Why your company benefits from a diverse workforce

Diversity has become a buzzword lately, and today you hardly find any major corporation that does not have a diversity statement on their website. But what do we really mean when we talk about diversity? How is the situation in companies today when it comes to the diversity of their workforce? And what can businesses gain from creating a diverse work environment? [By Jennifer Reinhardt]

Diversity as a concept means that you try to consciously include and involve many different people in your company. “Different” refers to the various dimensions that one person can be dissimilar from another: This includes traits that people are born with or that are inherent to their personality, e.g., age, ethnicity and nationality, gender, sexual orientation, social background, religion, as well as physical and mental abilities.

These characteristics are those that most often come to mind when people hear the word diversity. There are, however, other dimensions to the concept of diversity that are more related to an employee’s life experiences or are acquired qualities. These include but are not limited to family status, income, your place of residence, jobs, or your hobbies.

Examining the Status Quo of Diversity

Research by McKinsey, carried out in 15 countries and encompassing 1,000 companies, showed that in 2019 the percentage of women present in executive teams was only 15% (2017, the percentage was 14%). In fact, across the surveyed companies, more than one third of executive teams included no women. These numbers were consistent regardless of industry and country the researchers questioned.

The situation is similar when it comes to ethnic minorities: In 2019, they represented only 14% of all executive team members (compared to 12% in 2017).

For Germany, a survey by Ernst & Young among 600 employees showed that diversity management in German companies is a process that has only just begun. Many businesses have not yet taken any steps towards creating a diverse environment.

Why Is a Diverse Workforce So Important?

But why do so many companies put such a strong focus on diversity? Because they do – regardless of the numbers above, according to Glassdoor there are efforts across all industries towards more diversity among their employees. However, what do companies gain from a diverse workforce? Does it bring real-life benefits for companies, or is diversity just a nice-to-have cherry on top that looks good to potential customers, investors, and jobseekers?

Diverse teams perform better

Two heads are better than one – and when the two or more heads who are trying to solve a problem are from different cultures, they tend to be more creative. Ensuring that your company has teams with members from all over the world therefore is a great way of helping your employees reach their full potential.

But gender is also a big factor when it comes to group work. Teams that consist of men and women perform better – when you add women to teams that were made up of only men before, average turnover rates are reduced. The team’s relational skills and organizational citizenship behaviours are strengthened and willingness for shared leadership is boosted.

Science shows that the reason for this is simple: The more diverse the people that collaborate to find a solution are, the more information, experiences and perspectives are included on their way to find it. This naturally sparks creativity and fosters ways of thinking outside the box.

Diverse companies improve recruiting and retention of employees

Companies only want the best performers to work for them – and potential hires look at businesses more often from the perspective of how diverse their workforce is. According to Glassdoor, 76% of U.S. employees and prospective employees say that diversity is a key factor for them when they consider an employer or job offers. 32% of them would not even think of applying to a company where diversity is notably absent.

And more alarmingly for businesses: 39% of workers said that there is a possibility that they would leave their current job if they found an employer who offered a more inclusive environment, says a survey by Deloitte.

Diverse companies improve business success and financial performance

The above-mentioned study by McKinsey surveyed 1,000 companies to take a closer look at how gender diverse executive teams are. The results make a strong case for hiring diverse employees, as companies with a high level of gender diversity among their leadership team were 25% more likely to be profitable than average.

Looking at ethnic and cultural diversity, this number is as high as 36%. This is supported by a Boston Consulting Group study of 171 German, Swiss and Austrian companies. It also showed that the revenue an organization gets from innovative products and services is directly linked to how diverse their executive team is – that is, if it includes men and women, or people from other cultures, industries, or companies. When members of a company’s executive team are part of the LGBT community, the company tends to perform better, too, research shows.

Interestingly, investors pay close attention to high gender diversity and reward companies that showcase this. When tech and finance companies report high percentages of women in their workforce, stock prices rise, according to research from the Kellogg School of Management.