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Diversity of thought and business profit

Research by Professor Scott E.Page from the University of Michigan challenges traditional assumptions about leadership decision-making by demonstrating how the power of difference can help organisational leaders to avoid the pitfalls of Groupthink as well as learn how to innovate and grow through utilising an organisation’s collective wisdom.

What this research also highlights is that it is ‘diversity of thought’ and not simply group categories like gender or ethnicity which provides such benefits. Further research by Deloitte University Press stresses three key benefits to leadership decision-making and organisational performance of diversity of thought:

  • It helps guard against groupthink and expert overconfidence. Diversity of thought can help organisations make better decisions and complete tasks more successfully because it triggers more careful and creative information processing than typically occurs in homogeneous groups.

  • It helps increase the scale of new insights. Generating a great idea quickly often requires connecting multiple tasks and ideas together in a new way. Technological advances are enabling new ways, such as crowdsourcing and gamification, to bring the diversity of human thinking to bear on challenging problems.

  • It helps organisations identify the right employees who can best tackle their most pressing problems. Advances in neuroscience mean that matching people to specific jobs based on more rigorous cognitive analysis is within reach. Organisations that can operationalise faster ideation can begin to purposely align individuals to certain teams and jobs simply because of the way they think.

Added to this research a 2012 Mckinsey study of 180 global businesses found that of companies ranking in the top quartile of executive board diversity, ROEs were 53% higher on average, than they were for those in the bottom quartile. At the same time EBIT margins at the most diverse companies were 14% higher on average, than those of the least diverse companies.

A study by the global non-for-profit Catalyst found that companies with the most women board directors outperformed those with the least on return on sales (ROS) by 16% and return on invested capital (ROIC) by 26%.

Researchers at Pepperdine University found that organisations on Fortune’s list of the “100 Most Desirable MBA Employers” for women outperformed the industry medians on numerous financial measures, including:

  • Profits as a percentage of revenue: 55 percent of the companies were higher than the median, 36 percent were lower, and 11 percent were tied.

  • Profits as a percentage of assets: 50 percent were higher than the median, 28 percent were lower, and 23 percent were tied.

A 2017 Peterson Institute for International Economics study found that companies with at least 30% female leaders can add as much as 6% to their net margins.

Finally, research by the New York-based Center for Talent Innovation examined 40 business case studies on what it termed “two-dimensional diversity”, namely “inherent diversity”– such as gender and race – combined with “acquired diversity” – like global experience and language skills. Their research found that publicly traded companies with two-dimensional diversity were 45% more likely than those without to have expanded market share in the past year and 70% more likely to have captured a new market.

When teams had one or more members who represented a target end-user, the entire team was as much as 158% more likely to understand that target end-user and innovate accordingly. Collectively, these studies and others, demonstrate the real financial reward of two-dimensional diversity at the Executive level.

If you would like to discuss your own Diversity and Inclusion journey with Dan then please speak to your Investigo contact to organise a meeting. Connect with Dan: / +44 7946 466 180