Why and How Inclusive Leaders Benefit Organizations

Teams made up of varied, multifunctional individuals—including men and women, people from various cultural backgrounds, younger and older employees—are becoming more and more important to businesses.

However, just mixing up a group of people won't ensure great performance; inclusive leadership is necessary to ensure that everyone on the team is respected and treated fairly, is appreciated and feels like they belong, and is confident and inspired.

Business benefits from diversity. Not simply because it's morally correct, but also because it's a wise move. Organizations with a more diversified workforce make better decisions and outperform their competitors financially.

Diversity is viewed by many as excellent in theory but challenging in practice. But it is worthwhile to make the effort to have a more diversified workforce. Here are some ways that diversity can aid firms in fostering an environment that allows for wiser business decisions. We'll also look at a component that's essential for creating diverse, effective teams.

Businesses in the top quartile for ethnic diversity are 35% more likely to outperform their peers, while businesses in the top quartile for gender diversity are 15% more likely to do so, according to study by McKinsey & Company.

Researchers at McKinsey emphasize that correlation does not imply causation, but they think that more diversified businesses are better suited to:

• Win top talent

• Improve customer orientation

• Improve employee satisfaction

• Enhance decision making

Better decision-making is essential for generating higher financial rewards. Decision effectiveness and financial outcomes are associated at a 95% confidence level, according to study done by Bain and Co. Financial returns for the most decision-effective businesses are almost 6% greater than for other businesses.

How diversity improves decision-making

What then, about diversity, helps businesses to decide more wisely? Numerous studies have been done in this area, and it seems that while opinions that challenge one another may make teams perform better, homogeneity may fool people into thinking they are making better decisions (since everyone agrees with each other).

This idea is supported by a Harvard Business Review article titled "Diverse Teams Feel Less Comfortable - and That's Why They Perform Better." The authors write the following about a decision-making study in which participants had to solve a murder mystery:

On a homogenous team, people readily understand each other and collaboration flows smoothly, giving the sensation of progress. Dealing with outsiders causes friction, which feels counterproductive.

But in this case their judgments were starkly wrong. Among groups where all three original members didn’t already know the correct answer, adding an outsider versus an insider actually doubled their chance of arriving at the correct solution, from 29% to 60%. The work felt harder, but the outcomes were better.

A related HBR article titled "Why Diverse Teams Are Smarter" lists a few of the explanations for why a diverse team performs better. These motives consist of:

• They give facts more attention. This is because they might examine each other's actions more carefully. They get less enmeshed in "group mindset," which could prevent them from seeing important facts.

• They give facts greater thought. This is due to the fact that they are taking into account viewpoints from individuals who have various opinions.

• They have more original ideas. This is due to the fact that conformity hampers original thought, whereas various viewpoints promote fresh approaches to issues.