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IBM, Academics and a Business Case for Diversity

IBM, Academics and a Business Case for Diversity

We know intuitively that diversity is good for business, and that diverse perspectives lead to new and innovative ideas. But what does an innovation initiative centered on diversity mean in practice? What is the business case for diversity?

First, let’s start with some academic research into the subject. An article published in The Academy of Management Journal examined the impact of group diversity on academic performance. For the study, the researchers defined diversity by cultural identification. 173 upper-level business students self indentified into 4 separate pools: white American, black American, Hispanic American, and “foreign national from a country in Asia, Latin America, Africa, or the Middle East.”

Next, they randomly assigned students, one from each pool, into teams until the smallest pool was exhausted. They created 19 culturally diverse groups and 17 culturally homogenous groups composed of white-Americans. The students then worked on a variety of group projects over a four-month span.

How do you think the teams fared? What role (if any) did diversity have on the outcome?

As you can see from the table below the culturally diverse teams started slow, perhaps due to communication problems, but quickly gained speed.

Cultural Diversity's Impact on Interaction Process and Performance

In fact, by the final time series the diverse teams had surpassed the homogenous groups in overall performance. In fact, as the next picture shows, the diverse groups far exceeded the homogenous groups in the “Alternatives generated” (read: innovation) score.

Cultural Diversity's Impact on Interaction Process and Performance

This phenomenon isn’t exclusive to cultural or racial diversity. A paper published by the Journal of Business Research found that corporate training programs that included employees across all sectors were substantial more effective than those that remained segregated by field.

Again, this is great, but it’s also theoretical. What effect does diversity have on the bottom line? Let’s just ask IBM.

“When most of us think of Lou Gerstner and the turnaround of IBM,” The Harvard Business Review wrote, “we see a great business story. A less told but integral part of that success story-one that has dramatically altered the composition of an already diverse corporation and created millions of dollars in new business.”

Here is what happened.

After Lou Gersnter took over the company he made it a point to infuse diversity into the hiring process. In 2 years the company best known for its’ black suits and black ties saw the number of female executives increase by 370% and the number of ethnic minority executives increase by 233%. “We made diversity a market based issue,” Gerstner later said, “It’s about understanding our markets, which are diverse and multicultural.”

IBM created a few executive task forces across all business units, which were broken down by race, gender, disability and sexual orientation. The result was a market development organization whose revenues’ grew from $10 million in 1998 to over $300 million in 2001. That’s an increase of over 290 million in fewer than 3 years.

“The cynics have come around,” an executive told HBR.

With $290 million in new revenue, I’d imagine most would.

Image via Flickr

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  1. The Business Case for Diversity in the Workplace - [...] These papers reveal an interesting proposition–that a firm should become diverse not only because it is the right thing …

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