As with a number of other business-related challenges, the topic of diversity has taken somewhat of a back seat in the past year as companies all across the globe have been focused on survival and on navigating the trials and tribulations of the new Covid world.
In fact, many a media headline has reported that diversity in the workplace - which, pre-Covid, was a topic gaining more and more board-level acknowledgement - has actually gone back a step or two.
One study by McKinsey has found that women’s jobs have been 1.8 times more vulnerable to the Covid crisis than men’s jobs and that women have accounted for 54% of overall job losses as of May 2020.
It’s easy to reason why this has happened when you look at the industries most affected by the Covid crisis and the type of roles that companies automatically cut in hard times.
But for those companies focused on survival and even growth in these uncertain times, there’s news when it comes to putting diversity back on the priority list - diversity actually increases profits!
The business case for diversity
A McKinsey report released just last year in the midst of numerous country lockdowns argues that the business case for diversity has actually never been stronger.
Their analysis shows that in fact, those companies with more diverse executive teams are now more likely than ever to outperform their less diverse peers on profitability, as the graph below shows.
Indeed, across both gender and ethnic diversity, the results speak for themselves, with companies in the top quartile of financial performance likely to outperform their peers by 25% (gender diversity) and 36% (ethnic diversity) in 2019.
Not only that, but McKinsey also found that the greater the representation of diversity in executive teams, the higher the likelihood of outperformance.
So why is this the case? What reasons lie behind stronger performance if you have more diverse exec teams?
Reflecting a diverse customer base
Sometimes it’s in stating the obvious that the reason becomes clear, and that is no more so true than when you think about how diverse a typical customer base is.
For most products and services nowadays, the customer base is not made up of a single gender or ethnicity. Even if the product or service itself is targeted towards one group, the buying power of all the other groups around that group factors hugely when it comes to the purchase decision itself. You see this every day in both B2B sales where whole teams of people are involved, and in B2C sales where the buyer could be purchasing the product as a present or gift.
To extend this rationale, diverse teams internally therefore also act as the voice of your customer.
Taking a crude example - if your senior management team is all male and they’re developing a cutting-edge product that’s designed to appeal to the masses, then how can they truly know what challenges or issues they are trying to solve for across a diverse target audience demographic? They can’t. And the result is often products that fall short of customer expectations and that result in lower market shares.
Have a more diverse team though that represents a variety of different customer needs reflected in the development of your product, and hey presto, bigger market share!
Diverse teams are also able to approach problems or challenges in a variety of ways, bringing different viewpoints to the table that may not have been hitherto considered. Translate that into business-speak and it means the ability to recognise new market opportunities and tap into unmet needs. In other words, diversity leads to better market awareness and therefore better results.
Then there’s the PR angle - and this isn’t about using diversity initiatives to grab headlines! Rather it’s the inherent message you’re sending to customers and employees if you don’t have a diverse set of individuals at your helm.
Just a quick search on LinkedIn (where both your customers and potential employees are active!) will show in a matter of seconds how diverse your company is. If those individuals don’t see themselves reflected in your company line-up, they’ll not only be put off from wanting to work for you, but they’ll also be dissuaded from engaging with your company via other channels too - channels that very often lead to sales!
This is especially true of younger generations, who are demanding more and more in terms of the values their companies represent and the importance of Diversity and Inclusion. The bottom line is that a diverse workforce exemplifies best practices for an engaged and healthy culture and therefore forms a huge part of any public-facing brand.
Increased creativity and innovation
If we look at the most innovative, disruptive and prosperous urban centres in the world – New York, Dubai, London and Singapore – they all have one thing in common… they are all international melting pots with a high concentration of immigrants and therefore increased diversity.
Indeed, research from The Hamilton Project shows that there is a direct correlation between high-skilled immigration and an increase in the level of innovation and economic performance in cities and regions.
Diverse perspectives lead to diverse ways of thinking and doing things, as Steven Johnson, the science author and media theorist said,
‘If you look at history, innovation doesn’t come just from giving people incentives; it comes from creating environments where their ideas can connect.’
Diversity isn’t just a gender or ethnicity debate either. It’s also about neurodiversity. Increased opportunities for creativity and innovation come from new ways of thinking, and very often neurodiversity is an overlooked path that can create these.
As the Harvard academic and social psychologist, Mahzarin Banaji said,
‘Solutions to hard problems come with disruptive thinking, and that’s more likely with diversity.’
Why? Well, whether we like it or not, diversity very often takes us out of our comfort zones and jolts us into action in ways that homogeneity simply does not. It forces us to ‘think outside the box’, be challenged in new ways and see things from different perspectives.
It’s not difficult to make the leap from new ideas to new sources of business revenue and growth!
Leaving the checklists at the door
The case has never been clearer or stronger for diversity. It improves brand image, contributes to employee satisfaction, and, ultimately, increases profitability and growth.
For those still seeing it as a checklist item on the 2021 business plan, it’s time to wake up and start seeing diversity for what it truly is and stop hiding behind short-term business targets that would actually be improved with a proper diversity strategy.
And if you’re struggling internally with devising this strategy or with knowing where to start, then bringing in external help in the form of advisors is a great first step. In fact, not only can advisors help you develop the short and long term plans you need to improve diversity, but they can also be the diverse people you need in your leadership team to start setting a new standard and attracting more diverse talent.
Fixing the issue we have at the moment isn’t going to be an overnight thing, especially if we are to reverse some of the worrying trends we’ve seen in 2020. But for those companies serious about reaping the rewards of diversity in the workplace, particularly when it comes to their exec teams, there is no lack of advice or help out there to make it happen.
If you’re looking to fix the diversity of your leadership team, you may find this article interesting.