Measuring the Invisible: How Inclusion Impacts the Bottom Line

We spoke with DEI expert Paolo Gaudiano about the importance of inclusion in the D&I discussion, and how to effectively measure it.

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There’s growing awareness that an inclusive workplace can support greater diversity, and that inclusion is key to overall company performance.

However, inclusion has proven hard to define and measure because, in some ways, it is invisible.

We sat down with Paolo Gaudiano, CEO of Aleria, who introduced an approach that combines behavioral science and computer simulations to define and measure inclusion, and to link inclusion to company performance.


ABOUT OUR EXPERT

Paolo Gaudiano is CEO of Aleria, President of Aleria Research, and Executive Director of Quantitative Studies of Diversity and Inclusion (QSDI) at the City College of New York. These organizations combine Paolo’s decades of experience in business, technology and academia, to transform how people think about diversity and what they do about it, with the ultimate goal of making our society more inclusive and equitable. Paolo is a Forbes contributor on Diversity & Inclusion, and has written for and been interviewed by a number of other media outlets.

He holds degrees in Applied Mathematics, Aerospace Engineering and Computational Neuroscience, and is the recipient of numerous awards including a Neuroscience Fellowship from the Sloan Foundation, a Young Investigator Award from the Office of Naval Research, and a Moonshot House Fellowship from the Kravis Center for Social Impact. He was a tenured faculty member at Boston University and has also taught at Tufts University and CCNY.

Twitter: @icopaolo (individual) @aleriapbc (company)
Linkedin: https://www.linkedin.com/in/pgaudiano/
TEDx talk: https://aleria.tech/tedxfultonstreet


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There’s growing awareness that an inclusive workplace can support greater diversity, and that inclusion is key to overall company performance.

However, inclusion has proven hard to define and measure because, in some ways, it is invisible.

We sat down with Paolo Gaudiano, CEO of Aleria, who introduced an approach that combines behavioral science and computer simulations to define and measure inclusion, and to link inclusion to company performance.


RECORDING


TRANSCRIPT

[Starting after introduction]

We’re going to be talking a little more about inclusion. There’s a lot of discussion in general about diversity and inclusion, the interplay between the two, the differences between the two. I’d love for you to start by talking about some of your overall views on diversity and inclusion more broadly speaking.

It’s interesting how diversity and inclusion has become a little binomial that everyone talks about together. We started out by talking about the impact of diversity on organizations, but we soon came to realize that their were certain ways of thinking about the two that are a little different than the mainstream.

Using an analogy, suppose that ten years ago you had bought some bitcoin. If you had, you’d be likely be very happy, but would you have put all of your financial resources into bitcoin? The answer is probably not. Likewise, if you do any type of marketing or advertising, even though TV has been around for almost 100 years, would you consider putting all of your marketing budget into TV? The answer is no.

In terms of running a company, white men have been successful as business leaders for centuries, but would you ever consider creating a company where the business leadership is mostly white and male?

Let that sink in. There’s a clear dissonance between the first two answers, which we clearly know the answer is no, but in the third one, even though intuitively most of us would agree that highly homogeneous leadership is not ideal, it’s very difficult to understand why that’s the case.

What I’d argue, and what we came to realize doing our work is that the fundamental difference is that, in finance, for example, we have fund management that helps us understand how we can diversify financial assets to maximize returns on a portfolio. In advertising, we have programmatic tools available to analyze our marketing efforts to maximize our sales. But we don’t have any tools of that type that can tell us how changing the mixture of our human capital will impact the performance of the company.

We think this is a huge problem that isn’t being talked about enough for two reason. The first is that if we take a company like the one I just mentioned that is mostly white and male, we have no way of proving or telling that that’s the best possible configuration, we don’t know whether it’s going to improve if we add a bunch of people of color at the entry level, for instance. But the problem is that, by the same token, we don’t know whether a highly diverse organization will perform better. We don’t have tools that will tell us the difference between the two.

The second point is that, building on this notion, it turns out that the cost of human capital is by far the biggest cost for virtually any company. In fact, it’s about 30x greater than advertising costs. In 2018, US companies spent about $6 trillion in payroll around. Against $200 billion in advertising. That’s a 30x factor.

So why is that we’re doing things like optimizing our advertising, optimizing our financial portfolios, but we’re not optimizing our human capital. Here you have our greatest asset, our most expensive line item, and we don’t have tools that can help us to optimize that.

That’s really the way we think about diversity and inclusion. What are the ways we can increase the efficiency of your human capital by diversifying it in some way.

If we talk about the data a little bit more, there’s a large amount that shows that adding diversity of talent inside companies tends to make them perform better. The stats show this across the board, whether it’s board representation, team development, product development.

If we talk about diversity in this sense, doesn’t this essentially answer the question of what type of organization will perform better, the one that simply diversifies their teams?

Yes and no, and it turns out that the answer we found was more complex than we initially anticipated. The typical mindset is, people ask how diversity impact company performance. We’ve come to realize that diversity is much more of a measurement, people come in and measure the numbers.

But in reality, it turns out that inclusion is what really matters. When you talk about diversity and the impact on organizations, people walk about specifics… diversity is good for product, or it makes our teams more innovative, or ability to recruit talent.

There is a huge amount of of complexity because all pieces of an organization are tied together. For example, imagine a typical company from Silicon Valley wants to increase their diversity. They go out and they hire a group of African American graduate from an HBC (Historically Black College). Then the day those new employees start working at the company, they realize that management doesn’t know how to deal with them, their leadership doesn’t look anything like them, they go to the cafeteria and find people move away.

When that happens, though the intention was good, because you were trying to force diversity, but you didn’t have an inclusive environment, what ends up happening is that these people will end up leaving. And when they leave, it ends up creating a problem because your retention goes down, but your operations are essentially damaged because now you have to go our and hire new people. On top of that, you get damage to your reputation that can make things worse, both from the point of view of recruiting more people, and from the point of view of your customers.

As we were thinking about these problems, what we realized was that the picture that is emerging is that inclusion is really what drives company performance. It’s also what sustains a diverse environment.

If you think about it, one of the reasons we think diversity is often correlated with high performance is because those environments that are very inclusive and are able to support a diverse workforce are also the ones where people are best able to contribute to the workforce, and therefore are the ones that actually have the best performance.

Now we get into the measurement piece. You alluded to this, but diversity can often times be displayed by numbers and therefore measured in a somewhat “straightforward”, tangible way.

People often think it’s mushy when we start talking about inclusion. How can companies think about actually measuring the inclusion piece?

To start, it’s important to understand exactly why, from the human-centric perspective, why inclusion is so important.

I like to use this analogy. Suppose you have just 10 people on your team. But those 10 people are all performing absolutely optimally, as individuals and as a team. So let’s call that a 100% performing company, it can’t possibly perform any better.

What happens if you do something as a company where one of those employees is unable to perform at their peak. That overall performance is clearly going to go down. Then if you do it to two people, it’s going to go down even more. Pretty soon you’re going to get feedback effects where the lower performance of some of the team members is going to impact the rest of the team, etc etc.

They key that we wanted to understand, leading to how we measure things, is how can we quantify this two-way relationship between how a company influences it’s people on one had, and how the collective performance of the individuals influences the organization.

The value we’ve brought to the table was to recognize that when you measure inclusion, you have to do it indirectly. What I mean by that is, especially if we’re leading a company or we’re a member of a privileged group such as myself, we don’t notice these problems because we enjoy inclusion all the time.

That’s the key. Inclusion itself is invisible.

A good analogy is that inclusion is like health. You don’t go around telling people when you’re healthy. You talk about your health or you deal with your health when there’s something wrong.

With inclusion, we want to do something similar. Inclusion, like healthcare, is really only visible to those who don’t have it. This makes it difficult to measure for people who are always included, part of the majority.

When you think about this analogy – and this was the key to us to better understand how to measure things – you don’t just go to the doctor and talk about your general health. You fill out those long, annoying questionnaires where they give you 100 different diseases or symptoms, and you check off which ones you have. Then there are people who are experienced with dealing with specific symptoms.

We came at it with a very similar mindset. If you think about all the ways in which people might feel excluded within an organization, what are some of the high level categories that we might be able to look at where incidents of exclusion and inclusion happen the most, and which are the ones that have the greatest impact on people’s ability to perform, just like in healthcare.

The nine categories are:

  1. Compensation and benefits
  2. Skills use and assignments
  3. Workplace interactions
  4. Microaggressions
  5. Work life balance
  6. Access
  7. Respect and recognition
  8. Promotion opportunities
  9. Learning and growth

These are broad buckets where, by asking individual people who do have problems with inclusion, you can ask them about whether they have any problems along these categories. We measure the absence of inclusion, and that tells us where a company can be focusing.

This is a very powerful way of quantifying the nature of inclusion inside an organization.

I like the healthcare analogy you’re using. It also makes me think about preventative medicine vs reactive medicine as well. Addressing symptoms before they happen, and making sure each of your internal systems are functioning healthy to start. I can see how you can extend that through the entire analogy.

So we have these buckets. To quantify them, how do you go about doing that for exclusion, and how being excluded will actually impact each person. And a follow up would be how you quantifying the impact of employee satisfaction on the entire company. There are traditional ways that companies have tracked employee satisfaction, but how might we think about that differently.

Great questions. They way I came into the space is that I’d spent many years working for an organization that looked at employee management, and we developed an approach that was two steps.

The first part is understanding and measuring the experiences of people within an organization. You can do this through surveys and other methods. In some cases you can lean on existing surveys that other companies have already done, whether they’re doing them internally, or whether they’re doing them with some of the other great companies like Culture Amp. We can leverage that to drill specifically into how often people feel excluded, and in what specific categories.

The key to understanding the impact on the performance of the company is that we’ve built a computer simulation. We start by understanding how people behave and react to their environment using academic research. For instance, what happens when someone gets passed up for a promotion, what does that do to my satisfaction, and then how does that satisfaction impact my performance.

Then you take thousands of individuals, or even ten individuals within an organization, and understand how that change impacts everyone else and the company as a whole. These simulations are based off a set of rules of behaviors of individuals within an organization, we reflect on whatever is typically is the case within a real company in terms of how often people get promoted, performance reviews, hiring practices, etc. The computer simulation tells us how the influence on the individuals will impact the entire company.

In a nutshell, we can either use our own surveys or someone else’s surveys to help us determine the impact of incidents of exclusion. Then, we build the simulations and use those to understand how you do from the individual level to the overall company.

You just gave us a little teaser on examples. This idea of simulation, diving into it from that perspective might be a little intangible for people. Can you give us examples of what you’ve done on the ground?

Yes I have two examples.

In general, the simulations “influence” the behavior of the individuals and identify what we care about. As an example, we took a typical company that had four layers – entry level through management, VPs and executives – with fewer and fewer people as you move up. We assigned gender, in this particular case we were focused on binary gender in this case study.

We noticed that as long as you were treating people in the company fairly well based on their seniority, you can let the simulation run for years and years and years and it will stay fairly equal all the way up through the top.

If you then introduce a bias, even if it’s very simple – leadership bias, management bias, anything – but that causes even a small difference between men and women, what we noticed is that in a matter of a few years, you’d see what you normally see in regular companies. At the bottom levels you might start out with 50:50, and then as you go further and further up, you start getting discrepancies. You might get 85% men at the leadership level, 75% men at the VP level, 65% at the management level, and then your 50% at the bottom level.

We then took that beyond and we ask what would happen if you were to magically wave your wand and introduce Unconscious Bias Training and the biases went away. In a company that’s heavily biased like that, even if you remove every single bit of bias, it can take you more than 20 years to undo the damage you did in five years.

So using the simulation is a powerful tool to understand what this might look like in principle, and it gets interesting when you start to apply it to real projects.

The one project we’ve done recently was one we did with the Financial Women’s Organization, they’re an organization that supports women in financial services. They do that both through individual memberships, but they also have partner companies that range from big banks to financial advisors and they provide different types of services to these companies. What they were interested in, not surprisingly, was what does inclusion mean and how do you measure it.

We spent a few months and had a few workshops with members of these organizations in which we explained to them the approach, and we worked with them to come up with as many examples as possible of gender bias specific cases of exclusion, and categories of inclusion that I identified earlier. We actually ended up identifying a couple additional ones, we had a dozen all together.

We use that to design a survey. The survey probed two things for each of the categories of inclusion. First, we asked how often do you feel your gender impacts you with regard to this particular category of inclusion. For instance, promotion or compensation, or interpersonal office interactions. In addition to asking them about how often their gender impacted them, we also asked them about what the source was. In particular, we gave them five different choices: Corporate policy, leadership, immediate management, your peer, and others, like your direct reports.

We did this because, if you think about it from a human-centric perspective, if something bad happens in an organization, it’s not the building that makes the bad things happen to you. It’s not like the doors close in front of you because something’s happened. It’s because someone has done something bad to you, your manager doesn’t know how to manage you, the leadership isn’t very sympathetic to what you do, or there are corporate policies working against you. It’s very important for us to build the simulation, but also to understand what gives rise to issues of inclusion to understand the sources of these incidents.

When we did that, we found a couple of really interesting things. Firstly, we had several hundred response, and not surprisingly, we saw some of the obvious ones at the top, such as compensation and benefits, and promotion. They were near the top in terms of women feeling like their gender was always an issue when it came to these.

What was surprising was when we asked about satisfaction on the job, with responses ranging from “I love to come to work every day” to “I dread coming to work every day”. When we cross-correlated the satisfaction with the kinds of issues where they felt gender was a problem, it turns out that the picture was completely different.

We found out, for example, that things like workplace interactions and learning opportunities and respect and access were things that were much more closely correlated with satisfaction – or should I say dissatisfaction – than things like compensation and benefits.

If you think about it makes sense. We all agree that men have an advantage when it comes to promotions and pay – we all know about the gender pay gap. But those are things you don’t deal with every day.

But imagine you go to work and you have a manager who’s a jerk to you, or colleagues who are disrespectful to you. If you experience that every day, it’s going to grind you down, and it’s what’s going to make you really miserable. Ultimately that’s what’s going to have the greatest impact on your satisfaction and therefore your productivity, and on your retention rates.

We just recently completed a survey, did a deep analysis of the data, and wrote an extensive report that they’re using internally. We’re working now on the final report that will be published in the month or so. This allowed us to create a benchmark of sorts that we could start using for the financial sector.

I’m going to ask a horrible question, but it’s one that’s out there, and hopefully no one on this call would think to ask it. But it’s going to be a great way to illustrate what you’re talking about, and hit it from the other angle.

We’ve seen a lot of the huge tech companies that are around now – Google, PayPal, etc – that have grown from homogenous teams, spent quite a while for part of their on that homogenous track. Some people might look and that and say they’ve been successful having been built by a homogenous team. Why would we suggest that we can’t be successful if you’re homogenous?

That’s a great question, and I actually love it when people ask this. As a sidenote, this is something that’s unique about being a white man working in diversity and inclusion is that there are some things that a white male might feel comfortable asking me that they might not feel as comfortable asking other people. I love taking those and debunking them, which is why I love this question.

There’s a glib answer and a more well thought out answer.

The glib one is as follows. 20 years ago there was this new thing called the internet. Companies used to ask, well if the internet is so valuable, why have traditional media companies been so successful?

But the fact that homogenous companies have been so successful doesn’t mean that they’ll continue to be successful if someone figures out a better way to do it. If you go back to the point I made about the fact that we optimize our advertising, our portfolios, our supply chains but we don’t do that for human capital – marketing is literally 1/30th of the cost and value to a company than human capital.

If you think about the fact that right now, six of the top ten largest companies in the world didn’t exist 15 years ago, and they were all built on the new economy around the internet, imagine if we can create these inclusive enterprises that can leverage tools, and we can figure out how to make all of their employees happy, and increase their performance, imagine how much they’ll kill it.

So my response is, if you want to get stuck in your ways and stay in your traditional white male companies, go right ahead. The companies that figure out how to become diverse and inclusive in a successful way will wipe you off the face of the earth.

Ha! I love that. I’d also say too that there isn’t necessarily anything to compare those successful companies against as well. We aren’t able to say how much less or more successful they would have been if they’d been more diverse, and not been homogenous.

Let’s end by taking this to a practical standpoint for our listeners. For people who don’t have access to things like simulation software, and have a DEI program they might be just rolling out, how can practitioners and individuals on this phone call think about the discussion we’ve just had?

There are two levels of suggestions I’d like to share.

In terms of a company, there are a couple of things to think about. One of them is to make people aware, the leaders specifically, that inclusion could be invisible to them. They need to align themselves with people within the organization or outside who might be impacted and they need to educate themselves about it.

There’s also something I found that’s very powerful that’s very easy to see when you build these simulations, because it forces you to see how a company could actually be worse. Right now, there’s a lot of focus on unconscious bias and other types of bias training.

We’ve become increasingly aware that unconscious biases are really only impactful to the extent that the organization allows them to have a negative impact on people. So if you think about structural biases. For example, if you only recruit from top schools – one of my pet peeves – you are an idiot. I can show you mathematically that you’re an idiot, and that it’s a stupid strategy.

Also, focusing on diversity recruiting, and not worrying about inclusion, or having managers that don’t know how to deal with multicultural team. There are structural biases in even the way you do performance reviews that are very qualitative, even though there are many studies that show that’s not a good way to do it, and it’s a place where biases can be introduced.

So as a company, think about where structural biases can be introduced. Places where the presence of a biased individual may potentially cause problems.

THEN, you can fix the people. But the fact is, most of the companies I know, there aren’t that many biggots. If you have one or two, they can have an outsized influence because of their role or the procedures… that’s where the main problem is.

A bit of personal history… why did I start doing diversity training, how did I get into this field? Personally, I was always interested in it because, even though I’m your very standard, privileged individual, I was born in a different country, I’ve lived in multiple countries, I speak four languages, I’m in an interracial marriage. So to me, diversity was always there, it was always a part of my life.

So I started to go to sessions, and big conferences in tech and there were two things that struck me. The first was that I’d be in a conference where everyone was white and male (or at least the majority) and I’d go to the session on, say, women in media and I’d be one of only two or three men in the audience. I’d go to a session on people of color in tech and I”d be the only white guy in the room. And that bothered me. Why? This isn’t a problem with people of color or women. It’s a problem that we’re creating, the people in power.

The other thing that would happen in these sessions is that I’d hear these atrociously awful and painful stories about human level things that were happening to people. I didn’t understand how these things could be happening.

But when it came to solutions, everyone was talking about fixing the system. It made me feel like you had to be an activist or do nothing. It doesn’t leave you much room at the individual level.

So one of the most powerful things for me when we’re looking at these simulations and thinking about it from a human-centric perspective, is when we think about it from a company perspective, a company is not the building, as I said before. It’s human to human.

Those in power or privilege should educate themselves. Be respectful – don’t go seek out the only African American on your team and bombard them with questions, that’s not really a cool thing to do. But learn to recognize when there are incidents of exclusion, and learn how to deal with them. There are plenty of resources online that will tell you how to respond when you witness something inappropriate.

More importantly, there are so many things you can do in your personal life that will help you embrace things more openly. At work, you can interact with more people, make sure you’re giving assignments to a variety of people, make sure you’re meeting people who don’t just look like you. Even online, you can check your Twitter, your Linkedin…. when was the last time you shared or liked posts by white men? You might be surprised that it tends to be the vast majority.

Finally, even in your personal life, there are so many opportunities to expose yourself to a variety of people. You can go to activities such as Pride Parade in June, and so on.

I’d argue that everyone on this call, even if you don’t have a role in DEI or not the leader at your company, there are things you can do to spread that and get people around. That will hopefully make everyone around you more company and naturally lead towards a more inclusive environment.

[Q&A starts at 37:48]

ABOUT OUR EXPERT

Paolo Gaudiano is CEO of Aleria, President of Aleria Research, and Executive Director of Quantitative Studies of Diversity and Inclusion (QSDI) at the City College of New York. These organizations combine Paolo’s decades of experience in business, technology and academia, to transform how people think about diversity and what they do about it, with the ultimate goal of making our society more inclusive and equitable. Paolo is a Forbes contributor on Diversity & Inclusion, and has written for and been interviewed by a number of other media outlets.

He holds degrees in Applied Mathematics, Aerospace Engineering and Computational Neuroscience, and is the recipient of numerous awards including a Neuroscience Fellowship from the Sloan Foundation, a Young Investigator Award from the Office of Naval Research, and a Moonshot House Fellowship from the Kravis Center for Social Impact. He was a tenured faculty member at Boston University and has also taught at Tufts University and CCNY.

Twitter: @icopaolo (individual) @aleriapbc (company)
Linkedin: https://www.linkedin.com/in/pgaudiano/
TEDx talk: https://aleria.tech/tedxfultonstreet

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