Many arguments are being put forward when discussing why businesses should cultivate equality, diversity and inclusivity. ‘The global economy is becoming more competitive hence recruiting from a diverse talent pool will guarantee a more qualified workforce.’ ‘Markets are becoming increasingly global and a diverse workforce is likely to capture a greater share of that market.’ ‘It’s simply the right thing to do.’ These reasons sound logical and hence convincing, but other arguments, which make claims around economic benefits of diversity, might need more evidence to convince you. Such evidence is becoming increasingly available and I’ll share with you what is says;
Diversity is linked with higher financial returns
McKinsey & Company released a report in 2015, Why Diversity Matters, showing that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. In contrast, companies in the bottom quartile in these dimensions are statistically less likely to achieve above-average returns. These results hence indicate that companies with more diverse teams perform better financially.
Reasons why more diverse teams perform better mentioned in the report include some of our ‘logical’ arguments in favour of diversity such as an increase in the talent pool and stronger customer capture, as well as additional factors such as an increase in employee satisfaction, improved decision making and enhancement of the company’s image.
Diverse executive teams foster innovative and resilient companies
BCG and the Technical University of Munich published a study in 2017, The Mix That Matters, which reports a positive relationship between management diversity and innovation. Notably, for gender diversity, a link was observed only if diversity is present at the management level, as having high percentages of female employees at lower levels on its own did nothing for innovation. The impact of diversity overall was more pronounced for complex companies.
The latter result is interesting since conclusions of a recent project by the Wo+Men’s Leadership Centre of the University of Cambridge Judge Business School, showed that gender diversity is advantageous also to firm performance in challenging situations. Arguably, both in complex companies and companies that are challenged, improved decision-making related to gender diversity becomes apparent, and it’s an impactful differentiator under such conditions.
Diversity is not enough; inclusivity is key
The BCG-Technical University of Munich study concluded with saying that openness to contributions from all-level workers was found to be crucial in fostering innovation. A study published by Forbes titled ‘Fostering innovation through a diverse workforce’ confirms this argument and reports that a diverse and inclusive workforce brings the different perspectives that a company needs to power its innovation strategy.
And key here is ‘diverse and inclusive’, as indeed diversity in itself will not lead to innovation if not all those people with diverse backgrounds, skills and experiences are empowered to contribute. And that is the real challenge for companies; to not only recruit diverse people at all levels, but to also ensure that they trust each other and feel safe to speak their mind.
To all companies who were not convinced yet that Diversity + Inclusivity is the way to go, or were unsatisfied with the simple argument that it’s the right thing to do (though they should be, really); know that diverse management teams and an inclusive culture are likely to improve returns and foster innovation. Diversification thus is a powerful strategy, and those who invest now will likely pull further ahead while those who don’t are destined to fall behind.
First featured in IQ Business Magazine in September 2019