Does Demographic Diversity Lead to More Innovation?

Does demographic diversity lead to more innovation, or is it just so much talk? In my own experience, the answer is yes, especially when organizations have educational, business professional, and cultural diversity. Successful demographic diversity requires that management spend more time establishing group norms for communication, conflict resolution, and team operations.

When setting up new product development teams or innovation teams, my observation is that teams that have educational and business professional diversity think more broadly and creatively than teams lacking this diversity. The educational and professional diversity I am referring to is the difference between mechanical engineers and biomedical engineers, software vs. systems, marketing and finance. These professions, with their educational rigor, can think and speak in very different ways.  Their behaviors around organizing a team, writing reports and even socializing can also vary greatly.

For example, the observation of customers by an engineer and a marketing professional can lead to different observations—all valuable–of how the customer uses the product or service and what drives value.  The engineer may consider how a new technology can improve the customer experience with more features and options.  The marketing professional may look at the comfort level of the customer while using the product, where their eyes go, and what product features are preferred.

It takes longer to launch demographically diverse teams and get them to work well together because they have to overcome communication and cultural differences. With good team kick off practices and group norms, however, these barriers can be quickly overcome.

What about cultural diversity?

Isn’t a product a product, a service a service, no matter where it is used around the world?  No, there are differences. While working for a global medical device company, I was impressed by how our business and marketing team in India took the same products that were available in the U.S. and Europe and figured out how to change the branding and marketing to boost local sales. They understood that the India market had three segmentations for medical devices and pharmaceutical products: the public market, semi-public, and private market. They also understood the demographics in each one.

Does cultural diversity matter in the U.S?

You bet it does! Look at how NBA great Magic Johnson successfully started a chain of Starbucks stores in black, urban neighborhoods.  “I had to take the scones out of my Starbucks and put in things like sweet potato pie and “sockittome cake” Johnson said[i]. He also changed the music, adding more Michael Jackson instead of the typical Starbucks fare like Hootie and the Blowfish.

Johnson was so successful, he ended up with 105 locations, with great profit numbers. After a 12 year partnership, he sold the business to Starbucks. Today, he has turned his attention to high tech and infrastructure[ii].

What does the research tell us about diversity and innovation or new product development teams?

There is growing evidence that the companies that put more effort into diversifying their workforces and new product development and innovation teams become more efficient, productive and profitable–especially in high technology, high knowledge based, global industries that are more complex and have a high need for innovation. Diversifying your workforce, however, (culturally, professionally, gender, racial, ethnic) brings with it challenges of socialization, communication and working well together. The teams that learn to overcome these challenges with effective communication and group operating norms tend to do well.

University of Aarhus study in Denmark. Researchers from the University of Aarhus looked at how the impact of diversity in cultural background, skills and demographic characteristics affected productivity.[iii] Their conclusion was that having a diversity of skills and education significantly enhances a firm’s productivity. Diversity in demographics and ethnicity brought mixed results – either they had no positive impact or even a negative impact on productivity. They surmised that the communication and integration costs of a more demographically and culturally diverse workforce counteract the positive effects of diversity on a firm’s productivity and creativity. They did find a silver lining with ethnic diversity. Firms operating in above-average global trade have more success in global markets due to the knowledge and know-how of their ethnically diverse workforce.

Belgian researchers at the Paris School of Economics and Unviersite’ Libre de Bruxelles found that educational diversity is generally beneficial to the productivity and profitability of firms because of the complementary skill and information sets.[iv] Gender diversity can positively impact productivity, profits and wages in some industries, but not others. Firms in high technology/high knowledge sectors are more likely to benefit from gender diversity than those in more traditional sectors. They found that age diversity may have a negative impact on productivity because of the differences in socialization and communication styles of different generations. However, age and gender diversity can have a positive impact when the work environment is characterized by complex tasks and innovation. This study once again points to the costs associated with more complex socialization and communication of more diverse workforces. The productivity benefits can outweigh these costs, however, when a firm operates in a high technology or high knowledge environment, or when the work environment is characterized by more complex tasks and the need for innovation.

Sloan School of Management, MIT, researchers found that functional and tenure diversity each has its own distinct effects. The greater the functional diversity, the more the members communicated outside the team’s boundaries[v]. The more the external communication, the higher the managerial rating of innovation. Tenure diversity improved internal group dynamics and generally improved goal clarification and priority setting and overall performance. The researchers found that while tenure diversity can improve creativity, it can also impede teamwork and implementation. In order to get the positive aspects of diversity and minimize the negative aspects, diverse teams needed to be good at conflict resolution and negotiation.

Does demographic diversity improve innovation and new product teams?  What has been your experience?

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne.US. He works with key decision makers and human resources leaders on talent management, leadership development and coaching, innovation, and other strategic initiatives. Please e-mail Victor at victorassad6@gmail.com or visitwww.victorhrconsultant.com. For innovation visit www.InnovationOne.US.

[i] Biz Carson (Feb 9, 2016, 4:57 PM) “The vital lesson Magic Johnson taught Starbucks CEO Howard Schultz. Business Insider. Found at http://www.businessinsider.com/magic-johnson-nba-star-to-businessman-2016-2.

[ii] Ibid.

[iii] Pierpaolo Parrotta, Dario Pozzoli, and Mariola Pytlikova, (2010) “Does Labor Diversity Affect Firm Productivity?” Department of Economics, Aarhus School of Business, University of Aarhus. ISBN 9788778824615 (online).

[iv] Andrea Garnero, Francois Rycs (2013) “The heterogeneous effects of workforce diversity on productivity, wages and profits.” Found at https://www.iza.org/conference_files/SUMS_2013/garnero_a8067.pdf.

[v][v] Deborah Gladstein Ancona, Sloan School of Management, MIY and David F Caldwell, Leavey School of Business, Santa Clara University, (Aug 1, 1992) “Demography and Design, Predictors of New Product Team Performance,” Organizational Science. Found at http://pubsonline.informs.org/doi/abs/10.1287/orsc.3.3.321.

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