businesses in different ways, which is largely driven by the sectors that they operate in. We are seeing examples of some sectors and organisations flourishing and expanding at a huge rate, while others are having to adapt to survive (My colleague Ben Runcorn wrote a blog earlier this week about how "It’s the end of the WORKPLACE as we know it").
Some organisations (big and small, mainstream and niche) in sectors like technology and health & hygiene are seeing significant growth:
Microsoft has reported a 775% increase in Teams’ calling and meeting monthly users in a one-month period
PhoneSoap, a company that makes devices to clean phones and other items with UV light, grew more than 1,000% year on year in just a week back in March
However, in other areas the story isn’t quite so positive (to say the least), and many organisations are being directly affected by the lockdowns in place around the world, with their hard-working teams and shareholders being impacted.
For those businesses hit hard by the Coronavirus (whether that is due to inability to operate, or even those experiencing a huge surge in workload/ demand) the natural reaction in these difficult times can be to re-establish your business goals and priorities, focusing on future planning and forecasting, whilst limiting and reducing those functions and employees which at first glance may be considered ‘non-essential’. In the UK, the government’s support package to help businesses has in some cases slowed the need for this type of instinctive reaction, but many leaders and entrepreneurs have a naturally hardwired to cut lean in times of crisis and to revert to their survival instincts. Instinctive leaders are likely to adopt a command and control leadership style to take what steps they ‘feel’ are necessary to steer their ship to safety during the storm. This is why around one in four employers are expected to make redundancies as a result of coronavirus, despite the government support available. Employers should clearly only do this as a last result and need to be mindful that those made redundant can still bring tribunal claims if these situations are not handled properly.
I have spoken to numerous people within my wider network over the last couple of weeks to see how this evolving pandemic is affecting them both personally and professionally. Many of my professional network are in leadership roles and/ or work in and around HR, with lots of their roles particularly centred around culture and diversity & inclusion. From these conversations, it seems that there is much uncertainty in many businesses at the minute, and many I have spoken with have shared a similar story that the messages coming from their organisations are along the lines of…
“At this point culture isn’t that important”
“We’re putting D&I on the back burner”
“We’re going to worry about our culture further down the line”
“D&I just isn’t a priority right now”
I think these comments are deeply concerning. Many of these organisations (some of which I have worked with, some of which I haven’t) have spent years developing an inclusive culture, and now they are going to be pressing the pause button at the very moment where culture, inclusion and ensuring that employees have the sense of belonging we all crave is most vital.
At this point I think it’s worth reminding ourselves of those 18 words that I outlined and asked you to remember at the beginning of this blog:
‘Companies with above-average total diversity have on average both 19% higher innovation revenues and 9% higher EBIT margins’
So consider this: How many staff would need to be furloughed or let go, or how many shops or branches would need to close, or what volume of new sectors would need to be marketed to in order to find a comparable impact and return on EBIT? Additionally, diversity, inclusion and culture are critical to organisations’ ability to innovate to overcome their challenges. So, at this moment in time, I believe that the culture of organisations is most critical and should not be neglected.
"If you don't move forward-you begin to move backward"
- Mikhail Gorbachev,
Leader of the Soviet Union from 1985 until its dissolution in 1991, speaking to world leaders at Harvard University
“If you’re not changing forwards, you’re changing backwards because we are always changing.”
- Richie Norton,
Award-winning, bestselling author, and one of the world’s top 100 business coaches
“Often the greatest progress happens in the most difficult of times.”
- Jeanette Coron,
Author of Destined for Greatness and Don't Judge a Book by Its Cover
Culture is a key area where organisations should be focusing their efforts and investing time and resources in, rather than withdrawing from, to ensure that they not only get through this crisis, but they have a sustainable business and engaged workforce on the other side. Organisations need to continue to invest in their culture, ensuring that it is inclusive and reflected in management and leadership teams who demonstrate authentic inclusive leadership. They must also support the wellbeing of all of their team members, particularly those with disabilities, mental health challenges, and caring responsibilities. By doing this organisations will be able to embed an even more robust sense of belonging amongst its employees which will support with the speed of recovery.
It is great to see the positive examples of leadership excellence and inclusive culture in play around the world, with so many organisations doing what they can to not only support their employees, but wider society too. However, in contrast, the leadership styles of the likes of Mike Ashley, and his approach at both SportsDirect.com and Newcastle United Football Club, and Tim Martin (Chairman) & John Hutson (CEO) of Wetherspoons, have had a significant impact on their brands’ reputations in recent weeks. The effects of which will be seen will only be seen when customers have the opportunity to ‘vote with their feet’ when businesses return to some form of normality. Despite this being an already challenging time, organisations can add further obstacles to their road to recovery through their actions and decision making, which can lead to potentially permanent and devastating damage to their cultures and brands.
The way that employees are treated and managed during this time will have a lasting impact on loyalty, engagement and retention, and people have long memories.
Treat employees well, and they may commit their long-term future to you
Treat them poorly, and they will be looking for a life raft to jump ship as soon as they can
The Impact of Neglecting Culture - Retention
So, for example, let’s say that 10 team members decide to leave an organisation when business returns to normal, as they have felt undervalued and isolated as a result of their treatment
Managers may be unaware of how to manage their teams remotely, or how to maintain momentum, structure and be custodians to support with mental health and wellbeing
Leaders may ‘demand’ output at levels which are unachievable, without consideration the employees are having to adapt to working in different environments, and may have caring responsibilities to juggle
There may be a command and control management style used, with no interaction, warmth or flexibility
These 10 employees would then need to be replaced, and the post-Coronavirus job market will be very different to anything that any of us have experienced before, with almost a million UK jobs expected to be lost despite the government’s wage subsidy scheme. This means that there could be a likely scenario where there will be a short-term abundance of candidates, and as a result the number of applications for each vacancy will most probably reach new highs. So, finding the right candidate will be like finding a needle in a haystack.
While recruiting from an overflowing pool of talent is just one of the challenges that organisations may face in replacing leavers, there are a number of wider impacts that poor retention has which will all add up to a significant financial impact on the organisation.
Lower organisational morale
Lower organisational engagement
Lower organisational performance
Loss of organisational knowledge
Additional training for new employees
Lower productivity from new starters as they learn their role – on average employees take 28 weeks (7 months) to reach optimum productivity
Customers, suppliers and other staff members will have a period of readjustment
PayScale reported, the cost of replacing an employee is somewhere between 90% and 200% of their annual salary (Society for Human Resource Management). So for the 10 leavers in our example, if they were paid at an average UK salary of £30,000 per year, the potential cost of replacing them could be between £270,000 (90% of salary per employee) and £600,000 (200% of salary per employee). This obviously rises significantly for higher paid employees.
One of the key reasons cited for postponing the focus on culture and diversity & inclusion is the cost. If organisations invested just a small amount of time and effort to embed inclusive cultures, behaviours, mechanisms and training, for a fraction of the cost of replacing employee, then they would be in a far better position to recover much more quickly when things return to business as usual, after all, prevention is better that cure.
The Return on Inclusion
The frightening thing here is that there are over 100 other touch points which could be applied to measure the financial impact that culture has on human capital, and these can establish the return on investment of investing in inclusion, what we call the Return on Inclusion (ROI). Each of these touchpoints have a direct impact on working capital and in turn EBIT, and we have outlined just one simplistic illustration around retention above. If we were to add in and combine other areas such as a constructive dismissal claim from a staff member, or a discrimination claim from an employee with a protected characteristic, then we would start to see how the cost can quickly spiral.
Support Available
To support organisations during this challenging time, we have produced a range of infographics which we are sharing on Twitter @EAInclusion, like managing remote reams during this crisis, and how to maximise the wellbeing of your teams, all of which outline small steps you can take to build/ maintain an inclusive culture. There are also a wide range of resources providing advice and guidance available online which are widely available.
Perhaps the most effective resources to support your business to embed an inclusive culture during this time are the cultural, behavioural, inclusion experts already within your own businesses, who can focus on this topic during this time and protect your business, whilst growing the impact for the future. Therefore, by not letting your inclusion, diversity, culture and behavioural teams leave your business, either through furlough, or dare I say it redundancy (which should be an absolute last resort), you can utilise them to increase your ROI and protect your brand, profit, team members and future.
Get in Touch
For more information about how we evidence the Return on Inclusion, and how you can maximise human capital impact at this time, please get in touch, we will happily explore these with you. Our ROI tool has supported many global organisations to evidence their EBIT return and put strategies in place to improve this through embedding inclusive cultures.
- Craig Richards, Managing Director at EA Inclusion