Benefits of Diversity

Surprisingly there are still many people in the business world who are not really open to welcoming a diverse group to the business table.

There’s no doubt that diversity can bring some challenges and that’s often where the conversation starts. But I’ve always hated the problem-oriented approach.  In this blog I want to focus on the benefits of a diverse group.

What can we gain if our organisations do what needs to be done to develop diversity and build inclusion?

Financial advantages

We can earn more money.  McKinsey & Company in their 2015 paper “Why Diversity Matters”[1] reported that companies who are ethnically diverse are 35% more likely to financially outperform companies that lack diversity. Figures for gender diversity come in at 15% more likely to outperform.  This data was gathered from companies in a range of industries across Canada, Latin America, the UK and the USA. When they focused on the US they reported “a linear relationship between racial and ethnic diversity and better financial performance: for every 10 percent increase in racial and ethnic diversity on the senior- executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.”

What about Australian data?

Here the Watermark Board Diversity Index for 2015[2] for the first time extended their discussion beyond gender to also consider cultural background and industry experience.  They found companies in the top ASX  (Australian Stock Exchange) 1-100 drew 17% of their non-executive directors (NEDs) with overseas experience and heritage.  Companies in the ASX 101-200 had less than 10%.  Similar results show greater gender diversity in the top 100 than in the lower group.

I know, I know; the data is correlational rather than causational. But keeping in mind the conclusion of McKinsey & Company “There is a statistically significant relationship between more diverse leadership and financial performance”, let’s consider what some of those causes might be.

Talent recruitment, retention and performance

One of the key drivers toward diversity reported by the NAB Australian Business Diversity Index[3] was businesses desire to enhance recruitment and retention.  Organisations that manage the recruitment process well, working to eliminate bias, both systemic and unconscious, will recruit from a wider talent pool. According to the Centre for Talent Innovation[4] today, white men make up only 10% of the global talent pool.   

Recruiting from a wider pool will also lead to increasing retention of those diverse employees.  Data from research conducted by Deloitte and the Victorian Equal Opportunity and Human Rights Commission[5] also found employees who perceived their organisation to be supporting diversity and inclusion had lower levels of absenteeism and higher performance ratings.

Market reach

It makes intuitive sense that a more diverse workforce are better equipped to reach out to more diverse markets. So it’s no surprise that further research by the Centre for Innovation reported in the HBR [6] “employees of firms with both inherent and acquired diversity” (more on these differences in future blog posts) are “70% more likely to report that the firm captured a new market.”

Innovation

When you bring a diverse group of people together, we anticipate their different ways of thinking, different values and mindsets, different experiences and knowledge can combine to produce more innovative thinking.  A report from the Economist Intelligence Unit[7] reports 79% of respondents surveyed believed “diverse teams can produce better, more creative ideas because of synergy among contrasting approaches.”

These are four big gains from diversity! And yes there is work to be done for many organisations to get to harness those gains, to develop the cultural intelligence needed to make inclusion a reality - in future posts I'll be looking more at this.

I’ll leave you with the words of Mark Weinberger[8], EY's Global Chairman and CEO,

"The only way to be our best is to include our best. That means we need to include the whole world, not just pieces of it. That all starts with diversity and inclusiveness. It's the smart thing. It's the right thing.  And it's the only way to succeed in today's global economy."

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[1] http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

[2] http://watermarksearch.com.au/2015/03/26/watermark-board-diversity-index-post/

[3] http://business.nab.com.au/australian-business-diversity-index-q2-2014-7776/

[4] http://www.talentinnovation.org/

[5] Deloitte & Victorian Equal Opportunity & Human Rights Commission 2012, Waiter, is that inclusion in my soup? A new recipe to improve business performance, Deloitte, Sydney

[6] https://hbr.org/2013/12/how-diversity-can-drive-innovation

[7] http://www.economistinsights.com/sites/default/files/EIU_SuccessFactors_Values-based%20diversity%20report.pdf

[8] http://www.prnewswire.com/news-releases/ey-launches-diversity--inclusiveness-microsite-300105297.html