Why Diverse Teams Can Be the Worst Performers

Diversity has become a catchphrase of the modern corporate social responsibility movement. There is a growing push for organisations to improve diversity; so that they reflect the societies in which they operate. As a result organisations are increasingly reporting on the makeup of the organisation – for example by providing a breakdown of the gender, ethnicity and age of their employees.

The Paradox of Diversity

However, diversity is not always associated with benefits. Studies of organisational performance suggest that although diversity is beneficial under perfect conditions, it often leads to problems with group cohesion. People who are very different from each other may have difficulty communicating, and valuing each other’s input. This is sometimes called the ‘paradox of diversity’. Diverse teams are both the best, and the worst, performers. To reap the benefits of diversity, organisations must have the tools and structures to use it.

Having women in roles that have been traditionally assigned to males certainly creates gender diversity. If these women are marginalised and excluded from the rest of the team, because they are women, then any benefits from that ‘diversity’ are null and void. In fact all it does is create a stronger bond between the dominant group based on ‘sameness’.

An inclusive culture is essential for organisations to be able to leverage diversity. Organisations which are supportive and understanding of difference are best positioned to reap the benefits of diversity. To benefit from a diverse workforce employees must be able to communicate with and trust those from different backgrounds. Inclusion helps employees understand and value each-other’s differences.

Promoting diversity should therefore go hand in hand with promoting inclusion. If organisations just focus on increasing diversity, without promoting inclusion, they will miss an opportunity to reap the performance, efficiency and productivity benefits diversity can bring. Worse, increasing diversity without promoting inclusion may lead to problems with group cohesion. We need to start seeing diversity and inclusion as two sides of the same coin.

The business case for diversity and inclusion

Often the motivation for increasing diversity is implied to be a moral one. Organisations should improve diversity because it is the ‘right’ or ‘responsible’ thing to do. However a growing body of research is showing that there is also a strong business case for increasing diversity. Evidence shows that diversity is an organisational resource that can be used to generate increased performance, efficiency and productivity.

For example, a study that focused on 161 firms on the Australian Securities Exchange found that women on a company’s board had a positive impact on economic growth. Firms with two or more female board directors had higher returns on equity, higher market-to-book value, and higher net incomes. In the USA companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians; and companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry median. In the United Kingdom, for every 10 percent increase in gender diversity in the senior-executive team, EBIT rises an average of 3.5 percent.

Diversity produces these benefits because people who are different from one another bring unique information and experiences to the workplace. Differences in ethnicity, gender and other dimensions are correlated with differences in how people view problems (‘their perspectives’); and how people attempt to solve problems (‘their heuristics’). Diversity therefore improves the ability of groups to search ‘epistemic space.’

When attempting to solve complex problems, there’s often a lot of good solutions that aren’t the best solution. When groups have less cognitive diversity, members tend to see things in the same way and therefore converge on similar solutions, which are often sub-optimal. Cognitively diverse groups, on the other hand, are more likely only to agree on solutions when they are the optimal solutions. As members in the group are individually drawn to different solutions, they are more likely to be able see what is deficient about solutions found by other group members which are not the best.

The barriers to creating an inclusive, not simply a ‘diverse’ workplace can be complex, deeply engrained, and difficult to shift. Research into organisational culture can reveal often hard to see points of reinforcement, and identify where change efforts and resources should be targeted to optimise the value of a diverse workforce, beyond a better statistical report card.

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