Making diversity matter for business outcomes

As recent events have shown, to most, diversity matters. But can it really contribute to the bottom line of a business and its operational strength, as well as to long overdue shifts in how we learn from and engage with one another? In short, yes.

A group of workmates in a discussion

Of course, companies and their leaders should be encouraging diversity because it is morally and ethically the right thing to do, but in a hyper-competitive global marketplace more business-centric benefits can certainly help advance the cause. When well-managed, workforce diversity has been proven to be able to boost ROI, innovation and employee productivity within a positive work culture built on different perspectives and mutual respect. In 2017, McKinsey concluded that those emphasising diversity efforts were 33 per cent more likely to yield above industry average financial returns as well as outperform their competitors.

So, what do we know about the relationship between diversity and performance, what are the benefits and challenges of diverse teams, and how can this be translated into meaningful action across organisations? We spoke to Dr Victor Sojo and Associate Professor Susan Ainsworth of the University of Melbourne’s Department of Management and Marketing in the Faculty of Business and Economics to find out.

What’s the relationship between diverse teams and performance?

“The evidence on diverse teams and performance is mixed and the relationship is not straightforward. If we think of diversity as one of the inputs into teams and performance as an output, then there are processes and other factors that intervene between them.

For example, cultural diversity in teams tends to deliver increases in contrasting values and ideas, which can lead to creativity but also potentially conflict. Although it decreases alignment around common goals, values or conclusions, it also helps avoid the typically worse outcomes of ‘groupthink’, where everyone thinks the same way, shares a preferred view, and doesn’t challenge dominant ideas or people.

The important thing to remember is that organisations can intervene to influence how diverse groups work together, which will produce more of the positive benefits and less of the negative.”

What potential benefits can diverse teams offer?

“Diverse teams have outperformed others in experiments testing accuracy of assessments and quality of decision-making. In one U.S. study mock juries with two African-American members made fewer errors than all-white juries, and in another, ethnically diverse teams priced shares more accurately.

Diverse teams have the potential to be smarter, more creative and innovative, make better decisions and more accurate assessments because they can draw on a broader range of information and perspectives. They are more likely to scrutinise individual decisions and assumed facts, and counteract biases.

This positive effect of team diversity has also been found on boards of directors. More gender diverse boards have fewer problems with meeting attendance, and women on boards are more likely to reshape key discussions to create a more collaborative stakeholder decision-making process.

Crucially, more gender diverse teams are less likely to engage in workplace sexual harassment, which can hinder mental and physical health.”

What gets in the way?

“Despite this potential, the benefits of diverse teams are not always realised, so it’s important that organisations are aware that having team diversity alone is not enough. Diversity can have negative effects, such as marginalisation of minority members and increased conflict at the start of team diversification processes. For example, backlash from existing employees concerned about risk to their own status can occur, manifesting in passive resistance to change, or discrimination and harassment towards newcomers.

A large body of theory and research has looked at people’s tendency to want to interact with those they perceive as similar to themselves. We often unconsciously categorise other people with this ‘similar-to-me’ bias, treating those we perceive as like ourselves more favourably. We anticipate sharing values, beliefs and attitudes which will make work easier (more predictable) and more enjoyable. This is why, left to their own devices, organisations tend to reproduce the status quo, hiring and promoting more of the same kind of people already employed and in positions of power.”

A woman adding sticky notes to a board

What can leaders do to help diverse teams realise their potential?

“One important factor is inclusion – do individuals feel they belong to a group and are valued for what they bring to it? We need to acknowledge differences among people and recognise their value in order to create a sense of belonging. Rather than making different members ‘fit’ the dominant culture, everyone should be encouraged to learn from each other.

For leaders, strong self-awareness is very important in dealings with others and team members. As well as trying not to play favourites in terms of time spent interacting or interaction quality, those managing teams need to work on acknowledging their own biases, strengths and weaknesses. By doing so, they can actively consider and control their influence when communicating with and directing groups. Then, when they are able to marry this awareness with the right questions, and strong listening and observing skills, people leaders can get the most out of a diverse team by encouraging their thinking and building upon their ideas.

Within groups, a diversity of perspectives is a potential strength and resource on which they can draw to form more creative solutions, but it needs to be activated. This requires team members to invest effort and exert energy in exploring and attempting to understand the viewpoints of others. Teams and groups can be trained to engage in perspective taking as part of how they operate, to explore the details of the others’ perspective, what their assumptions are, the reasons they hold that perspective and what it involves.

Finally, sometimes good diversity management is just good people management and well informed communication. When leaders understand the basics of both, they are more than halfway there in terms of implementation. On a holistic level, they need to lead a shift in organisational culture based on championing diversity and inclusivity, putting in place strategies to foster these and ensure corporate diversity laws are compiled with, or better still exceeded, in countering workplace discrimination and harassment. Tactically, fair and relevant task delegation, goal setting and progress monitoring, team dynamics management, and non-discriminatory recruitment, selection, performance evaluation and promotion, amongst many other associated processes, have to be well represented in any organisation hoping to reap the rewards of successful diversity management.”

In conclusion, while it’s possible that firms outperforming industry average financial returns are also good at managing diversity, it’s most likely there is a virtuous cycle between good management of people and business. Everyone wants to be fairly represented, but they also want to be included and valued based on what they have to offer, which is where organisations have a key part to play. Hiring, retaining, supporting and promoting a diverse range of employees who bring new ideas and are committed to solving problems is central to sustaining productivity and profitability, especially when change is a given. But broad organisational commitment, planning and continuous learning are equally vital if diversity is to deliver broader, ongoing benefits.

To unlock deeper understanding of how to convert diversity and other forward-thinking approaches into successful team management, consider upskilling with a microcredential in Leading Teams from the University of Melbourne.

With special thanks to:

  • Dr Victor Sojo, Centre for Workplace Leadership, Faculty of Business and Economics
  • Associate Professor Susan Ainsworth, Department of Management and Marketing, Faculty of Business and Economics