Why your company benefits from a diverse workforce

Today you’ll hardly find any major company that does not have a diversity, equity, and inclusion (DEI) statement on their website. But what do we really mean when we talk about its first component, diversity? What is the situation in companies today when it comes to workforce diversity? And what can businesses gain from creating a diverse work environment?

What is diversity?

Diversity as a concept means that you try to consciously include and involve many different people in your company. “Different” refers to the various dimensions that one person can be dissimilar from another.

These include traits that people are born with or that are inherent to their personality, e.g., age, ethnicity and nationality, gender, sexual orientation, social background, religion, as well as physical and mental abilities. These are the characteristics that most often come to mind when people hear the word diversity.

But there are other dimensions to the concept of diversity that are acquired qualities or ones more related to an employee’s life experiences. These include, but are not limited to, family status, income, place of residence, jobs, or hobbies.

Examining the status quo of diversity

A 2023 study by McKinsey, Diversity Matters Even More investigated the topic across 1,265 companies, 23 countries, and six global regions. This found that only 20% of executive teams were women (up from 15% in 2019). Eight in ten surveyed companies had at least one woman on their executive team (up from fewer than two-thirds), while seven in ten had more than 10 percent.

However, the study found that progress had stalled when it came to the representation of ethnic minority groups. In 2023, they represented only 16% of all executive team members (compared to 14% in 2019).

Even in the US, where the representation of ethnic minority groups was 20%, it fell far short of the equitable demographic representation of 41%. Clearly, there is lots of work left to do to achieve equitable representation in companies worldwide.

Why is a diverse workforce so important?

There are now efforts across all industries to attain more diversity among their employees. In fact, since 2020, Fortune 1000 companies have publicly pledged over USD 340 billion to support racial equity, while the proportion of S&P 500 firms discussing DEI in their annual reports has grown from 14 to 80%.

But what exactly do companies gain from a diverse workforce? As we will see, it’s much more than a nice-to-have bonus that looks good to potential customers, investors, and jobseekers. It can increase retention rates and boost productivity, all the while helping your bottom line.

Diverse teams perform better

As the saying goes, two heads are better than one – and when the two or more heads who are trying to solve a problem are from different cultures, they tend to be more creative. Ensuring that your company has teams with members from all over the world therefore is a great way of helping your employees reach their full potential.

But gender is also a big factor when it comes to group work. As this recent study showed, teams that consist of people of various genders perform better – when women were added to teams that were men-only before, average turnover rates were reduced. The team’s relational skills and organizational citizenship behaviors were also strengthened and willingness for shared leadership was boosted.

Science shows that the reason for this is simple: The more diverse the people that collaborate to find a solution are, the more information, experiences and perspectives are included on their way to find it. This naturally sparks creativity and fosters ways of thinking outside the box.

Diverse companies improve recruiting and retention of employees

Companies only want the best performers to work for them – and potential hires increasingly consider them from the perspective of their workforce diversity.

This is particularly important for workers who are just entering the workforce, Gen Z (born between 1997 and 2010). According to the Pew Research Center, these comprise the most diverse and well-educated generation yet. In the US, almost half (48%) are from racial or ethnic minority groups.

Understandably enough, diversity is extremely important for them. According to a recent report from Manpower, 56% of Gen Zers would not accept a job without diverse leadership. To stay competitive, you will need to take their expectations on board – by 2025, more than one in four workers will be Gen Z.

Diverse companies improve business success and financial performance