Very little is known about the effects of diversity on both individuals’ and firms’ productivity. Research is needed to explore this relationship in the various dimensions of diversity, such as race, gender, age and others. Giorgia Cecchinato writes about the main topics that are driving the discussions on diversity, inclusion and productivity.
While we know that gender diversity at the board level can have positive effects on productivity, it is not clear whether this is the case for all firms or teams. New research in this area needs to take a step further and focus on identifying the circumstances in which greater diversity leads to higher productivity and look at various dimensions of diversity, both within firms and before entry into the workforce.
It is equally important to explore the potential ways in which diversity can increase productivity in various sectors. For example, in the creative industries, which are often dominated by people from high socioeconomic backgrounds, a lack of diversity can result in a loss of high-quality cultural goods and products. Rather than focusing solely on quantity, new research should consider the impact of diverse representation on the quality of creative outputs and consumption experiences. In another sector, the care industry, a lack of diversity may result in a lower probability of finding a good match between a patient, with their needs and preferences, and a caregiver.
How do you measure productivity?
In studies that use administrative or observational data, productivity can be measured at the individual or firm level. At the individual level, a proxy such as wages is often used. Although wages are not a perfect proxy for productivity, they provide a good estimate of the value that an individual provides to a company. Data across individuals with different backgrounds can be aggregated and a baseline can be established by examining the earnings of the least diverse individuals. This can help identify which parts of wages are generated by factors such as gender or ethnicity, and which parts are generated by other factors, such as working with colleagues with different skill levels. When considering studies at the business level, indicators such as turnover, profits and returns on investment can be used to measure company performance.
Some research is experiment-based. While much of the existing knowledge about the link between diversity and team productivity comes from lab experiments with student populations, new research, including research projects that are part of the diversity and productivity grant, simulate a typical meeting that people would have in a business setting and then measure the output in terms of how practical, creative, and innovative it is. This output provides a proxy measure of productivity. By conducting this study online with real professionals, researchers can measure productivity as innovative and productive solutions to team problems, while also gaining a more realistic understanding of what drives them.
How do you measure inclusion?
Considering that diversity without inclusion (how diverse employees are integrated in the company) won’t necessarily lead to the best results, we must explore how to measure levels of inclusion and how they can relate to productivity.
One way to measure inclusion is to simply ask participants in lab experiments how included they felt during the process. Other measures include assessing participants’ level of psychological safety, whether they felt they had the time and space to think through their ideas and talk about them, and whether they felt their ideas were heard. Additionally, one can directly look at people’s behaviours during interactions and gauge how inclusive they are. This includes how much they encourage others to join in the conversation and how much they lead with curiosity, encouraging questions and taking an interest in diverse points of view.
Inclusion can also be measured with external data sources such as employee reviews, news feeds, and Twitter, which provide information on what people are saying about a given company. In one of the ‘Diversity and Productivity’ grant projects, the researchers applied sentiment analysis to this kind of data to determine if it has any correlation with productivity markers such as earnings and innovation. In this type of research, one has to assume that inclusion is a latent aspect of culture but that situational factors, such as what people say about being included and their behaviours, can serve as proxies for it.
The role of context and beliefs
Other factors might impact the relationship between diversity and productivity. Examples include: the context in which an individual is operating, their beliefs or the beliefs of people around them.
For instance, although one might think that an individual’s confidence levels might impact their productivity, initial data from qualitative interviews suggest structural issues, such as contextual situations and organisational functioning, have a greater impact on productivity than individual confidence levels. In other words, confidence can be endogenous. Changing the context in which an individual operates might change the perception of their confidence. This is a positive sign, as it means that policies can be developed to address these issues and have a wider impact on the organisation.
Beliefs may play a role in the link between diversity and productivity too. If an individual works with a leader who believes that diversity is good for business and clients, they are likely to have a chance to be productive and have their voice heard. In other words, a manager’s beliefs translate into the environment they create in the workplace, and this can significantly affect an individual’s productivity. Having the right policies and structures in place is not enough: a belief system needs to permeate throughout the organisation. This process is likely to differ between large companies and SMEs and it is important to pay attention to this heterogeneity.
The Diversity and Productivity research project explores the relationship between a diverse workforce, an inclusive workplace and what this means for individual and firm productivity. At a general level the project is divided into studies looking at diversity within a firm and studies looking at factors affecting recruitment strategies of a diverse workforce.
Diversity within a firm. For this research question, there are three different streams. The first involves using interviews and participant observation to understand how people experience their working lives. A large study will be conducted, interviewing 200 individuals from diverse sectors along various dimensions, including neurodiversity, gender and sexual orientation. The focus is on identifying what helps individuals be productive at work and what hinders their productivity. Another strand of the project involves a mass online experiment on team productivity. The goal is to partner with leading organisations and recruit thousands of professional workers from key industries, who will participate in a team setting online. The aim is to directly quantify the link between diversity, inclusion and improved productivity within a team.
Next, there are three projects using observational and administrative data:
- The first project explores the importance of matching worker skills to their job for better business outcomes, rather than being relatively under- or overqualified.
- The second one investigates whether a worker’s productivity is influenced by having the opportunity to work with highly qualified and skilled individuals.
- The third project focuses on the impact of firms’ progression and performance management policies on the diversity of workers at different levels within the organisation.
Recruitment of a diverse workforce. For this topic, the researchers are focusing on three objectives. First, they want to better understand diverse individuals’ trajectories from education to the labour market, identifying intervention points to guide individuals towards the most productive pathways for them. This project also investigates how trajectories vary across different groups and areas. Second, they will work to identify changes that could be made to the university application process to promote diversity on high-return courses and provide greater social mobility for diverse individuals. Finally, they will Investigate constraints faced by individuals when choosing subjects. The idea is to increase exposure to subjects with limited access in schools and to determine whether this exposure can help individuals choose high-return subjects.
- This blog post represents the views of its author(s), not the position of LSE Business Review or the London School of Economics.
- Featured image by Felicia Buitenwerf on Unsplash
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