In February 2015, McKinsey & Company released a report titled ‘Diversity Matters’. In the report, the firm delved into the relationship between the diversity level (Meaning a higher percentage of women and more diverse racial/ethnic composition in the leadership of big organizations) and financial performance of organizations (Which was measured as average EBIT 2010-2013). For the research, the firm used leadership demographics and financial data, which were collected from scores of companies and thousands of professionals based in the US, the UK, Latin America, and Canada.
During the analysis, a statistically important connection between better financial performance and a more diversified leadership team was established. Organizations, which fell under the highest quartile of gender diversity, were found to be 15% more likely to report financial returns, which were more than their national industry median.
On the other hand, organizations, which fell under the highest quartile of ethnic/racial diversity, were found to be 35% more likely to report financial returns, which were above their national industry median. The report also revealed that organizations, falling under the bottom quartile for both race/ethnicity and gender, were found to be less likely to report above-average financial returns than other organizations.
Interestingly, results varied from countries to countries and industries to industries. For example, US-based organizations having 10% higher racial/ethnic and gender diversity on boards and the management team had EBIT that was 1.1% higher, while in the UK organizations with the same level had EBIT that was about 5.8% higher.
According to the variations by country, according to the report, there was a significant rise in the bar for competitive differentiation. For instance, in the US, the relationship between racial/ethnic diversity and better financial performance was always linear. More specifically, racial/ethnic diversity left a more impact on an organization’s financial performance than gender diversity. On the other hand, if we talk from the industry perspective, as per the report, some industries did well on gender diversity, while some on racial/ethnic diversity.
If we go by the report, we will see that the more diverse organizations are, the more able they are to attract top talents, enhance their customer relationship, workforce satisfaction, and decision making, resulting in a cycle of higher returns. It also implies that diversity beyond ethnicity/race and gender and diversified experience (Like cultural fluency and a global mindset) are more likely to provide an edge to organizations, thereby helping them win and retain a diverse talent pool.
However, shifting the focus on diversity is tougher than undertaking a complete transformation. And the reason is unconscious bias. According to the report, data-driven diversity programs can underline unconscious biases that diminish the exercise of good judgment across the organization, even if the best practices and intentions are followed.
It is now well understood that diversity matters a lot in today’s globally connected world. No wonder, the more diversified a company is, the more likely it is to improve its performance. Most of the successful and big companies across the world, therefore, need to gear up to take the full advantage of the opportunity that a diversified workforce can provide. They should work more on their talent pools by drawing, nurturing, and retaining next-gen global leaders at every level of their organizations. Considering the lucrative returns that diversity is likely to provide, organizations should invest their time and efforts to create a diversified talent pool.