For US businesses, management diversity means financial, innovative success
A study from consulting firm Boston Consulting Group (BCG) shows a correlation between diverse leadership and innovation and financial performance.
People from various backgrounds tend to view problems – and solutions to those problems – differently. This greatly improve the chances of one of those solutions being effective. “In a fast-changing business environment, such responsiveness leaves companies better positioned to adapt,” the study states.
BCG surveyed more than 1,700 professionals from eight countries in North America, Europe, and Asia. Of the respondents, 75% believed that diversity movements were gaining steam in their organizations, with companies in emerging markets enjoying “greater progress” in recent years than those in developed markets.
“The biggest takeaway we found is a strong and statistically significant correlation between the diversity of management and overall innovation,” the study states. “Companies that reported above-average diversity on their management team also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity – 45% of total revenue versus just 26%.”
Increased innovation means faster response to an ever-shifting business landscape, regardless of industry or market. Those companies in a position to adapt and quickly react are, more often than not, those with more diverse leadership teams. Additionally – and somewhat obviously – the study finds that the more innovative a company, the better its financial performance.
The study examined six dimensions of diversity. Of those dimensions, those discovered to be most effective in boosting financial and innovative performance are “national origin of executives, range of industry backgrounds, gender balance, and career paths.” Age and education level play more minor roles.
Even small changes can yield quantifiable benefits in a relatively short timespan. People from differing genders and industry backgrounds hold the potential to markedly increase revenue, so long as they act as replacements rather than new hires. To be fully effective, management teams must at once remain the same size and become more diverse.
The onus for change lies with senior management, who need to treat diversity and diversity efforts as seriously as other business matters. A clear plan must be created, with a definitive, goal-oriented path to its successful implementation. In short, diversity must be treated like money, because diverse organizations are profitable organizations.
“The evidence is clear: companies that take the initiative and actively increase the diversity of their management teams – across all dimensions of diversity and with the right enabling factors in place – perform better,” the study concludes. “These companies find unconventional solutions to problems and generate more and better ideas, with a greater likelihood that some of them will becoming winning products and services in the market.”
Related: Gender diversity improves private equity and venture capital returns
