How Integrating DEI Into Strategy Lifts Performance

Today’s top leadership priorities include attracting and retaining top talent, fostering innovative thinking and action, motivating employee performance, and enhancing stakeholder value in an increasingly diverse and competitive market. At the same time, many leaders have supported diversity, equity, and inclusion (DEI) initiatives to address inequities for marginalized groups. But our research shows that there is a broader opportunity to use DEI as a strategic lever in tackling the key challenges noted above and make the practice a critical driver of organizational effectiveness and performance.

Earlier research has found that there is a robust business case for DEI, with an array of potential benefits to organizations, including access to new markets, increased innovation, and improved employee engagement.1 A recent study of DEI practices at U.S. credit unions that I conducted with McKenzie Preston has surfaced further evidence that taking a strategic approach that integrates DEI into business processes is linked to better financial performance in terms of return on assets and net income.

Given the notable undercurrent of backlash against DEI, often rooted in misperceptions or resistance to change, business leaders are at a critical juncture. They need to employ evidence-based strategies that not only bolster the DEI proposition but also align with core business goals. Driving culture change and fostering environments that are both resilient in the face of criticism and capable of delivering tangible benefits will require more strategic approaches to DEI. In this article, I draw upon the findings of our industrywide survey of DEI practice implementation and company financial performance and highlight the practices that are effective for achieving competitive advantage through DEI.

There are three keys to leveraging DEI to enhance financial performance. First, companies should take a strategic approach to the creation and maintenance of diverse, equitable, and inclusive environments. Rather than implementing discrete operational practices focused on a specific area of human resource management, such as recruitment or training, DEI must be integrated into a company’s strategy in a way that is consistent with its business objectives. Second, companies should implement sets of DEI practices intended to achieve similar goals. Although singular practices may be effective for achieving a desired outcome, such as diversifying candidate pools or enhancing employee engagement, enacting multiple practices that reinforce one another in working toward a common goal appears to amplify their effects. Finally, companies should create tools for measuring and evaluating change through DEI. These tools should offer a structured approach to collecting DEI data, measuring the effectiveness of initiatives, and analyzing progress along DEI goals. These three approaches, when combined, enable leaders to make informed and strategic DEI decisions. Below, I offer more detailed guidance for putting these recommendations into practice.

The Strategy Behind the Numbers

Managing DEI involves a wide variety of practices, such as advertising job opportunities in outlets targeted to members of underrepresented or minority groups, utilizing structured interview processes, linking DEI goals to performance evaluation and compensation, and increasing outreach to women- and minority-owned suppliers. DEI practices vary in scope, resource intensity, and stakeholder influence, and our findings reveal a distinct category of practices that have an impact on company performance. These strategic DEI practices, which embed DEI within a business’s strategy and operations, are critical for value creation. They begin with establishing a written DEI policy or strategic plan aligned with core business functions, such as talent management, product development, and customer engagement. A study participant shared this corporate DEI strategy:

We are committed to diversity, equity, and inclusivity and work together through employee-driven initiatives to create understanding and promote awareness, opportunity, and a sense of belonging. We strive to create and nurture a diverse workforce, which means to continuously improve our workplace, acknowledging areas where we can make a difference or improve our processes. Encouraging employees to achieve their fullest potential through flexibility, collaboration, and empowerment leads to higher levels of individual engagement and better organization outcomes.

Other organizations described strategic plans that focused on building diverse workforces and embracing their teams’ uniqueness, which enhances innovation, market reach, and other forms of business growth. Rather than simply expressing a commitment to DEI, these organizations described how DEI can drive performance objectives and contribute to long-term value creation. This strategic integration positions DEI as not only an ethical priority but also a business imperative that fuels competitiveness and business success.

Our research also highlights the importance of implementing practices for establishing accountability for DEI implementation and progress, such as appointing a chief diversity officer (CDO) or forming a DEI council. For sustainable success, a CDO should report directly to the CEO or chief HR officer to ensure that DEI remains a central priority within the company’s leadership agenda. Similarly, while DEI councils offer businesses an opportunity to draw insights from employees across a variety of backgrounds and roles, it is critical that council members have the decision-making power and resources needed to enact meaningful change. These structures help to establish DEI as a strategic priority, provide dedicated leadership, and create clear accountability pathways for maintaining DEI goal progress.

To facilitate enterprisewide accountability, organizations should establish metrics that reflect key aspects of DEI and track progress along those indicators. Although many companies rely on measures that reflect workforce composition, the strategic use of metrics goes beyond simply capturing demographic representation in staffing, leadership, and retention. Metrics that assess the movement of employees through organizational hierarchies, track the use of benefits and programs, and measure engagement across groups can offer insights into areas for improvement and where companies can invest more resources to amplify DEI’s impact internally. Stakeholder metrics, such as satisfaction across different customer segments or the number of contracts with minority-owned suppliers, may also provide evidence-based insight into a company’s external DEI efforts. This level of accountability helps to foster a corporate culture rooted in transparency and commitment. The measurement, analysis, and interpretation of DEI data also support leaders in making informed, data-driven decisions that lead to more effective DEI strategies that enhance organizational performance.2

Bundling for Impact

A significant finding from our study of the credit union sector is that companies that reap the greatest performance outcomes benefit not so much from a specific DEI practice they apply but from the way that such practices are combined and layered. In general, some companies have focused on discrete objectives and practices, such as attracting and hiring from diverse pools of candidates, training employees on minimizing bias and interacting effectively with others across differences, or enhancing performance and growing leaders across groups. While we found that individual practices may be effective for achieving specific DEI goals, this approach may not be sufficient for improving financial performance.

Our research shows that a bundled practice approach to DEI amplifies the performance effects of individual practices. DEI practice bundles are sets of complementary practices that reinforce a company’s value for and commitment to DEI and help it achieve specific goals, such as supporting employees’ growth and career progression or strengthening employee engagement and commitment.

When we examined the implementation of 35 DEI practices within the credit union industry, eight practice bundles emerged: strategy, governance, goals and tracking, recruitment, selection, career development, employee groups, and supplier diversity.3 (See “DEI Practice Bundles.”) Within each of these areas, the credit unions implemented several policies and practices designed to achieve a common goal. This approach creates configurations of policies and practices that are difficult for other companies to imitate, along with synergies that maximize their effectiveness.

The Business Case for DEI Practices

Although DEI practice bundles may impact organizations in a number of ways, certain bundles play a transformative role in motivating their performance: Those with DEI strategy, governance, and goals and tracking practice bundles had higher net incomes and returns on assets than those with other bundle configurations. Those three bundles work in concert to ensure that diversity, equity, and inclusion are not simply aspirational but are woven into the operational fabric of the company. More precisely, they shape human capital pools, motivate action consistent with DEI strategy and goals, and provide feedback on DEI performance.

Our research shows that DEI strategy and goals and tracking bundles are vital in shaping human capital by attracting and retaining a diverse workforce, which brings a broad range of perspectives and experiences into an organization. These bundles collectively empower employees to make unique contributions to work processes because they foster a culture where diverse perspectives and skills are recognized and valued. By explicitly linking DEI goals to business outcomes, companies also create a clear vision of how diversity adds value, and motivate employees to align their efforts with the company’s overall success. As a result, the DEI strategy, governance, and goals and tracking practice bundles help to embed DEI into an organization’s structures and workflows and drive behaviors that align with organizational objectives. Simultaneously, these bundles offer feedback that enables companies to evaluate and refine their DEI efforts to ensure lasting impact while staying adaptable to the workforce’s evolving needs.

As businesses more effectively capitalize on the opportunities that diversity offers — such as enhanced innovation, problem-solving, and market reach — they tend to financially outperform their peers. This demonstrates that organizations that strategically align DEI with their broader goals and track progress toward those goals are better positioned to achieve both cultural and financial success. Integrating DEI into business strategies also fosters a more adaptable and resilient organization — one that is better equipped to navigate shifting market dynamics and emerging challenges.

The credit union sector is an interesting backdrop for these effects, given that DEI is a guiding principle in its member-centric approach to business and its ethical standards, including mandates for fair lending and equitable treatment of members. While these cooperative financial institutions prioritize serving their members over maximizing profits, our findings show that they can achieve social goals and improve financial results. Practice bundles that link DEI to business strategy and create accountability for progress also move institutions beyond compliance and highlight ways to integrate DEI into the business model. Because DEI programs can suffer from variability in the effectiveness of their implementation across branches, functions, and other business units, these strategic practice bundles also offer a sustainable, enterprisewide approach to DEI.

A Blueprint for Meaningful Action

Strategic approaches to diversity, equity, and inclusion are crucial for achieving meaningful and sustainable organizational change. Unlike tactical initiatives, which may offer short-term solutions to specific issues, strategic DEI entrenches these principles in the core mission, operations, and long-term goals of an organization. This integration ensures that DEI becomes a fundamental aspect of operations that helps foster organizational capabilities, and of culture by fostering a more inclusive and equitable environment. A strategic approach to DEI involves the following actions:

Strategically align DEI with business goals. Embed DEI within strategic planning processes and ensure that DEI objectives align with overall business goals. This drives value creation from such programs in ways that support the business and helps to make those efforts more resilient to shifting priorities or leadership. Establishing governance structures for DEI strategy formulation, execution, and oversight may also help to cultivate a culture of transparency while reinforcing a commitment to DEI.

Systemically integrate DEI practices. Adopt a bundled approach to DEI practices to amplify their impact on performance. When DEI initiatives are implemented in a cohesive and interconnected manner, they create a synergistic effect that enhances their overall effectiveness. Bundling practices, such as strategy and goals and tracking, ensure that DEI efforts are not isolated actions but part of a comprehensive ecosystem that catalyzes competitive differentiation and performance.

Make evidence-based improvements. Regular assessment of DEI initiatives, coupled with performance metrics, is essential to conducting continuous evaluation and informing future strategies. By systematically collecting and analyzing data on DEI efforts, organizations can move beyond anecdotal evidence and intuition to understand what works and why. This approach allows for the identification of successful DEI strategies and areas in need of improvement, enabling organizations to allocate resources more efficiently, make informed decisions, and deliver tangible benefits.

The critical role of DEI as a strategic imperative in companies cannot be overstated. The strategic integration of DEI not only fortifies the cultural fabric of organizations but also serves as a pivotal engine for meaningful change and enhanced organizational performance. Leaders must seize this opportunity to build strategic, robust, and evidence-based DEI programs that align with business objectives and foster sustainable growth and success.

“The MIT Sloan Management Review is a research-based magazine and digital platform for business executives published at the MIT Sloan School of Management.”

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