During the first 20 years of my career, I rarely wrote or spoke about diversity. The focus of my work was primarily on healthcare and leadership transformation. However, as I took over the leadership of our UK and Ireland office in 2014, I knew I would get asked about diversity. Does diversity really matter for a company’s financial performance? If so, how? These are complex questions that we answered by conducting detailed data analysis (we are McKinsey after all!) Our research found a significant correlation between a more diverse leadership team (in terms of gender and ethnicity/race) and stronger financial performance. Companies in the top quartile of gender diversity were 15% more likely to have financial returns above their national industry median – and for companies in the top quartile of ethnicity/race diversity, it is even more staggering: 35% more likely.
Today even more than before, UK businesses need the right mix of talents within their teams. The changing nature of the workforce, the world’s new forces and ecosystems such as the shifts in global growth and the digital revolution, as well as the uncertainty caused by Brexit, mean diversity is a requirement for strong and sustainable growth.
Here are the 5 reasons why I think more diverse companies perform better:
1) They make better decisions
2) They win the war for talent
3) They improve their customer orientation
4) They increase employees’ satisfaction and motivation
5) They give the company a more resilient license to operate
At a recent talk at Goldman Sachs, I was asked a great question: why do diverse teams make better decisions? This is a fascinating topic. Reams of academic research show that diversity fosters a greater variety of problem-solving approaches. It improves the way people think: they focus more on facts, deal with information more carefully and are more innovative in their approach. It has also been proven that diversity contributes to error detection and critical thinking: when we are surrounded by people who are similar to us, we are more likely to be influenced by groupthink and fall for wrong ideas.
In light of this, many companies have already launched efforts to recruit, retain and develop more talent from different ethnicities, genders and backgrounds. For instance, Vodafone has recently launched a large programme to recruit career-break women into frontline and managerial roles. In tech, Google has launched several initiatives to promote diversity in their recruitment and skills development programmes, but also to support workplace inclusion and individual accountability. McKinsey is no exception and we have been working hard towards greater diversity: the UK office has become one of our most diverse offices thanks to the choices we have made in our recruitment strategy and leadership appointments. Today, ~40% of our firm’s new hires are women which is a very different picture than 20 years ago. Diversity matters to us not only because we are looking for the best talents, but also because this enables us to understand and serve our clients more effectively.
Progress has been made but there is still more to be done to move the needle: the minimum won’t do.
First of all, diversity doesn’t stick without inclusion. I like how diversity advocate Vernā Myers puts it:
“Diversity is being invited to the party. Inclusion is being asked to dance.”
Defining inclusion is tricky. Each organisation needs to find the bespoke formula and practices that work for them. It matters because ensuring the entire workforce feels welcome, heard and supported, irrespective of who they are, is the key to unlocking an individual’s full potential.
Secondly, diversity training alone is not the answer: we have to combat unconscious bias and change the default. This is about shifting mindset and helping people follow through on their intentions. The example of US orchestras increasing the proportion of women from ~5% to almost 40% by introducing blind auditions is a good one. Some even say that mandatory training can activate bias. Social accountability, diversity task forces, mentoring and workplace integration are all examples of what really works.
Lastly, to function well diverse teams require strong managers with a clear set of agreed norms: a Harvard Business Review study found that interactions within diverse teams can sometime feel ineffective, chaotic or tense, but ultimately better outcomes are achieved precisely because it’s harder!
Now that the importance of diversity has been broadly acknowledged (and hopefully understood), we need to make it a reality. There is no quick win: each organisation will have to find its own formula. But I believe that efforts will pay off in the long run.
Author: Vivian Hunt is the Managing Partner for McKinsey & Company in the United Kingdom and Ireland. She advises leading British and global organisations on a broad range of strategy topics and is an expert on leadership and global talent.