How many times have we heard the dichotomy between soft and hard? Software vs hardware, soft skills vs hard skills, soft power vs hard power. At Epidata we wonder whether it is possible to talk about soft diversity and hard diversity. Let’s see what this comparison would look like.
Soft vs hard
By the end of November 2021, we published On Diversity a short article about what could be defined as soft diversity. Our main argument was that in a world threatened by transnational problems, only through coordinated action could satisfying solutions be reached. We also argued that this same reasoning could be extrapolated to the inner dynamics of a company: a diverse team would be an advantage in a multifaceted and unforeseeable environment:
”Cultural diversity, in addition to being a key piece to knowing more than one single story and to building a “tolerably fair” society, is something essential to improving professional performance. It is not accidental that a diverse team (with management that defends and supports it) reaches better solutions, is more versatile, and has a better capacity to adapt”(Epidata, 2021).
Besides, in our previous article, we quoted The Mix That Matters (BCG, 2017). This short report argues that: “The positive relationship between management diversity and innovation is statistically significant, meaning that companies with higher levels of diversity get more revenue from new products and services”. In other words, diversity unleashes innovation by creating an environment where different and original ideas are heard.
But are there any more statistical arguments to rule in favor of diversity? According to the Institute for the Integration of Latin America and the Caribbean (INTAL in Spanish), which is an agency of the Inter-American Development Bank focused on the Bank’s Integration and Trade sectors, the most diverse companies tend to outperform less diverse ones in profitability: “The analysis of 2019 finds that companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile, up from 21 percent in 2017 and 15 percent in 2014” (INTAL, 2021). Let’s take a look at Figure 1:
Figure 1: Diversity in executive teams. Source: INTAL, 2021.
Furthermore, McKinsey & Company, one of the top advisors and counselors to many of the world’s most influential businesses and institutions, found out that:
”[…] the greater the representation, the higher the likelihood of outperformance. Companies with more than 30 percent women executives were more likely to outperform companies where this percentage ranged from 10 to 30, and in turn, these companies were more likely to outperform those with even fewer women executives or none at all. A substantial differential likelihood of outperformance—48 percent—separates the most from the least gender-diverse companies”(McKinsey & Company, 2020).
On the same hand, McKinsey & Company (2020) pointed out that regarding ethnic and cultural diversity, findings are equally compelling: “[…] in 2019, top-quartile companies outperformed those in the fourth one by 36 percent in profitability, slightly up from 33 percent in 2017 and 35 percent in 2014”.
Moreover, in their article How Diverse Leadership Teams Boost Innovation (2018), Boston Consulting Group explains that those enterprises whose management teams count with greater diversity have 19 percent higher incomes due to innovation. As INTAL (2021) points out: “This finding is significant for technology companies, start-ups and industries where innovation is the key to growth”. Let’s see Figure 2:
Figure 2: BCG’s diversity and innovation survey, 2017. Source: BCG, 2018.
Another brilliant finding was exposed in Delivering through diversity (2018), a report that was written by McKinsey & Company. It’s a fact: gender diversity is correlated with both profitability and value creation. See Figure 3:
Figure 3: Correlation between gender diversity and profitability and value creation. Source: McKinsey & Company, 2018.
Summarizing, in McKinsey’s 2017 data set, a positive correlation between gender diversity on executive teams and both their measures of financial performance was found:
”[…] top-quartile companies on executive-level gender diversity worldwide had a 21 percent likelihood of outperforming their fourth-quartile industry peers on EBIT margin, and they also had a 27 percent likelihood of outperforming fourth-quartile peers on longer-term value creation, as measured using an economic-profit (EP) margin”(McKinsey & Company, 2018).
In conclusion, forward-looking companies aiming to develop and remain competitive in today’s world should seek ways to employ and empower more women and other cultural groups not only as a moral obligation but also as a sound business strategy.
Diversity, whether concerning gender, ethnicity, sexual orientation, professional experiences and personal backgrounds, allows a company to take on new perspectives and develop a holistic view and better approach to the objectives set: these are the benefits of soft diversity. But on the same hand, as these statistics prove, diversity has also “tangible” consequences that ensure the success of a company and its economic profit: and these are the benefits of hard diversity.
Who would dare not to bet on diversity now? Find out more about how Epidata lives this challenge!
Epidata. (2021). On Diversity. https://epidata.net/en/on-diversity/
Instituto para la Integración de América Latina y el Caribe (INTAL). (2021). Diversidad y productividad empresarial.
Lorenzo, R. (2017). “The Mix That Matters”. Boston Consulting Group. https://www.bcg.com/publications/2017/people-organization-leadership-talent-innovation-through-diversity-mix-that-matters
Lorenzo, R. (2018). “How Diverse Leadership Teams Boost Innovation”. Boston Consulting Group. www.bcg.com/en-us/publications/2018/how-diverse-leadership-teams-boost-innovation
McKinsey & Company. (2018). Delivering through diversity. www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/delivering-through-diversity
McKinsey & Company. (2020). Diversity wins: How inclusion matters. www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-wins-how-inclusion-matters