Hitting the Target but Missing the Point on Diversity

Diversity, equity, and inclusion (DEI) have become a major focus for companies in recent years. Most large organisations now have dedicated DEI programs, commit significant resources to DEI initiatives, and tout their diversity efforts to customers and investors.

But what exactly is the business case for DEI? And what types of diversity really drive performance? This may sound controversial, but understanding the evidence and real drivers of team performance is key to improving organisational performance and social mobility.

In this post, I’ll explain the difference between demographic and cognitive diversity, reveal why the former has little link to performance, and discuss how to build an inclusive culture that unlocks the benefits of the latter. My aim is to provide clarity on the true value of DEI so that organisations pursue meaningful change.

Demographic vs Cognitive Diversity

When companies speak of diversity, they usually refer to demographic differences in gender, race, age, disability status, and sexual orientation. These attributes are easily measured and communicated through diversity statistics on the workforce or leadership team.

However, diversity of demographic categories does not directly translate into diversity of perspectives. Having more women or minorities in management roles does not automatically lead to richer ideas or less groupthink. What matters is cognitive diversity – diversity in how people approach problems, interpret information, and contribute to discussions.

Cognitive diversity stems from variety in upbringing, lived experiences, expertise, personality traits, and working (not learning) styles. This may also mean different demographics, but not necessarily. Two females from the same university can have vastly different thinking. Similarly, two male entrepreneurs – one of Black heritage, one of South Asian heritage – may offer the same suggestions in a strategy session.

In a recent paper, Alex Edmans, Caroline Flammer and Simon Glossner (2023) empirically demonstrate the weak link between demographic and cognitive diversity. Using 16 years of proprietary survey data on employee perceptions of diversity, equity, and inclusion, they calculate the correlation between standard workforce diversity stats and their holistic DEI measure. The correlations are negligible – just 0.16 with female representation. They go on to provide a stronger link to firm performance using a DEI measure where 7 out of 8 measures are positively associated with future business performance.

Clearly, organisations can “hit the target” for workforce diversity yet completely “miss the point” on cognitive diversity. This matters because cognitive diversity is what truly drives performance, not demographic boxes.

The True Driver of Performance

Many companies, governments, and investors believe demographic diversity improves financial returns, based on internally written, externally glossy McKinsey articles or intuition. But the empirical evidence is mixed at best – and negative at worst.

Where evidence does exist on diversity improving performance, it pertains not to gender, ethnicity or age, but to cognitive differences as measured by employee surveys on inclusion or psychological safety. Studies focused narrowly on demographic diversity tend to find insignificant or even detrimental effects (Fried, 2021).

Why does cognitive diversity outperform while demographic diversity falters? Bringing in employees of visibly different identity groups does little for creativity. It assumes women must think differently than men, and minorities differently than majorities. But as we’ve discussed, surface labels reveal little about problem-solving methodologies or leadership values. Those depend more on life paths and experiences.

What’s worse, poorly executed diversity efforts backfire through unintended consequences. Assigning demographic figureheads without real influence breeds cynicism. Employees who feel reduced to tokens or added for optics withdraw ideas and camaraderie.

The key is to foster an environment where all employees – including majorities and those unaffected by targets – feel psychologically safe to express themselves.

Building Cognitive Diversity with Inclusion

Structural initiatives to increase demographic representation will not organically improve innovation or profits.

Genuine cognitive diversity requires painstaking culture change centered on psychological safety and inclusion. Leaders must consciously counteract natural human tendencies to favor those similar to ourselves.

Focussing on inclusion, not just in your hiring, but throughout an employees experience will enable a more cognitively diverse group of individuals to not only contribute but thrive. Psychological safety is a key measure that is highly linked with innovation.

Without interventions, organizations naturally trend towards homogeneity through the attraction-selection-attrition (ASA) model. At the attraction stage, job ads emphasizing “culture fit” deter atypical candidates from applying. At selection, shared experiences and snap judgments shape hiring decisions. At attrition, turnover rises for those not part of the majority demographic. This cycle when left unchecked leads to an ever titghtening group think.

Start with Diversity of Thought

So start by laying the cultural foundations of psychological safety and inclusion. Seek employees with diverse ideas first. Hit this point, and you will reap the performance. Miss it, and no statistic will save you.

Edmans, A., Flammer, C., & Glossner, S. (2023). ECGI Working Paper Series in Finance.

Fried, Jesse M. (2021): “Will Nasdaq’s Diversity Rules Harm Investors?” Harvard Business Law Review Online 12