The business case for diversity: powerful new evidence

Published 10 December 2013 11:45, Updated 11 December 2013 08:02

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The business case for diversity: powerful new evidence

Companies with ‘two dimensional diversity’ outperform others...but most people don’t work in one.

Most managers accept that employers benefit from a diverse workforce, but the notion had been hard to prove or quantify - until the arrival of new US research.

The research provides compelling evidence that diversity unlocks innovation and drives market growth - a finding that should intensify efforts to ensure that executive ranks both embody and embrace the power of differences.

In this research, which rests on a nationally representative survey of 1,800 professionals, 40 case studies and numerous focus groups and interviews, we scrutinised two kinds of diversity: inherent and acquired. Inherent diversity involves traits you are born with, such as gender, ethnicity and sexual orientation. Acquired diversity involves traits you gain from experience: Working in another country can help you appreciate cultural differences, for example, while selling to female consumers can give you gender smarts. We refer to companies whose leaders exhibit at least three inherent and three acquired diversity traits as having two-dimensional (2-D) diversity.

‘Two dimensional’ diversity drives real results

By correlating diversity in leadership with market outcomes as reported by respondents, we learned that companies with 2-D diversity out-innovate and out-perform others. Employees at these companies are 45 per cent likelier to report that their firm’s market share grew over the previous year and 70 per cent likelier to report that the firm captured a new market.

Two-dimensional diversity unlocks innovation by creating an environment where “outside the box” ideas are heard. When minorities form a critical mass and leaders value differences, all employees can find senior people to go to bat for compelling ideas and can persuade those in charge of budgets to deploy resources to develop those ideas.

Most respondents, however - 78 per cent - work at companies that lack 2-D diversity in leadership. Without diverse leadership, women are 20 per cent less likely than straight white men to win endorsement for their ideas; people of color are 24 per cent less likely; and lesbian, gay, bisexual or transgender employees are 21 per cent less likely. This costs their companies crucial market opportunities, because inherently diverse contributors understand the unmet needs in under-leveraged markets. We’ve found that when at least one member of a team has traits in common with the end user, the entire team better understands that user. A team with a member who shares a client’s ethnicity is 152 per cent likelier than another team to understand that client.

The six behaviours that unlock innovation

Inherent diversity, however, is only half of the equation. Leaders also need acquired diversity to establish a culture in which all employees feel free to contribute ideas. Six behaviours, we have found, unlock innovation across the board:

1. Ensuring that everyone is heard;

2. Making it safe to propose novel ideas;

3. Giving team members decision-making authority;

4. Sharing credit for success;

5. Giving actionable feedback;

6. Implementing feedback from the team.

Leaders who give diverse voices equal airtime are nearly twice as likely as others to unleash value-driving insights, and employees in a “speak up” culture are 3.5 times as likely to contribute their full innovative potential.

These findings constitute a powerful new dimension of the business case for diversity.

(Sylvia Ann Hewlett is the chairwoman and CEO of the Center for Talent Innovation. Melinda Marshall is the center’s senior vice president and director of publications, and Laura Sherbin is an executive vice president and the director of research.)

@2013 Harvard Business Review

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