This article was first published in People Matters, and the same has been republished here.
When corporations bring a range of skills, expertise, knowledge, and perspectives to their workspaces, they often find this inclusive approach helps them mitigate risk, improve performance, build disruption in their business model, driving innovation and a larger share of the future.
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 recognized 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.
What is Diversity and Inclusion?
The phrase "diversity and inclusion" refers to the composition of a workforce and the procedures and policies put in place to break down barriers and guarantee that each employee has equal access to resources and support within a company.
The ultimate objective is to guarantee fairness and equity for every employee, regardless of gender, ethnicity, nationality, sexual orientation, or age; however, diversity and inclusion is an ongoing process rather than a final product. With a well-crafted diversity and inclusion policy, a company can make better, more equitable hiring decisions and promote a more positive work environment where staff members feel heard and supported.
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 the impact of diversity in the workplace and the financial performance of companies.
Why Is Diversity Important?
According to McKinsey’s 2018 report, enterprises in the top-quartile for gender diversity on executive teams were 21% more likely to outperform 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.
The Impact of Diversity in the Workplace
Just a few moment's thought should be enough to illuminate why such a correlation should exist and why diversity is important. After all, if a firm is going to design and sell products or services worldwide, it would do well to have teams with diverse 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.
In order to further identify why diversity and inclusion are important, 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 scientific research 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.
To conclude on why is diversity important, here's a quote by Prof. Philips in her essay - “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".
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 benefits of diversity in the workplace:
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 a feel-good factor. As should be clear by now, in a globalized, hyper-competitive world, the benefits of diversity 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.