Employing more women can fuel company innovation and provide a competitive edge

Companies striving for an innovative edge could do well to employ more women, according to Boston Consulting Group partner and managing director Rocío Lorenzo, whose research shows diversity has a positive relationship with innovation.

Delivering a TED talk, Lorenzo reflects that over the course of her career she has often been “the only woman in the room”, with many leaders viewing “diversity as something to comply with out of political correctness, or, best case, the right thing to do, but not as a business priority”.

“My personal experience working with diverse teams had been that while they require a little bit more effort at the beginning, they did bring fresher, more creative ideas,” Lorenzo says.

“So I wanted to know: are diverse organisations really more innovative, and can diversity be more than something to comply with? Can it be a real competitive advantage?”

Seeking answers, Lorenzo set up a study with the Technical University of Munich, in which 171 companies in Germany, Austria and Switzerland were surveyed. Companies were asked “how innovative they are and how diverse they are”.

Measuring the first question, companies were asked to specify the share of revenue derived from new products and services in the previous three years, while diversity of the companies’ workforces was measured across six factors, including country of origin, age and gender.

Data demonstrates diverse companies are more innovative

Lorenzo reflects that while she and her team were sceptical about any link that would be discovered, when the data arrived a couple of months later the results were convincing.

“The answer was a clear yes, no ifs, no buts,” she says.

“The data in our sample showed that more diverse companies are simply more innovative, period.”

The study, published earlier this year, found that companies with diversity scores above the median generated, on average, 38% more of their revenue from innovative products and services over a three-year period, compared to companies with lower diversity scores.

Lorenzo observes that it is fair to ask if companies are more innovative because they have a diverse leadership, or more diverse because they are innovative.

“Now, we do not know how much is correlation versus causation, but what we do know is that clearly, in our sample, companies that are more diverse are more innovative, and that companies that are more innovative have more diverse leadership, too,” she says.

“So it’s fair to assume that it works both ways, diversity driving innovation and innovation driving diversity.”

Lorenzo says the data revealed that “for gender diversity to have an impact on innovation, you need to have more than 20% women in leadership”.

She highlights that just 30 of the 100 largest publicly listed companies in Germany have one member on their board who is a woman, with the other 70 having an all-male board. Meanwhile, she observes that the share of German women in the last 20 years who are college graduates and who have at least 10 years of professional experience has grown, yet this has not translated into a parallel increase in leadership positions.

“Now, that was a painful realisation for me and made me realise, if we want to change this, we need to engage, and we need to do better,” Lorenzo says.

“Now, what to do? Achieving more than 20% women in leadership seems like a daunting task to many, understandably, given the track record. But it’s doable, and there are many companies today that are making progress there and doing it successfully.”

Lorenzo points to the example of software company SAP, which has set itself measurable targets. It reportedly achieved a target of 25% women in leadership this year and is targeting 30% for 2022.

“So experience shows it’s doable, and at the end of the day, it all boils down to two decisions that are taken every day in every organisation by many of us: who to hire and who to develop and promote,” Lorenzo says.

“Now, nothing against women’s programs, networks, mentoring, trainings. All is good. But it is these two decisions that at the end of the day send the most powerful change signal in any organisation.”

Watch the full TED Talk below:

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