What is the standard definition of diversity and innovation?
You can’t walk into an organization these days without hearing people talk about buzzwords like ‘diversity’ and ‘innovation’—and it’s for good reason. While these specific words have been so commonly used that they risk becoming diluted, their application independently—and jointly—carries an opportunity for organizations trying to wage war on talent, establish competitive advantages, and manage economic risk and uncertainty.
“We’re talking about the relationship an organization’s diversity and innovation have on one another.”
In this article, we’ll explore what the current body of research says about the link between diversity and innovation, how organizations can improve, and what questions we still have about this relationship. Before we begin though, let’s level set on what we mean by diversity and innovation.
The American Psychological Association describes diversity as the wide range of variation of living organisms in an ecosystem. When describing people and the representation or composition of various population and social identity groups in a workgroup, organization, or community, diversity can include such factors as race, ethnicity, culture, gender, gender identity and expression, sexual orientation, socioeconomic status, religion, spirituality, disability, age, national origin, immigration status, and language. Furthermore, diversity can also cover aspects of lived experience (e.g., how many companies a person has worked for, or the number of countries or industries a person has worked in), education, and world views.
Harvard Business School describes innovation as a product, service, business model, or strategy that's both novel and useful. Innovations don't have to be major breakthroughs in technology or new business models; they can be as simple as upgrades to a company's customer service or features added to an existing product.
Research suggests that diversity positively supports aspects of innovation.
Type “diversity + innovation” into your Google search bar, and you’ll get millions of results. The relationship between these two concepts is not new, having been notably studied by Edith Penrose in her 1959 book The Theory of the Growth of the Firm. However, take a deeper look, and you’ll notice that more recent empirical research exploring this relationship is limited. Despite this, here’s some of what we do know based on available research:
Diversity can increase overall innovation. Innovation can grow by 20% by drawing on the experiences and perspectives of individuals from diverse backgrounds.
Diversity can increase product innovation. Organizations with “diverse management are likelier to introduce new product innovations than those with homogeneous “top teams.”
Diversity can increase market share. According to Harvard Business Review, companies with 2-D diversity, meaning both inherent (traits you are born with) and acquired (features gained from experience) diversity are “…45% likelier to report that their firm’s market share grew over the previous year and 70% likelier to report that the firm captured a new market”.
Diversity can increase firm value and financial performance. The value of organizations increases by an average of US$42 million when there is female representation amongst top management teams. Similarly, when women are represented on top management teams, innovation-focused organizations experience more significant financial gains.
While the cited research is not exhaustive, or conclusive, these correlations provide examples of the potentially positive effect of an organization’s diversity on its innovation and performance.
“A diverse employee pool can increase an organization’s access to a broader range of knowledge, skills, perspectives, and experiences, enhancing creativity and innovation.”
However, when considering the research, it’s also essential to look at the flip side: can diversity negatively impact innovation? Despite limited research answering this exact question, organizational diversity can increase turbulence and cause “reduced social cohesion, poor communication and increased conflict”.
Unsurprisingly, a high-level examination of both sides leads us to conclude that there are more benefits, with more supporting research, than drawbacks of diversity’s impact on an organization’s ability to innovate. Still, we have little information on the details, and a need for more research studies in this space to unpack exact mechanisms.
However, the business imperative for diversity is so much more than innovation.
Organizations shouldn’t hesitate to make diversity a key company priority if it isn’t already. Outside of the tangible benefits organizational diversity can have on innovation and performance, there are numerous other reasons that leadership teams should make diversity a key focus for their organization. For example, sales revenue has increased nearly 15 times in organizations with higher racial diversity. Furthermore, diverse teams can identify and reduce risks up to 30% more than non-diverse teams. Finally, organizational cultures that permeate diversity, equity, and inclusion throughout their functions and workforce while creating a sense of belonging have been found to increase employee productivity and performance by 56%.
"In a world full of risk and opportunity, diversity isn't a checkbox—it's the driving force behind resilience, adaptability, and sustainable business success."
A multi-step approach to supporting organizational diversity is critical.
Appreciating the broad benefits of diversity, a natural next question might be: how do I increase my organization’s diversity? Individuals reading this will undoubtedly hail from organizations with mixed levels of maturity regarding organizational diversity, so we can’t pretend there is a single approach that will be effective for everyone. Developing a practical approach to increasing organizational diversity requires careful consideration of a company’s starting point, history, context, and industry, among other factors. While we can’t cover the whole question of how to increase organizational diversity in this article, here are four high-level steps you can use as a starting place:
Gather information. Organizations need a true sense of their starting point regarding diversity. This entails gathering workforce data across the dimensions referenced in the diversity definition above, such as gender, age, and sexual orientation.
Assess the current state. Next, organizations should reflect on the collected data and consider leveraging available resources and frameworks offered by advocacy groups to help identify opportunities for improvement. This step entails interviews, focus groups, organizational assessments, and diagnostic tools.
Develop and test a strategy. After an organization comprehensively understands its current state, it can define its diversity objectives and begin to chart a path to achieve them. Companies should ensure proper consultation with their employees through this process and consider the importance of executive sponsorship and change management, especially if significant cultural shifts are expected.
Implement and sustain. When the strategy has been finalized, an implementation plan and roadmap can be developed to outline the specific initiatives, accountabilities, and measures of success that will guide the organization’s efforts and help sustain ongoing progress.
"Diversity success starts with key leaders believing in the business benefits."
Start the journey towards a more diverse organization: invite, include, and inspire.
The trick for organizations will not be adopting diversity and innovation independently but exploring their linkages and understanding the impact components of one can have on the other. Which steps in the innovation process (ideation, incubation, and activation) does diversity have the most positive impact? Do diverse organizations excel at ideation over their less diverse peers, provided the proper mechanisms exist to capture the idea generation? What aspects of diversity have the most significant impact on innovation (e.g., the impact of diversity of experience vs. say gender or culture on innovation)? How does an organization’s sector and geography change the dynamic between innovation and diversity? What diverse skills, experiences, education, and perspectives are lacking the most? Is there is an optimal diversity-to-innovation ratio? How does organizational variables such as size, location, and industry influence the relationship between diversity and innovation? Answering these questions and many others can offer a starting place for organizations exploring this relationship.
“The correlation between organizational diversity and innovation is evident, but the causation is less understood.”
In conclusion, diversity efforts can positively impact corporate innovation, but we can’t conclusively say why that is. However, here's the catch: the 'why' doesn’t matter. What matters is the certainty of the outcome: diversity in its broader sense drives innovation. For organizations, consider this your call to action. Embrace diversity wholeheartedly, not merely for its inherent value but also for its power to spark innovation.
Authored by Kiersten Ermelbauer (EY Canada Senior Manager, Business Transformation) and Dr. Lance Mortlock (EY Canada Managing Partner, Energy & Resources).