Benefits of equality and diversity (the business case for diversity)

Joe Caccavale

2

March

2021

|

4

min read

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Whilst there’s no shortage of articles around how diversity improves collaboration, reflection of customers etc, below we’ll look at how diversity can actually benefit the overall success of a company.

It’s not hard to imagine how a more diverse group of people may have more creative ideas or a deeper empathy for their customers, but this doesn’t tell us much about the impact of diversity on the bottom line.

DISCLAIMER: Diversity should matter because it’s the right thing to do.

Whilst making business case for diversity may help get others on board with initiatives and drive home its value - financial performance should never be the only reason for improving diversity.

Industry outperformance

By gender 

When we look at impact of diversity on boards, a recent Australian study claims to be the first to do casual mapping of how gender diversity affects financial performance.

How the number of women on boards affects performance


Key takeaway: Organisations with more than one-third female boards are more likely to outperform their sector.

As you can see from the chart above, not having a gender diverse board is actually becoming more of a hinderance over time.

Companies that have no women on their board are three times more likely to be underperforming than those that have at least one-third female Boards.

Looking at management positions more broadly, McKinsey’s report found that organisations with more women in the C-Suite were more profitable…

Gender diverse executive teams were more likely to experience above-average profitability and had a 27% likelihood of outperforming their peers on longer-term value creation.

It’s estimated that closing this gender gap could add $28 trillion to the value of the global economy by 2025.


By ethnicity

McKinsey researchers also looked at ethnic diversity on boards…

Diversity effects on earnings and return on equity


Key takeaway: Companies ranking in the top quartile of board diversity had 53% higher ROEs than those in the bottom quartile.

EBIT margins at the most diverse companies were also 14% higher than those of the least diverse companies.

Looking at both gender and ethnic board diversity over the past five years, we can see that one of the clear benefits of equity and diversity: better diversity leads to a better chance of outperformance.

It’s also clear that diversity is only becoming more of a deciding factor in financial performance year-on-year (you can read the full report here.)

Innovation

Innovation is often touted as being one of the many benefits of equity and diversity in a team.

But how do you quantify and measure this innovation and its impact on the bottom line?

Well, a Boston Consulting Group study looked at 1700 companies across 8 countries - researchers found that those with more diverse management teams had 19% higher revenues due to innovation.

Just under half of this revenue came from products and services launched in the past three years.

These results are especially important for tech companies and startups that depend on their ability to innovate and scale at speed.

For these companies, diversity isn’t just a ‘nine-to-have’, but an essential for financial success and growth.

Diversity impact on innovation


Key takeaway: Diverse management teams generate more revenue through innovation


Attracting talent

By 2025, 75% of the global workforce will be made up of millennials.

And so millennials will be the key demographic that organisations will be looking to attract and hire.

If we then look at attitudes towards diversity and inclusion, a 2018 Deloitte Millennial Survey found that 74% of these individuals believe their organisation is more innovative when it has a culture of inclusion.  

So, if organisations are looking to hire (and retain) millennial talent, they must take diversity into account.

Just take a look at the results from a 2016 survey...

Diversity and attracting talent (survey)


Key takeaway: 47% of millennials are actively looking for diversity and inclusion when considering a role.

Sales

A 2009 study found that businesses with high levels of racial (60%) and gender (62%) diversity are more likely to report higher than average percentages of market share and higher than average profitability.

Better diversity means higher sales revenue


After further analysis, researchers were able to determine a positive relation between diversity and sales revenue.

Diversity accounted for roughly 6% of the variance in sales revenue.

Key takeaway: Higher levels diversity means higher sales revenue


Scaling fast guide

Applied was built to remove bias from hiring process - with diversity designed into every step of the process.

To find out how we’re re-thinking the hiring process from the ground up,
browse our resources, or request a demo of the Applied Platform.