Impact of Diversity on Organizational Performance

by Origen Grear 01/03/2024

Origen Grear, Prof. Rainsford

            Diversity in the workplace can be defined as a workplace being heterogeneous in terms of gender, race, and ethnicity as well as possessing distinct elements and qualities that differentiate each individual (8). Diversity in the workplace has been steadily rising since its introduction to society in the 1960’s. As workplace diversity has become more common over the past few decades, the questions regarding the extent to which workplace diversity benefits organizations has generated a number of mixed opinions regarding whether or not the benefits of diversity in the workplace outweigh the detriments. Through examining the pros and cons of workplace diversity, this research aims to prove that the overall impact of diversity on organizational performance is positive. Every organization can benefit from understanding the impact of diversity on organizational performance, especially during an era that emphasizes inclusivity. As the workforce becomes more diverse throughout the world, organizations must adapt (3). Diversity in the workforce can either make or break a company, and it is important for organizations to understand diversity’s impact in order to effectively maximize their success and minimize their failures.

            Diversity in the workplace can take on many forms. Some examples are gender diversity, racial diversity, conceptual/cognitive diversity, and cultural diversity (4). Recognizing and managing diversity not only creates an inclusive workplace where employees feel comfortable, but also leads to organizational benefits. Through increased creativity and innovation, enhanced problem-solving and decision-making, and increased employee engagement and motivation within the workplace (5), organizations are able to improve their marketability, profitability, and overall success.

A very significant positive impact of having a diverse workplace is an increase in creativity and innovation within the organization. “The successful companies are the ones building on creativity that became its most important belongings and the foundation of its base, thus the diversity of workers is considered a main factor in the ability of the company to survive and grow” (1). Not only does creativity and innovation allow companies to survive, but it also allows them to prosper.

Enhanced problem-solving and decision-making abilities is another positive impact of diversity on organizational performance. “Increasing adaptation, diversity in the working force presents various options to resolve problems that appear in the organization” (1). In a 1986 study regarding heterogeneous versus homogeneous problem solving, it was found that heterogeneous teams including minority members were more creative in generating ideas and “non-obvious alternatives” than the homogenous teams. “The results indicated that the heterogeneous teams were more creative in problem solutions than the homogenous when controlling for ability levels” (2). One of the main reasons diversity enhances problem-solving and decision-making processes is the variety of perspectives that are present in diverse groups.

Another positive impact that workplace diversity has on organizations is an increase in employee engagement and overall motivation. The motivation and engagement of employees is a very important factor regarding organizational performance as it directly correlates to employee productivity. According to a study conducted by Gallup, it was found that engaged employees are 21% more productive than disengaged employees (7). Having a diverse workforce promotes employee engagement and motivation by establishing inclusivity, which results in employee comfortability, satisfaction, and commitment. In an in-depth research study performed by Ghasempour Ganji et al, results showed that employee engagement is positively affected by diversity management (6). It was discovered in another study by Deloitte that inclusive teams are 17% more likely to report that they are high performing, and that inclusive companies are 1.7 times more likely to be innovative leaders in their respective markets (7). Diversity in the workplace not only benefits employees individually, but also benefits organizations as a whole.

There are various studies that have shown positive effects of diversity on organizations. In a study conducted by Frink et al and his colleagues in 2003, personnel officers from numerous companies reported on their firms’ size, sector, gender distribution, and market performance. The study showed a higher market performance in the firms with higher female participation. “On average, these companies had 624 employees, 49% of whom were women. As predicted, there was an overall positive effect of female participation on firm performance. More importantly, firm performance increased with female participation up to a maximum at 50 percent, after which it decreased” (2). It is further explained that these results were unaffected by organization size and industry sector, proving that the organization significantly benefited from gender diversity directly. In addition to diversity among employees benefiting organizations, diversity among leadership also has a significant impact on organizations. Roberson and Jeong Park conducted a study in 2007 that found a relationship between diversity and equity. “The results of their study also showed a positive relationship between top management team diversity and revenue growth such that organizations with greater ethnic minority representation in top management tended to experience larger increases in annual revenues (Roberson & Jeong, 2007)” (2). This shows that diversity in all areas of an organization can produce positive results. Another study conducted in 2008 on employees from 130 different organizations to investigate the relationship between employee diversity and organizational performance resulted in senior management-level diversity and diversity within nonmanagerial ranks having a positive and significant impact on overall quality, productivity, profitability, and return on equity in organizations (3).

One example of a negative impact that diversity has on organizations is a potential increase in conflict between team-members. Though conflict could hinder organizational performance, it has the potential to benefit organizations at a much greater degree. “In another study, Simon, Pelled, and Smith, (1999) observed that member diversity in education and company tenure influenced the quality of debates and thus, positively impacted the decision making process in a team of top managers” (2). Conflicts are often necessary for debates to arise, and, with adequate leadership, can be used to an organization’s advantage.

Communication problems may also be identified as a negative impact of diversity on organizations (8). Because there are possibilities of communication barriers forming between new employees, diversity management must be a priority for organizations in order to minimize the barrier’s impact as well as resolve it quickly. With efficient diversity management, these communication barriers are able to be transformed into significant connections that result in greater organizational performance.

Diversity in the workplace is a factor that is not only essential, but also unavoidable for organizations in this day and age. Through establishing a more inclusive workplace, organizations are able to solve problems more efficiently, make smarter decisions, utilize their creativity, and allow all types of people to feel respected and comfortable in the workplace. Along with this, organizations perform better financially and are able to stay on par with their competitors and even surpass them. Though there may be conflicts, communication barriers, or other minor issues, the benefits that workplace diversity brings to organizations makes it a necessity for all organizations to have. In order for organizations to reach their fullest potential and reap as many benefits as possible, they must be ready to accept diversity into their workplace.

References Cited:

1 – Atiyah, L. (2016). The Relationship Between the Diversity of Employees and Organizational Performance [Review of The Relationship Between the Diversity of Employees and Organizational Performance]. Cross-Cultural Management Journal, XVIII(2), 151–163. The Central and Eastern European Online LibraryThe Central and Eastern European Online Library. https://www.ceeol.com/search/article-detail?id=532165

2 – Prieto, L. C., S. T. A. Phipps, and J. K. Osiri. “Linking Workplace Diversity To Organizational Performance: A Conceptual Framework”. Journal of Diversity Management (JDM), vol. 4, no. 4, Oct. 2009, pp. 13-22, doi:10.19030/jdm.v4i4.4966.

3 – Human Services as Complex Organizations. United Kingdom, SAGE Publications, 2010.

4 – “What Are the Types of Diversity? | Workable.” Recruiting Resources: How to Recruit and Hire Better, 5 July 2019, resources.workable.com/hr-terms/the-types-of-diversity#:~:text=Here%E2%80%99s%20a%20list%20of%20the%20different%20types%20of.

5 – Herrity, Jennifer. “20 Benefits of a Diverse Workforce.” Indeed Career Guide, 26 Sept. 2022, www.indeed.com/career-advice/career-development/benefits-of-a-diverse-workforce.

6 – Seyedeh Fatemeh Ghasempour Ganji; Fariborz Rahimnia; Mohammad Reza Ahanchian; Jawad Syed. “Analyzing the Impact of Diversity Management on Innovative Behaviors Through Employee Engagement and Affective Commitment”. Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies), 14, 3, 2021, 649-667. doi: 10.22059/ijms.2020.307781.674164

7 – “Diversity and Inclusion Drives Employee Engagement and Retention.” Loeb Leadership, www.loebleadership.com/insights/diversity-and-inclusion-drives-employee-engagement-and-retention.

8 – Foma, Elizabeth. “Impact of Workplace Diversity.” Rev. Integr. Bus. Econ. Res, vol. 3, no. 1, 2014, p. 406, buscompress.com/uploads/3/4/9/8/34980536/riber_sk14-026__402-410_.pdf.