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Diversity as a Competitive Advantage

The Inherent Necessity of Diversity in Startups

Cass Polzin
Jan 12, 2018 · 4 min read

Intuitively, we know diversity is important.

Still, representation at top companies in the United States is skewed. The United States is only 31% Caucasian males(source) and they make up 91% of Fortune 500 CEOs(source).

There are more CEOs in S & P 1500 companies named John than there are women altogether(source). This makes no sense.

Research has shown diversity has clear benefits to companies. A McKinsey study found organizations in the top quartile for ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians. Further, companies in the bottom quartile for ethnic and gender diversity perform below average, meaning they are lagging — not just not leading. No industry or company is in the top quartile for gender AND ethnic diversity.

The lack of ethnic and gender diversity doesn’t lie in hiring. The Kapor Center for Social Impact conducted a study on employees leaving jobs, specifically in tech, and found 37% of those survey cited unfair treatment was a major factor in their decision to leave a company. The study also found experiences differed drastically across groups.

“Nearly a quarter of underrepresented men and women of color experienced stereotyping, twice the rate of White and Asian men and women, and almost one-third of underrepresented women of color were passed over for promotion–more than any other group.”

The Tech Leavers Study, which included a total of 594 women, 67% White or Asian and 33% Black, Latinx, or Native American/Alaskan Native, found that 63% of women in tech would have stayed if their company took more steps to create a more positive and respectful environment.

Instead of investing effort in hiring diverse individuals, startups should work to retain the current diverse talent they have.

Employers can work to create a better environment for minority groups in two main steps:

1.) Acknowledge and celebrate ideas from women and underrepresented groups

2.) Create a safe, inclusive work environment where everyone can openly communicate

Diversity Makes Us Smarter

Research shows that social diversity can create a lack of trust, cause discomfort, result in greater perceived interpersonal conflict, lower communication and trust, and drive more concern about disrespect(source).

This all lends to the question, What will we gain from investing in creating a diverse team?

Historically, innovation and knowledge.

Decades of research show that socially diverse groups are more innovative than homogeneous ones: diversity makes us smarter.

Creativity thrives in heterogeneous environments. If only one demographic is participating starting businesses, how much unique innovation can we drive?

Our life experiences shape us and are a driving factor in our ability to come up with new ideas. When a group is comprised of individuals with unique experiences, there is far more opportunity for innovation. This directly juxtaposes homogeneous groups, within which there is little opportunity for unique ideas.

Take, for example, building a high rise. Your team would need to have architects, engineers, construction workers, and designers. That much is obvious. However, the same benefits of interdisciplinary diversity apply to social diversity. Individuals of different race, gender, and sexuality bring different ideas and experiences to relate to the task at hand.

Having a diverse group is not beneficial purely because of the experience members bring to a group. There are further benefits to having a diverse company: individuals are able to challenge each other and improve upon ideas.

Scientific American states,

“Simply interacting with individuals who are different forces group members to prepare better, to anticipate alternative viewpoints and to expect that reaching consensus will take effort.”

A diverse leadership team can provide unique perspectives and approaches to business issues, instill a cultural norm of diversity, help reduce unconscious bias, and impact a company’s bottom line.

The financial statistics make the benefit of diverse leadership clear: Companies with leaders possessing inherent and acquired diversity “are 45% likelier to report a growth in market share over the previous year and 70% likelier to report that the firm captured a new market.” (source) In addition, companies in the top 25% of executive-board diversity have over 50% higher returns on equity than those in the bottom 25% (source).

There’s more to be gained than an improved bottom line, though. Diverse leadership has a multitude of other perks.

A diverse leadership team demonstrates the value a company places on unique experiences and perspectives.

Wrap Up

Organizations and their leadership should look to replicate the diversity present in The United States. While diversity can lower communication and trust and drive more concern about disrespect, it largely benefits the group. Diverse organizations are able to learn from their individuals’ unique experiences, which often results in more innovation. Although it is important to hire people with diverse backgrounds, organizations should first focus on retaining current talent by being intentional about creating a better environment for individuals.

References

https://www.washingtonpost.com/news/the-fix/wp/2014/10/08/65-percent-of-all-american-elected-officials-are-white-men/?utm_term=.77cd2e509658

http://www.huffingtonpost.com/laura-mather/dear-white-men-seven-piec_b_7899084.html

https://www.nytimes.com/2015/03/03/upshot/fewer-women-run-big-companies-than-men-named-john.html

http://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters

http://www.kaporcenter.org/Tech-Leavers

https://www.scientificamerican.com/article/how-diversity-makes-us-smarter/

https://hbr.org/2013/12/how-diversity-can-drive-innovation

Startup Kenosha

An annual series of events that bring together…

Cass Polzin

Written by

Gen Z Marketer Passionate About Communities

Startup Kenosha

An annual series of events that bring together entrepreneurs, investors & leaders from across the region with the intention to share, celebrate & innovate.

Cass Polzin

Written by

Gen Z Marketer Passionate About Communities

Startup Kenosha

An annual series of events that bring together entrepreneurs, investors & leaders from across the region with the intention to share, celebrate & innovate.

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