Companies approach different routes to success.

Diversity is one of them. It refers to similarities and differences among employees in terms of age, cultural background, physical abilities and disabilities, race, religion, sex, and sexual orientation.

Diversity in the workplace is more than something companies have to comply with for the sake of political correctness. Diversity can make companies more innovative and drive more revenue. We’ve always known that, but now we have the data to prove it.

To uncover the enabling factors for diversity in organisations, BCG in partnership with the University of Munich conducted a study involving 1.700 companies across eight countries (the US, France, Spain, Germany, Switzerland, India, Brazil and Austria) from multiple industries. They measured the level of diversity in management positions about gender, age, national origin, career path, industry background and education. The results of the study were analysed in connection with the number of products introduced in the last three years and the budget allocated to buying innovative technologies. Innovation revenue refers to the revenue gained from innovative products and services sold in the past three years.

Innovation revenue increases by 1% if the management team becomes more diverse, by 1.5 % if management is from different countries, by 2% if they come from various industries, by 2.5% concerning gender, and by 3% if the company recruits managers with different career paths. Companies that have the least number of gender diversity in management reported on average a 25% increase in innovation revenue. Companies with an above average diversity score reported a 45% increase in innovation revenue.

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The top practices prevailing in innovative companies are participative leadership, top management support for diversity, open communication practices, strategic priority, frequent interpersonal communication and equal employment practices. 40% per cent of the companies surveyed fail to employ these tactics missing on massive opportunities to generate innovation revenue.  

The study revealed that most of the companies that conducted business in multiples countries are more innovative. The impact of diversity increases with company size.  Additionally, the distinct patterns for innovation differ country by country. For example, the variations in the levels of educational diversity in Germany were less prevalent than in India. Age, gender and educational background fluctuate more in developing countries, compared to Germany and the US. An interesting fact is that age diversity has a negative impact on innovation, and educational background seems not to affect it.

When it comes to gender diversity, women have to be included in the management team in proportions higher than 20% to make a difference in the innovation outcome of the company. It turns out that companies with higher levels of innovation come from countries with a high percentage of women in the workplace. These countries report more than 34% of their revenue from innovative products and services developed and sold in the past three years.

In conclusion, companies have to approach the diversity problem the same way they’d approach a business problem: create a plan for it and visibly lead it. It starts with an evaluation of the existing state of the business, followed by setting clear targets within a timeframe and establishing the steps management has to take to achieve the goals. Moreover, diversity needs to be activated through enabling practices. A company that fosters a culture of inclusiveness, open communication, where team members with diverse work and educational backgrounds are free to speak up and compete, is on the right path to becoming more innovative.