The Benefits of a Diverse Workforce: Profitability, Innovation, and Beyond
Companies are feeling pressure to take concrete action to improve Diversity and Inclusion initiatives in response to today’s call for systematic social justice, but what they may not realize is just how much diversifying their workforce composition can benefit them regardless of the current events. This article aims to outline just a few of the many benefits of diversity in companies’ leadership and employee teams that small businesses can learn from.
Profitability
Businesses with more diverse leadership teams have proven to be more profitable than their competition. In 2019, companies in the highest quartile for executive ethnic and cultural diversity were 25% more likely to experience above-average profits than the least diverse quartile. Furthermore, when stratified by gender diversity, companies in the top quartile financially outperformed the bottom by 36%; as diversity increased, so did profitability.
Innovation
Diversity has also been identified as a key factor in driving innovation and market growth. A national study rated firms on two scales of diversity: inherent diversity (based on natural characteristics like gender and race) and acquired diversity (rooted in the appreciation of cultural differences drawn from experience with diverse individuals). The research team discovered that for companies high in both inherent and acquired diversity, employees were 70% more likely to report capturing a new market and 45% more likely to report increased market share. This measure of innovation is driven by the fact that a team with even one team member who shares the client’s or customer’s ethnicity is 152% more likely to truly understand their needs, hence offering more innovative solutions.
Creativity
When talented individuals of diverse backgrounds come together, creativity soars. World-renowned cellist Yo-Yo Ma recognized this phenomenon in the unique harmony between musicians of various cultural backgrounds, coining it as the edge effect. Social scientist Adam Galinsky confirmed that the edge effect extends to academic settings as well, even after mere exposure to diverse individuals; business school students who had dated someone of a different nationality scored higher on creativity measures at the end of that term. The implications of these findings are of utmost importance in the business world, as diverse teams radiate creativity, and close relationships with culturally diversified people can even enhance one’s own creativity.
Talent Pool
When taking a deep dive into the effects of workforce diversity on companies’ talent pools, business owners will ultimately discover a multitude of positive impacts of recruiting culturally diverse individuals at any level of an organization. Specifically, a business that encourages international experience and talent leads to improvement in overall ROI, motivation, innovation, adaptability, resilience, and employee retention. Additionally, multilingual employees allow a company to expand into new markets, as language skills have become more important than ever in an era of globalization.
Employee Performance
According to research done in higher education, a positive relationship was found between workforce diversity (measured by age, gender, ethnicity, and educational background) and employee performance. This correlation could be attributed to improved creativity, skills, problem-solving, and organization exhibited by diverse groups, with a promising implication in business to effectively reach globally diverse consumers.
In conclusion, It is undeniable that companies can unlock a new level of potential success by endorsing diverse teams. Small businesses should look to harness the power of diverse perspectives and experiences that employees of different ages, races, sexual orientations, cultures, religions, and disability statuses bring to the table. Among many benefits, profitability, innovation, creativity, talent, and employee performance can all be improved by empowering diverse individuals within organizations. Now is the time to make changes accordingly.
As a social impact initiative, Rem and Company also offers free consulting services and resources to small businesses and nonprofits impacted by COVID-19. Our pro-bono consulting teams provide small businesses with the opportunity to identify and prioritize issues facing their business, propose innovative strategies, and facilitate execution. If you are a small business or nonprofit in need of assistance, learn more about how we can help.