Have you ever heard about Employment Nondiscrimination Acts (ENDAs)?
I suppose not. An obscure and boring subject. And yet, you might be surprised to learn that ENDAs, the U.S. state-level laws that prohibit discrimination based on sexual and gender identities, boost corporate innovation.
A 2016 study found that U.S. public companies headquartered in states that have passed ENDAs experienced an 8% increase in the number of patents (and an 11% increase in their quality) relative to the companies headquartered in states without ENDAs.
The result was more pronounced for states with a large LGBTQ population and for firms in human capital-intensive industries, such as technology and finance.
I know of no data suggesting that the LGBTQ folks are intrinsically more innovative. Rather, the above study implies that innovation requires a certain degree of individual freedom, including the freedom to live and work openly and safely without being discriminated against for whatever reason.
Diversity Boosts Innovation and Performance
So here is a point: having a diverse and inclusive workforce that reflects our rapidly changing society is not only the ethical and socially responsible thing to do; it is also good for firms’ bottom lines.
- Boston Consulting Group surveyed the innovative potential of 1,700 American firms and found that firms with above-average diversity produced a greater proportion of revenue from innovation (45%) than firms with below-average diversity (26%).
- A study of 4,300 Spanish companies revealed a positive correlation between the number women these companies had on staff and their ability to introduce innovations into the marketplace.
- Another study of 7,600 U.K.-based companies demonstrated that firms run by culturally diverse leadership teams were more likely to develop new products than those with homogeneous leadership.
- A 2013 report by the Center of Talent Innovation showed that having a member of innovation team of the same ethnicity as a client dramatically increased the team’s ability to understand the client’s needs, a factor that could make the difference between winning and losing a new business.
- Credit Suisse Research Institute found that firms with one or more woman board members had a higher average ROI and better average growth than firms with male-only boards.
- Analysis of executive teams in more than 1,000 firms across 12 countries performed by McKinsey showed a strong positive correlation between financial performance and gender diversity and even stronger correlation for ethnic and cultural diversity.
Why Are Diverse Teams More Innovative?
In today’s business environment, meaningful innovations happen at cross-borders of different disciplines. Having teams composed of experts in several relevant fields becomes a key prerequisite for any successful innovation project.
It’s therefore easy to understand how the diversity of expertise and experience would boost innovation.
But why is the diversity of race, ethnicity, gender, and sexual orientation so important?
Because diverse people bring to the table their unique information, perspectives, and experiences. Besides, working with individuals who are different forces all members of the innovation team to reassess their own assumptions.
Of course, working in diverse groups isn’t easy. It requires individuals to adjust their own behavior and working styles, something that doesn’t come easy to many. But a better innovation product will eventually emerge from this hard work.
Are there “Shortcuts” to Diversity?
Building diverse organizations takes time and effort, as evidenced by the struggle of large tech companies to diversify their workforces. However, there are at least three approaches every medium to large firm can try:
- When entering a new market (or a new segment of existing market), create an innovation team with a demographic composition closely resembling that of the target customer population.
- Maximize the benefits of so-called cognitive diversity by bringing together people with different viewpoints and styles of thinking.
- Approach large and diverse groups of people through crowdsourcing.
Of the three, crowdsourcing appears to be the most straightforward way to boost innovation through diversity.
Crowds assembled by established open innovation platforms, such as InnoCentive or HeroX, are composed of people of different ages, genders, educational and professional backgrounds, geographies, and cultures. By design, they are as diverse a workforce as one could only dream of having in any organization.
And they show the value of diversity by bringing, day in and day out, superior solutions to the world’s most pressing problems.
(A version of this post first appeared on Change Logic’s Viewpoint Blog.)
Image credit: Clay Banks on Unsplash