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The EQ IQ Series
The formula for achieving a standard for performance & impact
The EQ IQ series
The formula for achieving a standard for performance & impact
Diversity is foundational to everything in our world. Our environment relies on the careful balance of diverse ecosystems to thrive. The best-performing investment portfolios are rooted in asset diversification to maximize returns and minimize risk. Cybersecurity and other defense systems depend on diverse, layered approaches to optimize their results against threat actors and the risks they impose.
The challenge everyone is now facing in a complex, relentlessly changing world is what does diversity look like, especially for my particular organization? Every region across the U.S. is unique in terms of its surrounding socioeconomic dynamics. Every industry differs due to its competitive landscape, required skills and workforce, and business model. Every organization is at a different phase of its lifecycle and organizational challenges.
Demographic Alignment is Equity Quotient’s approach to achieving an objective, measurable framework to understand your organization’s unique stakeholder diversity in the context of the community(ies) where you operate. With this proprietary model and innovative technology solution, we are helping organizations chart the future of diversity by understanding the relationship between stakeholders (workforce, suppliers, customers, and community) and related metrics, such as educational attainment, median income, health insurance coverage, home ownership, to help drive compliance, growth, and impact.
Understanding your organization’s Demographic Alignment is the key to capitalizing on diversity as a competitive advantage to drive sustainable growth, catalyze impact, and remain compliant.
Achieve an objective framework for Stakeholder Impact
Companies have compelling financial reasons to be intentional about their diversity imperative and drive positive social impact. Beyond external market pressure, organizations that invest in demographic alignment as it relates to their diversity, equity and inclusion (DEI) strategy are proven to be more successful on every major performance metric, with the top quartile in talent diversity realizing 15%-33% stronger results versus the median. Companies dedicated to diverse teams also achieve superior results related to:
- Revenue: 19% higher
- Cashflow: 2.3x higher per employee
- EBITDA: 3.5% increase
- Retention: 3x stronger
Meanwhile, firms with higher ESG scores, which includes their “Social” or stakeholder risk and impact weighted at over 50%, have an average cost of capital roughly 50 bps lower than their peers with lower ratings since 2015. Recent studies also indicate organizations that thoughtfully align stakeholders demographically to the communities where they operate realize both compelling financial results and positive stakeholder impact on multiple fronts. Here are a few examples:
- Mortgage Banking: The difference in default rates between minority and white borrowers (1.7 percentage points) disappears when the loan officer is also a minority. Meanwhile, loan origination completions and other relevant success metrics also improve materially to ultimately open the eligible borrower pool by 20%.
- Consumer Products & Retail: At $3.9T, U.S. BIPOC spending power would be larger than Great Britain, 5th largest GDP in the world. Tapping into that market requires companies to engage the 57% of consumers loyal to brands that demonstrate concrete commitment to social equity across all stakeholders. Meanwhile, retailers such as Walmart have found stores realize stronger performance when they achieve tight demographic fit with their communities.
- Healthcare: When Black patients are treated by Black doctors, adult mortality rates declined by nearly 20% while infant mortality rates declined by ~50%.
- Education: When Black students are exposed to just one Black teacher, graduation rates improve by 40% while those pursuing college increases by 15%. This increase could meaningfully address the wealth gap as college graduates earn 2-3x those with high school diplomas or less.
From consumer banking and retail to healthcare and education, companies that make stakeholder alignment core to their strategy realize improvement across all major financial and social KPIs. Particularly coming out of the Pandemic where the world has changed so dramatically, an exciting opportunity exists for all companies to take a fresh look at themselves in the context of the market(s) where they operate. Achieving a deeper understanding of each stakeholder group (employees, suppliers, customers) compared to each other and the surrounding community at-large can provide critical insights that can mitigate risk, unlock growth initiatives, and drive competitive advantage.
The Formula for Success
Input #1: Calculating Demographic Alignment
Foundational to Equity Quotient’s data-driven approach to social impact analytics is the concept of Demographic Alignment. AI-powered technologies enable advanced statistical analysis of detailed socioeconomic data at the most granular levels to yield insights that are both objective and quantitative yet in a way that is flexible and meets companies where they are. More specifically, Demographic Alignment insights are concrete enough to provide clarity and comparison (to the community, peers, and itself over time) while avoiding being binary (i.e., you’re good or bad). The approach is also very context aware–i.e., it’s anchored in the reality that every organization is unique due to its distinct geography, industry, size, age, business model, and objectives.
As a result, Equity Quotient’s Demographic Alignment analytics enables stakeholder impact analytics that are highly relevant to a given organization given its current situation and future goals. It also provides the opportunity for information and recommendations that are imminently actionable, providing the ability for Boards, Executives, and their cross-functional teams to set From:–>To: goals. Once those goals are established, teams are then able to align as an organization around the best way to achieve them and dynamically track progress versus their goals over time, adjusting early and often as their business and the markets where they operate evolve.
The exciting opportunity around Demographic Alignment is that it is entirely measurable given publicly available data. Meanwhile, that public data (Data.gov sources–i.e., Census, HMDA+) can be further enriched with third party sources from the private sector (Zillow, ADP, Equifax+++). By creating a detailed view of the socioeconomic landscape by micro-region (county/metropolitan area), Equity Quotient is able to help companies get a quick view of how their organizations compare to their communities, or markets where they operate, and the actions they might take to seize untapped opportunities for growth. Those actions could include honing their talent portfolio to more closely align to the demographics of their customers or expand their procurement bidding processes to widen the pool of suppliers by micro-vertical.
Input #2: The Importance of Microsegmentation
The concept of micro-segmentation within the Demographic Alignment calculations is also important because it creates a relevant boundary condition for organizations. More specifically, rather than having companies report on DEI metrics that aren’t tied to actual quantitative impact over time or cognizant of the communities where they operate, Equity Quotient’s approach establishes an important “denominator” for helping companies concretely see how their stakeholder portfolios compare to their markets while quantifying the impact that might be having on their own performance and growth opportunities as well as their surrounding stakeholder communities.
As we interviewed hundreds of companies and related experts on our analytic model, one compliance guru said, “You know what I like about this? Equity Quotient could be the bulwark against chaos! Everyone is being accused of not being ‘good’ right now on the diversity front and yet no one knows what good looks like.” Another leader at a Tier 1 global investment bank told us, “ESG’s S-factor, or social impact is the main thing that keeps me awake at night. We’re being asked to assess whether companies are impact-positive. While we’re now in great shape related to the E, we’re put in a terrible position on the socioeconomic or stakeholder impact side because no real data or objective criteria exist.”
Equity Quotient’s analytics platform anchored in Demographic Alignment and Micro-segmentation enables an objective and quantifiable methodology that is both concrete yet flexible. On one hand, it enables organizations to measure and manage themselves at a given moment while also tracking their progress over time. Firms are able to compare themselves to their peer organizations (geo/industry/size/business model) as well as the general population of consumers/citizens/patients in their relevant regions. Equity Quotient’s SaaS platform also enables companies to continuously evaluate these metrics for a variety of use cases across the organization, operationalizing the data and analytics into their strategic decision-making and aligning cross-functional teams to execute more effectively to mitigate risks and drive growth.
Input #3: Clear, Insightful, & Actionable Outputs
While the math behind Equity Quotient’s platform is advanced and the data sources are rich, the solution’s insights are highly consumable and straightforward. Most users need to be able to look at insights quickly and determine what needs to be done in very practical terms. Equity Quotient’s goal is to help companies achieve an automated, easy, practical approach to achieving advanced insights that can fundamentally change the way they operate and realize competitive advantage.
Every major function in an organization has a role to play when it comes to understanding and acting related to demographic alignment. Let’s take a regional bank as an example. The CMO and Head of Sales might want to see how the current customer portfolio and broader funnel compare to the broader markets they’re addressing while looking at new markets to uncover untapped growth opportunities. The CHRO and her team may want to explore their talent pool and how it compares to the demographics of the customers they engage and/or surrounding communities while building their pipeline through a workforce development program. The CFO along with the head of GRC might need help with objectively assessing risk in a more dynamic way and automating current reporting requirements for DEI scoring models and/or SEC filings. The head of banking systems might require a way to understand the efficacy of their credit scoring models and where they might be impacted by gender, racial or other bias that needs to be addressed over time.
Most of these users are short on time and lack advanced analytical skills needed to create their own reports and/or interpret complex data. Equity Quotient’s platform is focused on providing a highly curated user experience that presents a clear perspective on the current state of the business and how to get started with taking action to mitigate risks and drive growth across all major functions in the organization.
More Advanced Expertise & Analytics For Less
To reiterate the imperative: 75% of companies are now reporting on impact at some level, but 63% still feel unprepared to address regulatory requirements or their internal goals. As boards and executive teams grapple with this challenge, most are spending at least $1M USD to report on impact. Putting the right tech in place, gathering the data from relevant sources, conducting complex analysis, preparing answers to surveys, and publishing reports is complex and costly. Furthermore, leaders and their teams are struggling to keep up as things change, both internally and externally.
All of these challenges adds up to an intractable problem that companies cannot solve internally for several reasons:
- Complex Global Compliance Landscape: Government regulations and private sector standards across every region are evolving every day at a dizzying pace. There are now approximately 600 ESG-related compliance mandates that will continue to expand. Meanwhile, the compliance landscape related to stakeholder impact, such as Health Equity or responsible AI imperatives, are growing and becoming increasingly complex. Even the largest, most mature companies are unable to stay abreast of what’s required and the best way to take action.
- Advanced Skills & Technology: The talent needed to address the challenge and opportunity from a legal, technical, and business standpoint is advanced and nearly impossible-to-find. Tackling this imperative effectively requires:
- Brilliant Technologists: Highly advanced skills in data science, artificial intelligence and machine learning.
- Compliance Gurus: The most advanced domain knowledge on DEI and responsible AI governance, risk, and compliance (GRC).
- Sociology & Social Impact Experts: Community development professionals
who acutely understand the social impact space as well as the sociology and economic dynamics related to it.
- Vertical Domain Expertise: Deep industry expertise across a critical mass of companies within a given sector, such as retail banking, consumer products, healthcare, tech, services, distribution, energy, education and public sector.
Most companies lack the budget to afford a cross-functional, dedicated team. Furthermore, even for the largest, most advanced organizations dedicated to maximizing their demographic alignment, the talent required is difficult to find and forming an internal group that’s completely aligned is even more challenging and cost prohibitive.
- Objectivity & Peer Perspectives: Establishing an effective approach to the socioeconomic imperative that’s operationalized across the business requires the ability to “see the playing field” in an objective, actionable way. Meanwhile, the only way to achieve that broad perspective of what “good” looks like is through engaging with a critical mass of companies in every relevant sector to understand what’s being done, where companies are getting flagged, and what initiatives are having impact. The importance of objectivity, broad industry and socioeconomic visibility, multi-disciplinary expertise, and deep industry domain together make this a challenge that is best addressed through engaging an external, third-party solution.
From Strategy to Execution
Capitalizing on the power of Demographic Alignment is the key to unlocking competitive advantage. Here’s a step-by-step process for how your team can see your company in fresh ways and begin taking action to drive both impact and growth:
- Start with Exploration: Equity Quotient’s dashboards make it easy to begin understanding the world around you from a socioeconomic perspective–overall diversity, level of education, unemployment levels, business and housing ownership, pay equity.
- Ask the Right Questions: Evaluating the micro-regions where my company operates, how do we compare in terms of diversity and pay equity? Given the level of education needed for our unique business, does the region support the skills that are needed? How can I contribute to building a more robust pipeline of talent that’s qualified and ready to help grow my business? Do my customers reflect the communities where I operate, either in terms of B2B business ownership or B2C consumers?
- Generate EQ Opportunity Assessments: Equity Quotient’s automated, dynamically generated assessments for customers will provide rich insights about a company’s stakeholder groups (employees, suppliers, and customers) compared to the communities where they operate on an ongoing basis. These assessments will be achieved by running advanced analytics on employee data from existing enterprise systems, particularly HR (employee data), Financials (supplier data), and CRM (customer data), intersected with Equity Quotient’s core socioeconomic data platform. Outputs from these assessments will be used for reporting purposes as well as strategic planning.
Many firms are working with other companies to help them measure and manage their Social Impact. If you’re an accounting practice, law firm, or consulting organization, Equity Quotient can provide automated tooling that can underpin their broader services offerings and drive new growth. The platform can be made available as part of your firm’s core offerings to provide value added services to your ecosystem of clients.
companies don’t have the advanced data science skills to build this kind of platform in-house–the cost and complexity of the data, skills, and technology are just not feasible for even the largest firms.
EQ’s Solution: 5 Key Offerings
The advent of new technologies and data sources opens up the ability to combine rich public-private demographic and financial data to concretely measure performance. These new capabilities make it possible for companies committed to driving material improvement in their demographic alignment to dynamically optimize both investment ROI and impact across all stakeholder groups–including customers, employees, suppliers, and the communities they serve.
There are five key building blocks that now enable companies to gain visibility into their current state and chart a From:->To: course for impact and growth, including:
1. Public + Private Data
The availability of richly attributed demographic data and corporate financial performance information can be achieved through integrating public information from the US Census and other Data.gov sources with private sector data (e.g., consumer credit scoring bureaus a la Equifax, Experian et al) into a single data platform to power advanced analytics. Over time, that data platform can be further enriched with non-PII peer-to-peer data to enable comparisons beyond the community-at-large to where an organization stands versus other industry players.
2. Stakeholder Portfolios
The best approach to understand stakeholder portfolio relationships is through intersecting company data, particularly related to customers, employees and suppliers, with demographic data derived from the communities where the corporation serves, or markets where it operates. While most organizations are understandably concerned about sharing this highly sensitive corporate information, firms are now able to achieve this intersection of public and private data in a way that is anonymous while realizing compelling, actionable insights.
New privacy-enhanced technologies, including more established token-based solutions as well as emerging blockchain capabilities, make it possible for companies to share internal data securely by obfuscating personally identifiable information (PII) and preserving corporate data sovereignty. Ultimately, these new technologies enable companies to establish private, cloud-based environments to achieve rich insights that can drive business automation and growth, such as:
- Point-in-time Analytics: To simplify and automate complex regulatory reporting.
- Dynamic Dashboards: Providing socioeconomic insights to inform strategic planning.
- In-line Monitoring of AI: Establishing an outside-in boundary condition for models to ensure system efficacy where stakeholder impact exists.
3. Regional Microsegmentation
As mentioned earlier, a key challenge with current models is that rating systems poorly define peer cohorts for benchmarking purposes–i.e., companies are being compared to other firms that are not peers based on their geo, industry, size, or other relevant factors. As a result, ESG S or social impact ratings are challenged with being incorrect, irrelevant, and/or not actionable. Moreover, a critical component of defining a given company’s socioeconomic imperative is clearly defining boundary conditions for stakeholder analytics, or the relevant “denominator,” for analysis. Comparison segments should be based on geo/industry/size/type to achieve more granular partitions for benchmarking against peers. Through this level of detailed analysis, it becomes possible to uncover meaningful insights regarding compliance-related risks and opportunities for growth.
4. Advanced Statistical Analysis & AI/ML
Advanced regression analysis and other statistical modeling can be applied to achieve a comprehensive, consumable understanding of the alignment or disconnect between a company’s stakeholder demographics versus the broader demographics of communities or markets where they operate. More specifically, to create an assessment of each company’s social or stakeholder impact, a firm could start by calculating its standard deviation from the “norm,” which is based on the relevant microsegment that was defined as the boundary condition or denominator for the equation.
Companies also have the opportunity to apply advanced data science to achieve “Stakeholder Portfolio Optimization,” or more advanced statistical analysis based on the same concepts that underpin traditional investing’s “Modern Portfolio Theory” pioneered by Harry Markowitz. This approach to deriving the “Efficient Frontier” for a given investor’s capital allocation across a diverse portfolio of financial assets could be applied to stakeholder investment portfolios.
Anchored on the critical importance of diversification, Efficient Frontier calculations applied to this use case could enable companies to dynamically maximize their social impact posture by evaluating risk/reward trade offs, effectively balancing or optimizing both financial performance and diversity metrics to drive long-term, sustainable growth.
5. Multiple Output Formats
Given the broad use cases where impact analytics can be impactful, there are several applications for the advanced analytics, including:
- Regulatory Reporting: Periodic, point-in-time Social Impact Assessments can inform government compliance, SEC 10-Ks, equity ratings, and/or Board reporting. The advanced analytics can be viewed via drillable dashboards that enable dynamic discovery or exported for presentations and other organizational use cases.
- Stakeholder Investment Strategies: C-suites and their functional teams across HR, Legal/GRC, Finance/Procurement, IT, Product/R&D, Marketing/Sales will be able to leverage these advanced analytics to inform the full continuum of decision-making. Establishing clear socioeconomic imperative goals, aligning cross-functional teams, and tracking attainment over time is critical to achieving success. Real-time data analysis also provides the agility needed to adjust early and often to the inevitable uncertainty and unexpected challenges and opportunities that emerge.
- AI System Efficacy: Automated, in-line efficacy monitoring can enable companies to more effectively and efficiently balance their need for AI innovation with the potential risks and costs it can impose. By highlighting where AI system outputs might be anomalously divergent from population and peer demographics, companies can proactively determine where they need to adjust people, processes and/or technology to optimize outcomes, both in terms of financial performance and diversity metrics.
Get Started & Grow
Now is the time to capitalize on new technologies to transform the way your organization thinks about its stakeholder portfolios. Finding the intersection between performance and impact is no longer a mystery with the data and analytics that are available. Equity Quotient can help companies get started with detailed views into the communities where companies operate, providing unprecedented insight into where an organization fits in the larger ecosystem. These insights can provide an idea of where opportunities exist to improve demographic alignment to unlock new growth while also managing stakeholder-related risk.
The world has changed dramatically in a myriad of ways since the start of the Pandemic. To remain relevant and competitive, organizations have an exciting opportunity to achieve the next generation of sustainable growth with an innovative, intentional approach to their stakeholder strategies. Capitalizing on the latest technologies available–big data, advanced analytic modeling, and AI–can enable organizations to gain a detailed, dynamic view of their business and proactively take control of risk and opportunity to automate compliance mandates, measure impact, and catalyze new growth.
- Our Office, “The New ROI: Return on Inclusion,” Sonya Sepahban, August 4, 2020.
- MSCI, “ESG and the cost of capital,” Ashish Lodh, February 25, 2020.
- Banking Academic Research Paper, “The Impact of Minority Representation at Mortgage Lenders,” W. Scott Frame, Ruidi Huang, Erik J. Mayer, Adi Sunderham, May 9, 2022.
- Deloitte, “Authentically Inclusive Marketing,” C. Brodzik, N. Young, S. Cuthill, N. Drake, October 19, 2021.
- SSRN, Physician-Patient Race-Match Reduces Patient Mortality, June 26, 2020, A. Hill, D. Jones, L. Woodworth while infant mortality rates could be reduced by 39%-58% (CNN, August 20, 2020)
- Whyy, “Want to Support Black Students? Invest in Black Teachers,” Feb 19, 2021 and Time, Aug 11, 2020.
- Gartner, “The ESG Imperative: 7 Factors for Finance Leaders to Consider,” Swetha Venkataramani, June 10, 2021.
- Harvard Business Review, “New AI Regulations Are Coming, Is Your Organization Ready?,” Andrew Burt, April 30, 2021.
Oracle AI & Data Science Blog, “Study: What are the requirements for data scientist jobs in 2020?” Nedko Krastev, October 22, 2020.