Gender Diversity Makes Firms More Innovative And Profitable

Rhetoric around improving gender diversity in the workforce has long revolved around little more than a vague consciousness that it is likely the ‘right thing to do’.

It is time that changed.

Recent research carried out at Harvard and MIT has proven that gender diverse teams are actually more profitable than either all-male or all-female teams. It has become clear that women need to be integrated equally into firms in all industries to optimise economic performance. Hiring women because it is the ‘right thing to do’ is a dated concept; today, companies must hire women in equal number to men simply to bring in profit.

The research from Harvard was carried out by Professor Zhang and analysed over 1,000 companies across 35 countries. Research at MIT was led by Professors Ellison and Mullin and took up a different strategy, instead analysing one large US-based firm in 60 different offices across the country over eight years. 

Both studies concluded that gender diverse teams are on average more innovative and more profitable than their single-sex equivalents. Ellison’s study included examining the integration of some single sex offices with new employees of the opposite sex and found that the very same teams performed better financially post-integration. This was true for both all-male teams who brought in new female employees and all-female teams who absorbed new male ones.

Interestingly, both studies reveal a caveat in ensuring the benefits of gender diversity. There is a single pre-requisite to successfully hiring women to make businesses more profitable: gender diversity must be normatively accepted at the company in question. Merely improving the number of women at a given company will not improve its financial performance.

This makes a great deal of sense when we think about how and why gender diversity leads to increased revenue. 

Firstly, diverse teams generate more diverse ideas. Put simply, when people from different backgrounds work closely together they tend to develop more innovative solutions to problems. Employing more diverse teams also increases the likelihood that some team members will be able to relate to the customer, which can vastly improve both the product and marketing strategy. However, diverse input only emerges when the environment welcomes dialogue. Employees will only suggest alternative ideas in meetings when they feel comfortable doing so. The workplace must therefore be an inclusive environment in which diversity is not only tolerated but accepted.

Diverse leadership teams are particularly effective in encouraging innovation. A study by Boston Consulting Group across 1,700 companies revealed that increasing the diversity of leadership teams alone increases the bottom line. BCG reported that companies with diverse management teams experienced increases in revenue by as much as 19%. This is largely because diverse leadership teams imbue acceptance of diversity into their employees, so the entire company atmosphere fosters diversity. 

Furthermore, a diverse workforce attracts higher quality talent. In service industries in particular, attracting the top tier of talent can make the difference between the best firm and an average firm, so this is really important. Top female candidates in particular look to workplace diversity before making employment choices. As many as 61% of women look into the gender diversity in their prospective work environments before deciding where to work. Firms who suffer from a lack of gender diversity risk missing out on new talent.

Finally, investors are increasingly looking for workplace diversity to guide their investment decisions. Huge international investors like BlackRock are leading the way in demanding that companies support ‘best practices’ and employ gender-diverse workforces. As such, firms with diverse teams have more access to funding at all stages of raising capital. This enables them to invest in the best quality talent and technology, and in time turnover greater profits. 

It is clear that improving a firm’s gender diversity index reaps economic rewards when employees believe in the intrinsic value of diversity. This is hugely significant, as it proves that gender diversity is more than just a meaningless metric. Embracing and encouraging gender diversity is a method through which companies can improve their financial performance. As such, it cannot be overlooked any longer.

For more on this topic, Rocio Lorenzo gives a very impressive TED Talk here: