How Does Workplace Diversity Help Business?

It is reasonable to think that diversity is a necessity in an interconnected global economy and lacking in it would deprive an organization of the valuable perspectives it needs to do business with various demographic groups and regions, not to mention the moral components of diverse companies in the melting pot of the United States.

Yet, as intuitive as it seems, the case for diversity in business is even more compelling than an open-minded thinker might imagine.

The Statistical Case for Diversity

There is significant research that suggests a diverse workforce benefits an organization. According to Gartner, “differences of age, ethnicity, gender and other dimensions foster high performance.” The organization predicts that through 2022, 75% of companies with diverse and inclusive decision-making teams will exceed their financial targets.

The World Economic Forum has found that companies with above-average diversity scores drive 45% average revenue from innovation, whereas companies with below-average diversity scores drive only 26%. A McKinsey report showed that companies in the top 25% for racial/ethnic and gender diversity were 35% and 15% more likely to have financial returns above their national industry medians, respectively. The report also finds a linear relationship between racial and ethnic diversity and better financial performance: for every 10% increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8%.

According to Josh Bersin’s research, companies with high levels of diversity and inclusion are exceptional businesses with 2.3 times higher cash flow per employee over a three-year period. They are 1.8 times more likely to be change-ready and 1.7 times more likely to be innovation leaders.

Diversity boosts business performance because multidisciplinary teams — common in today’s larger organizations — leverage the expertise and experience that it provides to enable faster, smarter decision-making and innovation.

Here are the main ways in which diversity and inclusion help business:

  1. Access to talent: Because so many hires are through referrals, a diverse workforce provides more channels for acquiring talent. Think of each employee as a vector in a network who can attract new talent. To attract the best available talent, those personal networks must be plentiful and deep.
  2. Variety of perspectives: Diverse workforces include people ofvarying gender, age, religion, race, ethnicity, cultural background, sexual orientation, languages, education and physical and mental abilities. A workforce with varying perspectives is ideal when planning and executing a business strategy in global regions that mirror that diversity since team members have a clearer understanding of their markets.
  3. Inclusion has powerful neurological effects: Bersin points to neurological research that proves employees are more productive, innovative and collaborative when they feel valued. Diversity, rather than homogeneity, increases the feeling of being accepted as part of a team in many ways — one of which is that people who might otherwise feel marginalized or different feel more included. Another outcome is the increased creative output from groups with diverse perspectives; individuals meld their ideas, resulting in something fresh and new.
  4. Faster problem-solving: A Harvard Business Review study found that teams solve problems faster when they are more cognitively diverse. They share thought processes, educate one another in new ways of thinking and problem-solving, and they all become more flexible. Each member brings something different to the challenge, and when one approach takes too long, another is bound to be quicker.
  5. Better decision-making: The Cloverpop study also found that when diverse teams of three or more people made a business decision, they outperformed individual decision-makers up to 87% of the time and made decisions with a 60% improvement over non-diverse teams. This factor is further enhanced with greater gender, ethnic and age diversity.

Not long ago, hiring managers often understood diversity as a nice-to-have or a means to satisfy investors, markets or other constituents. Now, diversity is so highly correlated to better business performance that building a diverse, inclusive work environment is becoming a top priority for many of the world’s best-run organizations.

Learn more about Southern Illinois University Edwardsville’s online Master of Business Administration with a Business Analytics specialization program.


Forbes: Why Your Lack of Diversity Is Hurting Your Business

Gartner: Diversity and Inclusion Build High-Performance Teams

Harvard Business Review: Teams Solve Problems Faster When They’re More Cognitively Diverse

JoshBersin: Why Diversity and Inclusion Has Become a Business Priority

McKinsey & Company: Why Diversity Matters

People Management: Diversity Drives Better Decisions

Talentlyft: Top 10 Benefits of Diversity in the Workplace

World Economic Forum: The Business Case for Diversity in the Workplace Is Now Overwhelming

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