When we ask business leaders in our workshops why they think diversity is important, one word comes up repeatedly: ‘innovation’. They tell us diverse teams help generate new ideas. Groupthink happens less.

Their anecdotal experiences are backed up by many studies. For example, research published last year by Boston Consulting Group found companies that reported above-average diversity on their management teams also reported innovation revenue that was 19 percentage points higher than that of companies with below-average leadership diversity—45% of total revenue versus just 26%.[1]

 Another study – a strategy execution exercise – reported in Harvard Business Review found teams with greater cognitive diversity perform faster. There’s many other studies validating the link between diverse teams and innovation.

The link might seem obvious to many of us, but how exactly does difference impact team dynamics – whether in the boardroom, in small businesses, or on the customer front-line? Do different types of difference have more of an impact than others? And can we put the right foundations in place for diverse teams to thrive and innovate?

Diversity gives us a ‘cognitive jolt’

The benefit of diversity comes down to how we process information and solve problems in group situations, according to organisational scientists and psychologists. “When we hear dissent from someone who is different from us,” writes Professor Katherine W Phillips from Columbia Business School, “it provokes more thought than when it comes from someone who looks like us.”

Professor Phillips says “when members of a group notice that they are socially different from one another, they change their expectations. They anticipate differences of opinion and perspective. They assume they will need to work harder to come to a consensus. Diversity jolts us into cognitive action in ways that homogeneity simply does not.”

The type of diversity on leadership teams matters too. BCG research says four dimensions positively correlate with innovation: industry background, country of origin, career path, and gender. Surprisingly, difference in age (the extent to which managers are evenly distributed across age groups) is associated with less innovation.

The four types of diversity that bolster innovation on leadership teams (Boston Consulting Group)

• Industry background

• Country of origin

• Career path

• Gender

Getting the foundations right

That’s not to infer that having a diverse team automatically leads to innovation. If the culture isn’t inclusive – for example if team members from diverse backgrounds feel uncomfortable to offer alternative perspectives or challenge the status quo, there’s less opportunity for new ideas to emerge. Again, there’s solid research behind this claim: in a study across six countries including Australia, respected US consulting firm Catalyst reported that employees who felt more included were more likely to report innovating on the job.

The opportunity for innovation is also diminished if cognitive biases that favour similarity over difference (such as affinity bias, confirmation bias, groupthink, and status quo bias) go unchallenged.

That’s why so many of our client organisations are pro-active with a dual focus on diversity + inclusion, putting in place D&I strategies with clear objectives and leadership accountability. That includes hard-wiring D&I in people processes and systems, and soft-wiring through education starting at induction.

As BCG says: “The evidence is clear: companies that take the initiative and actively increase the diversity of their management teams—across all dimensions of diversity and with the right enabling factors in place—perform better.

“These companies find unconventional solutions to problems and generate more and better ideas, with a greater likelihood that some of them will become winning products and services in the market. As a result, they outperform their peers financially.”

Tips for organisations to maximise innovation through diversity

• Consider ‘culture add’ rather than ‘culture fit’ in your recruitment practices to create a diverse team mix

• Actively communicate your organisation as a welcoming and inclusive employer for people from diverse backgrounds

• Review high-performing criteria – ensure a diversity of leadership styles are reflected

• Provide Inclusive Leadership education so your managers can recognise and demonstrate behaviours that explicitly encourage people to speak up, to challenge the status quo, and support the career development of all employees (not just those in their ‘in-groups’)

• Communicate inclusive decision-making principles to leverage diversity of thinking approaches.

Tips for leaders

• Reflect on who the ‘cognitively peripheral’ team members may be and seek their contribution when problem solving. These are the people who hold unique information and can therefore offer new insights, according to decision-making experts, Cass R Sustein and Reid Hastie in HBR. In most groups, ‘cognitively central’ people – those who hold commonly held knowledge – have a disproportionate influence on discussion and are accorded higher levels of credibility.

• In team meetings, give minority styles the floor first (to avoid priming and thought cascades)

• Prime critical thinking among team members, that is encourage team members to take an alternative or opposing view to yours. It’s not an easy thing to do, but it’s worthwhile if we really want to innovate.

We welcome your feedback and questions. If you’d like to know more about how Diversity Partners can help your organisation progress diversity and innovation. Please contact us at info@diversitypartners.com.au.

[1] The study was based on a survey of employees at more than 1,700 companies in eight countries (across a variety of industries and company sizes) and a review of the percentage of total revenue from new products and services launched over the past three years.