Once upon a time, diversity within teams was a nice-to-have accolade for fairness’s sake. Now, an increasing amount of research has established an undeniable link between a business’ financial performance and ethnic, cultural, and gender diversity that companies can’t ignore it any longer.
To build the most productive and innovative teams, businesses need to make diversity a top priority during the recruiting and promotion process. But don’t just take my word for it—see the data-backed proof for yourself.
Why diversity matters
Last year, the Boston Consulting Group (BCG) conducted a study to determine if diversity at the management level had a significant impact on the bottom line. The insights they gained were astonishing! They discovered companies with more diverse teams have 19% higher revenue. That’s not a trivial improvement.
“There is a business case for diversity,” says Richard Warr, a professor of finance at North Carolina State University. “It’s not just about trying to be nice. It’s good for business. It not only helps in terms of perception. It actually produces better outcomes.”
Warr’s co-authored study—”Do Pro-Diversity Policies Improve Corporate Innovation?” published in the journal Financial Management—examined the performance of 3,000 publicly traded companies between 2001 and 2014, looking specifically at nine measures of diversity. Companies that checked off all nine boxes tended to have an average two additional product releases annually (twice the average of companies that failed to check the diversity boxes). Not only did these diverse companies excel during good times, but the same companies were found to be more innovative during the 2008 financial crisis.
You can’t argue against hard numbers. Certainly, diversity drives business growth. Yet, it’s not so clear exactly how diversity accomplishes this feat—that’s why we took a deep dive into the research to find the answers. Armed with this knowledge, you’ll have the know-how to build diverse teams that boost the bottom line, not just impressive employee demographics to post on your company’s career page.
More diversity dimensions spur more innovation
Building a diverse team goes beyond just bringing together a bunch of individuals who differ from one another. For example, you could bring together a group of millennials from five different continents who have all reached similar levels of education before joining the same industry. Yes, they’d look different, but you wouldn’t have a very diverse team.
The Boston Consulting Group used six different dimensions of diversity (migration, industry, career path, gender, education, and age) to determine the impact each could have on the bottom line. Each dimension plays an important role, but the more dimensions you include, the greater the innovation you’ll experience.
Based on the BCG data, researchers calculated that innovation revenue could increase further by including each dimension of diversity: 1.5% increase with respect to national origin, 2% with respect to industry origin, 2.5% with respect to gender, and 3% with respect to managers with different career paths. Now, imagine a management team that had diverse members satisfying all the dimensions—the combined increase would be undeniably powerful. By including all dimensions of diversity (and even more beyond the six in this study), teams can spur innovation considerably.
It’s important to recognize that it’s practically impossible to satisfy a majority of these dimensions by accident. Diversity will only become an asset to your business when building toward it becomes intentional. This shift means taking all of these factors into account when hiring for new positions. When you need to fill an opening, look at your field of candidates and watch for what new thing they can bring to the table. Did they come from a different background? Does their gender provide a unique perspective to the team? Do they have experience in a different industry?
There are a few ways to enrich teams using multiple elements of diversity:
- Evaluate your hiring process to make sure unconscious bias isn’t eliminating diverse candidates.
- Find diverse decision-makers to help with the hiring process.
- Double-check your payroll to ensure equal pay.
- Make it clear diversity is a priority by developing and promoting your diverse team members.
Diverse companies attract and retain diverse talent
Diversity is not a one-and-done campaign. It’s a culture and commitment to growing a team that is measured beyond the sum of the parts. Diverse talent wants to work in an environment that embraces a wide assortment of humans. By creating a culture of diversity, you’re sending a signal to top recruits that diversity is appreciated, supported, and vital to your business. And those who’ve already found their way into your workforce will be more likely to stay if they know diversity is a top priority to management.
Not only do diverse companies attract and retain diverse candidates, but they also entice the top overall talent, too. Warr explains this tendency is the “halo effect.” Diverse companies are more attractive not only to women and minorities, but they’re also appealing to others who want to work for more enlightened organizations.
Before setting off to build the most diverse teams, it’s not only critical to understand what a diverse team is, but it’s critical to understand what it is not. We tend to immediately jump to the assumption that hiring minority workers adds levels of diversity, but minority and diversity are not the same.
Diversity is right and fair, and it’s also a proven financial driver. Only by making diversity a priority will you be able to build the most productive and innovative teams. You can’t make the change overnight—it’ll take months and years, but it’s well worth the investment.
Jesse Sumrak is a social media manager for SendGrid, a leading digital communication platform. He’s created and managed content for startups, growth-stage companies, and publicly traded businesses. Jesse has spent almost a decade writing about small business and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped startup. When he’s not dabbling in digital marketing, you’ll find him ultrarunning in the Rocky Mountains of Colorado. Jesse studied public relations at Brigham Young University.