The value of innovative thinking and embracing a diverse set of solutions when it comes to dealing with cash flow issues is fairly easy to understand, if not necessarily simple to implement, for most business owners. The benefits of embracing diversity in other ways, however, hasn’t been as universally accepted. Australian businesses still have an enormous wage gap, with women earning neary $27,000 less on average than their male counterparts. Beyond that, management positions across the entire economy, are dominated by white male industry insiders.
This has long been considered problematic as a simple matter of fairness, but, as it turns out, it’s just as much a financial issue as it is a social one. Boston Consulting Group (BCG), working with the Technical University of Munich, has found that many types of diversity all contribute to drive innovation and financial success for businesses.
All types of diversity matter
The study examined 6 different dimensions of diversity (gender, national origin, education, age, industry, and career path) in 1700 businesses across 8 countries. What may be surprising to many is that in all 8 countries and across all 6 dimensions of diversity, the researchers found statistically significant correlations between increased diversity and innovation-related profits. The specific way in which management teams were diverse was less significant than how diverse an organisation was overall. The most diverse enterprises were also the most innovative, with businesses that ranked above average earning approximately 19 per cent more in innovation related revenues than non-diverse enterprises.
This does not mean, however, that different types of diversity are fungible. Most different kinds of diversity are additive, meaning that each provides exclusive benefits that businesses can benefit from. Even very diverse enterprises can benefit just as much by focusing on a single, previously neglected, dimension as a very non-diverse enterprise could doing the same.
More diversity means more insight and more options
While being recognised as a social issue, there has been some vocal concern about perceived risks of creating diverse workplaces. These include the idea that diverse groups will be more fractured and less able to communicate effectively, resulting in an less productive and potentially toxic environment. However, this BCG study shows that making the effort to create a highly diverse work environment has a net positive effect on productivity and revenue.
The universal benefits of diversity are clear, and it shows that it’s this diversity itself that directly generates this additional productivity. Homogenous workforces generate homogeneous work. This might be good for creating a consistent product, but it’s terrible for innovation and creative development. Diverse teams potentially have access to the combined knowledge and skills of multiple industries, age groups, cultures, social groups, and professional backgrounds. This allows them to collectively examine problems from more angles and to share and combine their knowledge to come up with new and unique solutions.
Building a more diverse workplace
For most businesses, the problem isn’t so much understanding that diversity is beneficial as it is knowing how to foster diversity at work. Becoming a meaningfully diverse workplace requires planning, work, and investment.
Foster diversity through policy
While many businesses want to become more diverse, only 40 per cent actually actively implement enabling conditions like fair employment practices and participative leadership. In practical terms, that often means implementing fair and transparent compensation practices, and actively promoting diversity by consciously putting more diverse candidates in positions of leadership and power in your organisation. Businesses often balk at the idea of giving “unnecessary” raises, or hiring job candidates based on their diverse backgrounds, but the fact is that their diversity is a valuable asset in and of itself.
Break down barriers to entry
Many very non-diverse businesses have a lot of structural requirements for specific jobs. For example, if top level managers are all required to have very specific academic degrees and 10 or more years of management experience, plus a variety of specific certifications to qualify for an interview, your management team will all be of similar age, molded by essentially the same educational and professional backgrounds.
This and other kinds of barriers deter people with gaps in their work history, people switching industries, and other kinds of outsiders that might bring a fresh perspective with them. Finding and lowering these barriers can greatly increase a business’ opportunity to discover the people they need to grow and develop.
It has long been widely accepted that the business world should embrace diversity as a matter of fairness, but this study gives business leaders a much more practical incentive. Diverse workforces, specifically diverse management teams, result in more innovative and more profitable businesses. This finally gives enterprises a simple and clear way to foster more innovation and to drive growth.