If you lead a global company with demanding customers that is fast paced, facing frequent change, and requiring innovation, you need more discomfort and conflict. For that, you need a diverse, global and inclusive workforce. Studies show that type of workforce is worth the investment. (More on that below).
The diversity movement in corporations, however, got it wrong. It is not about focusing on individual diversity. Rather, it is about focusing on business strategy, commonality, and leadership and team agility.
Often, men and women, blacks and whites, and people of substantially different backgrounds, customs and religions don’t like working together. Why? It requires learning new communication and socialization behaviors. It requires taking risks and showing our vulnerability. It is uncomfortable.
What Brexit, the recent U.S. election and other nationalist movements have reminded us is that when there are surges of new immigrants with strange languages, norms, and religions coming into our countries or neighborhoods, people become uncomfortable and fearful.
The same discomfort applies to work. When there’s discomfort, you see it in breakrooms and luncheon halls. Employees would rather hang out with those who are like themselves than with strangers.
However, the enlightened executive leadership team will realize that the discomfort and conflict caused by a diverse, global and inclusive workforce leads to more innovation, better performance and improved financial results. Global companies are well advised to defer the execution of their global business strategies to regional leaders who better understand the local customers, markets, laws and regulations. Once again, the research bears this out.
Here is a recipe for attracting a diverse workforce so that you can increase innovation and improve the financial performance of your company. Begin with your organization’s mission, its higher purpose in life, and business model. What are the strategies that distinguish you and enable you to win over the competition? What are the talent management strategies that identifies the skill sets you need, where to recruit them, and how you align, develop and motivate your workforce?
Is there anything too radical about this? No.
And that is the point. Too many companies have implemented diversity strategies that took the company away from its mission and divided its workforce, rather than unify it around its mission and higher purpose. From there, it is important to provide excellent onboarding, mentoring and coaching, flexible work arrangements, and family leave benefits to men and women. Companies also need to invest in developing leaders and teams to have agile leadership and communication skills to work with people of different backgrounds and nationalities. As with any business strategy, collect objective analytics and adjust as you go.
For those of you wondering if there is empirical evidence supporting the effectiveness of diverse, global and inclusive workforces, the answer is, there is a ton of it. Below is a summary:
The McKinsey Global Institute estimates that women’s full participation in the workforce in identical circumstances to men would add $2.1 trillion the U.S. economy.[i] Not a small sum.
MIT and George Washington Economists looked at eight years of revenue data and employee surveys that measured satisfaction, cooperation, morale and attitudes toward diversity. That included data from teams and offices that were entirely male or female as well as gender mixed teams. Revenue figures showed that employees on more diverse teams were more productive and better performing, although individual employees reported higher levels of job satisfaction on teams that were mainly staffed by employees from their own gender.[ii]
University of Aarhus Study in Denmark. Researchers from the University of Aarhus looked at the impact of diversity in cultural backgrounds, skills and demographic characteristics that affected productivity.[iii] Their conclusion is that diversity of skills and education significantly enhances a firm’s productivity. Diversity in demographics and ethnicity brought mixed results, either no positive impact or even negative impact on productivity. However, they did find a silver lining with ethnic diversity. Firms operating in above-average global trade benefited by access to and success in global markets from the knowledge and know-how of an ethnically diverse workforce.
Belgian Researchers at the Paris School of Economics and Unviersite’ Libre de Bruxelles found that education diversity is generally beneficial to the productivity and profits 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, however, the productivity gains need to far outweigh the additional costs associated with communication differences and emotional conflict. They found that age diversity has a negative impact on productivity because of the differences in socialization and communication styles of different generations. Age and gender diversity can have a positive impact, however, when the work environment is characterized by complex tasks and innovation.
McKinsey and Company looked at the diversity of executive board composition and returns on equity (ROE) and margins on earnings before interest and taxes (EBIT) of 180 publicly traded companies in France, Germany, the United Kingdom and the United States over the period of 2008 and 2010. They found that the companies ranking in the top quartile of executive-board diversity had 53% higher ROE than companies in the bottom quartile. They also had EBIT that was 14% higher, on average, than those of the least diverse companies.[v]
The Peterson Institute for International Economics and professional services firm EY found that companies with at least 30% female leaders had net profit margins up to six percent higher than companies with no women in the top ranks[vi].
What have you found in your company? Has the discomfort and conflict of a diverse, global and inclusive workforce been worth the investment? Join the conversation.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on innovation, talent management, developing agile leaders and teams, and other strategic initiatives. Questions? Please e-mail Victor at firstname.lastname@example.org or visit www.victorhrconsultant.com. For innovation visit www.InnovationOne.US.
[i] McKinsey Global Institute. The Power of Parity: Advancing Women’s Equity in the United States, April 2016. Found at: http://www.mckinsey.com/global-themes/employment-and-growth/the-power-of-parity-advancing -women’s-equality-in-the-united-states.
[ii] Rachel Emma Silverman (December 15, 2014) “Men and Women at Work: Unhappy, But Productive,” The Wall Street Journal. Found at: http://blogs.wsj.com/atwork/2014/12/15/men-and-women-at-work-unhappy-but-productive/?mod=WSJ_Management_At_Work&mod=wsj_valettop
[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] Thomas Barta, Markus Kleiner and Tilo Neumann (April 2012) “Is there a payoff from top-team diversity? Between 2008 and 2010, companies with more diverse top team were also top financial performers. That is probably no coincidence.” Insights and Publications. McKinsey Quarterly, McKinsey and Company. Found at http://www.mckinsey.com/insights/organization/is_there_a_payoff_from_top-team_diversity.
[vi][vi] Valentina Zarya (Feb. 8, 2016, 4:52 PM EST) “New Proof That More Female Bosses Equals Higher Profits,” Fortune, Found at http://fortune.com/2016/02/08/women-leadership-profits/?iid=sr-link9.