Want A More Innovative
Company? Simple: Hire A More Diverse Workforce
A new study adds to the research that a variety of backgrounds and
experiences in the workplace leads to business success.
Companies may have somewhat fluffy reasons
for hiring and promoting diverse workforces. A mix of skin colors, genders, and
sexual orientations looks good in marketing photo shoots and presents a brand
as representing modern America’s rainbow coalition. But diversity is important
for another big reason, according to new research: It helps businesses to
become more innovative and more successful. “There is a business case for
diversity,” says Richard Warr, a professor of finance at North Carolina State
University and coauthor of the research. “It’s not just about trying to be nice. It’s good for
business. It not only helps in terms of perception. It actually produces better
outcomes.”
The study looks at the performance of 3,000
publicly traded companies in the years 2001-2014 across nine measures of
diversity. That includes whether firms have women and minority group CEOs,
whether they promote women and people of color to “profit and loss
responsibilities,” whether they have positive policies on gay and lesbian
employees (say, offering benefits to domestic partners), and whether they have
programs to hire disabled employees.
Companies are marked down for diversity
failures: For example if they paid fines for discrimination or they hired no women
to their boards. The researchers judge innovativeness from patent and patent
citation data and the number of new products companies announced over the
time period. And they normalize the results for company size, presuming that
larger companies file more patents and produce more new products than smaller
ones.
The big takeaway: Companies that fulfill all
nine positive diversity requirements announce an average of two extra products
in any given year, which about doubles the average for a major company (those
that tick fewer boxes are less innovative proportionally). Moreover, the
researchers find that companies with pro-diversity policies were also more
resilient in terms of innovation during the 2008 financial crisis.
The main sample excludes companies in
California because, in designing the study, the researchers worried that a
“Silicon Valley effect” would skew the results. That is because technology
companies tend to have more-progressive-than-normal workplace policies and to
be more innovative than mainstream U.S. companies, Warr says.
According to Warr, there are three main
reasons why more diverse companies may be more innovative. First, teams with a
broader range of people have a wider range of interests, experiences, and
backgrounds to draw upon. They understand potential users of products better
than less diverse teams. And they tend to be better problem-solvers, coming up
with blue-sky solutions more often. “They think about problems in a different
way that might have been expected,” Warr says.
Second, more diverse companies tend to
attract and retain more diverse talent. “If your company is all about old,
white people, you are cutting yourself off from other types of people–they
don’t want to come to work for you,” Warr says. And third, more diverse
companies have a sort of “halo effect,” Warr says. They’re more attractive not
only to women and minorities, but also to people who are not women or
minorities, who want to work for more enlightened organizations. The paper,
coauthored by Roger Mayer, also of NC State, and Jing Zhao of
Portland State University, has limitations. First, the relationship between
diversity and innovation is somewhat speculative. Through various complex
statistical techniques, the researchers try to prove causation rather than
correlation, but it’s arguable if they succeed. It’s possible that diverse
companies are innovative for a host of reasons–say, because they invest in
R&D–not just because they’re diverse. But the research echoes other work
showing a link between diversity and financial performance. So perhaps we
shouldn’t be too skeptical.
BY BEN SCHILLER https://www.fastcompany.com/40515712/want-a-more-innovative-company-simple-hire-a-more-diverse-workforce?utm_source=postup&utm_medium=email&utm_campaign=Fast%20Company%20Daily&position=5&partner=newsletter&campaign_date=01122018
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