Why diversity matters...

In a world that often sees conflicts based on race, ethnicity and religion, there are some shining examples of nations that have celebrated diversity and have hugely benefited by building an inclusive ecosystem. One example that comes to my mind is Singapore. It is a multi-ethnic society with a citizen population comprising 76% Chinese, 15% Malays and 8% Indians.  A third of the overall workforce are foreigners. The nation has four recognised official languages – Chinese, Malay, Tamil and English and each of its residents have a stake in the success of the nation. A report published in July 2021, by KPMG on global ranking of leading technology innovation hubs outside of Silicon Valley/ San Francisco saw Singapore clinching the top spot. 

Putting all of this together, one will undoubtedly agree that there is a correlation between Inclusion and Diversity (I&D) and enhanced performance, enhanced creativity and better decisions.

Enhanced Performance

In the last decade, several studies have conclusively proved the importance of I&D in the corporate environment. In a series of celebrated reports, McKinsey & Co, the global consulting firm has established a correlation between diversity and financial performance of companies. According to McKinsey’s 2018 report, enterprises in the top-quartile for gender diversity on executive teams were 21% more likely to outperform on profitability and 27% more likely to have superior value creation. Similarly, companies in the top-quartile for ethnic/cultural diversity on executive teams were 33% more likely to have industry-leading profitability.

Just a few moments’ thought should be enough to illuminate why such a correlation should exist. After all, if a firm is going to design and sell products or services worldwide, it would do well to have teams that have a diversity of skills, expertise, knowledge, and perspectives.

As is often the case, however, what seems blindingly obvious is the most difficult to put into practice. Everyone has inbuilt biases and this extends to everything from the brand of soap we buy at the supermarket to whom we want as a member of our work team. Coping with Inclusion and Diversity is hard work, and there is a great deal of comfort in sticking to things that are familiar with and people who are “like us”.

People who loathe moving out of their comfort zones on I&D issues tend to point out that studies like the McKinsey one quoted above point to a correlation and not causation. Late Katherine W. Phillips, Reuben Mark Professor of Organizational Character at Columbia University's Business School, who spent a lifetime studying and promoting diversity in business, admitted as much in her 2017 essay published by Berkeley University. “Large data-set studies have an obvious limitation: They only show that diversity is correlated with better performance, not that it causes better performance,” she said.

To establish this causation, Prof. Phillips’ essay then talked about her own work and other researchers involving smaller data sets. This conclusively proves that inclusive and diverse teams most often tended to make smarter decisions.

Better Decisions

Take the example of another oft-cited research project by Richard B. Freeman and Wei Huang of Harvard University. It was published by the National Bureau of Economic Research, US, and 1,500 research scientific papers were published between 1985-2008. The study found out that the more homogenous the backgrounds of researchers, the weaker were their scientific contributions. “Papers with greater homophily tend to be published in lower impact journals and to receive fewer citations than others. Going beyond ethnic homophily, we find that papers with more authors in more locations and with long lists of references tend to be published in relatively high impact journals and to receive more citations than other papers,” Freeman and Huang said.

Another fascinating example in the corporate environment has been thrown up in research done by Cloverpop, a technology firm that provides a cloud-based platform to communicate, measure and manage decision-making across the enterprise. In its 2017 white paper, it says, that “as the diversity of teams increases so does the chance of making better decisions. In fact, most diverse teams made better decisions 87 percent of the time.” 

While finding that inclusive decision-making delivers better decisions, the white paper also admitted that diverse teams were “more likely to encounter operational friction when executing them”. But for companies that can overcome this hurdle, the payoffs can be handsome. “Highly diverse teams were twice as likely to both make better choices and also deliver results that met or exceeded expectations,” Cloverpop’s white paper states.

The reason seems to be clear from Prof. Phillips’ and others’ work. People from different backgrounds bring in diversity in terms of information, opinions, and perspectives. When such people tend to disagree with each other, it provokes each member to work and think harder.

“Diversity jolts us into cognitive action in ways that homogeneity does not. People work harder in diverse environments, both cognitively and socially. They might not like it, but the hard work can lead to better outcomes,” Prof. Phillps says in her essay.

Multiple Benefits

Companies with a culture of inclusion and diversity can hope to reap benefits not just in smarter decision-making but in multiple other ways. The McKinsey report lists four of them.

Winning the War on Talent: Globalization, technology, and demographics create new growth opportunities for companies while disrupting traditional business models and organizational structures. More diverse organizations have broader talent pools from which to source capability to compete.

Increase innovation and customer insight: Because of informational diversity, such teams are also better able to target and distinctively serve diverse customer markets, such as women, ethnic minority, and LGBTQ+ communities which command an increasing share of consumer wealth.

Increase employee satisfaction: I&D management improves employee satisfaction, collaboration and loyalty. This can create an environment that is more attractive to high performers.

Improve a company’s global image: Companies with enhanced I&D benefit from enhanced reputation among their customers, supply chain, local communities, and wider society.

I&D is at the very heart of the Sustainable Development Goals (SDGs) that all nations agreed to pursue. A clear commitment to inclusiveness is made in the text of the Agenda when Member States “pledge that no one will be left behind”.

But I&D, is, quite appropriately, not just a moral imperative or about a feel-good factor. As should be clear by now, in a globalized, hyper-competitive world, it can give businesses a vital advantage to excel and perform better. No wonder, among the best companies, Inclusion and Diversity is an agenda that is driven straight from the CEO’s office.