Why diverse teams make better business decisions

Probably one of the most well-known brand fails in the past few years was Pepsi’s 2017 ad featuring Kendall Jenner. Released in the midst of the Black Lives Matter and Women’s March movements, the ad features the supermodel leading a group of ambiguous protestors and ends with a Pepsi peace offering to a police officer.

After receiving widespread criticism, the company quickly pulled the ad and issued a public apology.

And it’s not just Pepsi, companies like Google, Snapchat and Twitter have all suffered from major product flops which can ultimately be drilled down to one core problem: a lack of diversity.

Beyond saving a company from bad decision-making, studies prove that diverse teams can significantly increase innovation and profits.

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A 2018 study of 1000 companies across 12 countries by McKinsey and Co found that companies in the top quartile for gender diversity on their executive teams were 21 percent more likely to experience above-average profitability. Meanwhile, ethnic and cultural diversity resulted in a 33 percent increase in performance.

It’s not just diversity in gender, race, ethnicity and cultural background. Studies show that employees from companies which are diverse in both inherent and acquired (traits you gain from life and work experiences) diversity are 45 percent more likely to report a growth in market share over the previous year and 70 percent more likely to report the firm captured a new market.

Just how does this work in practice?

Diversity improves a team’s problem-solving abilities

There’s never one way to solve a problem. Each person’s unique problem-solving approach is based on a blend of our different backgrounds, experiences, personality and the different ways we process information. The more diverse your team is, the more opportunities you’ll have to approach a problem from different angles. Meanwhile, homogenous teams are more likely to approach a problem from a similar viewpoint, limiting their number of potential outcomes.

Showing how this can work in practice, a study by Northwestern University found that teams made up of students from different sororities and fraternities were more successful in solving problems than homogenous teams made up of students from the same social groups. Adding just one ‘outsider’ to the mix caused the whole team to spend more time considering other possible options, leading to better problem-solving.

Yet, an interesting conclusion they also found was that, although they performed better, these ‘diverse teams’ were less confident in their collective response. As Andrew Hill, editor at the Financial Times stated in a recent article about the perils of groupthink:

“Groupthink persists, though, because taking better decisions is harder, and takes longer. … Homogeneous teams are easier going. Decision-making seems effortless. As a result, such groups can be perilously overconfident about the rightness of their own ideas.”

Diverse leadership is just as important

An important lesson we can learn from this study is that, to leverage the full benefits of diversity, you need truly diverse teams.

A recent study by the Technical University of Munich surveyed 171 companies across Germany, Austria, and Switzerland. They found that higher rates of diversity correlated with an increase in innovation revenue (or revenue made from innovative products). But, interestingly, their study also found that for gender diversity to have an impact on innovation, there needed to be at least a 20% share of women in management positions.

A lack of diversity in leadership will continue to place barriers on innovation, even in the most diverse teams. As your key decision makers, leaders have a major impact on how your teams and in turn business performs.

One study found that when an all-male team of decision-makers made decisions that were then executed by a gender diverse group, the group underperformed by 15 percent. Meanwhile, they found that gender diverse teams make better business decisions 73% of the time. Teams which are also diverse in age and geographic location make better decisions 87% of the time.

Diverse leadership teams not only make better business decisions; they also influence team behavior. One study found that when leaders of professionally diverse teams promote inclusivity, they can actually prevent the negative impacts of perceived status within a team, leading to improved performance.

Learning from diverse teams

While governments and top research institutes have tried for decades to solve some of our most pressing global issues ranging from poverty to obesity to environmental degradation, we’re now seeing the rise of innovative solutions coming from a new source.

Every year, blended Scotch whiskey brand Chivas invites social impact startups from all over the world to participate in their Chivas Venture contest. Formed of entrepreneurial individuals with a blend of skills, experience, backgrounds and age groups, these startups are truly leveraging the competitive advantages that diversity can bring.

We caught up with three finalists to find out how diversity has helped their teams make an impact.

The cross-functional team connecting refugees and locals

Having fled the war in Syria, entrepreneur Khuloud Kalthoum came to Portugal without speaking the language or knowing any locals. Now, she runs SPEAK: a linguistic and cultural program with the aim of solving the social exclusion of migrants and refugees. Speak connects migrants, refugees, and locals living in the same city and currently exists in 13 cities across five different countries — Belgium, Germany, Italy, Portugal and Spain.

This means their team, which contains 13 people, is scattered across Europe. But that actually helps their mission, says Kalthoum:

“For us, success is a blend of passion for people and diversity. We all have different academic backgrounds (from painting to pharmacy), different nationalities and different visions and personalities. But we share the belief that everyone has the power to transform their city into a more inclusive one.”

The inclusive team fighting climate change

Poland has 36 of the EU’s 50 most polluted cities according to the WHO. Having witnessed the impact over pollution has had on her country, Martyna Sztaba, CEO of Syntoil, and her team came up with a revolutionary solution.

Tires and other rubber products result in 13 million tons of waste annually. The CO2 emissions that come from the process of burning these excess materials result in an increase in respiratory diseases and only further contributes to climate change. Instead, her team found a way to process these materials without burning them, resulting in a 96% reduction in the emission of inorganic compounds.

According to Sztaba, the key behind Syntoil’s innovative solution is its inclusive and diverse team:

“Although we have people from very different backgrounds (art history, building installations, chemistry) we can always find a common language when it comes to rubber waste management.

Although studies show that female CEOs make double the revenue, they still receive less funding, demonstrating a persistent bias in the startup world.

“I think it says a lot about my team that I was selected to be CEO — I’m the youngest and also the only woman — and I’m very proud of my team.”

The team where age is just a number

At 19 Javier Larragoiti Kuri pioneered a way to create a low-calorie sugar substitute from excess agricultural waste. His company Xilinat is now selling this subsite as a means to fight both obesity and environmental degradation in one.

Scientific and medical research are still notoriously hierarchical fields in which age, experience, and discipline are valued above diversity. In fact, status differentials in healthcare organizations have been proven to result in low performance of diverse teams. But, in the Xilinat team, everyone’s opinion is valid. As the young CEO explained,

“While the two founders are still in their 20s, the rest of the team members are in their 30s, 50s or even 60s.”

What these startups prove is that diversity can be your company’s competitive advantage. The more inclusive we make our teams, the closer we’ll get to solving our biggest problems.

Want to support Speak, Syntoil, Xilinat or any of the other 17 social startups in the Chivas Venture? Chivas is putting an initial $100,000 of their prize fund into your hands. Vote for your favorite Chivas Venture Global Finalists here – the winner of this public vote will be announced at the Global Final, held at TNW Conference, on May 9th.