The Surprising Link Between Workplace Diversity and Business Performance

Workplace diversity is increasingly important to workers. According to one study, 47 percent of millennials actively seek diversity and inclusion from prospective employers. However, companies often view a push towards integration cynically. Many believe the noble pursuit comes at the cost of productivity or collaboration.

In an ANA report from last year, marketers prove to be a diverse team by gender. However, ethnic diversity is low. And in leadership roles in marketing, the diversity lags by gender and ethnicity.

Most are familiar with the growing awareness of social justice and workplace diversity. Less are aware of the link between diversity and business success. Diversity has a positive impact on the world we live in, but it also improves a company’s financial performance.

Diversity, innovation and financial performance

All evidence points to diversity being a net benefit for businesses, no matter the industry. Ethnic and gender diversity are predictors of higher-than-average financial performance. Companies with diverse leadership teams have the highest innovation revenue — the share of profits derived from new or enhanced products or services.

Companies with diverse management teams earned 19 percent more revenue. In the United States, there’s also a positive linear relationship between racial/ethnic diversity and financial performance. For every 10 percent increase in diversity on the senior-executive team, earnings before interest and taxes rose by 0.8 percent.

Companies with lower levels of diversity performed below average. Not only is inclusion a net benefit, but a lack of diversity can harm financial performance.

While the positive impact of inclusion is apparent across the globe, there are interesting differences in types of positive effects dependent on location. For example, variety in national backgrounds drove innovation in the U.S. more than industrial histories.

These results prove diversity can help companies perform better. A number of studies on a wide variety of industries demonstrate that diversity is a significant benefit for businesses. Business leaders agree that inclusion has a positive impact when it comes to innovation and financial performance.

Several hypotheses exist as to why diversity drives innovation and profits. A diverse workforce is known to reduce the levels of interpersonal discrimination in the office. Therefore, a more diverse workforce, one where all team members feel included, may help encourage better communication between team members.

When every employee feels like they can contribute to the team, they’re more likely to provide ideas and opinions. By having a background not shared by other team members, they bring a unique perspective to the table.

Fostering a culture of diversity

How best to build diversity varies from company to company. Some change their hiring practices, shifting away from the idea of one perfect candidate and instead focusing on a wide variety of candidate pools.

Other companies focus on company culture, creating initiatives and programs that help employees at all levels to think of ways to make the company more inclusive.

There is evidence that company culture will affect how long-term benefits of diversity. One study found diversity improves overall collaboration in large companies, but only in companies that foster diversity, treating it as a plus rather than an obstacle. If a company doesn’t put effort into inclusion and diversity, the benefits are null.

There is evidence that diversity at the executive level will make a company more inclusive over time. A diverse leadership will no doubt result in hiring practices or company cultures that lead to multi-faceted companies.

Structural diversity, when inclusion is present at all levels of a corporation, may be the most critical kind of factor in driving financial success. If a company pushes for diversity at lower levels but doesn’t commit to hiring a diverse set of administrators and executives, it’s not as diverse as it could be. Plus, it won’t get the full financial benefits of diversity.

The future of workplace diversity

Overall, ethnic and cultural diversity was low when it came to executive teams. Even the most diverse companies struggle with representation. No top companies in gender diversity outshone in ethnic diversity and vice-versa.

Even with the knowledge that diversity results in better financial performance, most companies are a long way from being as diverse as the country where they’re located. 

However, the future looks good for diversity in the workplace. By 2025, millennials will make up 75 percent of the global workforce. The vast majority of millennials believe that diversity fosters innovation. Many of them actively consider the value of diversity to an organization when looking for a job.

Inclusion and diversity will work at different rates across the globe. While metropolitan cities like Los Angeles and New York might jump on the bandwagon immediately, rural areas might need time to catch up.

The good news is, as millennials move up in corporate hierarchies, they will be the ones making decisions about how diversity and inclusion fit into corporate culture.

There’s no doubt diversity will become an integral part of the workplace, even as the economy shifts to remote and flexible work opportunities. How will diversity influence profitability looking forward?

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