Diversity initiatives have become a cornerstone of many CEOs’ strategy playbook. The prevailing assumption is that diversity—whether in terms of demographics, skills, or perspectives—enhances organizational outcomes.
But what if that assumption is flawed?
Recent research shows the link between diversity and outcomes may be far weaker, mostly insubstantial, than expected. This raises a critical question: Are CEOs chasing diversity at the expense of substantive performance results?
But what if this common belief is flawed?
A comprehensive meta-analysis published in the Journal of Management challenges this assumption, revealing that reducing employee turnover has no consistent effect on employee productivity or firm financial outcomes and only has a modest association with safety metrics and customer service.
These findings raise critical questions about the efficacy of turnover-reduction strategies to boost a firm’s financial performance.
Study
This meta-analysis of existing studies is the most comprehensive to date.
- Sample and Sample Size: The meta-analysis synthesized findings from over 200 individual studies with 2,638 effect sizes. The studies spanned various industries and organizational contexts globally, including corporate, nonprofit, and academic institutions.
- Main Measures of Diversity: Three distinct types of diversity were examined:
o Demographic Diversity: Refers to diversity in observable characteristics such as race, gender, ethnicity, and age. This type of diversity is often emphasized in representation and inclusivity metrics.
o Functional Diversity: Captures differences in skills, expertise, roles, and professional backgrounds. It’s often relevant in cross-functional teams tasked with solving complex problems.
o Cognitive Diversity: Focuses on differences in perspectives, thought processes, and approaches to problem-solving. - Outcome Measures: The study evaluated performance based on a number of criteria including team outcomes, individual outcomes, and firm performance.
- Type of Analysis: A quantitative meta-analysis synthesized effect sizes across studies, evaluating the strength and direction of diversity’s association with outcome measures.
o The researchers tested if the association of diversity with performance outcomes was substantial or insubstantial. Substantial association is indicated with a correlation larger than .1, while an insubstantial association occurs when the correlation is less than .1.
What the Study Showed
The results reveal a nuanced picture of diversity’s association with organizational outcomes, shattering most commonly held beliefs about diversity’s benefits:
Insubstantial = correlation less than .10; diversity explains less than 1% of the outcome
Key Findings:
- The study concluded: “diversity (across all dimensions) had significant positive associations with team performance (see Table 3). However, based on the registered smallest effect size of interest, these associations were insubstantial, as the hypothesis that they were smaller (in absolute value) than .1 was supported for all domains, with ps < .001.”
- Regarding specific diversity indicators, the study reported: “The estimated correlations were significant and insubstantial (i.e. significantly below an |r| of .1) for diversity in gender, nationality, degree, function and tenure, not significant and insubstantial for diversity in age, ethnicity, educational level, values, and inconclusive for the remaining sub-dimensions.”
Key Takeaways
For CEOs and organizational leaders, these findings challenge long-held assumptions and call for a recalibration of diversity strategies.
- Focus on Substance: Diversity has a negligible association with performance. The effect is too small to provide any meaningful performance lift. CEO’s must prioritize meaningful outcomes over optics.
- Challenge Your Internal Assumptions About Diversity: While diversity holds sway over lot of executives, its actual benefits may be too small and should not be overgeneralized.
- Be Realistic: The study indicates that diversity initiatives alone are unlikely to drive success – team outcomes, financial outcomes, or even benefits for individuals.
Ultimately, this research underscores the need for CEOs to adopt an evidence-based approach to diversity. Leaders must ask: Are we designing diversity initiatives that genuinely improve outcomes, or are we pursuing diversity as an end in itself?
Citation:
Wallrich, L., Opara, V., Wesołowska, M., Barnoth, D., & Yousefi, S. (2024). The Relationship Between Team Diversity and Team Performance: Reconciling Promise and Reality Through a Comprehensive Meta-Analysis Registered Report. Journal of Business and Psychology, 39(6), 1303–1354. https://doi.org/10.1007/s10869-024-09977-0