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Why Diversity Matters to Your Bottom Line

August 30, 2016 by Michael Rander 233

Over the past three years, workplace diversity has increased significantly according to studies conducted by Oxford Economics and SAP in 2014 and again in 2016.

However, while the increase is significant in the general workforce (67%), both mid-level leadership and board/senior leadership levels are lagging behind, respectively experiencing increases of 40% and 34%. This finding is especially concerning when you consider the potential impact of diversity on overall business performance.

In 2015, McKinsey research revealed that gender-diverse companies were 15% more likely to financially outperform their less diverse competitors. Plus, ethnically diverse companies were 35% more likely to financially outperform their more uniform competitors.

The most recent research by Oxford Economics and SAP research, titled “Leaders 2020” (which will be published at the end of August 2016), shows a similar trend, where top-performing companies are significantly more focused on diversity. Not only are leading companies more likely to report that diversity improves financial performance, but they are also specifically calling out improved company culture as a result of organizational diversity.

Diverse companies are more likely to report diversity improves financial performance and company culture

Irrefutably, data supports the notion that companies with a good workplace culture and satisfied employees are more enthusiastic about their leadership. These companies tend to be the ones that enable quick decision making, discourage complexity, provide competitive compensation, and retain executive leadership that understands the value of diversity.

In a Financial Times article earlier this year, it was argued that companies actively engaged in diversity as part of their business culture are not necessarily performing better; but those that do not, in fact, are doing worse. As an example, the article points to a PwC report that revealed 13 times higher earnings per share among mining companies with women on their board, as opposed to those that consisted of all-male boardrooms.

So while the data suggests clear advantages from diversity, how are companies truly doing? While there is certainly progress, many companies are still struggling to make headway in this area. The older generation is generally less focused on diversity. And while millennials gain access to the C-suite, companies with a generational gap at the executive level are not feeling the same sense of urgency to change and view diversity as a business investment.

Likewise, women are less likely, overall, to be optimistic about both current and future diversity programs. And even among leading companies, only 30% of women believe that their companies have effective diversity programs. Clearly, there is still room for improvement for most companies – which also means that there are benefits to reap across the board.

Common sense would tell us that having different perspectives from diverse backgrounds brings new ideas to the table. And the research does suggest that diversity has a net-positive organizational and financial impact. So what are we waiting for? What is your company doing around diversity and what do you see as results?

For more on the business value of broadening your network, see Our Digital Planet: The Democracy of Collaborative Networks.

Michael Rander is the Global Research Director for Future Of Work at SAP.

This story originally appeared on The Digitalist Magazine as part of the 10 Weeks of Live Business series.

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