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Why workplace diversity strengthens your business

Image shows members of a diverse workplace at a conference table.

As the modern world experiences increasing globalization, the benefits of workplace diversity are becoming clearer, not only through common sense and ethical practice, but through hard numbers gleaned from careful studies and statistics. There are many reasons—some of which are personal and ethical—why you as a small business owner might want to encourage a culture of diversity in the workplace. However, the benefits of diversity for your business itself are also numerous, ranging from greater team innovation to an improved bottom line.

While the benefits of inclusive workplaces are many and well-documented, small businesses still demonstrate a lack of diversity

In a recent survey conducted on small business owners in America, an optimistic 93% said that they actively tried to hire job seekers with different attributes, backgrounds and life experiences. However, the same survey found that the racial background of a founder is the strongest indicator of hiring choices with 47% of non-white founders reporting a majority of ethnic minorities among their current employees compared to only 13% of white company founders.

The same pattern appeared in other demographics:

  • 70% of female founders vs. 36% of male founders said that more than half of their workforce is female.

  • 36% of immigrant founders hire more racial minorities compared to 14% of non-immigrant founders.

In other words, business owners, founders and CEOs tend to hire in their own image—perhaps because of personal biases, but more likely because of unconscious biases or simply the demographics in which they tend to move.

What is diversity in the workplace?

Diversity can be defined in a variety of ways. It can refer to inherent diversity, which refers to traits like race, gender, age, health and any other trait that a person is born with or has by default. Inherent diversity can include ethnic diversity, diversity of sexual orientation, gender diversity, cultural diversity and diversity of ability. The umbrella term "diversity" can also include acquired diversity, which refers to skills and experiences a person may have gained over time rather than to inherited traits. Acquired diversity could include educational background, socio-economic class, values, skills and knowledge.

Whether you are a business leader with a diverse team or you're hoping to foster more diversity and inclusivity in your small business, you’re sure to gain knowledge and insight from the following list of incredible strengths small businesses can gain from a commitment to diversity.

Diversity gives your team a broader range of skill, insight, experience and cultural awareness

It's easy to see how an inclusive company can benefit from a range of perspectives and experiences. When leadership teams that are composed of similar people with similar experiences only hire people whose backgrounds, genders or experiences mirror their own, companies can become echo chambers that don't encourage independent or innovative thinking or take multiple perspectives into account. Whether intentional or not, a lack of diversity has the potential to lead to a narrow-minded company culture that could impact progress in the long run.

By contrast, multiple studies demonstrate that diverse teams lead to creative and innovative thinking. This is even true across large geographical regions! For example, the country of Singapore is home to a multicultural population, including many people of Chinese, Malay and Indian backgrounds. Singapore accommodates religious diversity, including large groups of Buddhists, Christians, Muslims and Hindus. It is also a global financial centre and is the world's most technology-ready country. Even on a national scale, diversity demonstrably leads to innovation, creative problem solving and a net gain for everyone—so, it's easy to see how it could benefit your small business as well!

Diversity leads to greater cultural sensitivity and insight for higher quality, targeted marketing

A more diverse team opens a more diverse market and a wider range of customers. For example, in a previous blog post about mistakes small companies make when going abroad, we talked about the value of hiring executive teams with cultural and racial diversity before you enter an overseas market. That way, you already have employees who understand and can communicate with the markets you want to enter—either because of language fluency, familiarity with a culture or knowledge of unique market demands. In the same way, having a gender-diverse team can also provide valuable insight about what kinds of things gendered groups are looking for in your product or service. For example, Jane Cunningham and Philippa Roberts, founders of a marketing consultancy, explain, "We noticed how female customers were perceived in ways that were at best inaccurate and at worst diminishing and dismissive." Because male marketers routinely failed to understand what women wanted, between 1980 and 2010, women in commercials were portrayed in the workplace only 4% of the time, though they were routinely shown in kitchens. Cunningham and Roberts believe that the failure of many companies to successfully market to women has to do with the lack of women in high-level positions in marketing agencies. In other words, women know what women want and can create ads that are more reflective of their own demographic. Diversity on executive teams means more diversity in marketing and sales because employees from minority groups know how to appeal to and provide for the needs and wants of their own demographics.

Diversity improves employee retention

Another advantage of diversity is an increase in employee trust, morale and company loyalty. Businesses that fail to develop an inclusive environment experience higher turnover rates than companies with diverse teams and an inclusive culture. Inability to retain valuable employees inevitably leads to costs in advertising, interviewing and training for potential employees. According to a survey by Deloitte, millennials often commit for longer to businesses that prioritize inclusivity as part of their company values. Deloitte also showed that 74% of millennials believe that their workplace is more innovative when it has inclusion initiatives. Similarly, a 2016 survey showed that 47% of millennial prospective employees are actively seeking to be part of an inclusive workforce. Multiple surveys demonstrate that prioritizing diversity as part of a company culture and recruiting strategy can result in hiring and retaining hard-working and qualified individuals. Not only does workplace diversity encourage employees to stay longer with a company, it also has a positive correlation to better physical and mental health among employees and more active engagement in the workplace—when company policies include an inclusion and diversity strategy, 83% of millennials are actively engaged in their work. Prioritizing diversity in your small business could have a positive impact on encouraging your valued employees to stay longer, commit more fully and engage more sincerely in your company, creating a positive and consistent work environment and improving your bottom line.

Diversity increases employee productivity and performance in the workplace

Diversity increases employee engagement, productivity and performance in the workplace because working on a diverse team presents opportunities to see problems from unique viewpoints. This range of perspectives can lead to more open-mindedness and flexibility, improving problem solving, decision making and fact processing—all of which improve workplace innovation. According to McKingsey's research, companies with gender diversity are 15% more likely to outperform companies without, and ethnically-diverse companies increase those odds by 35%. Diverse companies are also 1.7 times more likely to be innovation business leaders in their fields.

Let's take a closer look at why diversity increases productivity and performance in the workplace by further breaking down some of the strengths of diverse groups.

Diverse groups are better at problem-solving

According to the Harvard Business Review, teams that are cognitively diverse tend to solve problems faster than teams with more similarity. More than inherent diversity, cognitive diversity—differences in knowledge or processing systems—predicts group speed and performance during team challenges. However, although cognitive diversity in particular is key to group problem solving, some of that cognitive diversity can also be a result of gender diversity, racial diversity, cultural diversity and more—after all, differences in knowledge processing and perspective can often be a result of upbringing, socializing and personal experience.

Diverse groups make better decisions

Because diverse teams are better at problem solving and considering multiple points of view than teams with more similarity, they also make better decisions as they take those multiple perspectives into account. In a study on workplace diversity and decision-making, diverse teams outperformed individual decision-makers up to 87% of the time. Another study conducted by the Harvard Business Review examined venture capitalists to accurately measure the impact of diversity on workplace decision-making (the decisions of venture capitalists have clear and measurable results and it's simple to trace the decisions of each company). This study found that homogenous teams have worse investment outcomes. For example, "The success rate of acquisitions and IPOs was 11.5% lower, on average, for investments by partners with shared school backgrounds than for those by partners from different schools. The effect of shared ethnicity was even stronger, reducing an investment's comparative success rate from 26.4% to 32.2%." It’s clear that success in an uncertain business sphere demands creative thinking, and the multiple perspectives of diverse teams encourage that creativity.

Diverse groups focus more on facts

Diverse groups also make better decisions because they tend to focus more on facts. In a study published in the Journal of Personality and Social Psychology, 200 people in groups of six were assigned to mock jury duty. The panels with more diversity tended to raise more facts related to the case and make fewer factual errors than more homogenous panels. They were also more likely to reexamine facts and hold their fellow panel members accountable. This objective focus on and careful processing of facts is a clear benefit for making objective and well-balanced business decisions.

Diverse groups process facts more carefully

Not only do diverse groups focus more on facts, they also process those facts more carefully than more homogenous groups. In a study published by the Personality and Social Psychology Bulletin, Katherine Phillips compared homogenous groups with groups that included one newcomer. The groups with more diversity of perspective were more likely to synthesize and process facts accurately than the groups with more similarity among members. Again, the ability of diverse groups to process facts more carefully has clear application to small businesses, where even small daily decisions can have a major impact.

Diversity improves your company's reputation

Diversity isn't only a key ingredient for making your company more innovative and productive, it's also a critical part of your brand reputation. We already explained how company diversity helps to recruit and retain talent, but it can also influence potential customers. If your company doesn't have a reputation for inclusivity, some customers might look for similar services elsewhere, either because they come from an underrepresented demographic and don't feel safe or comfortable doing business with a company that they feel doesn't value inclusivity, or because of concern that your company may have unconscious biases. Millennial and Gen Z customers in particular are more socially conscious than previous generations and often actively try to support businesses that they view as inclusive and ethical, particularly if diversity is baked into an inclusive work culture with noticeable inclusion efforts and anti-discriminatory policies. As we mentioned earlier, diversity also gives you a window into multiple market demographics, and those demographics may view your company positively if they notice sincere efforts to include and accommodate their needs.

Diversity increases profit for your company

It should be obvious by now that all of these advantages to workplace diversity—improved market reach, reputation, innovation, decision making and more—will have the added bonus of improving your company's bottom line. It stands to reason that a team that makes better decisions, accrues fewer employee turnover costs, comes up with better business ideas, is better at marketing to more demographics and maintains a good company reputation, will help to save or make money for your company, improving financial performance overall—and the statistics support this logic. For example, research involving a data set that spans 15 countries and over 1,000 companies, demonstrates that companies in the top quartile for gender diversity on executive teams were 25% more likely to have above average profits than companies in the fourth quartiles—and the greater the representation, the higher the likelihood was of outperforming less diverse companies. These performance trends are even higher for ethnicity than for gender. In 2019, companies in the top quartile for cultural diversity outperformed companies in the fourth quartile by 36% in profitability.

The research is clear: companies and management teams that support an inclusive culture in the workplace can expect the asset of a wide range of experience and skill, leading to a larger customer base, improved company innovation and better business performance and financial performance in general. Intentionally hiring people of color, employees with disabilities, women, international folks and others from underrepresented groups, as well as considering other levels of diversity such as level of education, language ability, socioeconomic class and more is not only ethical, but simply good business sense. If you notice a lack of diversity in your own small business, maybe it's time to consider implementing a diversity recruitment strategy and fostering an inclusive work environment that will enhance your employee experience and encourage valuable employees to stay longer and become more invested in your company. In the end, diverse hiring isn't only the right thing to do—it's the smart thing to do!

Prioritizing diversity in your small business is not only the ethical choice, but will improve your company's market reach, employee retention, decision making and more!

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