Diversity At Work: What Is It And Why Is It Important?

Diversity At Work: What Is It And Why Is It Important? © - Complygate, Jan. 2021

Professor Chris Rowley

Kellogg College, University of Oxford & City’s Business School, University of London

The topic of ‘diversity’ at work is an important issue for businesses and management as well as practitioners and policy makers for a variety of reasons. There are both ‘push’ and ‘pull’ forces within these factors. These range on a spectrum from the minimalist - just doing the bare, legal compliance, to business strategies and opportunities, such as marketing, enhanced sales as well as PR image, to better decision making and even contributions to the bottom line, financial returns and enhanced corporate performance, all the way through to moral and ethical reasons.

An initial issue concerns the concept of diversity itself in terms of meaning, definition, coverage and measurement. Exactly what is meant by diversity, where and how is it gauged to allow the making of comparisons and judgements? This raises triple questions covering diversity:

• In what dimensions? We may immediately think of gender, ethnicity and nationality. However, there are other diversities, such as age and religion (see Gumusay et al, 2020).
• At what level? This could be the workforce, teams, top management teams, corporate leadership, CEO.
• In comparison to what? This could be with the rest of the company, sector, local location, home and/or operating country.

A common concern and question revolves around diversity’s impacts on business performance. However, it needs to be remembered that there is always the correlation versus causation issue here. Also, the ‘elephant in the room’ concerns considering diversity’s costs. For example, perhaps diversity makes teams more internally conflictual and complex and difficult to run, manage and lead. Of relevance here is the post-1960s Japanese economic miracle and what contributed to it. Some note management practices such as strong internal labour markets’ life-time employment (‘Shūshin koyō’) and team working and self-managing groups ('jishu kanri katsudō') with consensus planning and building (‘nemawashi’), predicated on a culture of groupism in turn underpinned by non-diverse ie homogenous, workforces.

Nevertheless, there is a range of research on diversity’s positive business outcomes. For example, organizations with at least one female board member yielded higher returns on equity and net income growth than those that did not have any women members (Credit Suisse, 2012). Companies with gender or racial and ethnic diversity had better financial returns and was probably a competitive differentiator that shifted market share toward them (Hunt et al, 2015). Also, diverse companies were better able to win top talent and improve customer orientation, employee satisfaction and decision making, all leading to a virtuous cycle of increasing returns (Ibid.). This in turn suggests that other kinds of diversity - in age and experience (such as a global mind-set and cultural fluency) - are also likely to bring competitive advantage.

Diversity has also more nuanced impacts and benefits. Some see a link between diversity in terms of resultant more inclusive decision-making and better business performance. Individual decision-makers were outperformed by diverse teams, which made improved decisions faster and more effectively (Cloverpop, 2017; Editorial, 2017). Non-homogenous teams are ‘smarter’ as working with people who are different challenges ways of thinking and sharpens people’s performance (Rock and Grant, 2016). A trio of areas contributing to this are noted: facts, processing, innovation (Ibid).

First, diversity results in more focus on ‘the facts’. People from diverse backgrounds alters the behaviour of a group’s ‘social majority’ in ways that lead to improved and more accurate group thinking. In one study diverse jury panels raised more facts related to cases than homogenous ones did and made fewer factual errors while discussing evidence. If errors occurred, they were more likely to be corrected during deliberation. Individuals in diverse teams were more likely to price stocks correctly, whereas those in homogenous groups were more prone to pricing errors (Levine et al 2014). Those in diverse teams were more likely to constantly re-examine facts and remain objective, encouraging greater scrutiny of each member’s actions, keeping their joint cognitive resources sharp and vigilant.

Second, diversity results in processing ‘the facts’ more carefully. The way that entire teams digest the information needed to make the best decisions changed. Research (Phillips et al, 2008) found that diverse teams outperform homogenous ones in decision making because they process information more carefully.

Third, diversity results in greater innovativeness and capacity to transform businesses and products. Research (Diaz-Garcia et al, 2013) analyzing gender diversity in research and development teams found companies with more women were more likely to introduce radical new innovations. Businesses run by culturally diverse leadership teams were more likely to develop new products than those with homogenous leadership (Nathan and Lee, 2013).

Is short, for Rock and Grant (2016), while people may feel more at ease working with those with shared backgrounds, such conformity produces costly pitfalls. These include entrenched ways of thinking that can blind people to key information and even lead to errors in decision-making processes.

In conclusion, it is useful to at least recognise and acknowledge potential costs of workplace diversity, such as possible internal conflicts and sub-optimal working of non-homogenous teams and management and leader time and requisite need for critical thinking, emotional intelligence and human skills Nevertheless, this is counter-balanced by the benefits of workforce heterogeneity. Diverse workplaces help question ‘givens’ and assumptions, even boosting decision making efficiency and innovativeness. Considering other perspectives brings benefits, especially in terms of reducing not only ethnocentricity but also our own biases. These include desirability bias - wishful thinking – we see what we want to see, and confirmation bias, our tendency to see what we expect to see, to cling on to beliefs by picking whatever facts support them and dismissing contrary evidence. Of course, diversity on its own is not necessary and sufficient for this as heterogenous groups diverse in gender, ethnicity, race and nationality can still share the same homogeneous views and perspectives. In short, diversity in all its dimensions – with its attendant differences of opinions - is key.

References

Cloverpop (2017) ‘White Paper: Hacking Diversity with Inclusive Decision-Making’
https://www.cloverpop.com/hacking-diversity-with-inclusive-decision-making-white-paper

Credit Suisse (2012) Press Release, 31 July
https://www.credit-suisse.com/about-us-news/en/articles/media-releases/42035-201207.html

Diaz-Garcia, C., Gonzalez-Moreno, A. and Saez-Martinez, J. (2013) ‘Gender diversity within R&D teams: Its impact on radicalness of innovation’ Innovation: Organization & Management, 15: 2.

Editorial (2017) ‘Diversity Drives Better Decisions, People Management, 23 October

Gumusay, A., Smets. M. and Morris, T. (2020) ‘Creating Space for Religious Diversity at work’, Harvard Business Review, 10 December

Hunt, V., Layton, D. and Prince, S. (2015) ‘Why Diversity Matters’, McKinsey, January
https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

Levine, S., Apfelbaum, E., Bernard, M., Bartelt, V., Zajac, E. and Stark. S. (2014) ‘Ethnic Diversity Deflates Price Bubbles’, Proceedings of the National Academy of Sciences, December 30, 111 (52) 18524-18529

Nathan, M. and Lee, N. (2013) ‘Cultural Diversity, Innovation, and Entrepreneurship: Firm-level Evidence from London’, Economic Geography, 89: 4, 367-394

Phillips, K., Liljenquist, K and Neale, M. (2008) ‘Is the Pain Worth the Gain? The Advantages and Liabilities of Agreeing With Socially Distinct Newcomers’, Personality and Social Psychology Bulletin, 29 December

Rock, D. and Grant, H. (2016) ‘Why Diverse Teams Are Smarter’, Harvard Business Review, 4 November