Is Diversity Profitable for Business and Commerce?

Racial and ethnic diversity has always been America’s greatest asset!  Diversity is a necessary precondition to our democracy and has provided the impetus for engagement in the full kaleidoscope of “American culture”.  This educational blog is a third in the series: Is Diversity Really Needed?

Diversity in business and commerce:  In today’s globalizing, fast-changing, highly-competitive and networked world, the capacity to turn diversity to one’s advantage is critical and necessary.  It is not just a nice thing to do for racial and ethnic minorities; it is a MUST.  As the world evolves dramatically, cultural, ethnic and racial immersion has become a widespread organizational imperative – from Google to IBM.

Research shows that diversity usually trumps familiarity, insularity and ability.  Diverse teams are much better at problem-seeking and problem-solving. They bring different cognitive, intellectual and experiential tool kits and ways of approaching a problem to the table.  Diverse teams see customers, products, and market opportunities in creative, new and unforeseen ways.  Even among the most well-meaning, a homogeneous team comes with a limited outlook., whereas a diverse team often yields nuanced deliberated decisions made from multiple perspectives and experiences that result in deeper and wider considerations and probable outcomes and results.

A recent report entitled, “Innovation, Diversity, and Market Growth” found that when teams have one or more members who represent the gender, ethnicity, culture, generation, or sexual orientation of the team’s target end user, the team is as much as 158 percent more likely to clearly understand that target subject. This difference significantly increases the team’s likelihood of creating successful programs or products for their target subject.

The American Sociological Association has demonstrated that in organizations with diverse teams there is a 9% rise in sales revenue and significant increase in business performance.  In contrast, monolithic and homogeneous thought within a group makes a cohesive team, but one that will happily and repeatedly agree on the same mistake as the rest of world evolves.

Wall Street financial firms have recognized that in “superforecasting” (forecasting and predicting future market shifts) the wisdom and judgement of diverse teams can broaden knowledge base and focuses more on constantly updating probabilities rather than a non-diverse team that is involved in group think.

Former Federal Reserve Chairwoman Janet Yellen, the American Economic Association’s president, and other prominent economists have said a lack of diversity limits how the economics field analyzes issues and crafts policies that affect broad swaths of people.

Diversity decreases mistakes: Individuals with different backgrounds and styles approach problems differently.  Research published by a MIT professor exploring past literature, found that diverse teams tend to be less susceptible to groupthink, which can drastically reduce the likelihood of making avoidable mistakes.

A 2014 study of Columbia University showed that ethnically diverse trader teams priced assets more accurately, avoided conformity, and thwarted bubbles.

A study by Rocio Lorenzo and Martin Reeves: “How and Where Diversity Drives Financial Performance”,  in the Harvard Business Review of 1700 companies in eight countries, found that diversity among managers was associated with greater organizational innovation and profitability. 

A McKinsey & Company research report: “Why Diversity Matters”, revealed that of 366 public companies analyzed, those in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above national industry medians.  In the United States, there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.

Racial and ethnic diversity increasing the bottom line?  It’s not just a good idea, its good for business.

Dr. Paul Reginald Lowe, founder and managing director of Pinnacle Educational Center Admissions Advisors Group, provides comprehensive counseling advice, exclusively for admissions to top private schools; Ivy League and highly-selective colleges/universities; BS/MD programs;  graduate and medical schools and top visual and performing arts programs.  He also specializes in helping students who have been wait-listed, deferred or rejected gain admission into their top-choice schools.