While the correlation does not directly equal causation (i.e. greater gender and ethnic diversity in corporate leadership does not automatically translate into more profit), the correlation does indicate that when companies actively commit to diverse leadership, they are relatively more successful than those that do not.
More diverse companies are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, which lead to a virtuous cycle of increasing returns. This suggests that various kinds of diversity (e.g. age, sexual orientation, global mind-set and cultural fluency) are also likely to bring a level of competitive advantage for companies that attract and retain diverse talent thus increasing profit over time.
In McKinsey & Company’s latest report, Diversity Matters, proprietary data sets for 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States were examined. In this research, factors such as financial results and the composition of top management and boards were looked at.
The findings were clear:
- Companies in the top quartile for racial and ethnic diversity are 30 percent more likely to have financial returns above their respective national industry medians.
- Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.
- Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading).
- While certain industries perform better on gender diversity and other industries on ethnic and racial diversity, no industry or company is in the top quartile on both dimensions.
- The unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies.
The key advantages of diversity in organisations:
- Improved customer orientation (i.e. reaching key decision makers, taking a customer perspective);
- Greater employee satisfaction (i.e. fostering positive organisational culture, workplace diversity is proven to encourage better performance for people from diverse backgrounds);
- Better decision-making and innovation (i.e. inclusive leadership from diverse backgrounds understand underlying social trends and are able to adapt to the ever-changing market; ethnic composition or otherwise).
In an increasingly competitive, connected marketplace, a superior product or service alone is no longer the sole determining factor of an organisation’s competitive advantage. Diversity and inclusivity can be the differentiator between a successful marketing campaign or not, for example. Diversity matters in any organisation (not simply as a token effort), especially in top management, and can translate into increased financial performance in the longer-term. Now is the best time to invest in a globally diverse workforce, as organisations with diverse workplaces are projected to pull further ahead, while laggards will fall even further behind in an increasingly fast-paced marketplace.
To read the full article and insight see, http://www.mckinsey.com/Insights/Organization/Why_diversity_matters.