In 2015, consulting firm McKinsey published their research of 366 public companies and thousands of executives in the United States, United Kingdom, Canada, and Latin America. Their statistically significant findings showed a clear relationship between a more diverse leadership team and better financial performance.
Specifically, their data showed companies in the top 25 percent of racial and ethnic diversity were 35 percent more likely to have financial returns above their industry norm. Companies in the top quartile for gender diversity were 15 percent more likely to have greater than average returns.
In their summary analysis, researchers noted:
Moreover, the unequal performance across companies in the same industry and same country implies that diversity is a competitive differentiator that shifts market share towards more diverse companies.
Why not diversifying your team is risky business
Data such as this makes a strong case for why diversifying your workforce should be a priority. Add to it trends on the changing makeup of the population in the U.S. and a homogenous team becomes a liability:
- 49 percent of kids under age 15 (Generation Z) are minorities, and are now "the most diverse generation"
- Millennials are the largest generation in the workforce
- By 2032 people of color will make up the majority of the American working class
- Women are the sole or primary breadwinners in 40 percent of households with children
- About one in six American kids lives in a blended family
- The share of American adults who have never been married is at a historical high
- The number of adults living in middle-income populations is shrinking and hovers at around 50 percent
Here are three reasons why diverse teams perform at such a higher level.
1. It breaks you out of your comfort zone.
It is easy to get in the rut of always following best practices, or using what has worked well for you in the past as a starting point for what you will do moving forward. And when everyone on your team has similar backgrounds and experiences, this becomes the norm.
But these common practices hinder your ability to be innovative, disruptive, or to evolve with emerging trends within your industry. That's why companies such as Amazon commit themselves to experimentation while accepting the inevitable failures that come with it. They know that expanding outside their comfort zone will eventually bring greater than average returns.
David Rock and Heidi Grant, co-founder and Senior Scientist at the Neuroleadership Institute respectively, noted why diverse teams get you out of the habit of defaulting to the status quo, enabling you to operate at a higher level:
By breaking up workplace homogeneity, you can allow your employees to become more aware of their own potential biases -- entrenched ways of thinking that can otherwise blind them to key information and even lead them to make errors in decision-making processes.
2. It helps you connect with your customers more authentically.
To connect with an evolving customer base, you've got to understand them at a deeper level. You've got to have a degree of intimacy with them that enables you to prevent making major missteps like Pepsi, Dove, and Uber have taken of late.
When you cultivate a team that reflects the customers you are serving, it makes it easier for you to have the empathy and insights you need to speak to your customers in an authentic way that makes them feel like they belong with you. That's because the varying backgrounds and experiences of those on your team bring you insights that are tougher to uncover with traditional market research methods.
3. It makes you more innovative.
When you operate within your own limited frame of reference, you are constrained in your perception of what good looks like. But when you are exposed to new and different ways of working, you're perspective expands, elevating your bar for quality while increasing your opportunities to innovate along the way.
That's why smart teams seek out varying experiences and at times dissenting opinions as a means to improve their work. Research from UC Berkely showed incorporating conflict improves the ideation process. Another study of more than 4,000 companies showed that those with a greater degree of gender diversity were more likely to introduce more radical innovations.
And a study from Columbia business school showed that creative directors of fashion companies produced more creative innovations after having spent a significant amount of time working in cultures very different from their own.The time diversifying their experiences expanded their point of view and forced them to problem-solve in different ways.
There's no denying it. For a number of reasons, diverse teams perform better. Start assembling yours today, so you, your team, and your customers can start reaping the rewards.