Why diverse leadership teams increase innovation
There’s been a lot of talk about building more diverse leadership in the workforce--here’s the case for it in higher education
Over the last decade, research has revealed the breadth of racial and gender inequality among business leaders. More than anything, the numbers highlight how much corrective action is still needed.
A 2021 Gartner report found that BIPOC (Black, Indigenous, and People of Color) professionals of all types make up 31 percent of the total workforce but only 17 percent of the executive level company managers (the C-suite). Less than 1 percent of CEOs at Fortune 500 companies are Black with only four total, down from six in 2012. In fact, there have been only 17 Black CEOs of Fortune 500 companies in the past 20 years.
Similarly, Hispanic business leaders comprise only 4.3 percent of all executive positions, and Asian Americans represent just 1.5 percent of the C-suite in Fortune 500 companies. Gender diversity remains an issue as well. Of S&P 500 companies, only 6 percent have women as CEOs.
Researchers, the media, and established business leaders have touted the importance of diversity, equity, and inclusion. Now is the time to go beyond discussion—business leaders need to implement the changes that will transform their ranks. A Glassdoor survey found that 57 percent of employees think their employer should be doing more to increase diversity. Fortunately, the work of diversifying reaps rewards beyond the satisfaction of doing the right thing.
The Business Case for Leadership Diversity
A number of recent studies show a relationship between leadership diversity and companies achieving higher success in the marketplace. For example, McKinsey found that the most diverse workplaces were 35 percent more likely to perform above their national industry median. Much of the success is attributed to innovation in terms of new products, identifying more revenue opportunities, and finding untapped niches.
But what is it about diverse leadership teams that increases innovation?
Diversity Fuels Inspiration
Human survival has always depended upon adaptation to change. Thanks to evolution, people today still thrive on the stimulation of change.
Think about some of the most memorable moments of your life. How many of them involve doing something for the first time or experiencing profound change? In our highly scheduled and routine work lives, even taking a detour on the drive home from work makes us more engaged than usual.
In the same way, teams composed of people with similar experiences are prone to complacency, whereas a diverse group comes up with new ideas. Their array of cultural backgrounds, experiences, and perceptions creates a knowledge bank of diverse information that doesn’t exist in teams in which everyone has similar backgrounds.
Homogenous leadership teams don’t always need to communicate specific thoughts or viewpoints because most members pull from the same set of references or perceive the world through a similar lens. In diverse leadership teams, each member is often unfamiliar with the experiences of everyone else. This unfamiliarity forces each leader to sharpen their thinking and communication skills to better present their viewpoints. They’re also challenged to understand the perspectives of others. Like combustion and friction-based engines, this type of stimulation cuts through waste, capitalizes on new opportunities, and inspires concrete action.
Diversity Offers More Market Insights
Diverse leadership teams also have a greater awareness of what different consumer demographics want or need. This translates into ideas for new types of products, marketing campaigns, upcoming trends, or new revenue streams. Rihanna’s Fenty Beauty is a notable example of this. Her knowledge that the beauty industry wasn’t serving every consumer led the singer and her leadership team to serve their needs, forming a multi-billion-dollar company in just a few years. Now the rest of the industry is following suit, expanding revenue potential for every brand in the market.
Gender diversity in leadership teams plays a role in market performance as well. Though women make up only a small percentage of C-suite executives and senior leaders in companies around the world, women globally drive 70 to 80 percent of all purchasing decisions. That may be why Bloomberg found that companies with gender-balanced leadership teams have a significantly higher return on equity.
With profit margins tightening as the business landscape grows larger, many companies have begun to place increasing importance on innovation revenue. In a recent report, the Boston Consulting Group (BCG) and the Technical University of Munich defined innovation revenue as any sort of revenue stream from enhanced or new products and services, especially those created in their last three years. BCG found this innovation revenue was 19 percent higher in companies with diverse leadership teams than in companies with homogenous leadership.
Ensures More Ideas Are Heard
Harvard Business Review found that when at least one member of a leadership team shares the same ethnicity as a client or customer, the team is more than two times as likely to identify and understand their customers’ needs than those with no cultural relationships to the client.
Having a diverse leadership team can also create a feeling of psychological safety for traditionally marginalized employees. Many companies tout values of openness and inclusion, but they have more merit when those values are illustrated by the people in charge. When everyone truly feels safe to participate fully, employees are more likely to voice their good ideas to leadership, further realizing the benefits of diversity for innovation.
A New Chapter for Diverse Workplaces
Ultimately, diversity, equity, and inclusion in the business world begins before professionals even enter their fields. That’s why colleges and leadership organizations are redoubling their efforts to recruit and retain students from different walks of life and equip them with the knowledge and skills they need in their careers.
For example, The National Society of Leadership and Success (NSLS) is reshaping its training and development programs specifically to focus on diversity and inclusion. Efforts include unique scholarship programs such as its Building Black Leaders scholarships, Dream Support Grant, and United by Purpose Award. These were created to help countermeasure inequity in marginalized communities.
This alignment of education and business leadership training shows how industry drivers are realizing that purposefully creating diverse leadership teams isn’t just the right thing to do—it’s necessary for long-term success that can navigate the immense challenges of our time. For instance, corporate responses to global issues (such as climate change) will be just as influential as the actions of world governments—and beneficial solutions for these issues are most likely to be driven by leadership teams that include BIPOC and women in key roles.
If the 2010s was the decade of talking about diversity, the 2020s can be the decade we fully embrace it to better serve the needs of businesses, customers, and society as a whole.