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Better Decisions and Improved Performance: How Diversity Makes a Company Stronger

 

Business & Technology Services
19 April 2019

Diversity isn’t a new discussion in business.

Since the 1960s there has been pressure on companies to reflect the societies they actually serve. But it began as a lofty ideal. By the 1990s, when I was starting out on my career, arguments over affirmative action were raging, and diversity was largely seen through the lens of compliance: something companies had to do, but didn’t necessarily believe in.

Now, the conversation has changed completely. Diversity isn’t just an item near the bottom of the agenda – it has to be right at the heart of a business. Because, to put it bluntly, diversity impacts the bottom line.

The evidence that more diversity boosts profits is mounting all the time, as more research is carried out into an area that has traditionally been ignored.

McKinsey’s Delivering Through Diversity report quantifies the correlation between companies with better gender and ethnic diversity in their workforce and their financial performance. The report looked at more than 1,000 companies based in 12 countries. It found those in the top quartile for gender diversity were 21% more likely to have above-average profitability than those in the bottom quartile. For ethnic diversity, that figure was 33%.

How that diversity is spread through a company matter. The McKinsey report shows that the benefits were even more pronounced when the executive team was diverse, and not just the workforce as a whole.

Gartner goes even further in pointing out the tangible benefits of diversity when it comes to building high-performance teams in the IT and tech sector. It predicts that over the next three years 75% of organizations with frontline decision-making teams that reflect a diverse and inclusive culture will exceed their financial targets.

As anyone who has been in a brainstorming session with people from markedly different backgrounds knows, diversity also drives innovation.

A study of firms based in London published in Economic Geography showed those with more ethnically diverse management were more likely to introduce new product innovations. A Spanish study similarly found a correlation between gender diversity and radical innovation.

Unfortunately, the data is limited on many forms of diversity, such as age, disability, sexuality and neurodiverse workers (those with non-visible neurological conditions such as autism, dyslexia or attention deficit hyperactivity disorder). But there is every reason to suppose the benefits would be similar. That is because of what a diverse workforce can bring – different life experiences, ways of thinking, priorities, and perspectives.

This is vital for any company wishing to better understand and reflect its customer base, or looking to challenge established ways of thinking in a fast-changing digital economy. 
Diversity also helps businesses make the right decisions. 

Analysis in the Harvard Business Review shows that diverse teams are more likely to re-examine facts and remain objective. On the side, research by Professor Evan Apfelbaum at MIT Sloan School shows that homogenous teams are more prone to succumb to groupthink and overlook obvious errors.

In fact, he found introducing more diversity upped everyone’s game, improving critical thinking from every member of the team, regardless of their background or gender. He put that down to people knowing their assumptions would be challenged in a more diverse group.

Diverse teams were also less likely to be overconfident, and more prepared to admit they might be wrong. Although as managers we love hearing certainty, that welcome dose of realism can be vital insurance against making serious mistakes.

The most surprising thing about diversity isn’t that it works. Much of the research being done right now just confirms what common sense can tell you from the start: that if you have the widest possible pool of talent and the biggest range of voices and experience, you will come up with the best solutions. 

What is surprising is that, after it is on the agenda for so many years, most companies still have a long way to go to achieve genuine diversity.

As the World Economic Forum’s Global Gender Gap Report shows, women are still facing significant barriers even in the most progressive societies and industries. Just 5% of Fortune 500 CEOs are womenOnly 15 African American executives of any gender have ever been CEO or chair of Fortune 500 companies.

If we want to build companies that are more profitable, and better run, we need to do better than that.

About the author(s)
Business & Technology Services

TCS’ Business and Technology Services organization combines the power of business excellence with digital innovations to help enterprises and leaders be purpose-driven and performance-oriented, making the shift from shareholder value to stakeholder value. By harnessing the abundance of data, talent, connectivity and capital, B&TS helps leading companies around the world build ecosystems that fuel growth and innovation, foster collaboration and engagement across ecosystems, improve health, safety, and well-being, enabling empowerment and inclusivity, and driving sustainability and positive environmental impact.

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