Inclusion: Diverse leadership teams are more likely to drive product and process innovation
Anyone who doubts the importance of diversity and inclusion in the workplace should read the fact sheet recently published by the Chartered Institute of Personnel and Development.
It states: “Promoting and delivering equality, diversity, and inclusion in the workplace is an essential aspect of good management.”
This means being open to employing individuals from different genders, ethnicities, religions, sexual orientation, and socioeconomic backgrounds.
It also means workers should not be excluded from suitable jobs based on their physical and mental abilities.
But a more inclusive approach to recruitment and working practices does not just benefit individuals from under-represented and under-served groups.
There is a growing recognition that diversity can also be a source of competitive advantage for organisations.
Viewed in this way, it can be seen as a strategic asset to capitalise on the unique strengths and perspectives offered by diverse teams.
Organisations can use this as a lever to enhance their decision-making and overall performance.
The business case for diversity has been building over the last decade. A series of reports by McKinsey & Company found that leadership diversity was associated with a wide range of organisational benefits including growth ambitions, greater social impact, and workforce satisfaction.
Another way diversity affects performance is through its influence on innovation within organisations. However, there has been less research here, and the conceptual arguments have been mixed.
The impact of a diverse leadership team
In theory, workforce diversity may bring benefits for innovation in terms of widening cognitive breadth within organisations.
However, it may also present challenges. For example, it could increase conflict and communication problems.
Researchers at the Enterprise Research Centre (ERC) at Warwick Business School have been exploring the relationship between different types of innovation and business growth and productivity for several years.
This year, we have published new research that focused specifically on better understanding the precise nature of the links between diversity and innovation, filling an important research gap.
One study, which analysed survey data from 2,000 firms in the UK explored the relationship between diversity, business advice and innovation in businesses.
This addressed two main questions. First, does diversity within leadership teams influence a firm’s willingness to seek external business advice?
And, second, does diversity in leadership teams impact on the ability of a firm to benefit from the external advice it receives?
Our research found that gender and ethnic diversity within the leadership team favourably influenced the likelihood of a business seeking external advice.
This reflects the conceptual view that gender and ethnic diversity bring more varied psychological and cognitive frames to strategic decision-making.
As a result, the management team is less likely to engage in ‘groupthink’ and is more likely to recognise the need for external assistance, then actively seek it.
When do businesses seek external advice?
We found that businesses that sought external advice consistently and significantly outperformed their counterparts in terms of product and process innovation.
For example, two-thirds of firms that received external advice undertook process innovation, compared to 37 per cent of businesses that sought none.
Companies with a better gender and ethnic balance on their management team were also better at channelling external business advice into innovation.
Gender diversity had a particularly strong impact when it came to product innovation.
This suggests that diversity has a twin benefit for innovation. Firms with a diverse leadership team are more likely to seek advice and reap the rewards of the expert input that they receive.
A second study explored the links between workforce diversity, the adoption of wellbeing practices, and innovation activity in the UK.
Analysing data from a survey of East and West Midlands employers revealed a positive relationship between each aspect of gender, ethnic, and disability diversity and various innovation outcomes.
How wellbeing at work can improve innovation
In particular, there were positive associations between disability and gender diversity and process innovation, and a statistically significant link between ethnic diversity and product innovation.
The study also highlighted the importance of wellbeing practices in organisations to create the right conditions for innovation.
For example, businesses with a dedicated mental health budget were nine per cent more likely to engage in product innovation.
There were even stronger links for process innovation. Having a mental health lead was associated with a 40 per cent increase in process innovation.
Wellbeing training for managers, raising mental health awareness among employees and personal resilience training also increased the likelihood of process innovation by 12–18 per cent.
The research concluded that enabling diverse and inclusive workplaces, while also supporting employee wellbeing, is strongly associated with higher innovation activity.
Together, these studies point to a range of actionable insights for policymakers and business leaders that could enhance innovative activity within organisations, while also boosting the business case for greater diversity.
Steps to improve innovation at work
The evidence that firms with diverse leadership teams are more likely to seek external business advice – and translate that support into innovation payoffs – could be used by policymakers to better target advice services.
Meanwhile, the positive associations between inclusive wellbeing practices and innovation outcomes suggest that business leaders should consider introducing more of these, alongside measures to increase diversity.
There is particularly strong evidence in favour of firms appointing a mental health lead and providing mental health training.
However, many of these wellbeing measures are less well represented in smaller firms. There is a case for targeted measures to promote better understanding of the benefits of inclusive practices among small businesses.
We know that innovation brings significant economic advantages for businesses and the broader economy. It is associated with increased productivity and competitiveness, more and better paid jobs, and economic growth.
However, innovation policy has often focused on promoting wider collaboration between organisations and institutions.
It has paid less attention to leadership and workforce demographics, and to management practices within organisations.
By delving deeper into the mechanisms by which diversity influences innovation, ERC research has brought together two policy areas that are often dealt with separately.
As a result, we have been able to show that adopting socially desirable measures can also contribute to economically desirable outcomes.
Discover how Enterprise Research Centre research on the impact of inclusion on workplace innovation won a prestigious award.
Further reading:
Growing pains: How to help small businesses scale
When should entrepreneurs trust their gut instinct?
Increase the odds of success in digital transformation
How can digital platforms beat their rivals?
Vicki Belt is Director of Impact and Engagement at the Enterprise Research Centre at Warwick Business School.
Rita Nana-Cheraa is a Research Fellow in the Enterprise and Innovation Group at Warwick Business Business School.
Learn more about leading your organisation to new opportunities on the four-day course Leading an Agile and Resilient Organisation at WBS London at The Shard.
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