The Importance of Diversity in Corporate Success

By: Enzo team

Over the last couple of years, the word ‘diversity’ has become something of a buzzword in politics, media, and yes, even corporate America. So when the word pops up, it can seem like an HR frivolity or a company's plan to look more progressive. This has led to confusion and disillusionment regarding the role diversity has in an office space, when in reality, the benefits greatly outweigh the downfalls. For a mission-driven business (like Enzo), it plays a role in creating a fairer, more accepting workspace. Which on its own is enough to justify hiring a more diverse team. However, even without the incentive of bettering society, a diverse team is statistically more likely to be successful for several reasons.

Today, we will examine the many ways having a diverse team creates a successful business and why an inclusive office brings in higher profits.

Diversity's Direct Impact on Profitability

Let's be real here, even mission-driven businesses want to generate high profits. And if that is the only reason you care about diversity… well, that's reason enough. Study after study has shown that having a diverse team increases profitability.

According to a study done by McKinsey & Company in 2023 called "Diversity Matters," “companies in the top quartile for ethnic and cultural diversity on executive teams were 39% more likely to outperform their peers on profitability.”

This is a huge study, and a huge number of employers are bringing in more profit. This study is not alone in its findings. The Boston Consulting Group found that companies with above-average diversity on their leadership teams reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity.

The Center for Human Capital Innovation found that organizations in the top quartile for ethnic diversity are 35% more likely to have financial returns above their national industry mean.

A Josh Bershin study found companies with inclusive talent management practices had 2.3 times higher cash flow per employee over a three-year period.

The list goes on and on. Some people might think having diversity in a team is a publicity stunt or a tick on a checklist, but diversity has real, tangible effects on business. Having a diverse team isn't just important socially; it's a strategy, one that will help your profits rise.

Driving Innovation and Creativity Through Diversity

Understanding that having a more diverse team can bring up profits is a good first step, but it's also important to understand why it makes business so much more profitable. And one of those reasons has to do with innovation and creativity.

Businesses that have more diversity (especially in leadership positions) are more likely to be more innovative and creative, which is important for all businesses. A report by Korn Ferry and the Global Black Economic Forum highlighted that businesses committed to diversity, equity, and inclusion (DEI) initiatives tend to be more innovative and successful. The study emphasized the role of inclusive practices in fostering an environment conducive to creativity and business growth.

Additionally, research from the Boston Consulting Group (BCG) found that companies with diverse leadership teams reported 45% higher innovation revenue. This statistic illustrates the direct link between diverse leadership and increased innovation within organizations.

Having a diverse mindset leads to more creative outcomes; this is due to the many different perspectives and approaches that different people have. When people from various backgrounds are able to combine their ideas and perspectives, it fosters an environment that is more likely to support unique ideas and innovations.

Improving Decision-Making with Diversity

Having good decision-making is one of the most important things one can look for in a successful team. Believe it or not, diversity can affect how someone makes a decision. According to Forbes, “Teams outperform individual decision-makers 66% of the time, and decision-making improves as team diversity increases. Compared to individual decision-makers, all-male teams make better business decisions 58% of the time, while gender-diverse teams do so 73% of the time. Teams that also include a wide range of ages and different geographic locations make better business decisions 87% of the time.”

Oftentimes, the decisions we make are unconsciously impacted by the biases we have and that are well-established in the world. This can lead to poor or narrow-minded decision-making. Having a diverse team is one way to combat that. Francesca Gino, a Harvard Business School professor, says, “While it is hard to change how our brains are wired, it’s possible to change the context of decisions by architecting the composition of decision-making teams for more diverse perspectives.”

Having many perspectives leads to better decision-making due to the multiple viewpoints that can address many sides of an issue or idea.

Effective Problem Solving and Proactive Issue Resolution

No business has completely smooth sailing. Unfortunately, all of us run into problems, but how difficult those problems are to fix is something that can vary. So having a team that can effectively and efficiently problem-solve is a must-have for every office. Getting a team like that is much easier when it is diverse.

One way to solve problems is by having fewer of them in the first place! Having a diverse team of people is a surefire way to cut down on company problems. One study done by McKinsey found that companies with more diverse executive teams are 25% more likely to have above-average profitability, largely because they are better at anticipating customer needs and spotting business opportunities. Because business caters to a large group of people, having a team that well represents a large group of people is key to operating smoothly and successfully.

Combatting Groupthink Through Diversity

Groupthink is a psychological phenomenon that occurs when a group of people in a company prioritize harmony, conformity, or consensus over critical analysis and independent thinking. It often leads to poor decision-making because team members suppress dissenting opinions, overlook alternatives, and ignore potential risks just to maintain group cohesion. Groupthink is a really bad thing for a business, and while it can happen for a couple of reasons, one of the main ones is the lack of diversity.

Diverse teams are more likely to engage in critical discussions, challenging assumptions, and exploring alternative solutions. This process helps prevent the consensus-seeking behavior characteristic of groupthink. More diverse teams are also less likely to fall into groupthink due to the multiple perspectives of a diverse team.

“Diversity doesn’t just make a company more inclusive; it drives smarter decisions by forcing people out of their echo chambers.”

– Sylvia Ann Hewlett, economist and author.

Conclusion: Diversity as a Business Strategy

Incorporating diversity into the workplace is not just a matter of social good; it significantly enhances business performance. Diverse teams bring innovation, improve decision-making, strengthen problem-solving abilities, and counteract groupthink. The numerous studies and insights into the relationship between diversity and business success clearly show that diverse teams are not just more inclusive but also more effective. Embracing diversity is a smart business strategy that leads to better profitability, greater creativity, and a stronger competitive edge.

Diversity is one of the things Enzo values most. Offshore hiring is a strategy not just to save money, it leads to a more diverse team which as we can see is important for any business.