Why do not all profit-driven companies prioritize diversity?

Article By: Tone Pedersen, Senior Data Scientist, Flowtale

Research shows that projects and companies driven by diverse teams are more likely to perform better, have higher profitability, make better decisions, and have a larger talent pool. Why is it then that the statistics for tech teams world wide are 21% women and 16% ethnic minorities? [CapGemini] Well-known factors such as educational pipeline is one thing [SWE research], but the trend has been declining since the 1980s when the distribution in gender was almost 40%/60% women/men, so this cannot be the only factor. Finding and hiring the right people is one thing, but the real change starts by observing and identifying destructive structures and admitting that we all have biases. First by then it is possible to create an inclusive culture and that in return will attract a diverse team. 

This paper will investigate the benefits and the challenges of creating an inclusive and diverse culture. It will look closer at the challenges and try to understand why there are not more companies making a bigger effort to create an inclusive and diverse culture if there are so many benefits. It will also try to distinguish between the effort of achieving a successful inclusive diverse team compared to just having a diverse team.

In an online survey provided by Dice from 2021 where 7,215 employees within tech companies responded to questions regarding the perception of inequalities and witnessed discrimination at their workplace. The survey result is shown into groups representing people identifying as men and women within the tech industry.

One notable number is that 70 % of all women are considering changing to another employer for better compensation. The importance of diverse workforce is considered higher among women then men which make sense since they are less exposed for discrimination.

The benefits

There is still a group of 14% worldwide that believes diversity and inclusion is not effective at all. It seems that some are afraid of losing momentum and performance if focusing on diversity. The fear does not seem to be rational looking at the profit of companies with at least one female senior manager and companies with none. 

In a survey where over 3000 IT companies responded it was seen that IT companies with more than 20% women in senior management positions had almost double EBITDA (earnings before interest tax, depreciation and amortization) and CFROI (cash flow return on investment). The same result is shown in a study made by Peterson Institute for International Economics and Ernst and Young, where 21,980 publicly traded companies in 91 countries participated in the study. The paper demonstrates the impact of having female leaders in corporate management positions correlates with profitability. [Kotschwar et al.]

Looking at global startups from 2019 there was only 43% that had established company wide hiring and promotion goals to increase diversity. [2020 Global Startup Outlook] The distribution in Startups among genders is 80 % startups founded by male and 20% were founders with at least one female. [Female startup founders worldwide – statistics & facts]

According to a study made by MassChallenge and Boston Consulting Group, female founded startups got 78 % in Return of investment while male founded startups got 31% ROI. Correlation between profitability and investment is not obvious since although female founded teams perform better than male founded teams they are only getting 2% of all capital invested. [BCG 2018], [MassChallenge 2019]

According to a study made by McKinsey, companies in the top quintile of diversity and inclusion are 35 % more likely to have higher financial return than their competitors [McKinsey 2020]

In a survey from Deloitte [The diversity and inclusion revolution: Eight powerful truths] that also looked at the top quintile of tech companies of diversity, it shows that it pays off also when it comes to innovation. A diverse team where inclusion has been actively implemented, have a broad palette of voices. Such an environment makes it easier to deviate from the norm and encourages free thinking. Tech workers that feel included and heard are less likely to harness negative emotions and feel stressed. An environment where you feel respected, lets you keep focus on your task and improve productivity and innovative thinking.

Inclusion forces people to challenge their concepts and achieve new perspectives. Imagine you want to expand the company and enter new markets. Is the best starting point to have 10 employees with the same contacts, experience and background or to have 10 with different backgrounds? 

The demand of tech competence has been rising the last few years, more companies wanting the same type of competences. The trend indicates that the importance of the work environment increases, giving advantage for companies that are fostering diversity and inclusivity and it can even become a juncture and a key differentiator. Looking at a study from Hackerrank, see the diagram below, female developers in the industry are fitting into the competences needed the most. 

In 1984 there were almost 40% women graduating from computer science

What will happen if we are not actively maintain and keep on improving diversity in our work environment? Why has the number of women in tech teams declined every year since 1984, and was down to 17% in 2017, but has gone up to 21% in 2021.

In order to understand the issue in the gender gap let’s look at some statistics from a conference in US 2014. The investigation showed that only 40% of women that graduate from a STEM education never enter the industry or leave shortly after starting. (Engineering, tech etc). Meaning there is still a lot that can be done in the aspect of inclusion in order to attract women to work in the tech industry. [American Psycological convention 2014]

The table below shows that women tend to stagnate in a junior role more than men. Among women that are 35 years or older there are still more than 20% in junior positions. It is not clear when the women started their career, it either shows that women start their career later or that it is 3,5 times harder to get a senior position as a woman.

A study led by Accenture and Girls who code shows that 50% of women abandon their technological career at the age of 35, which is 45% higher than for men. Compared to other industries, this is 30% higher, whereas 20% of the women tend to abandon their careers. Only 21% of women in the study said that they believed the technology industry was a place where they could thrive. The number falls to 8% for women of color. [Accenture]

Importance of having diverse management board

Social categorization, categorizing people in in-group and out-group, is seen in the tech startup scene. In the section about “Benefits with diversity” it was stated that the profitability of female founded startups was found to be higher than male founded startups but female founders would still only get 2% 2021 of the capital invested, which is lower than 2017. (“Q4 2021 PitchBook-NVCA Venture Monitor”)

The reason why the correlation between profitability and investment is not stronger, points to that investments are done based on other criterias than profitability that creates trust and confidence in a founder. [First Round]

In 2021 the female venture capital investors were 15,3% which is still quite far from 25%, the tipping point for large-social change. Inventions often come from a need that the founder themselves or their surroundings are missing. If the founder is not represented or is a minority by the investors, it will be less likely for the investors to understand the need of the invention. The outcome of the investments will more likely be inventions that fills the need of the investors. According to Crunchbase, which is tracking VC funding, 92 % of partners in the biggest VC firms in the US are men and 2% are colored having in mind that the US is possessing 50% of all unicorn companies in the world. [Crunchbase]

Motivation for teambuilding 

In order to have achieved an inclusive diverse team there has to be a strong motivation for team building. If the team does not agree upon why diversity and inclusion is important the motivation for team building will most likely be very challenging, having in mind that a diverse team is even more challenging than a homogeneous team. 

The stages in team development

If we succeed in inclusion in a team we can learn how to maximize our diversity. In the graph below the different typical stages for team development is described. As it is seen, the second phase, the storming phase, is the toughest phase and is the period when many teams give up. This phase is even more challenging for a diverse team since the team has to agree on things they have very different opinions about. One of the key things to survive and maintain the motivation during the stormy phase is to be aware of the challenges and understand why we feel frustration, why there are more conflicts than in a homogenous team and especially why we need a diverse and inclusive team. 

In the same way as the storming phase is more challenging, the performing phase has statistically even higher success for diverse teams. The reason is that once the team can respect, understand and learn from each other’s knowledge and perspective, the team can thrive with its diverse competence. The team development potential is much higher than for a homogenous team with less diverse input both in performance but especially in innovation. 

Consultancy teams and homogenous clients

Some might argue that since we are only working with clients that are only homogenous teams anyway, why should we bother? 

– Scenario 1) Homogenous consultant team works for a homogenous client

    The process will probably be smooth, from agreeing on the project and contract to delivering the product. The client recognizes themselves in the consultants, for instance common gender, background, interests etc. which creates trust according to social categorization. The question is what is the unique contribution of the consultant team if they all are representing similar inputs as the employee of the client? 

– Scenario 2) Diverse consultant team works for a homogenous client

    Imagine you always thought Santa Claus was a man and suddenly a woman comes in and says that she is Santa Claus. You will be pensive.

    In order to check that if this woman is really telling the truth, that she actually worked as Santa Claus, you would maybe test her, check if she really knows all the addresses of all the children and if she really knows how to steer all those reindeers?

    The lack of trust can sometimes take form in more frequently required reports which can increase the workload for the consultant. 

    When this type of discrimination happens every time she meets a new client, it requires a lot of support from herself and the team to not start to take this personally and affect her confidence.

    If the client is aware of his or her prejudice it becomes much easier. Self-perception is always a door opener to be willing to forgive and meet halfway.

    After trust comes finding common ways of working and communicating. Clients that have only been working with homogenous teams may not have reflected on how to adjust common ways of working in order to thrive in a team. For example, the consultant has practiced communication in order to create transparency in a diverse team, while the clients team are communicating much less since they never needed to make an effort to find common ground. If the client is not aware of the importance of quality communication, especially when having different backgrounds, he/she will probably not prioritize it. The consultant ends up adjusting to the client and can not perform to full potential. The consultant is trying to fit in the normative role instead of adding extra value with his/her unique perspective. 

    Racism is not going to disappear just because there is one coloured person in a talk show, you need to change the culture and awareness to build a climate where we all can thrive.

    For instance working with a developer in India, if the time it takes to touch common ground, ways of working and communicating, is not included in the project, it might show in the delivery. It will not be due to lack of skills or competencies but the lack of understanding the complexity in diverse teams and the value of diverse teams.  

In order for more companies to value complexity in the ethics behind the solution, the diversity in power positions is crucial. It is much easier to understand the value of things if you value it personally. 

Key actions to succeed with workflow and communication 

The correlation between a team’s network density and performance is described in the paper, [Troster, Kühne University, Mehra, University Kentucky]. The paper is also investigating the difference in the aspect of diversity within the team. 

The network density is described as the degree to which a team’s members are interconnected. A high density has statistically shown a positive influence on team satisfaction and commitment, to some extent of course. 

High level of communication facilitates shared information and the level of interpersonal trust. This in turn may build up the team potency, meaning the confidence of the ability of the team to perform. The transparency with having a dense network tends to give a sense of fairness. Awareness of the capacity and skills that each member possesses can be used in a more efficient way. The shared information helps to increase trust and the confidence of the team performance. [Troster, Kühne University, Mehra, University Kentucky]

For diverse teams the density of the network is crucial to fill the gap of trust and understanding each other. While homogenous teams use the theory of similarity attraction and social categorization to create trust, these theories are more often used for separation in diverse teams. [Troster, Kühne University, Mehra, University Kentucky]  Similarity attraction refers to people being drawn to similar people and Social categorization refers to the fact that we tend to categorize an in-group, which is favored and an out-group. It is important to identify social categorization before have a negatively affects the confidence and creates self-destructive thoughts in the out-group. A person can possess certain skills but whether the skills are used will depend on the person’s thoughts. The link between knowledge and actions are driven by the motivation of being in challenging situations or challenging tasks. [Troster, Kühne University, Mehra, University Kentucky]

Another aspect of this study which is crucial to avoid conflicts and to succeed with diversity is centralization, the level of centralized coordination in order to execute tasks efficiently. When finding common ways of working with x number of contradictory proposals it becomes much easier to have standardized ways of working to start with. For instance, if a company has 100 diverse teams, it would be much easier and more efficient to work together if there were a standardized way of working and communicating.  

How a diverse team stands against a homogenous team for a successful business

Diversity and successful teamwork is embedded into almost every aspect of achieving a successful company according to the list below. 

As we discussed earlier in the paper, the achievements for the diverse teams are often seen later in the process then for the homogenous teams. The work that is put in the team work, is often seen in the result by extra complexity thanks to the extended aspects of the product design, customer awareness, etc. 

For instance criterias that have higher possibilities to thrive for a diverse team; willingness to take chances outside the norm, create unique value from a unique group of people, and customer-centric awareness approaching a target group with likely a better representation of the distribution in the real world. 

But are these criterias actually used as guidance to succeed with a business? 

Imagine a manager of a project, who has a certain budget and a deadline. The first thing that crosses his/her mind to succeed, which is not stated above, is often time, efficiency, to build up a team fast and to build a product fast. 

If the receiver of the solution is not valuing the complexity and uniqueness that a diverse team could deliver but rather looking at the simplest and fastest solution, a fast and simple solution will be prioritized. If the manager stops at this criteria, it might be an easy choice to go for the homogenous team. 

Let’s compare the non diverse team with the diverse team.

To set up a homogeneous team, the manager sometimes only needs to talk to the colleague at the neighbor desk and he/she contacts his/her contacts and there you have the team. The team have the same background and identify themselves to be in the same social categorization group, so no need to spend time on ways of working and communication. The project will be done fast and the product will probably be delivered in time. So why put an extra month on putting together a diverse team? 

If we look at the list of criterias to succeed with a business again, most of the bullets focus more on creating a unique selling point and how to differ from the competitors. Which team will have higher probability to create something unique, the diverse or the non diverse team? 

It is possible to live a whole life in the same little village and feel great by evolving within the frames given by the village. The probability to evolve even more is definitely higher when traveling to unknown territory, being exposed to other cultures and ways of living. The doubt often comes from uncertainty of the outcome, that cannot be predicted. It might even require you to learn a new language where you most likely will not thrive the same way as in your mother tongue but where the team as whole will thrive. 

If we shift focus to the consumer and target groups perspectives. The role as a developer can in many cases mean sitting alone in front of the computer often for very long days. There are many digital tools for interaction but the stereotype of a programmer is seen as an introverted person who does not want to interact too much with other colleagues. Of course, solving problems, and programming needs focus, it is the same for authors, they need to be by themselves in order to write. 

The difference is that the lack of diverse inputs could affect the product negatively and even cause discrimination, if the developer is affecting the design of the solution. For instance a developer is set to a project to develop a face recognition tool. The developer receives a requirement specification of what should be done. The developer finishes the task and delivers the product to the client. Due to his/her environment and background he/she does not think that the camera settings might be different depending on the skin color. This is not due to ignorance but due to lack of diverse input. The product goes live, resulting in lower quality for images of colored faces and the developer just caused racial discrimination.  

[Harvard University] This error might not be detected at first, meaning the developer is already out of the scope and sold the solution to the client and might never get to know what affect the technical design had on the society. 

Conclusion

We often have resistance to change our actions if we cannot see the consequences for our actions ourselves. Climate change is a very clear case where we still often prioritize our own comfort, flying for instance, against slowing down climate change. If we are not exposed to tech based discrimination it is hard for us to prioritize it. If we continue to lower in diversity within the tech industry, the tech products developed will be even more customized to the majority group. 

If a bigger part of the tech industry became aware of their actions and the consequences, there would hopefully be less focus on excuses of why not putting in the effort. Some companies answered that they already tried diverse teams and it only proved that the people hired, plus the minority group they belong to, are not a good fit for the work demand. Instead of seeing it as an experience of one person which would probably be the case for a person from the majority group, minorities are often generalized to represent a whole group. Quotas are often discussed as charity, “you can not only hire for the sake of diversity”, instead of a method to distance us from our prejudice and prevent discrimination.

Once a representative from a minority group is joining tech company, they might still not find the work conditions inclusive. This can be due to similarity attraction, the theory that people are attracted to people that are similar, makes the probability higher that a male colleague will approach another male colleague as lunch partner. Another point is the social categorization, being categorized in the out-group. This would create dissatisfaction which often leads to performance suffering. When not being able to deliver as expected, the confidence and well being is affected by the feeling of not being good enough, and they tend to drop out. (CapGemini) The dropout rate has increased since the 80s and is now 50% women that abandon their technological career at the age of 35. (“Resetting Tech Culture”)

To achieve diverse inclusion you have to take risks, put in work and observe and challenge your prejudice, perceptions and understand there is not one truth. It is a project where everyone must be involved in order to succeed, and the success does statistically mean higher performance, higher profit and higher satisfaction in the team. Especially, taking the responsibility as being part of the technological evolution, whose impact on society is growing for each year. Every human is responsible for their own actions and cannot hide behind a computer. Take a stand against discrimination, and develop products and services that are not approaching people depending on gender, color or social status but instead interests, passion and curiosity.