Innovation and diversity – two sides of the same coin

A lot of my summer reading has focused on the topics of disruption, innovation, artificial intelligence and the future of work. In a world that is changing as fast as ours, there is no escaping these themes and like others, I find myself feeling excitement and uncertainty in equal measure. 

One thing is for sure: the future is not predictable at the moment. The world and our organizations are becoming more complex. With technology increasingly impacting every aspect of our personal and professional lives, what worked in management in the past does not work anymore. One theme that emerges in this context is the link between innovation and diversity. Many would argue that we now operate in an environment where we need people who think differently, bring different backgrounds and experiences, and approach problems from very different angles. In this context, one might argue that diversity ultimately forms the backbone of innovation and resilience in time of change. And while there’s more to diversity than just gender, it is a large part of the equation. 

However, not everybody agrees as we saw recently when a software engineer released a 10 page manifesto, published by Gizmodo, argued that the disparities in gender at the tech giant could be explained by biological differences between men and women. He implied that men were more innovative and suited to working with technology. In short it was a resounding statement against diversity coming from the industry that is currently driving innovation - the technology sector. 

That team diversity might be linked to innovation is not a new concept at all. Today, companies and governments face so many new risks that they can’t afford to establish leadership, management and other teams whose members all have the same background and think the same. Instead they need people who draw on different experiences, can shape new discussions together and have the passion to forge a unique path forward. The business case for diversity and inclusion is now intrinsically linked to an organization’s strategy and the innovation it is able to generate. Most businesses are working with dual strategies – one for optimizing the current business and one for building the future. Multiple and varied voices coming from a wide range of mindsets can help generate new ideas about strategies, products, practices and operations.

Countless studies have shown that diversity has an immense impact on complex organizations. BCG’s recent 2017 study of 171 German, Swiss and Austrian companies, “The Mix that Matters – Innovating through diversity”, shows that companies with the greatest gender diversity generated about 34% of their revenues from innovative products and services in the most recent three-year period. This compares with innovation revenues of 25% for companies that have the least gender diversity. The evidence from this study also suggests that having a high percentage of female managers is positively correlated with disruptive innovation, in which a new product, service, or business model fully replaces the version that existed before (such as what video streaming has done to DVD rental stores and what online retail is doing to traditional bricks and mortar).

Additionally, the research shows a clear relationship between diversity of companies’ management teams and the revenues they get from innovative products and services.

• The positive relationship between management diversity and innovation is statistically significant
• Innovation boost is not limited to a single type of diversity
• Management diversity seems to have a particularly positive effect on innovation at complex companies

Moreover, a 2016 study by EY and the Peterson Institute for International Economics showed that an organization with 30 percent female leaders could add up to 6 percentage points to its net margin.

Similarly, Harvard Business Review has a long series of articles discussing how diversity of all kinds (gender, cognitive, neuro, religious, education, ethnic) can lead to greater innovation inside organizations. A recent article “How Diversity can drive Innovation” argues that two forms of diversity are needed to unlock innovation - inherent diversity such as gender, ethnic and sexual orientation, and acquired diversity which relates to traits gained from experience, such as working in another country.

Access to talent is a big issue. It’s not always easy to find the right people with the right mix of backgrounds. To compete effectively for global talent, diversity and inclusion policies are being designed by many employers specifically as recruiting and retention tools, helping to broaden the pool of talent a company can recruit from, while also helping to build employment brands that are seen as fully inclusive. 

While strong at diversity and inclusiveness at EY, we recognize that we have some way to go. EY’s global board is 22% women. Half of the college graduates we hire are women but only 20% of our partners are female. We’re making a concerted effort to improve that — just this year nearly 30% of our newly promoted partners were women — but we know we have much more work to do, and we’re committed to doing it. 

I see encouraging signs in some parts of the world and in some sectors. One such recent example came from Australia where nearly half of the top 200 listed companies appointed women to their executive boards for the first time ever this year and where EY could report this year that we have closed the gender gap for EY employees. Equally encouraging is data published last week in EY’s 2017 Women’s Leaders Index which shows ongoing progress in the number of women in public sector leadership roles in national governments.

Ultimately innovation is about people. An emerging issue is that most of our models of inclusion and organizational culture are based on the concept that our workforce “belongs” to our organizations in the traditional sense. However, more and more people are joining the gig economy and work a portfolio of jobs. This exposes them to different organizational cultures, sometimes working in parallel for more than one employer. This creates new challenges for how we create inclusive cultures that value the temporary gig employee in the same way as the longstanding member of the organization. Creating inclusive workplaces for all employees will set the right conditions for future innovation. It also requires new models of leadership to inspire and enable people to contribute to a common purpose.

Developing new services, changing the operations of an organization or introducing innovative products into the market – today it starts and ends with diversity. Change requires different points of view, strong leadership and purposeful decision-making. Embracing diversity of all kinds is nothing if not an asset to any organization. Ultimately, it is the only way to stay relevant in a fast changing environment.

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The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.