The Business Benefits of Gender Diversity in the Workplace

Companies that invest in gender diversity see a broad range of benefits across their business. The key to success, however, lies in the environment and values that they establish.

Verity has partnered with dozens of organizations to empower women in the workplace through our Women on the Rise leadership development program. What does work in the types of companies that make this investment in gender diversity look like? In this post, we examine the gains that companies make in their innovative capacity, alignment to their customer needs, and talent recruitment when they focus on gender diversity – all factors that, ultimately, impact their bottom line as well.

Increased creativity and innovation comes from diversity of thought

To SurveyMonkey’s CEO, the benefit of ensuring women’s representation throughout the company is apparent in their results: diverse teams produce better ideas. When team members are not all alike, they bring different perspectives and ways of thinking about a problem, leading to more creative solutions. Lurie’s experience is supported by research. A recent study by BCG showed that gender diversity correlated with innovation: organizations with greater diversity had higher levels of revenue coming from their innovation initiatives.

Nancy McKinstry, CEO of Wolters Kluwer and the highest-ranked woman on HBR’s Best-Performing CEOs list for 2019, leveraged the advantages of diversity of thought when she led a successful transformation of her business from print to digital, doubling the company’s stock prices. In an interview, she shared that her approach to this transformation was to hire diverse talent: this brought in new ideas and helped move things in a new direction.

These benefits can apply at all levels of an organization. For example, an HBR survey of corporate board members showed that individuals who were part of more diverse boards appreciated the diversity of thought that was present. Having a non-homogenous board in terms of gender, race, and experience meant that members were bringing different skill sets and perspectives.

Closer alignment to customer needs relies on empathy

A key ingredient in producing products and services that meet the needs of customers is empathy. Companies that empathize with their customers’ needs get a better understanding of the challenges that customers are facing and create solutions that fit.

Unless the company provides gender-specific products or services, its customer base is likely to be gender-diverse. Reflecting the gender diversity of the customer population among its teams can help an organization increase its empathy and build stronger customer relationships. Although this was not McKinstry’s primary goal when increasing diversity at Wolters Kluwer, she quickly noticed the benefit:

In an analysis of 1,600 global stocks, Morgan Stanley came to a similar conclusion. The reason companies with a higher gender diversity index were outperforming those with a lower index was, in part, due to their improved ability to align with customer needs. This is particularly important for service-focused companies like retail, leisure, and professional services.

Improved talent recruitment and retention backed by a strong employer brand

Companies are fiercely competing for talent, and every organization seeks to be an employer of choice. More and more, candidates are considering diversity when determining where to apply and evaluating job offers. For example, PwC’s recruitment study showed that 61% of women and 49% of men look at the diversity of an organization’s leadership team when evaluating a job offer. Having a homogenous leadership team can impact whether or not the company will get the talent it wants.

But the benefits don’t stop at the recruitment phase, they can affect retention as well. According to research done by BCG, women report being under-leveraged in their companies – their perspectives are not always considered, and they are excluded from information-sharing through informal networks. When this happens repeatedly, women are likely to become disengaged, contributing less or leaving the company altogether.

Impact on the bottom line

Improved innovation, alignment to customer needs, and recruitment all, in the end, impact the company’s bottom line, so you would expect to see benefits there as well. That’s exactly what a number of studies have shown:

• Morgan Stanley found that companies with a higher gender diversity index had better stock performance, with less volatility and better return on equity.
• In an analysis of 800 business units within two companies, Gallup found that business units that were more diverse had higher revenue.
• BCG showed that companies with greater gender diversity among their management team had higher operating margins.

Particularly interesting are the studies that analyze how changing the gender balance within a company impacts the bottom line because they suggest a causal direction and help rule out the argument that more profitable companies simply attract more women:

• A study published in HBR showed that companies’ market value and revenue rose after they implemented diversity policies.
• An analysis of stock values from the Stanford Business School showed that when a company publishes its diversity report, its stock prices subsequently rise more if the report demonstrates greater gender diversity.
• An analysis of venture capital firms showed that when VCs increase the number of women on their teams, they see an increase in the return on their funds and have more profitable exits.

Just increasing diversity isn’t enough – the company environment matters

So is it enough to hire and promote more women, sit back, and expect these benefits to start rolling in? No, because the environment you create matters, and that comes from valuing diversity as the right thing to do. It does not matter how diverse and organization is: if it does not value diverse perspectives and does not create an environment where women can contribute, it will not see the results we discussed.

An extensive body of research supports this. For example, the corporate board member survey showed that boards only benefited from increased diversity if they were run in an egalitarian fashion. If the board was top-down in its operations, and members had few opportunities to contribute, then diverse perspectives never made it onto the table..

Similarly, BCG showed that diverse companies saw greater impact on their profits and innovation if they invested in strategies that created an open environment, one where managers valued employee contributions

Even the broader social environment in which a company operates can make an impact. Global data suggest that companies that operate in cultures that value gender diversity are more likely to exhibit a correlation between increased gender diversity and increased revenue. If social norms do not value gender diversity, then women do not feel comfortable contributing their ideas in the workplace, and the company misses out.

However, in an effort to value contributions, companies need to be mindful of not “pigeonholing” women. It can be easy to fall into a pattern where women are engaged only on gender-related topics: for example, seeking their feedback only when developing a product for women. Input should be valued and sought out broadly.

So what does this mean for your company? You have the opportunity to impact innovation, customer alignment, recruitment, and your bottom line with increased gender diversity by empowering women at all levels of your organization. But don’t set those as the “why” behind your diversity efforts. Consider the inherent value of ensuring that women are present and have a voice, from the front line to the C-suite, and create an environment that supports that value. That will set you on the right path to the benefits we’ve outlined.