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6 ways diversity and inclusion impact the cost and effectiveness of recruiting

March 25, 2020
Diversity & Inclusion

Much of the effort and budget spent on diversity and inclusion are focused on increasing the diversity of new hires through improved recruiting practices.

I have previously suggested that companies should consider how their levels of diversity and inclusion impact all key aspects of their business – not just recruiting, but also retention, operations and sales. In fact, focusing only on hiring for diversity without considering inclusion can lead to negative consequences.

But regardless of whether a company wants to diversify their talent because they believe in the value of being diverse and inclusive, or simply for compliance reasons or for appearances, there is an obvious economic advantage in hiring from a more diverse talent pool: increasing the supply of candidates lowers hiring costs, especially when there is strong competition for talent. In addition, unless you believe that white men are intrinsically superior (in which case I highly recommend you read Dr. Chamorro Premuzic’s recent book and my recent article that disproves this notion), tapping a broader talent pool means that you have more qualified candidates to choose from, and thus, especially for large firms that do a lot of hiring, the average quality of your talent will be higher.

Companies often complain that one of the reasons for the lackluster increase in diversity is the “pipeline problem,” i.e., the difficulty of finding sufficient talent from diverse backgrounds, especially for certain highly skilled positions. As an example, a recent study by the U.S. House Committee on Financial Services asked the country’s largest banks to identify challenges they faced in implementing diversity goals and initiatives. At the top of the list, “banks provided responses indicating a belief that they are competing for the same small pool of diverse talent because of the lack of candidates with STEM educational background and experience.”

I believe that the pipeline problem is greatly exaggerated, and that it is largely an artifact of the way companies go about recruiting talent, combined with a lack of understanding of how a company’s current levels of diversity and inclusion hamper its efforts to recruit talent. To explain my viewpoint, let’s break down the process of hiring a talented candidate into a series of stages, and try to understand how our actions influence the likelihood that candidates from diverse backgrounds can make it across each stage.

In order to be hired by a company, a candidate has to go through six stages. First, they have to be aware that the company even exists. Second they have to believe that the company is relevant to their skills and career aspirations. Third, they have to feel that the company could be a good fit for them in personal terms. Having crossed these three stages, a candidate will apply and come to the fourth stage, which is getting invited for an interview. The fifth stage is getting an offer, and the sixth and final stage is accepting the offer.

In the context of supply and demand, the figure at the top of this article shows how, with each successive stage, the available talent pool shrinks. Specifically, if you think of the largest grey rectangle as being the pool of every candidate who would make a successful employee if they were hired, then with each stage the candidate pool gets smaller by excluding those candidates who did not make it across the stage.

Now let’s try to understand how a company’s existing levels of diversity and inclusion can affect each of these stages, or, put another way, how a company’s failure to be inclusive in its recruiting practices might reject candidates that would have been successful employees. In this blog I will focus on identifying the problems with each stage. In future blogs I will focus on each of these stages and provide additional details, suggestions, and pointers to resources that can help.

Stage 1: Awareness
The first stage has to do with where you look for talent. If, for example, you only recruit from ivy league schools, whose representation is highly skewed toward white males, you are neglecting large segments of the population who will not be aware that you are hiring. But even if you understand why recruiting from top schools is a terrible idea, if the majority of your recruiting team is composed of straight, fully abled, white people, you will simply not know where to look for talent from diverse backgrounds. You should also know that sometimes the channels through which you advertise jobs can be significantly skewed in terms of the population segments they reach – again, something that a privileged, majority individual is less likely to know. This is a classical example of the rich getting richer: more diverse companies will naturally have access to more diverse networks.

Stage 2: Perception
Put yourself in the shoes of a candidate looking for a job, who has just become aware that your company is hiring. Before they will consider applying, they will form a perception about whether your company could be a good fit for them. Their perception will be shaped by the language you use to describe the position and by the way your marketing materials describe your company. If your job posting talks about a competitive environment or boasts about having free beer and foosball tables, chances are that some highly qualified women and older employees will be turned off. If your website shows a leadership team that is all white and mostly male, some highly talented Black women will choose not to apply. If your website is not accessible to individuals with low vision, people with disabilities will be turned off. Once again, diversity begets even greater diversity.

Stage 3: Reputation
In this day and age, the way you present yourself to potential candidates is only one part of the story; how you actually treat your employees is even more important. Your employees will share their experiences through websites like Glassdoor and Dipper. In fact, in choosing where to apply, most candidates will place significantly more value on your reputation than on what your marketing materials say. This can cut both ways: on one hand, even if your website touts high levels of diversity, you will shrink your talent pool if employee reviews show that, e.g., people of color and members of the LGBTQ community feel excluded. Conversely, even if your company is fairly homogeneous, candidates from diverse backgrounds will be more likely to apply if they hear from existing employees that you genuinely embrace a culture of inclusion. Hence inclusion can improve your ability to hire from a diverse talent pool.

Stage 4: Unconscious bias
The notion of unconscious bias has become widespread in the context of diversity and inclusion. However, some companies don’t realize that unconscious bias has a huge, negative impact on the initial screening of job candidates. Several studies have shown that simply changing the gender of the name on a resume will dramatically reduce the likelihood of a candidate being invited to an interview. Similar biases have also been observed in comparing white-sounding and African-American-sounding names, and even in comparing Anglo names and Asian names. Being aware of these biases, adopting measures such as blind resume reviews and having a more diverse team reviewing resumes can all help to reduce this form of bias and save you from shrinking the candidate pool even further.

Stage 5: Pattern matching
Even if a candidate’s resume has made it through the initial screening, there are many ways in which biases in your interview process can further shrink your candidate pool. In many cases, companies rely on qualitative, subjective interviews, which are known to be highly ineffective and highly biased along many dimensions of diversity. People naturally tend to do a sort of pattern-matching, assuming that if they were successful, then someone who looks like them or went to the same school will be more likely to succeed. More generally, people have a natural tendency to have preferences for candidates who are similar to themselves, a phenomenon know as affinity bias. In all cases, having a more diverse workforce – or at least being aware of the existence of these biases – can dramatically increase your ability to recruit talent from diverse backgrounds.

Stage 6: Compensation
Let’s say that one of your excellent candidates has managed to cross the first five stages, and you are ready to make them an offer. It is imperative that you base your offer on the value you attach to that position, rather than tailoring it to each individual. Studies have shown that both gender biases and racial biases can influence initial salaries, which is one of the factors contributing to the significant wage gaps that exist between white men and other demographic groups. One of the most harmful practices in determining the salary offered to a new employee is to ask about salary history, a practice that is illegal in many States and municipalities because it perpetuates inequities. Ultimately, if you offer a candidate from a diverse background a lower salary, you increase the chances that they will reject your offer, especially given that many tools exist to help candidates estimate the fairness of your offer. In this context, too, greater diversity in your hiring managers and a culture of inclusion can keep you from biasing your offers.

Putting it all together: the compounding effects of diversity and inclusion
In some ways, hiring a candidate is similar to selling a product: you have a funnel with multiple stages, your conversion rate at each stage is influenced by a number of factors, and any leads that you lose at a given stage cannot be made up at subsequent stages.

However, a key difference is that while each stage of your sales funnel is influenced by a different function (e.g., marketing, advertising, pricing, sales, distribution), your company’s level of diversity and inclusion influences all of the recruiting stages, and therefore it has a compounding effect. To put things in perspective, if you assume that at each of the six stages your lack of diversity and inclusion shrinks your candidate pool by a mere 10%, after going through the six stages the pool will have shrunk to 53% of its original size – effectively throwing out half of the candidates that could have become successful employees; if the impact at each stage is 20%, your candidate pool will shrink down to one quarter of its original size.

Of course if your company is not very diverse, there is a bit of a chicken-and-egg problem: you can’t just wave a magic wand to increase the diversity of your existing team so that it can better recruit diverse candidates. However, regardless of your level of diversity, you can always increase the culture of inclusion of your organization. And recruiting is a great place to start, because you can focus on the specific problems I have outlined in this article, and use them to encourage your entire company to become more inclusive.

The good news is that embracing a culture of inclusion will not only improve your ability to recruit from a broader talent pool, thus increasing your company’s diversity, but it will also create a virtuous loop with tangible ROI across all aspects of your company. But even if you are skeptical about the business benefits of diversity, it should be clear from reading this article that inclusion can reduce your recruiting costs and increase the average quality of your talent by expanding the pool of qualified candidates, giving you a strategic advantage in your competition for talent.

By Paolo Gaudiano

Source: Forbes

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