company diversity improves innovation

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Does diversity make companies more innovative?

February 8, 2018

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Beyond being an issue of social justice, inclusion and diversity in companies have a direct effect on their growth, innovation and performance. These were the findings published in McKinsey’s latest study, “Delivering through diversity”, which reaffirms the link between a greater proportion of women and a more mixed ethnic and cultural composition in leadership roles, and company financial performance.

The research, which focused on 1,000 companies in 12 countries, found a positive correlation between gender diversity and profitability and value creation – top-quartile companies had a 27% likelihood of outperforming fourth-quartile peers on longer-term value creation. The correlation of gender diversity was particularly notable in executive teams.

Companies with the most ethnically diverse executive teams were also found to be 33% more likely to outperform their peers on profitability. However, ethnic and cultural diversity on executive teams in the US and the UK remains low. In particular, of all the minorities, black women are the most underrepresented in line roles and may face a harder path to CEO, according to the report.

A causative link

“The take-home message here is that a business which relies on innovation will benefit significantly from supporting diversity within its organisation. It’s really that simple,” said Richard Warr, co-author of the paper “Do Pro-Diversity Policies Improve Corporate Innovation?”.

Their research showed that companies with policies encouraging the promotion and retention of a diverse workforce – in terms of gender, race and sexual orientation – across a broad range of industry sectors perform better at developing innovative products and services. “To be clear, we found that there is a causative link – it’s not just a correlation,” emphasised Warr.

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