Research Proves Diversity Is Good for Business

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Some believe that companies should work toward becoming more diverse because it’s the right thing to do. And, that may be true. However, it’s also in their best interests to hire a diverse workforce and leadership team.

Researchers have proven, time and again, that diverse teams are more innovative and productive. They’re better at developing products, solving problems and so much more. Diversity turns out to be excellent for a company’s growth and their bottom line.

Why Diversity is good for business 

Let’s say that you’ve hired a group of architects to design your factory. First of all, consider why you might hire a group rather than just one individual. So that they can put their heads together to come up with the best ideas, right? A group would also be more likely to accurately anticipate problems and figure out workarounds than an individual would, correct?

Now, follow that logic. Would you prefer to hire team members who were all the same gender and the same age, with the same background? Or, would it be better to hire a diverse group of talented architects to design your factory?

Diversity — by gender, race, ethnicity, socioeconomic background and other factors — helps groups and businesses to view things from a variety of perspectives. But, there’s more to the benefits of diversity than that.

Here a few key points to keep in mind:

1. Diversity Drives innovation

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Researchers have shown that diversity propels powerful innovation. A survey of more than 1,800 professionals found as much. This research showed that companies that were more diverse out-innovated others. This leads directly to more business and more profits. Employees from diverse companies were 45% more likely to report that their firm’s market share grew over the previous year. And, they were 70% more likely to say that their firm captured a new market.

The report also found that without diversity, especially in leadership roles, companies suffer.

At Harvard Business Review, Sylvia Ann Hewlett, Melinda Marshall and Laura Sherbin wrote:

Without diverse leadership, women are 20% less likely than straight white men to win endorsement for their ideas; people of color are 24% less likely; and LGBTs are 21% less likely. This costs their companies crucial market opportunities, because inherently diverse contributors understand the unmet needs in under-leveraged markets. We’ve found that when at least one member of a team has traits in common with the end user, the entire team better understands that user. A team with a member who shares a client’s ethnicity is 152% likelier than another team to understand that client.

2. Management teams produce more revenue when they’re diverse 

A study by the Boston Consulting Group looked at 1,700 different companies across eight countries. These companies were of different sizes and functioned within a variety of industries. According to Forbes, researchers found that increasing diversity had a direct and profound impact on a company’s bottom line. Companies with diverse management teams had 19% higher revenue than their competitors.

Diverse leadership helps to drive innovation, because of the wider array of perspectives. Also, when leadership teams are diverse, it sends a powerful message to the rest of the company that all perspectives are valid and will be heard.

Even when a company is diverse, it may still be difficult for individuals to feel comfortable sharing their ideas if the leadership team is not. Also, diverse leadership teams may be more capable of hearing the contributions made by all employees and honoring them appropriately.

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3. Diverse workplaces foster empathy  

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There are benefits to diversity that go beyond the bottom line. Diverse workplaces aren’t just more innovative and creative than others, they’re more fair and empathetic, too. They understand the different perspectives and needs of their companies better. And, they can make product improvements and other changes that better address a company’s long-term well-being.

When members of a company, especially those in leadership roles, come to really understand and appreciate the value of diversity, something else often happens, too. They also begin to understand the importance of helping employees to feel a sense of belonging, on an intellectual and emotional level.

4. Diverse boards perform better 

A McKinsey study found that companies with the most diverse boards generated 14% higher EBIT (earnings before interest and tax) margins on average than companies with the least diverse boards. Researchers examined 180 publicly traded companies in France, Germany, the United Kingdom and the United States from 2008 to 2010 for this study.

Per the study:

The findings were startlingly consistent: for companies ranking in the top quartile of executive-board diversity, ROEs [returns on equity] were 53 percent higher, on average, than they were for those in the bottom quartile. At the same time, EBIT margins at the most diverse companies were 14 percent higher, on average, than those of the least diverse companies (exhibit). The results were similar across all but one of the countries we studied; an exception was ROE performance in France; but even there, EBIT was 50 percent higher for diverse companies.

Once a company understands the value of diversity, leadership tends to make it a higher priority.

“At adidas, one of the companies that ranked in our top quartile in diversity and performance, senior leaders have designated diversity as a strategic goal and started building it into the guts of the organization,” the report stated. “To deepen the talent base, for instance, the company has set hard targets for increasing the number of women in management ranks.”

Adidas intentionally expanded their gender diversity in managerial roles during this time, because they came to appreciate the value of doing so. They supported the effort, according to this report, by adjusting and launching numerous policies. Child care assistance, flex- and part-time work opportunities and improved gender-balanced recruiting all helped to support the company’s goals to improve gender diversity at the managerial level. They also ensure diversity in their design centers in an effort to spur innovation.

5. Diverse groups make better decisions

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A study from Tufts examined how juries respond when they are racially diverse compared with when they’re not. In their study of these mock juries, researchers found that racially diverse groups performed better by a host of measures.

“Such diverse juries deliberated longer, raised more facts about the case, and conducted broader and more wide-ranging deliberations,” said Samuel R. Sommers, Ph.D., assistant professor of psychology in the School of Arts and Sciences at Tufts University, in Science Daily. “They also made fewer factual errors in discussing evidence and when errors did occur, these errors were more likely to be corrected during the discussion.”

Diversity has a big impact on decision making in juries. The same rules would logically apply to businesses. Here, diverse teams can be expected to perform with greater accuracy and care. They’d anticipate more problems and find a broader and wider range of potential solutions to those challenges. Diverse groups uncover more angles and therefore, they generally make better decisions.

6. Diversity brings out the best in everyone

One particularly interesting aspect of the Tufts study was that it found that the differences were due, primarily, to changes in the behavior of white jurors on the mock juries.

“Whites on diverse juries cited more case facts, made fewer mistakes in recalling facts and evidence, and pointed out missing evidence more frequently than did those on all-white juries.” Sommers said. “They were more amenable to discussing racism when in diverse groups.”

The impact of diversity doesn’t stem solely from the impact made by individuals from historically underrepresented groups. It turns out that everyone performs better when teams are more diverse.

“Traditionally, most psychologists and legal scholars have assumed that the influences of racial diversity result from the contributions of minority group members, who in effect bear the burden of bringing new perspectives and experiences to the table,” Sommers explained. “This study offers the novel hypothesis that minority group members are also responsible for effects of diversity, and that performance advantages to jury diversity are not limited to white and black jurors bringing difference experiences to the jury room and sharing different perspectives.”

Diversity isn’t just valuable because of multiple, individual perspectives. Bringing diverse groups of people together helps them make better decisions.

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