Diversity leads to prosperity

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The link between diversity and financial success.

There are two often talked about topics these days. The first one revolves around the uncertain and chaotic nature of our markets and the second one around diversity. On looking a bit deeper into these topics it is hard to ignore the link between the two.

There was a time when, for many companies, competitive advantage was driven only by efficiency. At that time, an assembly line would be considered as one of the critical aspects to gain this competitive advantage. Some say that this context might have arguably led to some conscious or unconscious desires to have more uniformity in the composition of the workforce, so that a combination of defined processes in the assembly line, along with a uniform workforce, could presumably lead to predictable outputs.

Even if the connection between assembly line and lack of diversity were true, those days are now gone – never to return. In today’s uncertain market full of the buzzwords, such as RPA, machine learning, AI, FinTechs, platforms, and more, one thing is certain: efficiency alone will not ensure survival. As they say, you might be most efficient in climbing a ladder, but what if the ladder is against the wrong wall! While in yesterday’s more stable environment, predictability was imperative, in today’s chaotic environment, adaptability and innovation take precedence.

The link between diversity and financial success

Borrowing from Bill Barnett, professor of Strategy at Stanford GSB, we can articulate the three phases of innovation as:

1) Variance: need for a system that generates variance, i.e., a list of diverse ideas

2) Discovery: learning through selection, i.e., develop a fail-fast/ prototype to look for commercially viable ideas

3) Growth: retention and scaling of the good idea(s) for success.

Successfully scaling up a good idea is, in fact, imperative for financial viability today. However, it has become difficult to find that good idea to scale. That is why the notion of fail-fast is gaining acceptance. The concept is to first take a list of potentially good ideas and hypotheses, and then launch pilots and prototypes based on these good ideas. The second part is to reject the bad ideas from within this list early enough to keep the costs of failure low. In this process, one will discover some good ideas that are worth scaling. Therefore, an important step prior to scaling is to develop a list of good ideas to test. To get good ideas to test, one needs a long list of diverse ideas to start the process of selection.

When we invest in diversity, we increase the chances of having a workforce with different backgrounds, contexts, experiences, and skills that, in turn, have better probability of generating a diverse set of independent ideas to test and scale. Important to note is that since we don’t know where the good ideas might come from, we need to ensure that diversity is present in all parts of an organization and across the various layers as well.

Are we there yet?

Now that we understand the direct link between diversity and financial success in today’s uncertain environment, it is important to keep in mind that statistical diversity is a necessary but not sufficient condition to achieve the intended result. Most of the organizations have now moved on from intent to action around diversity. The first step in this journey is to put systems and processes in place to achieve a sustainable level of statistical diversity. Given the industry’s delayed start and the substantial gap at the starting point, achieving the end goal of statistical diversity will take time. Hence, while showing the right trends in statistics, the focus will need to be on fixing the organizational culture around some cognitive biases that might prevent organizations from getting the maximum impact from this initiative.

Cognitive biases

I will focus on a couple of cognitive biases that need to be consciously managed – those of cultural fit bias and confirmation bias.

Diversity will give highest returns when an organization allows for diversity of the thoughts and ideas it generates. In that context, cultural fit is a very fine line to tread. While most organizations claim that their culture is what makes them unique and drives their success, they also need to be careful that their interpretation of their culture is objective and accurate and they do not reject new and diverse people or their ideas because they are not ‘like them’ or they are not ‘aligned.’ Beware that when you hire for diversity but train for alignment, you risk losing the very essence of diversity. Multiple studies attest that the team that argues more, often achieves more than the team that focuses on staying agreeable. As James Surowiecki once said, “diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”

Similarly, we must be cautious about confirmation bias. Confirmation bias is where we ignore any evidence that doesn’t support what we’ve already concluded, and only find things that prove it. This becomes all the more important while we transition toward the statistical diversity end goal since, at the beginning, we will have fewer people with different ideas and there will be a tendency for the incumbents to get enough people and their views to provide data to support the old thinking and reject the new thinking.

Diversity leads to prosperity

To sum up, most leaders are convinced that diversity is a necessary element to survive in the chaotic market, and the debate in the industry around diversity has moved from the “why” to the “how.” However, we should not lose sight of the “why” and ensure that our organization is ready to make the best use of the difficult but necessary journey we need to complete around diversity. A focus on the “why” will prevent us from being satisfied by targeting statistical diversity only and help us focus on the true essence of diversity: diversity leads to prosperity!

I’d  like to hear about your own experiences or insights regarding diversity. Please share your thoughts and comments.

 

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