DIVERSITY MANAGEMENT IN SMALL BUSINESSES: AN EXPLORATORY INVESTIGATION OF ATTITUDES AND ACTIONS Charles R. Stoner Richard I. Hartman Bradley University Raj Arora University of Missouri - Kansas City ABSTRACT The key to effective diversity management seems to reside in the extent to which diversity initiatives are embraced throughout the organization as a cultural statement (Thomas, 1991). As Jackson and Alvarez (1992) so aptly note, unless the diversity issue is viewed as a strategic imperative, meaningful changes in traditional management practices are unlikely. Indeed.for such strategic movement to occur, leaders must believe in and value the merits of the new workforce and make acrion commitments to support the needs of this workforce. INTRODUCTION Workforce diversity refers to the movement of individuals from differingdemographi: and ethnic backgrounds and value perspectives into the organizational mix. For most businesses, this translates to the inclusion of more women, older and younger employees, disabled, African Americans, Asians, and Hispanics into the workforce. The diversification of our domestic workforce is a clear and unrefutable reality with far-reaching implications (Johnston and Parker, 1987). With diversification comes new, unique, and powerful sets of worker needs and expectations that must be considered(Jamieson and O'Mara, 1991 ). Further, as the labor force grows more slowly than at any time since the l 930's, the competition for workers who possess the essential education and skill requirements of an increasingly knowledge-based economy will be intense (Fernandez, 1991). Accordingly, companies that fail to develop and implement strategies for managing a more diverse workforce will experience increased difficulties hiring and retaining the skilled workforce they need (Cox, 1992). In many ways, the challengesofrespondingto an increasingly di verse workforce have a potentially more disruptive impact on smaller business than their larger counterparts. Many large companies have responded to the human resource concerns of diversity by creating strategic diversity initiatives and heavily investing in the diversity management process (Jackson, 1992). While some anecdotal commentary is available, formal study of small business efforts and movement in the diversity management arena is surprisingly limited. 37 Although understanding the current diversity context, views, and practices of small business leaders seems essential for prescribing an orchestrated strategy of small business diversity management, the existing small business literature offers little evidence to enhance this understanding. Accordingly, the purpose of this research is to address, in part, this research gap by focusing on the diversity attitudes and actions of small business leaders and their respective organizations. LITERATURE REVIEW Despite the recent attention accorded diversity management and the growing importance of diversity issues for both small and large businesses, existing diversity research has a decidedly large company focus. Even here, the corporate diversity record appears problematic. While most business leaders understand the implications of growing workforce diversification, commensurate strategies and actions for managing this new workforce have been slow to achieve implementation. For example, in a Towers Perrin survey of 645 organizations, most respondents possessed an awareness and concern over demographic shifts and implications. Yet, initiatives for training, developing, and supporting the new workforce lacked broad-basedsupport(Towers Perrin, 1990). In a follow-up study of200 companies that had participated in the 1990 survey, Towers Perrin found that over halfofthese companies had or were planning to implement programs to address workforce diversity (Towers Perrin, 1992). These results, while encouraging, are not overly impressive given the history of diversity awareness and concern among participating organizations. Furthermcre, a field study of large U.S. corporations found that three-fourths of the responding firms had no articulated strategy for addressing the future workforce changes (Loveman and Gabarro, 1991 ). This moderate level of strategic attention to diversity issues may be due, in part, to the lack of a clear relationship between diversity management and the firm's short-term bottom line. For example, an extensive Hay Group survey of over 1400 companies revealed that nearly two-thirds of the respondents felt that adapting to workforce diversity was either "important but not a priority" or "not very important" over the next two years (Wall Street Journal, 1992). In a comprehensive survey conducted by the Society of Human Resource Management(SHRM)and Commerce Clearing House (CCH) of758 national SHRM members, diversity management was not considered a high priority when compared to other business issues. Further, survey participants reported that their strongest diversity efforts were focused on legal concerns, such as sexual harassment policies and physical access for employees with disabilities(CommerceClearing House, 1993). Even some of the more progressive companies experienced an inconsistent diversity record. For example, a recent Wall Street Journal study found that some of the companies with the best family-oriented benefits have dismal records for promoting women (Sharpe, 1994 ). In one of the few studies that concentrated on smaller firms, Elmuti and Kathawala ( 1994) found that while small business owners and managers were aware of the growing diversification of the workforce, fewer than one-third of the respondents had modified or adapted their business practices in response to the changing workforce. Although these results suggest a diversity pattern similar to that of larger businesses, the limited scope of a single study renders such conclusions premature and reflects the need for further investigation. 38 .. '' ·- i .• Given the previous research and the paucity of small business diversity data, this study will focus on the following six research questions: I. What is extent of and nature of change in workforce diversification among small businesses in Central lllinois? 2. What is the level of satisfaction expressed by small business leaders with the various diverse groups in their respective organizations? 3. What are the policies, procedures, and programs small businesses are using for responding to diversity issues? 4. What is the perception among small business leaders of whether their diversity efforts have been cost beneficial? 5. What is the relationship between changes in workforce diversity and small business responses to assist the workforce? 6. What are the attitudes of small business leaders regarding the positive and negative impacts of workforce diversification? METHOD The decision was made to limit the inclusion of businesses for this investigation to those with at least 15, but fewer than 100 employees. While this selection criteria was arbitrarily determined, these employee parameters were selected to meet the specific research focus of this study. The attempt was to provide a size large enough to exclude extremely small operations where diversity was likely to pose little relevance. Thus, the lower limit of 15 employees was selected. Further, the attempt was to provide a size that was small enough to limit the inclusionoflarger firms where diversity interests were likely to be relegated to human resource specialists. Accordingly, the upper limit of99 employees was selected. The Dun and Bradstreet data base was utilized to provide a base list of the businesses within a three county area of central lllinois that met the size criteria. All SIC title categories were included with the exception of professional services, where doctors and lawyers were excluded. From this comprehensive list, a randomly selected sample of 115 businesses was generated for inclusion in the study. A phone survey was conducted, with respondents being the principal, on-site administratorofthe business(generally, the owner, president, or "general" manager). A phone survey was selected for two basic reasons. First, the interviewers were able to carefully explain and refer to the meaning and perspective of diversity as used in this study. Further, as an exploratory effort, interviewers were able to probe and seek diversity actions that were both formal and informal in nature. The survey used a 4-call framework. Typically, the initial call resulted in a scheduled call-back appointment. Three call-back contacts were made, if necessary. This procedure produced 77 complete survey responses for a usable response rate of 67%. The mean size of participating businesses was 35 employees. However, 78% of the responding businesses indicated employment levels in the 15-40 worker category. There were no apparent differences in business size or SIC classification for respondents and nonrespondents. 39 The questionnaire was divided into four sections. The first section looked at the changes that had occurred in the employment of various diverse subgroups and the respondents' perception of satisfaction (or difficulty) with relevant subgroups. The second section probed the responderts' general attitudes toward workforce diversity. Here, diversity was defined as the inclusion of more women, older employees, disabled, African Americans, Asians, Hispanics, and younger employees into the workforce. The third section examined programs, policies, or procedures that the organization used to address diversity issues. Formal and informal, case-by-case approaches were solicited for 25 diversity actions. While the choice of specific diversity actions is somewhat arbitrary, the list was heavily influenced by the action themes noted by the comprehensiveSHRM/CCH survey (1993). Responderts were encouraged to expand on this list by noting any other steps they felt they had taken to address the workforce diversity issues they faced, and they were asked to evaluate their diversity efforts. The final section of the questionnaire gathered standard demographic information and provided information used to assure the accuracy of business classifications. On average, the questionnaire took 15 minutes to administer. RESULTS Most of the businesses represented in this study had experienced limited workforce growth over the last few years. The majority (58%) of the businesses reported an average annual workforce growth rate ofless than 5%. Over a quarter of the businesses (26%) reported moderate annual workforce growth of 5 - 10%, while only 16% of the businesses experienced growth in excess of I 0%. Given this level of overall workforce change, respondents provided indications of the growth that had occurred among diverse subgroups of their workforce over the past few years. The specific subgroups examined were women, older employees, disabled/handicapped, African Americans, Asians, Hispanics, and younger employees. The businesses in this study experienced limited overall growth among diverse subgroups during the past few years. These changes are detailed in Table 1. The subgroups that experienced the greatest growth were women, older employees, and younger employees. Interestingly, very little growth occurred among other diverse subgroups. Respondents were asked to indicate their satisfaction with the contributions each diverse subgroup was making to their respective organizations. Overwhelmingly, respondents were satisfied with the contributions of all subgroups. However, when asked which of the subgroups were the most difficult to manage, 52% of the respondents indicated younger employees. Older employees were noted by 5% of the respondents. No other subgroup was mentioned by more than one respondent, and 35% of the respondents felt that no particular group caused management difficulties. Next, the business response to diversity issues was examined. Here, the effort was to identify policies, procedures, or programs of either a formal or informal type that were being utilized to respond to diversity issues. Table 2 provides a summary of these findings. Only four specific diversity efforts were currently being used by more than half of the responding businesses. These efforts related to the existence of a formal sexual harassment policy (which 40 ,' 'l . '· '' 66% of the respondents noted), efforts to socialize young people in work habits and values (66%), establishment of flexible work hours to accommodate employees with family responsibilities(61 %), and providing financial support for employees to further their educatim (58%). On the other hand, less than I 0% of the respondents provided day care cash benefits (5%), established gender and ethnic support groups (9%), and made day care referrals (9%). Despite this somewhat limited engagement in diversity efforts, those businesses that were currently providing specific diversity responses were overwhelmingly committed to the continuation of these efforts. At least 92% of the respondents indicated that they intended to continue the diversity efforts they were presently using. Table I PERCENT WORKFORCE CHANGE BY DIVERSITY GROUP Amount of change • No Less than 5 to Over Diversity subgroup change 5% 10% 10% Women 54.5 18.2 19.5 7.8 Handicapped 81.8 15.6 1.3 1.3 African American 81.8 15.6 1.3 1.3 Asians 96.1 1.3 1.3 1.3 Hispanics 82.9 14.5 1.3 1.3 Younger Employees (:5 25) 50.0 31.6 14.5 3.9 Older Employees (> 40) 57.9 23.7 11.8 6.6 • Numbers in the Table represent percent of respondents indicating change that had occurred within the category over the past few years. However, the results clearly indicate that if a business is not currently utilizing a particular program or approach, there is typically little intention to do so in the near future. The five areas of diversity efforts where respondents indicated the greatest likelihood of· offering or providing diversity actions within the next year were as follows: establishing a formal sexual harassment policy (21 % noting an intention to offer), establishing a policy to hire retirees for temporary assignments (16%), providing sexual harassment training (16%), redesigning jobs to accommodate disabled workers (15%), and redesigning jobs to accommodate older workers (11%). 41 Table 2 POLICIES, PROCEDURES, OR PROGRAMS PROVIDED OR PLANNING TO PROVIDE Program Fonnal Sexual Harassment Policy Percent currently offering or Providing 66.2 Efforts to Socialize Young People in Work Habits and Va!ues 66.2 Flexible Work Hours 61.0 Financial Support for Employees to Further Their Education 58.4 Policies to Hire Retirees for Temporary Assignments 40.3 Sexual Harassment Training 39.0 Diversity Training for Supervisors 37.7 Team Building Training 36.4 Steering Women and Minorities into "Pivotal Jobs" 36.4 Job Design to Accommodate Disabled Workers 36.4 Inclusion of Diversity in Mission or Philosophy Statement 32.5 Efforts to Change Culture to Value Differences 32.5 Job Redesign to Accommodate Older Workers 28.6 Awareness Training to Reduce Prejudice 24.7 Assigning of Mentors to Minorities and Women 22.1 Discussion Groups to Promote Understanding of Differences 19.5 Specific Goals to Diversify Management 18.2 Holding Managers Accountable for Increasing Diversity in Their Areas 18.2 Work-at-home Arrangements 16.9 Specific Workforce Diversity Goals 16.9 Special Recruiting Efforts to Attract Minorities 15.6 Minority Internships 10.4 Day Care Referrals 9.1 Fonnation of Gender and Ethnic Support Groups 9.1 Day Care Cash Benefits 5.2 42 Percent planning to offer in next year 20.8 4.0 0.0 3.2 15.9 15.6 0.0 2.2 4.3 14.6 2.0 0.0 11.3 5.4 0.0 8.5 0.0 0.0 3.2 1.6 0.0 0.0 4.5 3.0 1.4 When respondents were asked to evaluate their diversity efforts from a cost-benefit perspective, 38% of the respondents felt that their diversity efforts had been either moderately or extremely beneficial for their business from a cost-benefit standpoint. However, 39% indicated that their efforts were not at all cost beneficial. The remaining 23% indicated a slight cost benefit effect. lnterestingly,45% of the respondents felt that the diversity efforts of their businesses were better than those of comparable businesses, while 51 % felt their efforts were about the same as similar businesses. Although the diversity actions of a business may be prompted by various sources, the presence of workforce growth may serve as an impetus for change and the movement toward more progressive diversity efforts. Accordingly, this study examined whether those businesses experiencing higher levels of annual workforce growth were more likely to implement actions to address diversity issues. Overwhelmingly, there was no statistically significant relationship between the rate of workforce growth and the inclusion of specific diversity actions. Two exceptions were present. Those businesses experiencing higher levels of workforce growth were more likely to provide financial support for employees to further their education (X' = 11.56, p < .0 I), and to steer women and minorities into pivotal jobs or key positions to increase their promotability Cx' = 9.14, p < .05). In a similar manner, this study examined the relationship between the growth in employment of diverse subgroups and the existence of actions to address diversity issues. Comparisons were drawn between those businesses experiencing no change or only a slight increase (<5%) in their employment of diverse subgroups and those businesses experiencing a moderate (5-10%) or significant(> I 0%) increase. Few significant effects were noted. The notable exceptions occurred for businesses experiencing high rates of employment growth among women. In fact, those businesses experiencing higher rates of employment growth among women were more likely to provide work at home arrangements (X' = 4.53, p < .05), assign mentors to minorities and women Cx'= 4.12, p < .05), and also to guide women and minorities into key jobs/positions to enhance their promotability Cx'= 4.42, p < .05). Respondent attitudes toward workforce diversity are presented in Table 3. From a positive perspective, a majority of respondents felt that workforce diversity improved creativity (53%), helped develop a more tolerant corporate culture (53%), and improved the willingness of members of diverse groups to work together (53%). Further, a majority of respondents disagreed that workforce diversity led to higher operating costs (52% disagreed), contributed to higher levels of absenteeism and tardiness (55% disagreed), or led to more customer complaints ( 66% disagreed). However, a majority of the respondents felt that workforce diversity contributed to increased time dealing with special interest and advocacy groups (53%) and contributed to increased training costs (55%). Despite recent media attention addressing the benefitsofworkforcediversity, respondents were rather divided in their feelings as to whether diversity improved a firm's ability to serve its customers, led to better decision making, improved productivity, led to an increase in product or service quality, contributed to increased turnover, or led to more employee complaints or grievances. 43 Table 3 ATTITUDES TOWARD WORKFORCE DIVERSITY* Workforce Diversity ... Agree Uncertain Disagree Improves Creativity 52.6 27.6 19.7 Contributes to Higher Operating Costs 33.3 14.7 52.0 Improves a Company's Ability to Serve All Its Customers 42.l 40.8 17. l Helps Develop a Corporate Culture That is More Tolerant of Different Behavior Styles 52.6 36.8 10.5 Contributes to Absenteeism and Tardiness 25.0 19.7 55.3 Contributes to Increased Turnover 32.0 20.0 48.0 Leads to More Customer Complaints 7.9 26.3 65.8 Contributes to Better Decision Making 31.5 30.3 38.2 Contributes to Increased Time in Dealing with Special Interest/ Advocacy Groups 52.6 23.7 23.6 Improves Productivity 30.2 36.8 32.9 Improves Willingness of Members of Diverse Groups to Work Together 52.7 38.2 9.2 Leads to More Employee Complaints and Grievances 25.0 27.6 47.4 Leads to An Increase in Product/Service Quality 26.3 36.8 36.8 Contributes to Increased Training Costs 55.2 10.5 34.2 DISCUSSION A number of findings supported expectations drawn from the available diversity management literature. This was particularly important given the unique small business focus of this study. For example, the limited use of either formal or informal diversity programs or approaches appeared to be a common phenomenon among smaller businesses, particularly when increases in employment levels of diverse subgroups were low or moderate. However, some findings were unexpected and disappointing. Despite considerable attention given to the plight of working families and the troublesome conflicts arising from childcare needs, the businesses in this study offered little childcare assistance or support. The notable exception to the lack of family support was flexible work hours, which was one of the more common diversity responses for businesses in this study. Interestingly, the use of flexible work hours 44 was done on a more informal, case-by-case basis, rather than through a formally established flexible hours program. In some cases, it appears easier to espouse diversity orientations than it is to implementthem. For example, although 33% of the respondents indicated that diversity was included in their mission or philosophy statements, only 17% had specific workforce diversity targets or goals and only 18% held managers accountable for increasing diversity in their areas of responsibility. These results signal some important concerns that small businesspersons must address. Unless goals and accountability are carefully delineated, little diversity action is likely to occur. In fact, examples drawn from large businesses suggest that accountability for diversity actions is essential to meaningful movement (Sessa, 1992). Given that people basically do what they are rewarded for doing, this comment is not earthshattering. Yet, it is an important component of any successful diversity plan and one that is often omitted. Small business leaders must bridge the gap between philosophy and accountability if their programs are to derive the best chance of success. This means that small business leaders must see diversity as more than a limited human resource issue and build diversity as a strategic thrust. As the results indicate, businesses that are currently utilizing diversity efforts intend to continue those efforts. Presumably, this is evidence of satisfaction with the effectiveness of the diversity effort. However, some may question this interpretation when recognizing that 39% of the respondents felt that their diversity efforts were not at all cost effective. Perhaps, this discrepancy may be explained by sensitivity to legal considerations and recognition that the long run best interests of the business can be served by promoting a climate of inclusiveness. Indeed, this long-run perspective is an important one to note. Since most diversity programs and actions will affect the business culture incrementally over time, diversity efforts should be viewed as a Jong-run rather than short-run investment. There does not appear to be any evidence that the businesses in this study intend to significantly expand their current diversity offerings. The reasons for this may be numerous. Some activation or prompting may be necessary. For example, a business may not move toward broader diversity efforts unless they experience difficulties attracting, retaining, and effectively utilizing a skilled workforce; they feel more acute legal pressures; or they see significant shifts in the relative representation of diverse subgroups within their workforce. This study does offer some support for this view. Most of the areas where respondents noted an intention to expand their diversity efforts were affected by strong legal directives or pressures (for example, approaches relating to sexual harassment, disabled or handicapped workers, and older workers). Even a firm that is experiencing little growth in the diversification of its workforce needs to demonstrate sensitivity to the process of assimilating persons with diverse backgrounds into the organization. In fact, this sensitivity may be more important for those businesses with relatively few diverse workers than for those with broader diversity representation. Businesses with limited workforce diversity may be wedded to more traditional views of diversity. As noted by Loden and Rosener (l 992), the management of these businesses may see diversity as effective when members of diverse groups are changed to be more like dominant group members. In this case, the business accepts little responsibility for 45 --------- changing to accommodate new and diverse members. Such a view is a regressive and potentiallydangerousdiversityperspectivethat may result in employeedissatisfactionand low retention of promising members of diverse groups. Small business leaders should recognize that effective assimilation is a two-way street. As Thomas notes, it should be a mutual process between individuals and organizations (Thomas, 1991). Individuals must always adapt, but companies must also adjust. Often, this means giving workers more options, more choices, and more discretion rather than a rigid system of rules, policies, and procedures. Although a majority of respondents felt that workforce diversity improved creativity and built a more tolerant and cooperative business, the range of diversity programs and actions was rather limited. This appears incongruous. In part, this lack of action probably is groundoo in the respondents' perceptions of the costs and difficulties associated with diversity and their perceived lack of urgency. Here, two concerns must be addressed by the small business owner. First, the small businessperson must decide whether it is important to increase diversity representation. Typically, the small businessperson answers this question only from a skills perspective. In other words, ifthe businessperson believes that the fundamental skills necessary for success can be attained without workfurce diversification, this is the path that is likely to be followed. This may explain the low percentage of respondents who engaged in special efforts to bring minorities into their businesses. Small business educators and consultants must show owners the business value to be derived from a broader diversification of its workforce. Several themes should be emphasized. For example, a diverse workforce may more closely parallel and accordingly, provide greater understanding and sensitivity to the firm's customer base. A diverse workforce may offer a range of divergent approaches and challenges that prompt innovation and creativity. Promoting the development ofa diverse workforce may facilitate compliance with EEO and related legislative and regulatory directives. For these reasons, the organization may wish to expand its program offerings to attract and retain a more diverse worker ba5e. Second, the small businessperson must understand that a culture of diversity cannot exist ifrelevantsupportiveprogramsand actions are missing. Such efforts do cost money and accordingly, many small busineS5 owners are reluctant to move beyond those actions that are absolutely necessary. The key here is the issue of relevancy. Small businesses must choose programs that are relevant for their unique situations. Trendy diversity programs and packagoo approaches may be totally inappropriate and lack cost-benefit payoff. This is not just a small business problem. The SHRM/CCH ( 1993) reported that only one-third of survey respondent> indicated that their diversity programs were successful. This closely parallels the cost-benefit perceptions of the respondents in this study. Small businesses must carefully assess their diversity climate and their unique needs and offer only relevant programs. Again, consultants and managers togethermustconductobjectivediversity audits and build programs that respond to the issues identified. It is interesting that younger employees were viewed as the most difficult of all diverse subgroups to manage. It is also interesting that it is among the younger employees that the greatest growth in employment has occurred. Respondents expressed many views of the complexities and difficulties younger workers bring to the workplace. For example, 46 respondents noted that younger workers were difficultto manage because their social lives and school activities often presented conflicts with work demands. Further, some respondents commented that younger workers lacked a "work ethic," contending that today's young adults have "been given everything and have never had to work in order to receive what they want." The results of this study indicate that companies are responding to this challenge by organizifll efforts to socialize young people in work habits and values. In fact, two-thirds of the respondents noted specific efforts in this area. A limitation of this study stems from the fact that the participating businesses experienced little workforce growth among diverse subgroups during the past few years. This was particularly noteworthy for Asians, African Americans, and Hispanics. Further, little overall workforce growth was present among firms in the sample. 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