Diverse workforce

Diversity is good for corporate culture – and the bottom line

8 min read

29 Jun 2021

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Silja Kudel

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123RF

8 min read

29 Jun 2021

Text:

Silja Kudel

Photo:

123RF

Great minds might think alike, but brilliant ideas are born through a dialogue of perspectives. The most innovative companies are those that foster a culture of input from many voices.

The case for inclusion in the workplace is incontestable. There is a wealth of research indicating that companies benefit from employing people of different genders, races, ethnicities, ages, abilities, and sexual orientations. 

“Diversity has always been important to business, but it is only in recent years that many companies are finally realising this fact. It is well documented that firms that promote diversity see tangible benefits in terms of financial performance,” states Richard Warr, a professor at the Poole College of Management at North Carolina State University.  

A mix of viewpoints results in sounder decisions, a better work culture, and hence higher profits: “Promoting diversity is not only the right thing to do for social and moral reasons, but it’s also good for the bottom line,” Warr says.

The reasons why are manifold. For one, consumers want to buy products from companies that reflect the diversity of the communities in which they operate. Additionally, a business that fails to recruit a diverse workforce is ignoring a vast pool of talent.  

One-way causality

Not only are more diverse companies stronger at generating profits, but it turns out that they are also better at innovating. 

This finding is brought to light by Do Pro-Diversity Policies Improve Corporate Innovation?, a study co-authored by Warr, his colleagues Roger Mayer and Jing Zhao from Portland State University.

Using patents and new products as a measure of innovation, the researchers compared medium and large US firms in the S&P 1500 and found that companies that foster diversity – specifically in the treatment of women and minorities – demonstrate greater innovation efficiency. They found that the most innovative firms are those that observe policies to hire, retain and promote diverse populations. Such firms are also diverse in their senior leadership and have no history of negative events such as being sued for discrimination.

The researchers controlled the results for a myriad of other factors such as R&D expense, industry, size, and profitability. They even ran tests excluding all firms from California just to make sure the result was not purely a Silicon Valley effect.  

To separate causation from correlation, the team were able to show that while pro-diversity policies predict higher future innovations, the opposite is not true. 

“Higher innovations today don’t predict more diversity policies in the future. Therefore, the causality runs one way,” explains Warr.

Beyond ‘group think’

With causality established, the big question remains: Why does diversity matter? 

Warr shares an illustrative example: “When you give a diverse team an abstract problem to solve, they will frequently solve it faster and more accurately than a less diverse team. In part this is because less diverse teams are more likely to suffer from ‘group think.’”

When homogeneity prevails, team members unconsciously assume that because everyone looks like them, the solution they are thinking of must have been thought of by others. And, since no one has mentioned it already, it must not be correct. 

“More diverse teams don’t suffer from this handicap,” Warr says.

Mix of minds

There is of course more than one kind of diversity, which begs the question: What forms of heterogeneity are most significant to innovation?  While most existing studies focus on gender and ethnicity, new research from Switzerland highlights a different variable: education. 

Based on an empirical analysis of Swiss firms, Professor Thomas Bolli from ETH Zürich and co-authors Ursula Renold and Martin Wörter analyzed the impact of educational diversity in their study Vertical educational diversity and innovation performance.

“We wanted to test whether optimising a mix of degrees from different education levels is more useful than maximising a single indicator of educational attainment,” explains Bolli.

They found that employees with different levels and types of education can pool alternative forms of knowledge and skills to escalate innovation performance. The optimum creative team might include, for instance, technicians to establish technical parameters, designers to make the product appealing, and marketing employees to yield insights about the needs of customers.

“Our research is just a first step towards determining the ideal mix, which ultimately depends on the company and the process involved,” Bolli says.

He notes, however, that while educational diversity enhances the creative invention phase, it has less impact on the commercialisation stage. 

“Reaping the full benefits of diversity requires coordination and communication, which can be costly. The firm’s culture must foster contact and exchange of knowledge and ideas between different employees,” Bolli maintains.

The paradox of “pedigree”

The Swiss study in any case suggests that hiring decisions should not be based solely on rigid notions of what kind of education is “useful.”  Becoming too fixated on a recruit’s resume pedigree can pose a risk of side-lining talent that may not come to light via traditional paths. Warr adds that while fostering workplace diversity might begin with recruitment, it is primarily about creating a truly welcoming environment and listening to everyone in the organisation.

Every firm should ask itself: How are our policies and workdays structured for parents of young children?  Are we perhaps imposing rules that are unconsciously limiting the potential of some of our employees?

“These questions are almost impossible for someone like me – a white, middle-aged male – to answer. They require sincerely seeking input from a wide range of voices,” Warr concludes.