Diversity & Innovation

Introduction

The basic formula for diversity is rapidly evolving. It is no longer simply a matter of creating a heterogeneous workforce, but using that workforce to create the innovative products, services, and business practices that can set a company apart and give it a competitive advantage in the marketplace. And as companies compete on a global scale, diversity and inclusion frequently have to shift, as different markets and different cultures have varied definitions of what diversity means.

The globalization of business has created a sophisticated, complex, and competitive environment. In order to be successful, companies need to continually create new products and services. And the best way to ensure the development of new ideas is through a diverse and inclusive workforce.

A diverse and inclusive workforce is necessary to drive innovation, foster creativity, and guide business strategies. Multiple voices lead to new ideas, new services, and new products, and encourage out-of-the-box thinking. Today, companies no longer view diversity and inclusion efforts as separate from their other business practices, and recognize that a diverse workforce can differentiate them from their competitors by attracting top talent and capturing new clients.

Most managers accept that employers benefit from a diverse workforce, but the notion can be hard to prove or quantify, especially when it comes to measuring how diversity affects a firm’s ability to innovate.

But new research provides compelling evidence that diversity unlocks innovation and drives market growth—a finding that should intensify efforts to ensure that executive ranks both embody and embrace the power of differences.

Howard Business Review Research

In this research, which rests on a nationally representative survey of 1,800 professionals, 40 case studies, and numerous focus groups and interviews, we scrutinized two kinds of diversity: inherent and acquired. 

Inherent diversity: It involves traits you are born with, such as gender, ethnicity, and sexual orientation.

Acquired diversity: It involves traits you gain from experience: Working in another country can help you appreciate cultural differences, for example, while selling to female consumers can give you gender smarts. We refer to companies whose leaders exhibit at least three inherent and three acquired diversity traits as having two-dimensional diversity.

By correlating diversity in leadership with market outcomes as reported by respondents, we learned that companies with 2-D diversity out-innovate and out-perform others. Employees at these companies are 45% likelier to report that their firm’s market share grew over the previous year and 70% likelier to report that the firm captured a new market.

2-D diversity unlocks innovation by creating an environment where “outside the box” ideas are heard. When minorities form a critical mass and leaders value differences, all employees can find senior people to go to bat for compelling ideas and can persuade those in charge of budgets to deploy resources to develop those ideas.

Employees of firms with 2-D diversity are 45% likelier to report a growth in market share over the previous year and 70% likelier to report that the firm captured a new market.

Inherent diversity, however, is only half of the equation. Leaders also need acquired diversity to establish a culture in which all employees feel free to contribute ideas. Six behaviors, we have found, unlock innovation across the board: ensuring that everyone is heard; making it safe to propose novel ideas; giving team members decision-making authority; sharing credit for success; giving actionable feedback; and implementing feedback from the team. Leaders who give diverse voices equal airtime are nearly twice as likely as others to unleash value-driving insights, and employees in a “speak up” culture are 3.5 times as likely to contribute their full innovative potential.

These findings constitute a powerful new dimension of the business case for diversity.