How does creating diverse groups improve the performance of those groups and consequently the organisation?
Numerous studies have been performed to study the effect of diversity on the performance of groups and consequently the organisation. Diversity comes in various forms and though some forms of diversity like age, gender and origin can be easily noted, other forms of diversity which are more innate in nature like our culture and values are difficult to realise. However, organisations now a days stress more on having a diverse workforce to bring in more innovation and creativity. Diversity can be analyzed in terms of demographic variables, i.e. surface-level diversity (e.g. Jackson & Joshi, 2004; Milliken & Martins, 1996; O’Reilly, Williams, ; Barsade, 1998; Williams ; O’Reilly, 1998), and in terms of cognitive aspects including differences in knowledge, skills, and abilities (deep-level diversity; e.g. Ancona & Caldwell, 1992; Cohen & Levinthal, 1990).
In this essay by studying the different aspects of diversity that affect the performance of an organisation, we try to specify the conditions under which diversity leads to more positive outcomes and explain why it does so under these conditions. Thereby, we look at the two perspectives on diversity – first, which is focussed on disruptive consequences and second, which is diversity’s potential benefits.
Groups: By definition, “groups are two or more individuals, interacting and interdependent, who have come together to achieve particular objectives”. Groups may be formal or informal. In this essay we discuss mostly formal groups, defined by the organization’s structure, with designated work assignments establishing tasks. The behaviour team members should engage in, in such groups are stipulated by and directed toward organizational goals.
Diversity: Diversity is more than an objective characteristic of a group. by definition it is a subjective phenomenon, created by group members themselves who on the basis of their different social identities categorize others as similar or dissimilar. “A group is diverse if it is composed of individuals who differ on a characteristic on which they base their own social identity” (O’Reilly, Williams, ; Barsade, 1998, p. 186).
Performance: Performance of a group is the consistent levels of high collaboration and innovation, that produce superior results. While performance in an organisation can be defined as how well an organisation is able to create value. However, this value creation is mostly measured in monetary terms through the revenue or profit figures. Other ways to measure it would be to look at the earnings per share (EPS) or return on equity (RoE). For the sake of simplification, we consider only increased profits when speaking of organisation’s performance. Performance relates to the team’s ability to achieve goals or a specific mission (Devine and Philips, 2001). In other words, performance is an outcome which is the result of some purposeful activity (Swanson and Holton, 2009). As teams strive to accomplish goals or tasks, conflict may arise within teams resulting from diversity challenges that inhibit team performance (e.g. Garrison et al., 2010; Jehn and Bezrukova, 2010; Klein et al., 2011; Østergaard et al., 2011). Research further demonstrates that the development of shared mental models through team learning may improve team performance (van den Bossche et al., 2011; van Emmerik et al., 2011).
Multiple categories of diversity within the workplace may influence individual, group and organizational performance and processes (van Knippenberg and Schippers, 2007).
Considerable work in the field of diversity has already been done and diversity researchers have come a long way in understanding the core mechanisms that explain why diversity can have positive or negative effects, while testing a variety of conditions that tip the scales one way or the other.
In a finding by the 2015 McKinsey report1, the result of having conducted its research on 366 public companies, it was found that those in the top quartile for ethnic and racial diversity in management were 35% more likely to have financial returns above their industry mean, while those in the top quartile for gender diversity were 15% more likely to have returns above the industry mean. These findings helped in establishing a statistically significant connection between diversity and financial performance.
In a paper that highlights “diversity issues related to individual differences that underlie team formation and suggests strategies needed to develop effective teams”, Katherine L. Yeager and Fredrick M. Nafukho (2012) “stress on human resource development interventions that target team building, team work and team learning, including modules that raise awareness of the perspectives of team members’ individual differences and appropriateness of actions”. Training at the team level should focus on the interaction between factors that shape the identity of individuals.
In recent years, research has revealed that non-homogeneous teams simply work smarter. The reason behind it being the fact that working with people who are different just challenges our brain to think differently, thereby helping it to overcome its stale ways of thinking and sharpening its performance.
In order to come up with a valid argument for the research essay, various scholarly articles we consulted. Of special mention were websites like hbr.org and meta search conducted through google scholar. Further reference and citations of the articles consulted for the essay is given in the references section.
Here are a few reasons to why diverse teams are smarter as discussed in a Harvard Business Review article “Why Diverse Teams Are Smarter” 3 by David Rock and Heidi Grant (2016).
1. Focus more on Facts: In a study published in the Journal of Personality and Social Psychology conducted on 200 people, it was seen that diverse panels raise more facts related to the work at hand than homogenous panels and make fewer factual errors while discussing available evidence. If errors did occur, they were more likely to be corrected during deliberation. It was concluded by the researchers that diverse teams are more likely to constantly reexamine facts and remain objective. They also encourage greater scrutiny of each group member’s actions, keeping their joint cognitive resources sharp and vigilant.
2. Process the facts more carefully: In a study published in the Personality and Social Psychology Bulletin, Katherine Phillips of Northwestern University and her team concluded that greater diversity also changes the way that the teams digest information needed to make the best decisions. Because they process information more carefully, diverse teams outperform homogenous ones in decision making.
3. Are more Innovative: To continue being competitive in the fast-paced world of business, it is important that companies continuously innovate. In a research published in Economic Geography, the researchers collected data from 7,615 firms that participated in the London Annual Business Survey and filled a questionnaire about their company’s performance. Based on the results, the researchers concluded that increased cultural diversity is a boon to innovativeness and that businesses run by culturally diverse leadership teams were more likely to develop new products than those with homogenous leadership.
The takeaway that though people from same gender and geography, with similar cultural backgrounds find it easier to get along and feel more comfortable to work together, the comfort may prove to be costly as they succumb to the costly pitfall of conformity which discourages innovative thinking.
According to a research article on “Cultural Diversity at Work: The Effects of Diversity Perspectives on Work Group Processes and Outcomes”4 by Robin J. Ely, David A. Thomas (2001) recent studies of factors that moderate the relationship between cultural diversity and work group effectiveness suggest that when group members share common goals and values, cultural diversity leads to better outcomes (Chatman et al., 1998; Jehn, Northcraft, and Neale, 1999).
However, with reference to the thesis paper “Feeling Like a Part of the Team: The Role of Perceived Inclusion and Diversity Beliefs in the Association Between Team Gender Diversity and Team Performance” 5 by Thijs Bosselaar (2015), it can be said that diversity practices only have a positive effect on employee trust and engagement when the perceived levels of inclusion in the group is high. In addition, inclusion has been suggested to be a useful focus point in facilitating diversity in organizations (Roberson, 2006). Hence it can be assumed that perceived inclusion plays a role in the facilitation of group diversity and its effect on group performance. Any negative relationships found between diversity and performance might have been due to a lack of perceived inclusion.
We know that group formation goes through various phases like forming, storming, norming, performing and finally adjourning. Though the last phase of adjourning is present only in temporary work groups which come together for a project and disintegrate on completion. Most of the conflict in the work group is related to the first 2 phases of forming and storming. Once the groups have a clear direction and the role of each member is established, the group moves to the performing stage. In this stage the inclusion of every member is necessary for the positive effect of diversity to be realized.
In an article reporting research by the Center for Talent Innovation (CTI), further support for the research on the correlation between diversity and better decision making and the importance of inclusive leadership in maximizing the benefits of diversity was fostered. It further concluded stating, “when leadership lacks innate or acquired diversity or fails to foster a “speak-up” culture, fewer promising ideas make it to market”. In supporting data, the CTI provided evidence on the fact that ideas from women, ethnic minorities, LGBT individuals, and members of Generation Y are less likely to win the endorsement they need in order to go forward since 56 percent of leaders don’t value ideas they personally donot see a need for. This thinking can exert a stranglehold on an organization if its leaders are predominantly from a certain race, of a certain sex, and of a certain sexual orientation while at the same time, coming from a similar educational and socioeconomic background. In short, the data strongly indicates that homogeneity stifles innovation.
As found from the McKinsey research, the relationship between diversity and performance highlighted is a correlation, not a causal link. Though this is an important distinction, the findings of the study nonetheless permit reasonable hypotheses on what currently is driving the improved performance of the companies which have diverse executive teams and boards. It has been demonstrated in several studies that more diverse companies are better able to win top talent which in turn helps them to improve their customer orientation. The employee satisfaction and decision making are also higher in such organization due to the quality of the workforce, leading to a virtuous cycle of increasing returns. It can therefore be deduced that diversity beyond that of experience (such as a global mindset and cultural fluency), gender and ethnicity/race (such as diversity in age and sexual orientation) as well can contribute to bringing some level of competitive advantage for firms that are able to attract and retain such diverse talent.
The positive image of diversity in work group derives from the effects of deep level diversity among group members in terms of abilities, knowledge, and skills (cognitive diversity). Unlike homogeneous teams, cognitively diverse work groups are superior to cognitively homogeneous teams with regard to the prerequisites of innovation like gathering, processing, and applying information (Justesen, 2001). More specifically, such groups display better absorptive capacities which are characterized by higher requisite and network variety, and they are less prone to groupthink, that relates to norms and describes situations in which group pressures for conformity deter the group from critically appraising unusual, minority or unpopular views.