Do you have a Chinese Uyghur on your executive team? Okay, how about a Hausa from Nigeria? Galician or Castilian from Spain? Breton from France?
Too bad. According to McKinsey, there is a linear relationship between gender, ethnic and racial diversity, and better financial performance. In the United States there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10% increase in racial and ethnic diversity on the senior-executive team, earnings before income and taxes (EBIT) rises 0.8%. Companies in the bottom quartile for race and gender are statistically less likely to enjoy above-average financial returns. Companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective industry national medians.
McKinsey wasn’t shooting from the hip. McKinsey had studied diversity in the workplace for a number of years. The research company examined proprietary data for 366 public companies across a range of industries in Canada, Latin America, the UK, and the US. McKinsey focused on financial results and the composition of top management and boards.
Clearly, there’s something to say for having a mini-United Nations sitting around your conference table.
Does that mean that you should post job offers on university bulletin boards on all continents? Why not? Unless you run out of thumbtacks or Post-it Notes.
Diversity has risen to the forefront of the CEO consciousness for some time. Certainly, gender and racial equality issues have played their role in pushing it to the forefront. But putting that aside, for the most part, diversity’s positive impact on the bottom line, as McKinsey attests, is proven.
So why does diversity increase the bottom line and put a smile on shareholder’s faces? There are a number of reasons. But the core reason, the heart of the issue, is creativity
Creativity is the father of innovation. Creativity is that out-of-the-box idea. Innovation is the implementation. In the corporate world, innovation is seen not just as a driving force for success, but perhaps even more importantly, given the rapid changes in technology and global competitiveness, a driving force for survival.
Diverse perspectives are integral to the flourishing of fresh, new creative ideas that are the framework of creativity.
Does that mean that you should stock up on thumb tacks and Post-it Notes? Does that mean you should be signing up for Berlitz’s “Speak Inuktitut Like a Native Eskimo”?
Before you sign up, let’s look at diversity from a different perspective.
For instance, yes, the outsider has a fresh perspective, intriguing insights, thoughts that jar the status quo thinking.
But in what context are they presented? Are they simply mentioned in a meeting? And then? Do they automatically become the default, the go-to thinking, because they were delivered with an accent? (What happens if an executive has a Brooklyn accent? Does his idea have less or more value?)
Should the American-made, American-born perspectives of the born American executive with his culture, lifestyle, education, et al be given less weight?
How is value placed on an idea? What measurement is used to validate one idea over another? Do you simply say, “Basajaun (Basque), or Aroha (Polynesian), or Fugeddaboutit” (Brooklyn) has this great idea” and you’re off and running? Not likely.
In the corporate world, a favored method for measuring the value of ideas is brainstorming. At the simplest, it is a technique through which a group gathers for the purpose of sharing their ideas and collectively evaluating each idea. This technique was introduced back in the ‘60’s by Alex Osborne, founder/partner of a major ad agency, BBD&O (Alex is the &O), as a technique for his creative teams to generate more creative ideas.
Every member of the brainstorming group is given the opportunity to dissect, analyze, question, criticize, challenge, and/or support every idea presented. The premise is that each idea is seen through the unique perspective of each individual participant.
This brings a 100x microscopic analysis of the ultimate value, benefits, and potential implementation of each proposed idea.
Here’s where diversity adds to the power of brainstorming. Different genders, different ages, and different cultures see problems from different perspectives – a kaleidoscope of perspectives. They both challenge other perspectives and introduce fresh perspectives for consideration.
However, before you tell your key employees to show up in the conference room tomorrow with raincoats and umbrellas for a brainstorming session, let’s go back to that McKinsey report at the beginning of this column.
If the returns are so certain, why aren’t other companies holding brainstorming sessions to develop out-of-the-box ideas that lead to breakthrough innovations? Sounds so simple. Why is any company lagging?
The answer is – many corporations of all sizes do in fact have brainstorming sessions. But, as the Harvard Business Review points out, brainstorming comes with its own challenges that affect its potential.
Brainstorming is based on four rules:
- Generate as many ideas as possible,
- Prioritize unusual or original ideas,
- Combine and refine the ideas generated, and
- Abstain from criticism during the exercise.
The process, which should be informal and unstructured, is based on two psychological premises. First, that the mere presence of others can have motivating effects on an individual’s performance. Second, that quantity eventually leads to quality.
But humans are humans, and along with intelligence they bring the weaknesses of human nature into the session. HBR points out a few of them:
- Social loafing: There’s a tendency – also known as free riding – for people to make less of an effort when they are working in teams than alone. As with the bystander effect, we feel less propelled to do something when we know other people might do it.
- Social anxiety: People worry about other team members’ views of their ideas. This is also referred to as evaluation apprehension. Similarly, when team members perceive that others have more expertise, their performance declines. This is especially problematic for introverted and less confident individuals.
- Regression to the mean: This is the process of downward adjustment whereby the most talented group members end up matching the performance of their less talented counterparts. This effect is well known in sports – if you practice with someone less competent than you, your competence level declines and you sink to the mediocrity of your opponent.
- Production blocking: No matter how large the group, individuals can only express a single idea at one time if they want other group members to hear them. Studies have found that the number of suggestions plateaus with more than six or seven group members, and the number of ideas per person declines as group size increases.
There’s another aspect of human nature that stealthily walks into the conference room with the brainstorming participants – cognitive biases.
Cognitive biases may undermine the very premise of diversity.
As an example: Affinity Bias leads us to favor people with whom we feel a connection or similarities. The Halo Bias is when a participant admires an aspect of another participant and it colors his perception of the latter’s ideas. When diversity puts a participant on a pedestal, it affects the process of analysis. Their ideas gain stature and are more readily accepted without challenge.
Deloitte, however, points out how diversity can mitigate some cognitive biases: A mix of people from different backgrounds with unique perspectives can help challenge organizational assumptions, uncover new ways of thinking, and prevent team members from reaching the same conclusion. In fact, research shows that thought diversity can help organizations make better decisions because it triggers more creative information processing, which is often absent in homogenous groups.
Although diverse thinkers may take more time to arrive at a solution than a homogenous group, the solutions they generate will typically be more innovative than those proposed by people who think alike.
Now you’re absolutely frustrated: Should you sign up for that Berlitz “Sign up for 3 Languages and we’ll throw in Hmong and Somali for free” promotional offer or not?
The answer is yes.
The answer is no.
McKinsey and Deloitte are correct that diversity enhances creativity, which generates the out-of-the-box ideas that generate innovations that generate measurable financial growth.
Harvard Business Review and others are right that benefiting from diversity is a complex, sophisticated process requiring commitment from management to properly integrate and implement within the company.
Corporations that have rode to success through diversity have fully committed to integrating and fine tuning the process throughout their company. According to Deloitte, “To harness this power, organizations and leaders must consciously make choices to bring in people with different perspectives. This includes creating a diverse workforce composed of people who approach issues from a wide range of viewpoints. Notably, this type of diversity is not confined to gender, or race, but extends to diversity of thought, background, education, and job level.”
The question you should be asking in your board room is: Is our company in position to make that commitment?
And if not, is there a way you can benefit from diversity without becoming Berlitz’s “Client of the Year”?