Think diversity and inclusion are admirable virtues for society, but not necessarily business advantages? Think again. Fostering a culture of diversity and inclusion of people from different backgrounds, lifestyles and perspectives is exactly what today’s businesses must do to compete on the global stage, according to many of the world’s most respected research organizations.
Gartner research reveals that “differences of age, ethnicity, gender and other dimensions foster high performance.” Through 2022, 75% of organizations with frontline decision-making teams reflecting a diverse and inclusive culture will exceed their financial targets, according to recent studies. World Economic Forum research shows that companies with above-average diversity scores drive 45% average revenue from innovation, while companies with below-average diversity scores drive only 26%.
Teams that are gender diverse and inclusive tend to outperform those that are gender-homogenous — sometimes by as much as 50%. While many industries still have a gender gap where men overwhelmingly outnumber women in the workforce, there are significant benefits to having equal gender representation on a team. For example, women are 34% better at working out compromises and 25% better at mentoring.
When comparing employee performance between nondiverse and diverse organizations, Gartner research shows a 12% diversity boost, with similar improvements in employee retention.
Racial and Ethnic Variety
A McKinsey & Company study showed that companies in the top 25% for racial/ethnic and gender diversity were respectively 36% and 25% more likely to have superior financial returns. There’s still work to be done when it comes to the leadership ranks. The study noted that “ethnic diversity in leadership teams progressed slowly” in Gartner’s 2014 data set and “even more slowly” in its global 2017 data set.
Diverse teams outperform individuals about 87% of the time during business decision-making processes, according to one UK-based Cloverpop study that covered 600 business decisions made by 200 teams across a range of industries. In fact, diverse teams were also shown to make decisions faster than individuals. Gender-diverse teams are especially effective, outperforming individuals 73% of the time, compared to 58% for all-male teams.
Implementing diversity and inclusion is not about representing every race, age, gender and ethnicity group in proportion to the surrounding area. It is also about promoting “cognitive diversity,” because people who think differently blend perspectives for stronger collaboration, problem-solving and innovation. Differences in thought processes also help to avoid groupthink, which stifles creativity and results in stale ideas.
Cognitive diversity drives success in five key ways:
- Fosters Innovation: When collaborators of different backgrounds and different thought processes work together, they stimulate one another’s minds in ways that like-minded people simply cannot. From a neurological perspective, the human body actually creates hormones and energy that elevate mental performance in a diverse group. One creative idea sparks another and another. Conversely, with lower levels of diversity, those in the minority of a group are often creatively inhibited.
- Supports Different Markets: In a global economy, companies need employees who understand all of the markets they currently serve or aspire to serve. Those markets may be geographic, or they be market populations or segments such as a particular ethnicity in a certain country. A workforce that mirrors its customer base has fewer barriers and more built-in advantages to plan and execute effective business strategies and communications.
- Increases Talent Retention: When employees feel included and can relate to co-workers with similar backgrounds, they feel comfortable enough to stay. When they do not feel that their presence is wholly appreciated or their contributions valued, they will eventually leave. Great Place to Work research shows that employees in a diverse and inclusive company are 5.4 times as likely to want to stay for a long tenure.
- Expands Access to Talent and Skills: Diverse workforces provide more diverse referral channels and access to a wider range of skills. Every employee is a vector in a network, and with more starting points, the network can quickly grow. Diverse companies are therefore able to attract talent from various educational backgrounds, geographical areas and with a variety of talents and intellectual aptitudes.
- Improves Problem-Solving: A study from Harvard Business Review found that cognitively diverse teams find solutions faster by trading new ways of problems-solving. This education enables each individual to build their critical thinking repertoires and be more flexible. At the same time, individuals develop specific roles on the team, bringing their individual aptitudes to bear.
As research continues to corroborate the powerful effects of diversity and inclusion on organizational success, both the academic and professional circles will continue to leverage these dynamics. An advanced business degree that incorporates the findings on the value of diversity and inclusion will prepare professionals to leverage non-homogenous teams.
Learn more about the University of North Carolina at Pembroke’s online MBA program.
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