D+I = Innovation = Impact on the bottom line

Wendy Choi of materials science and manufacturing company Avery Dennison explains her passion for diversity and inclusion and its importance to innovation—and ultimately the profit margin.

My passion around diversity and inclusion (D+I) originates from the special and powerful synergy that it brings to teams, especially those that innovate, which I have seen as both a research scientist and a patent attorney over the past 30 years.

It’s surprising to me that more organisations and their leaders do not see the power of this synergy. Many organisations approach D+I efforts as a moral imperative, or as a politically correct way to conduct business. However, these organisations are missing out on the major impact D+I can have: on the bottom line.

D+I statistics generally measure only demographic data and not the impact of D+I efforts on innovation and business financials. However, there is solid data to support the conclusion that diverse teams are more innovative and creative problem-solvers, leading to a positive impact on the bottom line and a sound business strategy.

Diversity of thinking

We intuitively understand that individuals with different backgrounds and experiences are more likely to see the same problem in different ways, which will be more likely in turn to lead to different and better solutions.

A team cannot think “outside of the box” if all the team members are in the same corner of the box. Leadership needs to embrace D+I as a vital business imperative, especially in innovation-driven industries, and not relegate it to the HR department.

In a 2018 study of more than 1,700 companies of varying sizes across eight countries in a variety of industries, the Boston Consulting Group (BCG) showed that diversity has a favourable impact on innovation outcomes and financial performance in all countries examined.

It found that the most diverse enterprises were also the most innovative. BCG’s research suggests that diversity represents a tangible missed opportunity and significant potential upside for most companies—worth up to 12.9 percentage points of innovation revenue.

Software company Ideascale reports that companies in the top quartile of diversity are 35% more likely to outperform their industry. In 2016, it found that companies with diversity are 45% more likely to report that their company’s market share grew over the previous year and 70% more likely to report that their company captured a new market.  

Inclusion is key

When employees feel included—ie, they feel valued with a sense of belonging to the team and safe to be their authentic self—they are empowered and inspired to give 110% effort. There is evidence that this inclusive culture is rated as more important than a salary increase.

Research from Deloitte shows that organisations with an inclusive culture are twice as likely to exceed financial targets, six times as likely to be innovative, and eight times more likely to achieve better business outcomes.

At Avery Dennison, we promote several global D+I initiatives. We measure demographic statistics relating to diversity including, for example, gender diversity in management positions worldwide. In addition, we survey employees to determine the level of inclusiveness in the work environment.

“BCG’s research suggests that diversity represents a tangible missed opportunity and significant potential upside for most companies—worth up to 12.9 percentage points of innovation revenue.”

Our North America D+I Council provides resources to all employees to learn how D+I drives innovation. These resources are particularly useful to managers to help them develop the hard and the soft skills for managing for diversity, including empathy, learning to honour differences, and making an authentic connection.

There are articles, videos, and e-learning modules about diversity in the workplace and how it can help business performance. HR professionals work with these managers to coach them on a regular basis so that these important skills become second nature.

In our IP team, which I lead and which is responsible for protecting our innovation, we seek input not only from the inventors but we socialise the ideas and solutions to a diverse group of stakeholders to understand their perspective and to pressure-test the business value to the company.

One of these stakeholder groups is a community of practice for each major technology that is made up of a group of individuals with broad and deep, but diverse, experience. This leads to more creative and valuable solutions for the corporation.

Starting at the top

The impact of D+I on innovation is not limited to the diversity of the innovation team members but is also dependent on the diversity of upper leadership, an area where some organisations have made less progress in improving the D+I numbers.

Another BCG study from 2018 found that companies with more diverse management teams have nearly 20% higher revenues due to innovation. It also found that nearly half the revenue of companies with more diverse leadership comes from products and services launched in the past three years.

These organisations also reported better overall financial performance: earnings before interest and taxes margins were 9 percentage points higher than those of companies with below-average diversity on their management teams.

The BCG study is consistent with McKinsey & Company findings in 2018, which found that corporations that embrace gender diversity on their executive teams were more competitive and 21% more likely to experience above-average profitability.

These companies also had a 27% likelihood of outperforming their peers on longer-term value creation. Different perspectives on customer needs, product improvements and company wellbeing fuelled a better business outcome.

These studies are just a sampling of the data that solidly supports the conclusion that embracing and passionately pursuing D+I are not only the right things to do but proven ways to improve a company’s bottom line over the long term. It’s time for company leaders to take notice and ensure that D+I are global business priorities.

Wendy Choi is the vice president, global head of IP, label and graphic materials at Avery Dennison Corporation. She serves on the company’s North America diversity and inclusion council.