Why Diversity Improves Decision-Making

What is it about diversity that improves decision-making and performance, and how can leaders harness diversity in their organisations?

That is the question Tom Gash, CEO of the decision-making consultancy Leapwise, and I recently grappled with in a blog that was published in Public Finance, the magazine of the Chartered Institute of Public Finance & Accountancy. This is an extract; you can read the whole piece here and find all the associated academic references on the Leapwise website.

“We should care deeply about diversity in the workplace for reasons of equity, because diversity can bring meaning and richness to our lives, and because bias against individuals from minority (and even majority) groups has produced profound and entrenched injustices in society.

However, the research on a positive link between organisational diversity and performance is also rapidly accumulating. Organisations who lead in gender and ethnic diversity on executive teams and boards are likely to financially outperform their less diverse competitors. [i] In Venture Capital, ethnically mixed teams of investors score a 26.4% higher success rate than their homogeneous competitors.[ii] When teams are comprised of people from different backgrounds (demographic, functional disciplines, etc.), this appears to increase creativity and problem solving performance.[iii]

Yet intriguingly diversity does not invariably translate into greater performance. Many studies[iv] find no clear relationship between team diversity (in terms of demography or experience) and team performance.[v]

This raises two linked questions. First, what is it about diversity that can improve performance and specifically decision-making? And second, why are some organisations failing to capture these benefits?”

[i] https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters

[ii] Gompers, P., & Kovvali, S (2018). The other diversity dividend. Havard Business Review, July-August 2018 issue, 72-77.

[iii] Jackson, S. E., Joshi, A., & Erhardt, N. L. (2003). Recent research on team and organizational diversity: Swot analysis and implications. Journal of Management, 29, 801–830.

[iv] van Dijk, H., van Engen, M. L., & van Knippenberg, D. (2012). Defying conventional wisdom: A meta-analytical examination of the differences between demographic and job-related diversity relationships with performance. Organizational Behavior and Human Decision Processes, 119, 38–53.

[v] And a few studies have found that diverse teams experience more conflict and report lower performance. However, according to a meta-analysis by van Dijk and colleagues from 2012, the studies that find such negative associations between diversity and performance all rely on self-reported measures of effectiveness. While people in diverse groups may perceive their groups to be less effective than their more homogenous comparators, studies with objective performance measures do not find these negative performance effects from diversity.